Samsung Electronics in China In the year, 2005, China, an emerging new world economy was seen by many as a potential business challenge primarily because of its huge potential in terms of talented young engineers and capacity to raise financial resources from outside. The field of semiconductors and memory chips was the hottest business area with vast potential of expansion in the emerging new global business environment of fast advancing technology. Semi conductors were broadly classified into two types of chips: logic and storage. In 2003, the market share DRAM, a type of storage chip was more than 50% of the total chip market but the major share coming from PC market had declined from 80% to 67% and dramatic increase was seen in the chip market catering to telecommunication and mobile industry.
Hence, with vast scope of memory chips in the mobile, TV, hubs and electronic games market, the time for the entry of Chinese firms was right. When the Chinese firms entered the semiconductor market, they were looking for a market share in the field of memory chips, irrespective of the profit.
They knew that being new to the specialized field of semiconductors and memory chips, they lacked organizational skill and expertise in the design and production processes of the frontier products. The cutting edge technology of Samsung was both a challenge and motivation for the Chinese firms and therefore, making a credible market presence became more important than profit making. With this objective in mind and focused business approach, Chinese firms looked at opportunities that would allow them to enter the memory chip market. Since the Chinese had young talented engineers, Chinese firms like SMIC, established in 2000, entered into strategic business partnership with business leaders like Infineon and Elpida who licensed their designs to SMIC for substantial output share of the chips produced based on blueprints.
To increase the capacity, SMIC bought Chinese production unit from Motorola in 2003 for $1 billion. But Motorola, unlike others, licensed its design to SMIC for full purchase of its production output while at the same time, having a small stake in SMIC. SMIC’s business acumen paid off with its revenue of $50.3 million in 2002 catapulting to $365.8 million in 2003.
In 2004, SMIC made a listing in New York and Hong Kong stock exchange and making a mark in the world market. The Chinese industries in the field of semiconductors wanted a market share which they were able to achieve within a short span of three years. With a whopping 700% increase in the revenue in one year from 2002 to 2003 and listing in the leading stock exchange of the world market by 2004, they had achieved what they had sought! It showed their determination, their competencies and strong business sense.
Indeed, it was not only a huge success story but an open declaration to the world at large of their intention to become the world leaders. Reference Siegel, Jordon and Chang, James Jinho. (2009). Samsung Electronics. Harvard Business School.