Is Samsung Both Low-Cost And Differentiated? If Yes, How Does It Do Both?

Samsung operates on both low-cost and differentiation strategies. From the cost data given in the case, its low cost is mainly due to lower raw materials, R&D and labor cost. Lower raw material cost is achieved through producing multiple product architectures on each production line, with skilled engineers stationed to handle all kinds of contingencies. More importantly, Samsung is able to learn new design rules and apply it to their production. According to the case, Samsung currently uses the smallest process technology of 0.11µm which enables them to have a higher net dice per wafer compared to their peers who uses 0.13µm. This probably explains its leadership position in the industry in terms of yield rate.

In contrast to its competitors, Samsung has only a single main R&D facility in Seoul, South Korea. The collocation of R&D facility with its fab lines has allowed savings of up to 12% on fab construction cost for Samsung. Moreover, Samsung has placed R&D engineers with product engineers together so that problems can be solved in the minimum amount of time possible and facilitate the communication of ideas at the same time. Because of these, Samsung tend to have a lower R&D cost compared to its competitors which have R&D facility located across the globe. As for labor cost, Samsung generally has a lower labor cost compared to its competitors because its competitors tend to operate in countries like America and Japan which have a higher wage rate than Korea.

Even though memory chips are often thought to be a commoditized product, the differentiation comes in when Samsung creates new uses for their DRAMs. This has resulted in more than 1,200 DRAM products in Samsung, the highest in the industry. On top of that, Samsung also developed products tha ...
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