The Memory Industry
Threat of New Entrants: High
Because the barriers to entry in the DRAM industry are quite high, it makes the threat of new entrants high as well. These barriers to entry include, extremely high fixed costs, economies of scale, and high switching costs. Huge capital is invested into the first two stages—the design and fabrication stages—of the process, but in addition to that, the investment for human resources is particularly high since they need highly skilled human resources for each of these stages. This implies that as new entrants coms, they need to take a capital risk premium, making barriers to entry high. Another burden for new entrants in this ...view middle of the document...
The main customers of DRAM are computer-manufacturing companies so procurement power of these customers is very high. As a result, the power of buyers is very high in the DRAM industry.
Rivalry Among Existing Firms: High
Although U.S. companies originally controlled the market in its initial stages, Japanese companies took up the lead in the market around the 1980s. Soon after, in the 1990s, Koreans companies, like Samsung, became the market leaders in the DRAM industry. While the price fluctuation in the DRAM market depends on the demand and supply of these products, a significant decrease in the prices was caused by DRAM overproduction in 2008. And because of the high fixed costs of the process, DRAM providers could not stop production. Therefore, competition among existing firms in this industry is very high for sales and technology development.
1. Prior to 1997, Samsung’s strategy was mainly cost efficiency. But when this article was written, from looking at Exhibit 3, we can see that the average selling price of Samsung products when compared to the average selling prices of the other top three memory chip producers is a lot higher. Relative to other companies around the world, Samsung tends to sell their products at a premium—at one point in time, 68% higher than its competitors.
2. With the new chief marketing officer, Eric Kim, Samsung experienced dramatic changes, including the pursuit of a product differentiation strategy. In Exhibit 5, we see that, unlike the other large memory chip companies in the world who only sell SDRAM and DDR SDRAM, Samsung has broadened their scope of products to also include a few other different product lines. With their larger variety of product lines, Samsung is able to reach a wider spectrum of customers compared to their competitors who only specialize in two product lines.
3. After reading this case, I think that Samsung Electronics’ advantage is mainly in product differentiation. However, they do exhibit both of these strengths and because of the unique ecosystem created around Samsung, they have successfully spread its product lines across both the low cost and differentiation dimensions for both a broad range of customers as well as niche markets.
Dealing with the Threat of Chinese Entrants
1. The strengths of Chinese entrants include the numerous resources that they have obtained from Chinese and foreign investors and their ability to grow their market share at the expense of profitability, just like what Samsung did a couple of decades ago to get to where they are now in the DRAM industry. In addition, Chinese entrants are seeing partnerships with Infineon and Elpida to learn about the new technology. Furthermore, in order to persuade companies and people into helping them build the DRAM industry in China, “the Chinese government [is providing] cheap credit, abundant land, cheap utilities, engineering talent, tax incentives, and other essential resources to...