This analysis uses Samsung Electronics case study to presents issues that affects the global memory chip industry as well as recommendations that can be used to address these issues.
Analysis of issues
Despite Samsung’s success by the year 2003, the emergence of new companies and particularly from China were a great threat that would present stiff competition to the company as well as to the global memory chip. This stiff competition in the industry particularly caused the company to decrease its market prices as the pressure mounted from Chinese companies who were willing to sell their products at low prices in order to venture into the business and grow their market share. Although the Chinese companies lacked the state-of-art production technology by the year 2004, through international investors and government funding, the companies were able to overcome the high cost and time consuming process of building a new fab and significantly mastered the new production technology that consequently led to an increased market share competition. However, partnering with a Chinese company would increase revenues but the greatest risk would be loss of intellectual property rights which would make the partner your future competitor. In addition, advancements in technology is also a major problem that significantly affects this industry. Whenever a new technology evolves within the industry, the already established industries find it difficult to shift their production methodologies. Additionally, a fluctuating market caused by a cyclical decline in DRAM market is another issue within the industry. For instance, as technology advanced between the year 1990 to 2003, new production of telecommunication and consumer electronics caused the DRAMs share in PC production to decrease from 80% to 67%. In fact, between 1999 and 2002, Elpida Memory, Inc. experienced financial losses due to this decline and consequently ventured into mobile devices and consumer electronics memory production. This fluctuating market consequently increases the cost of production and companies incur enormous debts which forces them to sometimes reduce their workforce and sell some of their assets. The cost of production is further increased by strict government policies and penalties. For instance, the price conspiracy charges by the U.S. government in 2005 caused Hynix to pay $185 million to resolve the accusations.
In order to overcome huge fab construction cost, a company can establish all its facilities in a single location. This benefit of collocation helped Samsung to save an estimate of 12% on cost of constructing a fab. Besides the saving on cost, this collocation helped the engineers to build an effective and adaptable team force in problem solving. In addition, the ability to learn and adapt to new design rules can help in production of different types. This can be achieved by the ability of a production line to produce many product designs as well as the ability and adaptability of the process engineers in modifying the production equipment. Despite the nature of the fragmented market, developing high-quality products can be a significant step to overcome stiff competition. By developing reliable products that meet user requirements, a company will always attract many customers who are willing to spend more on quality and reliable products. Recruiting employees based on their skills and expertise rather than their academic qualifications can also help the company to maintain a high-skilled and talented taskforce. Further, promoting and rewarding employees based on evaluation of their performance index is a strategic measure that can motivate employees as well as increase their performance. In addition, investing in employees and recruiting talents from around the globe are also significant measures that can help to retain the most talented workforce and consequently help to develop innovative products.
Stiff competition from Chinese firms
In 2005, competition for memory chip market share increased as a result of emergence of new production companies in China. This significantly made companies such as Samsung to drop their market prices as result of increase in production and a normal fluctuating market. In contrast, the Chinese companies were lowering their prices in order to gain the market share. Although the cost of building a new fab had risen from $200 million in 1985 to $3 billion in 2004, these companies were able to secure government funding and international investment.