Michael portal explains that a business is composed of a series of value adding processes that are integrated to make business activities successful and profitable. According to portal, these activities are interrelated and they are important component that a business can use for its own advantages but they can also be as cost disadvantage if they are not properly managed. He identified two categories of the value chain analysis namely the basic and the support activities.
Primary activities are the inbound logistics, operations, outbound logistics, marketing and sales activities and service delivery. In bound logistics involves all activities involved in bringing and storage of inventories in a business. Operational activities involves converting inputs into final products, outbound logistics involves movement of finished products from point of production to the point where final consumers are, marketing and sales are meant to endear the products to the consumers in order to raise its demand. Service deliveries are those after sale activities that are meant to motivate the customers such as repair and maintenance.
Support activities include technological development, procurement, human capital management and organizational structure. Technological development are vital in development of new products, procurement is a series of activities that facilitate purchase of goods and services by the business. Human resource management involves those activities that ensure that employees are well motivated and esteemed. Organizational structure involves establishing the functional areas of the business in order to enhance proper working of the business.
There are factors that the Samsung Corporation has to manage well for it to be able to have a competitive edge over its competitors in the memory chips industry. These factors are part of the value chain process of the Samsung business. These are listed below.
Initially Samsung relied on the purchased expertise from the American firms.it made use of Korean Americans to introduce experience in memory development. Over the years it has perfected its technology to become the leading producer of not only memory chips but also smartphones. Today it has significant market share in the world today and to say the least it is the market leader in production of dynamic random assessment memory facilities. The company has to manage and fund its research and development department for it to remain competitive. In exhibit 7d the cost of research and development by Samsung is 0.56 compared to 0.80 by smic. The cost differential is 0.24 dollars to the Samsung advantage. This shows that it is using R&D well at competitive costs.
Selling and Administration
Sales are very important to a business because it cannot stay in operations if it cannot sell what it produces. Samsung has to manage its selling and distribution and administration budget to use it as cost advantage. Sales and marketing is very primary in the chain analysis meaning it’s so critical to a business. Over the years it has diversified its products so that it can serve each market segment in the memory market. This is very important because each market has its own unique need and thus unique demand.in exhibit 7g, the sales cost by Samsung is 0.55 while that of smic from china is 0.34.This implies that the Samsung is at a disadvantage by the differential figure of the magnitude 0.55-0.34=0.21 dollars.
These are inputs that are inputs that are used in production of the memory chips. These are a component of inbound logistics in the chain analysis. The cost and availability of the raw materials are a very vital competitive edge if properly used by the business organization. Comparing exhibit 7d,the cost of raw materials by Samsung is 1.19 compared to the Chinese smic 1.84,this gives a cost advantage of 1.84-1.19=0.65dollars to Samsung meaning it manages its inbound logistics well.
Human Resources Management
Samsung corporation has to come up with better human capital management, the importance of this is to ensure that the staff is well motivated via good remuneration, fair remuneration and fair promotion and reward of employees.in exhibit 7g the cost of labour by Samsung is 0.53 compared to 0.23 by Chinese firm SMIC. This is a disadvantage to Samsung to the tune of 0.53-0.23=0.3 dollars.
This section seeks to look at the overall cost of production by the Samsung and the Chinese company, smic. This is achieved by calculating the total costs above and comparing them to arrive at a logical conclusion.
Samsung=0.53(labour) +1.19(materials) +0.55(SG&A) +0.56(R&D)=2.83 dollars
SMIC=0.23(labour) +1.84(materials) +0.34(SG&A) +0.80(R&D) =3.21 dollars
From the above analysis it is apparent that Samsung value chain process is effective and efficient compared to that of its Chinese competitors because it is realizing less production costs comparatively.