RIETI Policy Symposium

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

Information

  • Time and Date:
    10:00-18:00, Wednesday, March 14, 2007
  • Venue:
    Palace Hotel Tokyo, Golden Room, B1F
    1-1-1, Marunouchi, Chiyoda-ku, Tokyo
  • Language:
    Japanese / English (with simultaneous interpretation)

Summary of Proceedings

Session Outline

In this part of the session, a presentation was made on cases in Japanese startups and SMEs. The presentation covered the necessary conditions for corporate management and control in the context of East Asian and global management and clarified the conditions for the sustainability of the framework, and also reviewed the relation of these conditions to metanational responses. Next, changes in the competitive conditions facing Japanese companies were analyzed from the perspective of four factors (technology, investment, market, equipment and parts). The presentation ended with an analysis and suggestions concerning the behavior of Japanese companies from the perspective of each of these factors.

Susumu Sanbonmatsu Presentation

The subject of the Sanbonmatsu Presentation was "Cases in Japanese Startups and SMEs." The following main points were made.

This research attempts to use the perspective of organizational capability (organizational routine) to explain global value-chain and dynamic corporate growth in the context of the theory of transnational corporations.

With the emergence of the knowledge-based economy and optimal global division of labor, startups and SMEs must take the following actions to achieve sustained growth. The available field of innovation in supplying products and services must be expanded beyond the domestic market to take in the East Asian region and the global market, and corresponding forms of corporate management and control must be practiced.

The validity of the overall framework was verified using case studies of 12 startups and SMEs practicing (or oriented toward) East Asian and global management based on advanced innovations. In this way, the necessary conditions for corporate management and control were identified separately for goods and services. Conditions for the sustainability of the framework were also identified. While the necessary conditions for corporate management and control differ according to the product properties of goods and services, the following common condition was identified: "Develop and operate systems for integrated optimization of functional chains that normally tend toward partial optimization, and operate businesses based on optimized business routines." The following condition was identified for the sustainability of the framework: "Develop and operate win-win relations among participants."

The path to East Asian and global management goes through six levels: Level 1, exporting; Level 2, investing locally through local joint venture company; Level 3, directly investing and manufacturing locally; Level 4, integrating the functions of multiple subsidiaries with global reach; Level 5, sharing and integration of head office functions between head office and subsidiaries; and, Level 6, integrating East Asian and global management through a head office that has moved out of the country of origin. Levels 4 and beyond correspond to metanational and transnational approaches.

Recent developments in the East Asian and global management by startups and SMEs can be characterized as follows. First, in the context of the mass production of conventional products, these companies have arrived at the level of manufacturing locally in various East Asian countries, selling throughout the East Asian region, and exporting to other regions. This is particularly notable in the case of automotive industries. Second, in the semiconductor and LCD industries, models are emerging for optimized global development, manufacture and marketing of new products. In these industries, the scope of innovation for new products has been expanded to include the East Asian region and the world. Third, in the context of the localization of management in East Asia, optimal assignment of East Asian personnel to local management positions is being practiced.

The following three companies can be cited as representative cases of startups and SMEs: OTEC, NanoScope, and Rorze. Particularly noteworthy is Rorze, a startup manufacturer of semiconductor and LCD-related robots. Its Korean subsidiary has collaborated with Samsung Electronics in the development of new products, which the company is marketing as its own global product. In the development of new products, Rorze engages in knowledge exchange with local customers. From the perspective of knowledge management, it can be said that Rorze is taking a metanational approach whereby its overseas subsidiary is developing alliances with local customers.

Yoshinobu Konomi Comments

Comments by Professor Konomi were focused on the theme of "Considering the Changes in LCD Competition." The following main points were made.

Four factors must be considered in understanding the changes in the competitive conditions Japanese companies have faced: (1) technology-related issues, (2) investment (fund procurement) and risk-related issues, (3) market-related issues, and (4) equipment and parts-related issues.

Technology-related issues: From the technological perspective, companies had to solve the following problems: absorbing and developing technologies; developing models; managing technology development and property rights; and, developing strategies for the exercise of property rights. None of the companies enjoyed any substantial advantages in terms of these strategies. Improving their strategic management of resources will continue to be an issue for companies in the future.

Investment-related issues: This represents an extremely serious problem. The bubble collapsed following the shift in U.S. dollar policies in 1993. This was followed by problems in accounting systems and changes in corporate laws. As a result, Japanese companies faced a situation in which stable management became linked to the ability to efficiently procure limited financial resources. This gave rise to niche strategies, such as in the case of Sharp, which has concentrated on certain well-defined areas of strength. However, this strategy limits the size of the available market and implies that a manufacturer may choose not to respond to demand being generated in growing markets. This created niche opportunities. Taiwanese manufacturers had the operational capabilities and the strong motivation and desire to draw on global financial resources to finance their investments. The same cannot be said of Japanese manufacturers.

Market-related issues: Innovation is not merely invention of technologies or commercialization of technologies. It is also important to gauge and to match the needs of the market. This requires a thorough knowledge of the world, all the way through to sales (the market). Progress cannot be achieved if one's vision is fixed solely on products. The world is not necessarily a free market, as in the case of Japan, where discounters are willing to handle any product and provide prime display positions so long as the product promises good turnover rates and margins.

Equipment and parts-related issues: The technological position of equipment manufacturers is being eroded and is tending toward regression. It is not enough to develop products and commercialize them. It is important to have the will to maintain a leadership position in developing technologies.

The question of management capability lies at the core of the four factors discussed above. Management capability refers to the ability to take a pluralistic view of the world. This relates to the ability to adopt a metanational perspective.

Question and Answer Session

The following questions were received from the floor.

Q: Did Samsung make the right choice in accepting Sony's investment? What role did Sony play? What advantages did the Sony-Samsung joint venture have to offer to Samsung in terms of technology and knowledge?

A: The joint venture with Sony had two advantages for Samsung. First, the TFT-LCD industry requires enormous amounts of funds. (A new panel manufacturing operation requires $300 million.) The joint venture with Sony allowed a sharing of financial risks. Second, Samsung gained access to a stable channel of demand through Sony.

As a result, looking at the global TFT-LCD market, we see that Samsung and Sony rank first and second, respectively, in the large-screen LCD market. By supplying to Sony, Samsung was able to push its market share ahead of such competitors as LG and Phillips. As for Sony, it has used the panels supplied to it by this joint venture company to compete with Sharp and has increased its market share. I would like to emphasize that the two parties are in a win-win relationship.

I strongly doubt that Samsung has acquired technologies from Sony. Aside from the question of whether or not Sony possessed the necessary technologies, Samsung was fully capable of developing the technologies itself. Sony was not a major player in the LCD market and did not even operate its own panel manufacturing plant. Under these conditions, how would it have been possible for Sony to transfer technology to Samsung? It is true that Sony's investment has supported the competitive advantage that Samsung has maintained in the TFT-LCD market. But the joint venture with Sony did not dramatically improve Samsung's bargaining position vis-a-vis Japanese manufacturers, nor did it significantly improve Samsung's ability to absorb technologies from Japanese manufacturers.

Q: Even if a company knows where it should invest, this does not mean that it will be able to actually make the investment. The daunting challenges of fund procurement and investment capability remain. Why do you think that the major Japanese electric machinery manufacturers were lacking in these capabilities?

A: At the time, these companies were not motivated to increase shareholder value and dividends. For this reason, the Japanese companies did not have the necessary capabilities. Even if they had known where to invest, the truth is that they would not have been able to act on this knowledge. Limiting oneself to domestic competition cannot be a wise choice for the future. In such an environment, the ability to make bold decisions on high-risk investments is going to be extremely important.