Semiconductor Industry - Essay Example

Strategic Analysis Topic: Semiconductor industry. With the changing economic environment, factors such as globalization of markets, international economic integration, removal of barriers to business and trade and increased competition have enhanced the need of new technological innovations and semiconductor industry. It is one of the most important infrastructure requirements, which is essential for the expansion of opportunities and plays an important role in making or breaking the competitive positioning. Semiconductor industry relies chiefly on an efficient technology innovation system. Each year, more than 100 state-level research projects undertakes around the world. "An appropriation of $20 million to match the semiconductor industry's support for the Focus Center Research Program, which supports pre-competitive research on microelectronics technology at 30 universities to ensure continued U.S. leadership throughout the remaining years of the CMOS era" ("Semiconductor industry Association", 2005). It has developed into an integrated business with commercial interests spanning household appliances, telecommunications, information technology, international trade and real estate. Semiconductor industry has maintained high-speed growth through continuous optimization of is product mix and constant technological innovation. It has also realized rapid expansion through capital injections. Its main products used in TV sets, air conditioners, computers, mobile phones, refrigerators, computer software and network equipment. Present day situation in semiconductor industry is marked by two factor - specification, which is to do with the 'design quality' of service, and conformity, which is to do with the 'process' quality which is achieved are of particular importance to customers. With the success of its new digital technologies, stating in the end of 1990s, semiconductor industry began to rationalize its product lines by selling off subsidiaries whose products were not key to its competitive strategy (Spemcer, 2004). In addition, it had begun to follow a strategy of withdrawing from small markets with limited potential for its core products and to look for markets in countries with a major growth potential for semiconductor industry products. "Sustaining continuous advances in semiconductor technology is vital to sustaining improved U.S. economic performance, according to one of the nation's leading economists, Professor Dale Jorgenson"("Semiconductor industry Association", 2005). If there are few, large competitors in the industry, it is likely that this is due to high entry barriers. Conversely, an industry of many, smaller competitors is likely to be the result of lower entry barrier-Competitive rivalry on both a price and a non-price basis will be higher in the industry comprising the more, and smaller, competitors. If the product is mature and the industry is subject to 'shake-out', then competition will be more intense (McDonald, Christopher, 2003). The main competitors in the industry are Samsung Electronics Co, Toshiba Corporation, Phillips, etc. For instance, Samsung Electronics Co rang up $4.5 billion in sales in Southeast Asia last year - a 50-percent rise fuelled by higher demand for digital home appliances. The company said this year's sales target was $6.3 billion, or 40 percent above last year's figure. Last year Toshiba Corporation announced that it would reinforce its commitment to the Chinese white goods market in 2003, in order to meet growing demand from increasingly discerning and demanding consumers seeking products that add to the quality of life. The first step to a heightened market presence will be taken in spring next year with the launch of fully automatic washing machines carrying the Toshiba brand name (Muller, 2005). The biggest challenge of all-the challenge of leading the digital convergence revolution worldwide, and thereby providing digital freedom to all-still lies ahead. The electronic industry is well-positioned to take on this important global leadership role. It has the global resources and certainly has the technological capability. Clearly, some organizations in the same industry are more successful than others, lending support to the view that competitive advantage is largely internally developed. Equally, however, there is a danger of ignoring the environment, as customers and their needs, competitors, changes in technology, etc., can play an important role in determining competitive success (Hamel and Prahalad, 1994). In his book "Competitive Advantage" Porter identifies Five Forces that drive competition within an industry: the threat of entry by new competitors; the intensity of rivalry among existing competitors; pressure from substitute products; the bargaining power of buyers; the bargaining power of suppliers (Porter, 1985). The threat of entry to an industry by new competitors depends up the 'height' of a number of entry barriers. Lower the entry barriers to an industry are, the more competitors i.e. be players in the industry. Barriers to entry can take a number forms. The size of the investment required by a business wishing to enter i industry will be an important determinant of the extent new entrants. The higher the investment required, the less the threat from new entrants. The lower the required investment, the greater the threat. Industry regulation varies. Semiconductor industry is subject to a complex regulate framework whereas others are less so. There is a high threat to entry for the electronic semiconductor segment because the big companies have a huge marketing advantage as well as established customer confidence in their product. It also requires a lot of capital to finance a high-tech product with several complex components. It is very difficult to enter this highly competitive segment. For example, if existing businesses are obtaining economies of scale, it will be possible for them to undercut the prices of new entrants because of their cost advantage. In some cases, existing competitors may make price cuts or increase marketing expenditure specifically to deter new entrants. New entrants to an industry can raise the level of competition, thereby reducing its attractiveness. The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. But using high technology leading companies proposes competitive prices to its buyers. The cost of items bought from suppliers (e.g. raw materials, components) do not have a significant impact on companies profitability. If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive. Buyers create demand in an industry. The bargaining power of buyers is great because there are few dominant buyers and many sellers in the industry. The range of products is standardized, but on the other hand semiconductor is the key industry in its supplying group which secure it from decrease in sales (Inertial Measurement Based on MEMS Technology, 2005). As Mintzberg suggested, the various approaches to strategic management can be regarded as "complementary, representing two different forms of analysis both of which must be brought to bear for improving the quality of strategic thinking and analysis". (Mintzberg, 1987). Degree of differentiation is not large. Semiconductors belong to industries where competitors can differentiate their products and that is why have less rivalry. The intensity of rivalry between competitors in an industry depends on the structure of competition. Rivalry is less because semiconductor industry has a clear market leader, Samsung Electronics Co. Ltd. A useful framework for identifying key strategic aspects of the semiconductor industry is the value chain (originally proposed by Michael Porter, 1982). Taking into considerations the statistical data it is possible to say that semiconductor industry is profitable because the value exceeds the cost of performing various factions which include: financial management, technology management, organization and human resource management, supply and bound logistics, operations, outbound logistics, sales and marketing, after-sales service. In relation to minor competitors, Samsung provides comparable buyer value but perform the activities more efficiently so as to attain a cost advantage, or perform the activities in a unique way which raises the value to the consumer and thus allows them to command a premium price - the concept of differentiation (Samsung Addresses the Dynamic, 2005). The activities performed may be grouped into two categories: those associated with the core activities of on-going production, marketing and servicing are referred to as primary activities while those providing inputs, technology, human resources and infrastructure to support the manufacturing function are referred to as support activities. Quite clearly, the primary activities draw on a wide variety of support activities in their on-going management. Marketing strategies are the broad approaches semiconductor industry intends to adopt in the longer term to achieve its marketing objectives in accordance with its marketing policies. Strategies are developed for the following: The market segments will concentrate and the marketing position it proposes to adopt in each segment (i.e., the extent to which it positions itself close to a competitor but establishes differentiation through product features and price/quality difference, or the extent to which it attacks holes in the market established by gap analysis) (Sterman, 2000). The blend of controllable marketing variables required producing the response wanted in the target market. The mix includes new products, prices, promotion, packaging, advertising, field sales and distribution. Unfortunately, no specific competitive strategy is guaranteed to achieve success, and some companies that have successfully implemented one of Porter's competitive strategies have found that they could not sustain the strategy. Each of the generic strategies has its risks. For one thing, cost leadership can be imitated by competitors (McDonald, Christopher, 2003). especially when technology changes. Differentiation can also be imitated by competition, especially when the basis for differentiation becomes less important to buyers. Porter argues (Porter, 1985) that to be successful, an industry must achieve one of the generic competitive strategies. Otherwise, the semiconductor industry is stuck in the middle of the competitive marketplace with no competitive advantage and is doomed to below-average performance. US semiconductor industry follows a differentiation strategy and ensures that the higher price it charges for its higher quality is not priced too far above the competition or else customers will not see the extra quality as worth the extra cost. Focusers help US semiconductor industry to achieve better differentiation or lower cost in market segments, but they also lose to broadly targeted competitors when the segment's uniqueness fades or demand disappears. US Semiconductor industry, producing differentiated products will encounter resistance in trying to enter the industry. Brand loyalty will also be important factor in increasing the costs for customers of switching the products of new competitors. If existing competitors are already obtaining substantial economies of scale, this will give them an advantage over new competitors who will not be able to match their lower unit costs of production. New competitors may find it difficult to gain access to delivering service, which will make it difficult to provide their service to customers or obtain the inputs required or find markets for their outputs. Although Porter (1985) agrees that a company or a business unit may achieve lower cost and differentiation simultaneously, he argues that this state is often temporary. Porter does admit, however, that many different kinds of potentially profitable competitive strategies are possible. US Semiconductor industry can successfully pursue the mass market cost leadership strategy (because it is so dependent on achieving dominant market share), others can pursue an almost unlimited number of differentiation and focus strategies (depending on the range of possible desirable features and the number of identifiable market niches). Although many industries begin by being fragmented, battles for market share and creative attempts to overcome local or niche market boundaries often result in a few companies' obtaining increasingly larger market shares. When product standards become established for minimum quality and features, competition shifts to a greater emphasis on cost and service. Slower growth combined with overcapacity and knowledgeable buyers put a premium on a firm's ability to achieve cost leadership or differentiation along the dimensions most desired by the market research and development shifts. Maintenance of high standards is a key factor to maximizing semiconductors clients' satisfaction. The purpose of maintenance of high standards is to attempt to maximize the performance of service by ensuring that it performs regularly and efficiently. The effective operation of any system is dependent on the maintenance of all parts of the system. US semiconductor industry has seen substantial growth over recent years, with distribution providing the strongest route to market and retail also providing good growth. The electronic business is strong in all of these areas and the synergies between systems and processes will make the transition simple allowing the storage divisions to keep up their current momentum. It's a time of intense competition-fortunes can be made or lost in the blink of an eye. "U.S. leadership in technology is under assault," said Barrett. "The challenge we face is global in nature and broader in scope than any we have faced in the past. The initial step in responding to this challenge is that America must decide to compete. If we don't compete and win, there will be very serious consequences for our standard of living and national security in the future" " ("Semiconductor industry Association", 2005). With these three main strengths, its marketing strategy, growth rate, and technology, Semiconductor industry has extended the semiconductor business vigorously. Marketing strategy deals with pricing, selling, and distributing a product. Using a market development strategy, Semiconductor industry can capture a larger share of an existing market for current products through market saturation and market penetration or develop new markets for current products. Based on the present day situation it is possible to predict the future trends in the semicondictor business. On the one hand in the next ten years the industry will retain its dominant position as the top memory chipmaker worldwide, while expanding its operations to encompass server services, development of work-stations and become a global player. Its new technology achievements and overall business strategy, potential and capability to support high performance environments are the key elements for the nest ten years. It is possible to say that in the next ten this will be one of the profitable industries in the world. The pessimistic scenario is possible, because the science discoveries and innovations keep abreast of time, and if new technology will be developed (for instance something that can substitute semiconductors, or make them unneeded in the electronic appliances) the industry will decline. In any case, even if it happens, the will be a demand for semiconductors for a definite period of time (approximately 5-7 years), which makes it possible to redevelop the semiconductor industry. Bear in mind the present day situation, the first scenario is likely to occur in practice, as semiconductor technology supposed to be the most promising today. President of the Semiconductor business, Dr. Chang Gyu Hwang restated that, "Mobile and digital consumer applications are the new driving forces of the IT era. Through synergies created between the memory and system LSI divisions" The biggest challenge of all-the challenge of leading the digital convergence revolution worldwide, and thereby providing "Digital Freedom" to all-still lies ahead. "Experts believe current semiconductor technology could run up against physical, technological, and economic limits around 2020" ("Semiconductor industry Association", 2005). Semiconductor industry is seeking to maximize its 'global reach', in the belief that those that offer a global service will be in the strongest competitive position. It is evident that strategy includes the determination of the basic long-term goals concerns the conceptualization of coherent and attainable strategic objectives. Bibliography 1. Inertial Measurement Based on MEMS Technology. 2005, Available at: http://biz.yahoo.com/ic/111/161702.html 2. McDonald M., Christopher M. Marketing: A complete Guide. Palgrave Macmillan, 2003. 3. Muller G. Semiconductor Software Strategy, 2005 Available at: www.extra.research.philips.com/natlab/sysarch/ 4. Mitzberg, H., Five Ps for strategy. California Management Review. Fall, 1987. 5. Phillips. Semiconductors. Available at; http://www-us.semiconductors.philips.com/ 6. Porter M.E. Competitive Strategy: techniques for Analyzing Industries and Competitors. New York, Free Press, 1980. 7. Porter M.E. Competitive Advantage. New York, Free Press, 1985. 8. Prahalad, C.K., Hamel, G. Competing for the future. Boston: Harvard Business school Press, 1994, pp 202-207. Samsung Addresses the Dynamic IT Era with Total Semiconductor Solutions. http://www.hoovers.com/samsung-semiconductor,-inc. "Semiconductor industry Association U.S. could Race for Nanotechnology Leadership" Available at: http://www.sia-online.org/pre_release.cfmID=355 Spemcer, W. New Challenges for U.S. Semiconductor Industry. Winter, 2004. Available at: http://www.findarticles.com/p/articles/mi_qa3622/is_200401/ai_n9371113 9. Sterman, J. D. Business Dynamics: Systems Thinking and Modeling for a Complex World, Irwin McGraw-Hill, New York. 2000. Read More