Metanational Management and Global Innovation: The Case of the TFT-LCD Industry

In this session, the analysis results were reported on the competitive advantages of Japan, Korea, Taiwan, and China through their respective LCD display industries, against the background of regional features and innovations in the TFT-LCD industry in East Asia. Based on metanational management, Japan created the innovations that gave rise to the TFT-LCD industry and spread these throughout the world. However, Japan is already being threatened to be overtaken by Korean and Taiwanese companies. The presentations focused on winning strategies for Japanese companies in this environment.

The subject of the Tamura Presentation was "TFT-LCD Industry Trend by Region." The following main points were made.

Equity investment and collaborative relations clearly exist among panel manufacturers in Japan, Korea, and Taiwan. In China, equity investment relations did exist between Japanese and Chinese manufacturers, such as SVA and NEC. Regarding technology licensing, Japanese manufacturers are licensing their technologies to Taiwan, Korea, and China. In the area of OEM, such relations are primarily limited to the procurement of monitors. These are mainly manufactured in Taiwan and exported to Japan. Parts, materials, and equipment are being supplied by Japan to manufacturers in the region.

Panels for laptop computers are shifting to Gen 4 and Gen 5. Japanese share is declining, while Korea's Samsung and LPL are registering growing sales. Taiwanese manufacturers are also catching up. Chinese output remains low. The monitor market is increasingly becoming a commodity market. As a result, Taiwan overtook Korea in 2005 and 2006, and the gap between the two is growing. In the market for TV panels, Japanese and Korean manufacturers were previously on par. However, Korea is gaining the upper hand because the two leading companies fielding their own TV brands (Samsung and LPL) are located in Korea. In markets for industrial applications, Japan maintains an overwhelming 70%-plus share in the market for pachinko panels. Japan also held a 60%-plus share in the market for cell phone display panels in 2006.

Japan is strongest in the upstream segments of parts, materials and manufacturing equipment, and is engaged in the development of all kinds of new technologies and products. It retains a 40%-plus share in the global market for LCD televisions due to strong brand power. Japanese manufacturers retain firm positions in the market for small- and medium-sized TFT-LCDs. The top manufacturers are continuing to make plant and equipment investments. While adopting LTPS technologies, they are simultaneously engaged in achieving vertical integration in parts and materials.

Due to its industrial structure of chaebol , Korea faces higher labor costs than Taiwan. However, manufacturers have been able to reduce costs through high-volume production and vertical integration. Drawing on successes in the semiconductor industry and utilizing their ample profits to invest in LCD businesses, Korean manufacturers captured the leading share in the industry in a very short time. Korean manufacturers prioritize their own brands and are less interested in OEM. They enjoy brand strength throughout the world, but not in Japan.

Taiwanese manufacturers have low brand strength, but are strong in OEM manufacturing of laptop monitors and other components. As in the case of Korea, high-volume production enables low costs. The share of Taiwanese manufacturers in the global market for LCD televisions is less than 5%.

Chinese manufacturers stand to gain from massive future demand for LCD-equipped products. Due to the increase in domestic demand, the share of Chinese brands in the global market for LCD televisions has now increased to 10%.

Taiwan is expected to steadily increase its lead over Korea. It will be essential for Japanese manufacturers to capitalize on their brand value and to heighten their new product-development capacities. As in the case of Sharp, Japanese manufacturers will improve their positions through increased vertical integration.

The subject of the Nakata Presentation was "Japanese Competitiveness in the Liquid Crystal Display Industry." The following main points were made.

LCD technologies were developed independently in Japan, and the LCD industry was created and has continued to grow through the leadership of Japanese companies. The following factors contributed to this success. Japanese companies established long-term and clearly defined goals and objectives for product development. Japanese companies undertook R&D to create the technologies needed to derive marketable products from prototype technologies. Finally, Japanese companies created project teams that directly linked research and development to achieve "technological integration." This arrangement facilitated intense interpersonal contact among team members.

Competition in the LCD industry is based on "customized equipment" and "customized processes" designed for using larger glass substrates to support the production of larger LCD panels than the competition. As a result, this industry has no standard substrate size, no "technological roadmap" and no "standardization equipment." Division of labor is impossible in the processes of LCD panel manufacturing. That is, the architecture of the processes of LCD manufacturing is "integral" in nature.

LCD products can be categorized into TV panels, personal computer panels, and small- and medium-sized panels. PC panels are made in "modular" format for use in laptops, and have become "commodities." By procuring panels from multiple suppliers, PC manufacturers demand that panels of the same quality be supplied at low prices.

TV panels must meet high performance standards for high resolution, and require extensive R&D activities and large amounts of plant and equipment investments. This product is suited to an "integral" business architecture.

Why has Japan's TFT-LCD industry been overtaken by Korea and Taiwan? The first reason relates to differences in TFT-LCD investment strategies in Japan, Korea and Taiwan. Japanese investment levels are characteristically affected by profits in the preceding year. By contrast, Korean and Taiwanese manufacturers formulated a corporate vision and made their investments based on this vision. In the case of Taiwan, major investments were made in 2003 using funds procured from overseas.

Korean and Taiwanese manufacturers capitalized on their late-starter advantages and invested more aggressively than Japanese manufacturers in Gen 5 equipment, which embodied tacit knowledge. Because of their head start, Japanese manufacturers were using earlier generations of manufacturing equipment and did not make a similar leap to Gen 5 equipment.

Furthermore, Korean and Taiwanese manufacturers had accumulated research and manufacturing know-how in their semiconductor industries, and had absorbed the necessary clean technologies and yield management technologies.

Sharp has developed its manufacturing facilities based on its "crystal valley concept." Sharp has created LCD industrial clusters by surrounding its Kameyama Plant and Taki Plant with a number of parts and materials manufacturers. The company's strategy is to engage in joint R&D activities with materials, parts and equipment manufacturers. These joint activities range from basic research to design and prototypes. That is, the source of Japan's competitive strength lies in "integrated tacit knowledge" undertaken in closed innovation networks.