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The limitation of dram product as a commodity as it

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Unformatted text preview: erentiation strategy. Also, Samsung has kept the leadership in density and speed of DRAM and this can be very helpful to capture value in the initial stage of new product market. Samsung was able to meet the customers' needs by differentiation strategy in product. Also, price premium of differentiated products can be a power for pursuing profitability even during a market depression. 5-1-5 Organization Advantage One of the factors which allowed Samsung to have leadership in the DRAM industry is diversification in its business portfolio. For example, the semiconductor division of Samsung suffered from two hundred million dollars of cumulative loss in 1986. But, Samsung could overcome a crisis with managerial support from other business units. Also, the fact that Samsung C&T is an expert in building semiconductor fabrication is a competitive advantage in the semiconductor division. In addition, diverse IT products portfolio such as handset, computer and 57 other electric devices, can give huge advantage of IT market forecast to Samsung. This diversified organization can be a powerful complementary asset to Samsung. In summary, Samsung has focused on achieving cost leadership and differentiation by investing in capability and technology, innovation of process and product differentiation. From the technology strategy perspective, DRAM is one of the commodity products in the IT industry. There are two important strategic sources to capture value: uniqueness and complementary assets. Samsung wisely used speed of uniqueness and capability of complementary assets. Reflecting on framework of departure from perfect competition (Chapter 4), Samsung continuously tried to violate assumptions of identical supplier and product even though DRAM is one of the commodities. Samsung tried to violate the identical supplier assumption by investing ahead in capability and technology and innovation of cost reduction of process. Also, Samsung has violated the identical product assumption by differentiating its product. The DRAM industry dynamics continues to change in competitors, supply and demand through financial crisis in 2008 and deep depression of the DRAM market in 2007. Samsung needs to consider the dynamic change of the industry and come up with a business strategy for facing future challenges. 5-2 Strategic Points for Samsung from the analysis DRAM is one of the commodities and the DRAM market is almost the same as a market with perfect competition. Any seller cannot make a profit in a market of perfect competition. The DRAM market is not the same as a market of perfect competition but DRAM providers can get the strategic points to increase profit. Especially, Samsung is the number one provider in the DRAM market and can use the advantage from its current position. Considering the analysis of the industry, the current market and the success factors of Samsung, some strategic points for Samsung can come from framework of departure from perfect competition. Assumptions Identical Products Many pricing-taking participants Full Information Identical Seller Free Entry Free EXIT Perfect Competition Level of perfect competition Violation of Assumption Figure 5-2 framework of departure from perfect competition from Samsung's perspective (Source: Author) Assumptions of free entry and exit are not easy to be violated since initial fixed cost is too high to enter and exit the market. Also, information of upstream and downstream is mostly 59 open to everyone. Finally, assumptions of identical product, many price-taking participants and identical sellers can be violated for profitability. In terms of product, DRAM is one of the commodities but DRAM providers can make differences not in the products' fundamental function but in the timing of developing and launching the product. As mentioned in Chapter 2, average sales price is very high and Samsung should get the profit and market share in the early stages of a new product. The difference is not in the product itself but Samsung can enjoy the profit by developing every new product by violating assumption of identical product. To violate assumption of many price taking participants, market share is the key to Samsung. Currently, Samsung has around 30% of market share. The DRAM market is mainly controlled by the computer market and the negotiation power of top PC makers is very important. Lastly, violating the assumption of identical seller is the most important point for Samsung. Even though DRAM is a commodity product, Samsung has a quality product and the capability to supply product to customers on time. These strengths come from technology and right investment. Based on technology advancement and enough capability, market share is the core to violate the above three assumptions. To expand market share, Samsung can focus on current corporate customers or consumers. Although upgrade module market is the only consumer market in the DRAM industry, Samsung did not participate in the upgrade market. Upgrade market occupied 18% of the total DRAM marke...
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This note was uploaded on 01/22/2014 for the course BUAD 497 taught by Professor Degravel during the Fall '07 term at USC.

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