Está en la página 1de 6

8820 Mid Term

R. Gray

MBA 8820 Summer Mid-Term Exam Robert Gray Pre-test instructions: Make sure your name is on this exam. Also, please name your Word document first name.last name. Email the exam as an attachment to me at dlee@gsu.edu. Include the questions on your return exam just type your answers on this document and email it back to me. You can delete these pre-test instructions. You have 3 hours to complete the exam. I will expect your exam answers back in 3 hours from the exam begin time. Any exam returned late is subject to penalty. Watch your time. Read all questions thoroughly and plan your answer before beginning to type (know what you want to say before trying to say it.) Using bullet points or brief descriptions and explanations is preferred. Please do not repeat parts of the question or provide context for your answer just provide the answer. Be clear and concise. Each question has multiple parts. So please label your answers so I know which part of the question you are answering (i.e. 1a, 1b, 1c). This is an individual exam, and any discussion of the exam or answers with anyone other than me will be a violation of the GSU honor code. Violating the honor code will result in a 0 grade for the exam. Good Luck! Context for the exam: You have been hired as a management consultant by Chairman Kun Hee Lee to help him rethink his strategy for the Memory Chip business. Lee has provided you with a list of questions that he feels if answered, will help him finalize his thoughts.

8820 Mid Term

R. Gray

1. (a) Lee wants a review of the industry, and wants to know if this is a good industry to compete in. Hint: Use the industry value chain and Porters 5 forces model in your answer. (15 pts) 5 Forces Model Competitor Rivalry Industry highly competitive due to lack of differentiation resulting in commoditization of DRAM chips, economies of scale needed to be profitable resulting in firms sacrificing margin to gain market share combined with expected decline in industry growth, resulting in low to negative margins for majority of industry. Supplier Power Suppliers are highly concentrated and silicon is standard resulting in negligible switching costs, also there is no threat of forward integration from suppliers. Buyer Power Due to DRAM commoditization and customers low margins price sensitivity is very high resulting in low switching costs to competitors but a premium is placed on reliability, there is not threat of backward integration due to capital requirements. Threat of New Entrants High capital requirements ($3 billion for plant), significant technical expertise needed usually resulting in a decade learning curve, commoditized market results in new players sacrificing margin in an attempt to gain market share, economies of scale crucial to financial viability. Threat of Substitutes No substitute currently exists, theoretical talks of nanotechnology. Value Chain Facilities / Technology Single R&D facility near Seoul where all engineers lived and worked together significantly accelerating design and manufacturing advancements and issue resolutions resulting in first mover advantages for DRAM chips and other memory types. HR Avoided traditional Korean practices and adopted meritocratic evaluation system resulting in objective promotions, recruited talent from around the globe. Procurement Lowest costs in the industry due to incumbent knowledge, centralized manufacturing facility and continuous process improvements of chip design to maximize output. This is a challenging industry to both enter and remain profitable. However Samsung is well positioned to maintain and improve its financial performance based on its incumbent knowledge, low cost, and high quality products resulting in premium brand pricing.

8820 Mid Term

R. Gray

2. (a) Lee wants you to review and assess Samsungs resources, capabilities and core competencies. (b) Identify the core competencies and explain why you believe these are core competencies, not just capabilities. (c) How do these core competencies manifest themselves in end-user products? (d) Do Samsungs core competencies align with how customers buy in this industry (why or why not?) (15 pts) a. Samsungs primary resource and capabilities are to realize maximum operational efficiencies due to continuous process improvements of the design and manufacturing process of memory chips to realize optimal economies of scale with minimum defects resulting in lower costs and higher margins. b. Samsung has combined capabilities of technical expertise, quality, and organizational effectiveness to master the core competency of technological innovation. This is a core competency because it is extremely valuable because it results in industry leading low costs, high reliability that commands premium pricing, its difficult to imitate as seen by competitors financial results and best practices have been transferred to other products within the organization. c. Through technological innovation Samsung is able to generate high economies of scale combined with a high reliability rate as well. With the ability to offer 1,200 product variations of DRAM chips the firm can not only meet customer specifications but has become involved in the product design process as well to better understand customer needs and add value. d. Customers in this industry primarily buy based on price and reliability. Samsungs technological innovation has resulted in a premium brand know for high reliability and product specification. Samsung is the industry outlier as its memory chip prices have historically been higher than competitors for the past decades. The fact that Samsung is the leading volume producer while charging premium prices in a commodity market confirms the value both perceived and received by its customers.

3. (a) What are the sources of Samsungs current competitive advantage(s)? (b) Can you quantify these sources using information from the exhibits? Lee believes Samsung has achieved an advantage as both a low cost AND a differentiated provider. (c) Do you agree with Lee (why or why not)? (20 pts) a. Samsung has demonstrated great creative and innovative capability successfully positioning the firm as a low cost leader due to its industry and institutional knowledge and operating efficiency. However, combined with a high reliability of its products Samsung has been able to differentiate its products as a premium brand in a commodity

8820 Mid Term

R. Gray

industry thus realizing favorable margins while competitors sacrifice margin in an attempt to gain market share. b. Per Exhibit 7a, Samsungs fully loaded costs for a DRAM chip was $4.31 compared to competitors average of $5.70. Per Exhibit 3, Samsung price was 34% higher and operating margin 53% higher than its competitors from 2000 to 2004. As such, Samsungs primary competitive advantage is low cost leader due to its operating efficiency that yields high economies of scale and margins. The profit margins contribute to differentiation in R&D initiatives such as working with design firms to develop customer products. c. Samsungs primary competitive advantage is low cost leader due to its operating efficiency that yields high economies of scale and margins. The profit margins contribute to differentiation in R&D initiatives such as working with design firms to develop customer products and provide value to customers, but the product is still highly commoditized.

4. (a) If Samsung can be both low-cost and differentiated, why cant its competitors do the same? (b) What risks does Samsung face in sustaining these advantages? (15 pts) a. Other competitors cannot replicate this because the technological innovation that positions the firm as both low cost and differentiated is Samsungs core competency, which by definition is hard to imitate. b. The production capacity and economies of scale is a temporary advantage as new Chinese entrants join the market place by building massive fabrication plants. While the learning curve is a few years, they will pose a significant threat to the industrys leading producers. Samsungs technical innovation advantage would be put at risk if a JV was entered that provided access to the firms technology. This may be required to negate the move already made by key competitors to gain market share and reduce costs. The brand reliability that contributes to premium pricing should remain intact as long as Samsung continues to heavily invest in R&D and remain an industry leader in innovation.

5. Lee believes he has two competitive threats. First he has the existing competitors. Briefly assess each of the rivals potential advantages, and what can Lee do about it? (Hint: Lee has seen the basic competitive descriptions provided in the case, so this exercise is an analytical one - not a regurgitation of the already provided facts). (15 pts)

8820 Mid Term

R. Gray

Micron Received $500 million investment from Intel for next generation DRAM chip development and currently had a lower SGA for DDR chip design than Samsung (0.43 versus 0.55) Infineon/Nanyan Entered into JVs to gain economies of scale and obtain lower cost manufacturing capabilities in exchange for licensing its technology. The $2.2 billion fab facility will position the company to be more competitive in the future via economies of scale and lower production costs. Hynix Enjoyed similar Korea costs advantages plus entered into JVs to gain economies of scale and obtain lower cost manufacturing capabilities in exchange for licensing its technology. This will position the company to be more competitive in the future and could threaten market share SMIC Poised to be a true competitor as it has significant financial backing and the lowest cost after Samsung combined with logic chip institutional knowledge. SMIC has obtained licensing from partners, purchased a fab facility, and are highly committed to a long term strategy by realizing negative margins to gain market share. Lee can enter into a JV with another Chines firm to help offset the threat of SMIC. Through a properly structured agreement Samsung can share older generation technology and further realize economies of scale and lower costs while reallocating profits to more R&D and other products on the cutting edge to maintain the industry leader position. The key competitive advantages of these firms are that they are not as heavily invested in production facilities as Samsung and if the industry takes a dramatic shift or turn they may be able to react more quickly than Samsung. Also the new Chinese firms provide and abundance of human and capital resources and are more than willing to sacrifice margin for market share and are committed to long term strategies and penetration, thus creating an environment similar to Samsung from a culture of focusing on innovation and effectiveness versus only low costs and margins. Once the operations are fine-tuned they have the potential to become significant competitors in the industry. 6. Second, Lee believes the Chinese Logic chip manufacturers will follow SMIC into the Memory Chip market. Lees VPs believe Samsung should enter into a venture with Hejian Technology Co., and has already presented Lee with a preliminary plan. What analysis can you provide Lee that lends credence to this JV plan, or do you disagree with the premise that Samsung should join forces with the Chinese? If you disagree, explain to Lee what his

8820 Mid Term

R. Gray

strategy should be across his product set to compete. Hint: Consider that the product set has commodity based chips and highly differentiated chips. (20 pts) Aligning with a Chines JV could provide advantageous if properly structured. Being that the memory chip prices significantly decrease after the first few quarters introduced, Samsung should structure a deal where older generation product manufacturing is transferred to the Chinese firms to further sustain profits my offsetting reduced price with even lower costs. As the Chines industry is relatively new, the older products will still be seen as newer generation from a production point of view and allow the Chinese time to gain institutional knowledge a logical and progressive pace. Once the older generation technology is transitioned Samsung can further increase its R&D spend on new DRAM technology and more importantly in Flash and other innovative technologies. While the risk of intellectual property is great, the promise of sustain the competitive advantage as industry innovator, low costs, and sustained profits of older technologies through a JV partner will help to ensure Samsung continues to remain the industry leader.

También podría gustarte