Global Pricing in the semiconductor industry The major issue of the case is dealing with the question, if a global pricing strategy would be adequate to pursue in the semiconductor industry. So far, semiconductors had been bought and sold at different price levels in different countries to reflect the various cost structures of the countries in which they were produced. Semiconductors made in European countries were usually more expensive than those made in Asia or North America, simply because it cost manufacturers more to operate in Europe than in the other two regions. Despite these differences, large distributors and some original equipment manufacturers were becoming insistent on buying their semiconductors at one worldwide price, and were pressuring vendors to negotiate global pricing terms. As a consequence, and due to the fact that the semiconductor industry is very price competitive and price sensitive, the manufacturers of semiconductors are faced with the issue whether they can offer global prices for the same products and therefore are able to develop a cohesive pricing strategy. A further question would be how Texas Instruments could reorganize themselves in order to make global pricing a realistic option and what implications would a global pricing strategy have in relationship to other international customers.
The Essay on Japans Global Competitive Marketing Strategy
Japan's Global Competitive Marketing Strategy It takes more and more to successfully compete in the modern age. The prosperous company or even the state of the world is now determined not only by the high quality services or goods but rather by how efficiently does the enterprise sell and distribute them. The particular success and rapid growth of the Japanese economy is partially explained by ...
To solve this issue would be enormously important for Texas Instruments, since the vast majority of semiconductors were considered commodity products, the buying decisions of distributors were based entirely on price. Texas Instruments Incorporated was established in 1951 as an electronics company serving the American defence industry. Although Texas Instruments was often considered the pioneer of the American electronics industryit was one of the first companies to manufacture transistors and developed the first semiconductor integrated circuit in 1958. Jack Kilby was the Texas Instruments engineer who developed the first integrated circuit, a pivotal innovation in the electronics industry. Only a few years after Kilby’s invention, electronics manufacturers were demanding these integrated circuits, or chips, in smaller sizes and at lower costs, a move that led to unprecedented innovation in the electronics industry. Soon chips became a commodity, and chip manufacturers relied on highvolume, lowcost production of reliable chips for success. After receiving market attention with its development of such innovative consumer products as the pocket calculator and the electronic wrist watch, Texas Instruments lost its business in both markets to cheap Asian imports.
Meanwhile, it struggled to keep up with orders for its mainstay business in semiconductors through the 1970’s, only to see demand for its pioneer semiconductors shrink during the recession of the early 1980s. Nevertheless, Texas Instruments struggled to maintain its position in the electronics industry through the intense competition of the 1980s. Faced with heavy losses in many of its core areas, Texas Instruments reorganized its business to foster and embarked on a program of costcutting. By the year 1985, the company had refocused its efforts on its strengths in semiconductors, relinquishing market dominance in favour of greater margins. Over the period of time, Texas Instruments continued to remain powerful in the semiconductor industry, in part because it was the only American company that continued to manufacture dynamic random access memory chips in the face of fierce Japanese competition in the 1980s. The company had manufacturing sites spread throughout North America, Asia, and Europe, and was pursuing its strategy of increasing manufacturing capacity and developing manufacturing excellence. 1994’s performance was record breaking for Texas Instruments.
The Essay on Texas Instruments Company Electronics Semiconductors
Texas Instruments Inc. Texas Instruments began its corporate life in 1930 as a company called Geophysical Service, which was a petroleum-exploration firm founded by a couple of eager men by the names of Dr. J. Clarence ("Doc") Karcher and Eugene McDermott. They used seismology to find oil. It entered the defense electronics business during the 1940's and performed contracts for the Army and Navy ...
It marked the first time the company exceeded sales of $10 billion and over $1 billion in profit, and followed a history of volatile financial results. Finally, by the year 1995, Texas Instruments had developed a strong position in the electronics industry, despite its reputation as a technological leader rather than a skilled marketer of its products. By the year 1995, Texas Instruments was a leading manufacturer of semiconductors, defense electronics, software, personal productivity products and materials, and controls. The Semiconductor Group divided its business into two segments: standard products and differentiated products. Standard semiconductors, which accounted for 90% of the Group’s sales, included products which could be substituted by competitors. Standard semiconductors performed in the market much like other products for which substitutes were readily available. The remaining 10% of the company’s semiconductor business came from differentiated products, of which Texas Instruments was the sole supplier. Because substitutes for these products were not available in the marketplace, differentiated products commanded higher margins than their standard counterparts and were receiving greater strategic emphasis on the part of Group management.
Semiconductors were silicon chips which transmitted heat, light, and electrical charges and performed critical functions in virtually all electronic devices. They were a core technology in industrial robots, computers, office equipment, consumer electronics, the aerospace industry, telecommunications, the military, and the automobile industry. The majority of semiconductors consisted of integrated circuits made from monocrystalline silicon imprinted with complex electronic components and their interconnections. The remainder of semiconductors were simpler discrete components that performed single functions. As I already mentioned above, prices for semiconductor products differ a lot in the various countries they are produced. Semiconductors had been bought and sold at different price levels in different countries to reflect the various cost structures of the countries in which they are produced. Semiconductors made in European countries for example, were usually more expensive than those made in Asia or North America, simply because it cost manufacturers more to operate in Europe than in the other two regions. Since the vast majority of semiconductors were considered commodity products, the buying decisions of distributors were based almost entirely on price.
The Term Paper on Topps Company Products Industry Risk
The Topps Company, among other things discussed later, is in the business of manufacturing chewing gum and confections. According to the Business and Company Resource Center, the Topps is involved in ten different industry categories. They are listed here with their respective SIC/NAICS codes: Commercial Printing (2759), Chewing Gum (2067), Candy and Other Confectionary products (2064), ...
Furthermore, semiconductor prices were notoriously volatile. The Semiconductor Group at Texas Instruments combined the practices of forward pricing and continuous price negotiations to set prices with its distributors. Forward pricing: The cost of semiconductor manufacturing followed a generally predictable learning curve. By increasing the volume of production, the cost of production would decrease and the percentage of functioning chips would increase. This percentage, termed `yield’ in the industry, and the standard learning curve of semiconductor manufacturing together had a large impact on the prices semiconductor manufacturers set for their products. Managers could predict with considerable accuracy the production cost decreases and yield improvements they would experience as their production volumes increased. These predictions are the basis of the forward prices they set with both, original equipment manufacturers and distributors. Continuous Price Adjustments: Production costs and yield rates were not the only contributing factors to price levels for standard semiconductors: market supply and demand played also a powerful role in establishing prices. As a result of volatile prices caused by shifts in supply and demand, distributors often held inventories of semiconductors that did not accurately reflect current market rates.
To protect distributors from price fluctuations. most semiconductor manufacturers offered to reimburse distributors for their overvalued inventories. Due to the fact, that distributors had access to the prices of products from all the semiconductor manufacturers at any given time, and some any where in the world, pricing decisions were very critical because making one mistake in pricing could lead to a lost in market share in a day, that can take them three months to recapture. Due to the fact, that the distribution network consolidated into a small number of powerful companies, Texas Instruments had begun to notice that his price negotiations were increasingly focused not only on beating the competition in North America, but on beating prices available around the world, including those of TI in other regions. Due to different distribution channels everywhere in the world, costs and calculation models differ accordingly. For example, Europeans include freight in their prices, what North America doesn’t. Furthermore, the cost of producing semiconductors varies by country. Europe tends to be more expensive than North America or Asia, because their infrastructure is more costly.
The Essay on Agricultural Market Price Prices Government
1. Would the US economy be better off without government intervention in agriculture Who would benefit Who would lose 2. Are large price movements inevitable in agricultural markets What other mechanisms might be used to limit such movements 3. Farmers can eliminate the uncertainties of fluctuating crop prices by selling their crops in "futures" markets (agreeing to a fixed price for crops to be ...
Texas Instrument’s sales and net profit have steadily grown over the past period of time and the Semiconductor Group, a part of the Components Division, had total sales of $2 billion in 1994, the third consecutive year in which Texas Instruments semiconductor revenues grew faster than the industry. The company’s return to financial success in the early 1990’s was based on its strong performance in semiconductor sales and profits, both which were at record levels in 1994. Management in the company expected semiconductor sales to continue to grow strongly and was planning heavy capital expenditures on new or expanded plants in the United States, Malaysia, and Italy to increase the company’s capacity. Texas Instrument’s 1994 sales of $10.3 billion, a 21 % increase from the previous year, was split among components ($6.8 billion), defense electronics ($1.7 billion), digital products ($1.66 billion) and metallurgical materials ($177 million).
1994’s profits of over $1 billion came almost entirely from its components business. Components made a profit of $1.1 billion, while defense electronics made $172 million. 1994’s performance was recordbreaking for Texas Instruments. It marked the first time the company exceeded sales of $10 billion and over $1 billion in profit, and followed a history of volatile financial results. The pervasiveness of semiconductors in electronics resulted in rapidly growing sales and intense competition in the semiconductor industry. Market share in the industry had been fiercely contested since the early 1980s, when the oncedominant U.S. semiconductor industry lost its leadership position to Japanese manufacturers. There followed a series of trade battles in which American manufacturers charged their Japanese competitors with dumping and accused foreign markets of excessive protectionism. By 1994, after investing heavily in the semiconductor industry and embarking on programs to increase manufacturing efficiency and decrease production costs, American companies once again captured a dominant share of the market. In 1994, total shipments of semiconductors reached $99.9 billion, with market share divided among North America (33%), Japan (30?/0), Europe (18%), and Asia/Pacific (18%).
The Essay on Internal Analysis of Texas Instruments
Texas Instruments Incorporated (TI) is a company based in Dallas, Texas which provides innovative semiconductor technologies to help the market create the world’s most advanced electronics. Their product ranges from digital communications and entertainment to medical services, automotive systems and wide-ranging applications. The company has been using unique technical skills to fundamentally ...
The industry was expected to reach sales of $130 billion in 1995, and $200 billion by the year 2000. To capture growing demand in the industry, many semiconductor manufacturers were investing heavily in increased manufacturing capacity, although most industry analysts expected expanding capacity to reach rather than surpass demand. Combined with record low inventories in the industry and reduced cycle times and lead times, a balancing of supply and demand was causing semiconductor prices to be characteristically stable. Texas Instruments sold its semiconductors through two channels: directly to original equipment manufacturers and through a network of electronics distributors. Approximately 70% of the Group’s U.S. customers dealt directly with Texas Instruments. The remainder bought their semiconductors through one or more of the seven major semiconductor distributors that served the North American market. Whether an original equipment manufacturer dealt directly with Texas Instruments or bought from a distributor depended on the manufacturer’s size. The largest original equipment manufacturers were able to negotiate better prices from semiconductor manufacturers than were distributors and therefore bought directly from the manufacturers.
For smaller sized manufacturers, it was more efficiently to serve them through the distribution channel. Distributors were considered to be clearinghouses for the semiconductor industry. Each distributor dealt with products from all the major semiconductor manufacturers. The distributors specialized in handling logistics, material flows, sales and servicing for electronics manufacturers who were either too small to negotiate directly with the major semiconductor manufacturers or lacked sufficient expertise in logistics management. The electronics distribution network had originally consisted of a large group of’ smaller companies. By 1995, industry consolidation had left almost 40% of the distribution market in the hands of its two largest competitors, arrow Electronics and Avnet, with own together a market share of 39.6%. The seven largest distributors captured 58% of sales in the market. This trend toward consolidation had had a major impact on the nature of the relationships among semiconductor manufacturers and the distributors through which they sold their products. The competition, Texas Instruments is faced to in the semiconductor industry is very intensive. Companies in this industry compete mainly on prices and therefore cost reduction in the manufacturing, but as well increasing efficiency are essential for the success and to gain competitive advantage.
The Essay on Texas Instruments
After thoroughly analyzing the information available on TI, I have identified three critical issues that need immediate attention. These include the capacity crunch in meeting forecasts, expectation to reduce the cost per watch, and a lack of efficiency of the workers. In order to tackle these issues, I recommend reducing the cycle time, increasing capacity in subsequent years, and increasing ...
Market share in the industry had been fiercely contested since the early 1990s, when the oncedominant U.S. semiconductor industry lost its leadership position to Japanese manufacturers. There followed a series of trade battles in which American manufacturers charged their Japanese competitors with dumping and accused foreign markets of excessive protectionism. Distributors in this industry have access to the prices of products from all the semiconductor manufacturers at any given time and some anywhere in the world, this further increases the competition on prices between the manufacturers. As a consequence, Texas Instruments is doing 10% of their sales through price adjustments. On the other hand, at the same time, through negotiations with distributors, TI captures masses of data regarding the pricing levels of their competitors and the market performance of their different products. This process clarifies, how intense the competition in this market is and how well informed manufacturers are about competitor’s prices. Beside the increases in sales of Texas Instruments in the past period of time, Texas Instruments is nowadays a market follower behind companies like Motorola, Toshiba, NEC, and Intel which is the market leader.
Only in the differentiated semiconductor business, Texas Instruments was the sole supplier. Because substitutes for these products were not available in the market place, differentiated products commanded higher margins than their standard counterparts and were receiving greater strategic emphasis on the part of Group management. But also in this segment, competitors started to produce differentiated semiconductor products, in order to reach higher premium prices and therefore competition will increase. Market Description ( Customers, Size of the market,…) The semiconductor market can be divided into three tiers. Fifty percent of the sales in semiconductors go to the top tier of perhaps 100 large electronics manufacturers who deal directly with Texas Instruments. The next 46% of Texas Instruments’ sales comes from 1,400 medium sized companies at the next level, half of whom buy through distributors. The remaining 4% of sales are to 150,000 smaller companies at the bottom tier in the market, who deal only through distributors. As a consequence these distributors have a clearly defined role in servicing midsized and small buyers. The biggest customers, and at the same time distributors of Texas Instruments are Avnet and Arrow Electronics.
They cover about 40 % of the whole distribution market and are therefore essential for TI’s turnover or sales. With sales of almost $4 billion in 1994, Arrow Electronics was the largest semiconductor distributor in North America, of which TI products accounted for approximately 14%. The market demand and buying behaviour are a lot dependent on the current market prices of semiconductor products and therefore customers are very price sensitive. This was also due to the fact, that distributors hold large inventories and purchased when the market price was lower. In fact, it is an endless circle in this market because, price is strongly related to supply and demand and in contrary demand is very dependent on the current market prices. Furthermore, due to the fact that the market is very price intensive, sales are very dependent on negotiating skills, price adjusting policies and customer relationship. As a consequence, profit margins are very low. Customers in this market purchase in large quantities, and as a consequence, a mistake in pricing can have enormous consequences for the market share and overall sales. * Market description: Please see also Industry ? Texas Instruments had developed a strong position in the electronics industry and is known as a technological leader, also due to the fact of foster innovation and embarking costcutting in the semiconductor business ? Furthermore, IT was the only American company that continued producing dynamic random access memory chips and therefore captures also market share of the differentiated semiconductor market which bring them also higher profit margins ? The company has manufacturing sites spread throughout North America, Asia, and Europe, and was pursuing its strategy of increasing manufacturing capacity and developing manufacturing excellence. As a consequence, they are able to serve the world market and have enough capacity for their production, also in order to reach economies of scale ? Also the brand name, which they reached over the period of time through product improvements and new technologies which had the consequence of good customer relationships could be also seen as a strengths. Texas Instruments is rather not well known as a skilled marketer of their products, which is also evidenced by the fact that they lost their market leadership between the 1980’s and today Manufacturing facilities for their semiconductor products in several western countries have the consequence of higher production costs and this makes it very often difficult for the company to compete on price. Texas Instruments is also very dependent on their large distributors like Avnet and Arrow electronics which are able to put a lot of pressure on the company concerning the prices. Texas Instruments has the opportunity to reorganize themselves, in order to make global pricing policies possible, and not to loose market share to competitors like Motorola which already started to follow this strategy Another possibility is to further build up good customer relationships in order make more sales with them (fair practices) Putting more effort towards their differentiated semiconductor business, which guarantees them higher prices and therefore higher profit margins. In fact, here Texas Instruments have the best opportunity to reach a strong position in the market and to defend it in the future Creating products which are unique in the market would allow them to be ahead oh customers and the only supplier which offers this technology. If the do not implement a global pricing strategy they can be faced to the danger of loosing their major distributor and one of their biggest customers, which would have the consequence of loosing market share to competitors and decreases in sales. Furthermore, I would see Texas Instruments also as a candidate for a taking over of another company like Intel, which is momentarily the market leader Another threat could be that due to competitor’s pricing policies, prices in the semiconductor market escalate and TI couldn’t adapt to the price adjustments anymore and therefore wouldn’t be competitive anymore. Also other companies could come up with a new technology, which would replace semiconductors and therefore a huge part of Texas Instrument’s business would disappear ? One solution for Texas Instruments would be to follow a pricing strategy as before and to serve the small and medium sized manufacturers themselves. This would have the consequence, that they might loose their largest distributor but they would have the opportunity to catch up sales by serving smaller companies directly ? Another solution would be to reorganize their production facilities in order to stay price competitive. This means, to produce their semiconductor products only in countries with lower production costs in order to reach a cohesive pricing strategy. This policy would also make Texas Instrument’s daily business easier, because they would no longer have to continue their price adjustment negotiations and therefore save a lot of costs for staffing the negotiations team. On the other hand, the possibility of gathering information about competitors’ prices and product performance would be taken away. ? A further solution would be focus more on the differentiated semiconductor business and to become a market leader in this segment. First of all, it would allow Texas Instruments to request premium prices, and secondly to achieve higher profit margins. Therefore, by developing more successful differentiated semiconductor products, Texas Instruments would achieve higher returns on development and manufacturing investments. I personally think, that by following or implementing a global pricing strategy, which Motorola is rumored to be already preparing for, it wouldn’t be assured that after the implementation, Texas Instruments would then be totally price competitive. Furthermore, the cohesive pricing would have the consequence that Texas Instruments would have totally to restructure their organization. This is combined with a large investments and consequently a drastically increase in costs. Due to the fact, that Texas Instrument’s are `only’ a market follower in the industry, and might still have problems after implementing a global pricing strategy to compete, they should more focus on differentiated products, where they can reach higher returns on investment of development and manufacturing. Therefore I would suggest, that Texas Instruments should focus on their differentiated semiconductor sector by developing new technologies and by creation of new usage. Furthermore, to implement their own distribution channels to catch up sales which they might loose when not implementing the global pricing strategy. As a consequence they would be still price competitive by serving small and medium sized manufacturers directly, because the margins, Arrow electronics takes for servicing and distribution wouldn’t exist anymore. Nevertheless, in order to protect themselves against competition in the differentiated semiconductor market, Texas Instrument should still focus and reorganize their company, in order to combine technological improvements and their good reputation as the technological leader, with cost reductions, especially for the production intensive parts. Due to improvements of their distribution channels, which would make it more efficiently to serve also small and medium sized customers directly and due to technological improvements and further efforts in the differentiated semiconductor segment, higher returns can be achieved and the company wouldn’t be anymore so dependent on prices.
