Samsungs Q

Samsung when it initially entered the electronic memory chips market it attacked the Japanese and followed a strategy of cost advantage to gain market share. While the cost of 64K Dram chips were below $1 it was costing Samsung $1.30 per chip. So Samsung was ready to incur losses in the short run to gain market share and avoid entry on new entrants. Since it was a price sensitive product and lot of vendors were there Samsung successfully used this strategy to emerge as a strong competitor.

Chinese entrants lacked R&D and related technological capabilities and the U.S and Taiwanese had already refused to allow its producers to ship advanced semi-conductor equipment to China and human resources also weren’t as proficient to compete with Samsung, they imitated the already existing technologies by partnering with industry incumbents like Infineon and Elpida and used the same cost strategy of Samsung to enter the Dram/Logic chips market.

On one hand Chinese entrants were able to incur losses because they were able to get billions of dollars in outside financing from foreign and Chinese investors. On the other hand even though china lacked the critical infrastructure to support a highly dynamic semiconductor industry, the Chinese government consistently provided subsidies in infrastructure in and around Shanghai and Beijing. Not only this, the government provided land, cheap credit, human resource, and tax incentives to partner up with the Chinese. Another advantage of partnering with china was that it was to become the second largest purchaser of semiconductors after U.S, so partnering up would mean an already existing and growing local market in China.

Although Chinese lack variability and can’t compete to the 1200 variants of Samsung, Chinese entrants are fighting hard on prices and trying to upgrade technological capabilities by partnering with other companies. So the cost advantage will still affect Samsung’s share but not much.  So for example as given in Exhibit 7d and 7g the cost advantage would only be enjoyed for few products such as 256 Mbit DRAM and 256 Mbit DDR SDRAM produced by SIMC.

Average selling price of 256 Mbit DRAM SIMC is $4.43 less than that of Samsung which is $5.08.