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

The session was opened by Session Chair Professor Asakawa, who submitted the following five topics for discussion by the panel.
Topic 1: What is metanational, and what is non-metanational?
Topic 2: Competitive advantages of upstream and downstream industries and future directions
Topic 3: Trends in vertical integration strategies and their pros and cons
Topic 4: Risk and uncertainty in the TFT-LCD industry, and industrial policy perspectives
Topic 5: Other implications for the industry

Following the panel discussion, Professor Yahagi summarized the session as having offered the following conclusions and policy implications.

Yukihiko Nakata's presentation addressed the subject of "Metanational Management and Core-National Management: Global LCD TV Strategies of Sony and Sharp." The following main points were made.

As manufacturing industry competition has shifted to LCD televisions in recent years, it appears that global competition strategies may be moving in the direction of "keeping tacit knowledge locked inside the country."

A review of market share in LCD televisions by brand indicates the following. Sony has achieved a high share worldwide, while Sharp maintains an overwhelming share in the Japanese domestic market.

Because Sony did not have the key devices for panel televisions, it entered into an alliance with Samsung to procure LCD panels. Sony then combined this with Wega engine and backlight, its proprietary differentiating technologies, to create the Sony panel. This is what supports its top market share. On the other hand, Sharp became overly concentrated on the domestic Japanese market, which serves as an excellent test market. For this reason, Sharp failed to gain the upper hand in global market share.

In the case of core knowledge, the crucial question is whether necessary technologies can be acquired from external sources when needed and at an appropriate price. David Ford has stated that internal R&D should be chosen for the development of critical technologies (core knowledge).

Professor Takahiro Fujimoto states that technology tends to become closed in the case of integral products. The same can be expected to apply to LCDs, which are integral type products. Closed-integral technologies and products cannot be transferred.

Cutting-edge products, the source of competitive power, require the process of integration to be carried out in an environment of close proximity. Nihon Keizai Shimbun reports that, for this reason, manufacturers are coming back to Japan. Sharp opted for a strategy of keeping its core knowledge in Japan and developing competitive advantages within Japan through the integration of tacit knowledge. But to gain global competitive power, it may be important to maximize the scope of business by skillfully utilizing external technologies as needed, even while keeping the core knowledge at home.

Responding to the Nakata presentation, Professor Murtha commented as follows.

Sharp adopted the two strategies of "cost leadership" and "differentiation."

However, another very important strategy is "speed," which requires partnership and openness.

Ultimately, the LCD TV industry will be led by companies that are able to properly balance the requirements of speed, cost leadership and differentiation.

Professor Konomi commented as follows.

Japan possesses core national advantages in such areas as organic EL and reflective films. But the crucial question is whether Japan will be able to dominate the market when these technologies are commercialized.

Too much emphasis should not be placed on technological advantages. Rather, it is important to be able to gauge the needs that exist in world markets when developing businesses.

Professor Song commented as follows.

At the start, Samsung did not have semiconductor technologies. To acquire the technologies it needed, it established a very large R&D facility in Silicon Valley and recruited engineers.

The LCD business was developed by transferring technologies from the semiconductor business and equipment manufacturers.

Samsung will continue to develop LCD-related technologies within Korea. In the semiconductor and mobile phone industries, it will continue to recruit foreign engineers. It will also continue to purchase equipment from overseas vendors.

Professor Yahagi commented as follows.

The metanational concept refers exclusively to a system for knowledge management. It does not represent a type of organization or strategy.

Metanational thinking is predicated on the development and existence of information infrastructure. Metanational theory suggests how the information, knowledge and wisdom that exist dispersed throughout the world can be used.

From a strategic perspective, companies endeavoring to develop a competitive advantage need to internalize the information that exists throughout the world. Therefore, metanational theory, which speaks of gathering the information that is widely dispersed throughout the world, represents an extremely efficient approach to the concept of core national. No contradiction exists between the two.

The following questions were received from the floor regarding the above discussions.

Q: What would you define to be a good innovation strategy for Japanese manufacturers in the LCD industry?

A: (Professor Asakawa) The effectiveness of metanational strategies depends on such conditions as how absolute the competitive advantages enjoyed by a country or by a company are. If a company or a country enjoys absolute and sustainable competitive advantages, it may be able to lock its technologies into a black box. However, when technological capabilities are fluid and widely dispersed, it is unrealistic to expect any one country to go it alone. Dividing the industry into upstream, panel manufacturing and downstream segments, the important question is: What segment should be kept inside the country as the core segment?

The discussion was started with the following presentation by Mr. Mitsuru Onozato.

Speed is very important in this industry because relatively small lots of LCD products must be delivered on time with short lead times. Some of the other characteristics of the industry are extreme up-and-down fluctuations, and the need to speedily implement technological innovations that correspond to various types of displays.

Given the accelerated pace of technological development, the speed at which core technologies can be integrated into products is extremely important. For this reason, linkages between product marketing and product development teams are being strengthened.

Basically, the core segments are concentrated in Japan. Japan has a very broad range of supporting industries consisting of high-level SMEs that were developed to support Japan's shipbuilding, automotive and other industries. The manufacturing equipment industry is an integral-type industry. Therefore, it makes sense to concentrate core competences in Japan with its broad range of supporting industries, and to send the non-core segments abroad.

Responding to the Onozato Presentation, Mr. Tamura commented as follows.

Local production of LCD panels in Korea and Taiwan started with downstream parts and materials. From there, they gradually advanced toward upstream parts and materials where Japan was competitive.

Professor Wang commented as follows.

In Taiwan, whenever individual companies were lacking in capacity, they received help from the government. The trend has been to develop competitive powers through comprehensive domestic technological collaboration.

Professor Song commented as follows.

Japan will continue to enjoy a trade surplus in the manufacturing equipment industry. It will also retain leadership in key materials.

By working with both domestic and foreign vendors, Samsung forces these to compete against each other. However, in the area of manufacturing equipment, it will probably continue to use the equipment supplied by Japanese vendors.

The discussion was launched with the following question posed by Professor Asakawa.

What are the disadvantages of a vertical integration strategy for internalizing the manufacture of equipment?

Professor Song responded to this question as follows.

Success in vertical integration depends on how effectively dependence on vendors and conflict of interest among vendors can be resolved.

Professor Asakawa posed the following question in response to the answer given by Professor Song.

In the case of Taiwan, what are the disadvantages of a vertical integration strategy for internalizing the manufacture of materials and parts?

Professor Wang responded to this question as follows.

For diversified products that are not manufactured in large volume, external procurement is cheaper and more efficient. On the other hand, in the case of parts that are used in the end processes, it would speed up the delivery and be more efficient to internalize manufacturing.

The following comments were made by Mr. Onozato.

An oligopoly structure centered on several specific brands is emerging in the television segment of the LCD industry. Looking to the future, a certain degree of vertical integration may be necessary.

The discussion was started with the following presentation by Mr. Fukuda.

Regarding market competition for LCD televisions, what the government wanted most to avoid was a quick transition to a white brand. To prolong the effectiveness of branding strategies, such factors as changes in the market, technologies, investment capability, cost of parts and materials and taxation were considered in detail.

From a technological perspective, technologies with an impact on value and with slow transfer speeds should be core national. From a market perspective, the government endeavored to influence the decisions of top executives by popularizing such terms as technology drain and vertical integration, and by capitalizing on the announcement effect that was thus generated.

The choice between metanational and core national will vary between different industries and products. Furthermore, the choice is highly time-dependent. Therefore, one approach will not fit all. However, it is meaningful to use these as contrasting concepts for empirically examining various industrial fields.

Responding to the Fukuda Presentation, Professor Asakawa posed the following question.

From the perspective of companies, what is the role of national projects?

Professor Nakata responded to this question as follows.

I agree with Mr. Fukuda's statement that technologies with slow transfer speeds should be retained as core national. Because of the high speed of technological development, it should be enough to close off the transfer for about three years. Various measures are available for this purpose.

It is probably necessary to have national projects that engage in supporting the development of technologies by companies. However, the crucial question is how and to what degree the thinking and intensions of private companies are adopted into these national project.

The following comments were made by Professor Murtha.

The United States was always looking three or four generations ahead. On the other hand, Taiwan and Korea were able to acquire the necessary specialized technologies by learning from past technologies.

Governments should not attempt to separate and sequester domestic companies from other countries. Instead, governments should assist them in establishing collaborations with the best partners, suppliers and customers.

Governments should not participate in supply chains.

Effective land use is an important issue that governments should become involved in.

Professor Asakawa posed the following question in response to the preceding discussion.

What type of mechanisms does Samsung have for lowering the level of uncertainty on the corporate level?

Professor Song responded to this question as follows.

In the case of Samsung Electronics, a good collaborative relationship exists between the charismatic leadership provided by Chairman Lee Kun-Hee and the training of professional managers within the company.

Professor Asakawa posed the following question in response to the answer given by Professor Song.

As an issue in technological uncertainty, how far will the process of LCD panel enlargement go?

Mr. Tamura responded to this question as follows.

In terms of chamfering, efficiency is highest at 20 sheets or less. By Gen 10 (10th generation of manufacturing equipment), demand will be quite small. Only two or three companies with big brands will go that far.

The discussion was started with the Konomi Presentation on the subject of the "Key Players in Metanational Management." The following main points were made.

The optical disc industry is currently in the midst of extremely tough price competition, which has become competition among East Asian countries, mainly Taiwan and Korea. This competition is based on the following factors: knowledge transfer as embodied in equipment is possible, and the assembling of technology has been made easier by standardization.

When considering viable strategies for Japan, it is important to look back to the package of measures that was put together in 1985 for the revitalization of U.S. manufacturing industries. This package contained at least four elements: protection of industries at competitive disadvantage, the strengthening of competitive advantages, pro-patent policies, and exchange rate policies. The U.S. strategy contributed to the global spread of businesses involved in IT-related devices and components.

The following issues should be considered when developing international competition strategies for Japan: Japanese corporations of the past; the U.S. style of attack and defense; the European style of collaboration over wide areas; and, metanational management.

Professor Yahagi summarized the session with the following comments.

Metanational does not refer to a type of strategy or organization. Rather, it refers to a knowledge management system for either creating or managing knowledge, and the process of transforming assets into resources.

Innovation is meaningless unless it can be commercialized.

The development of information infrastructure is a prerequisite and enabler of the metanational concept. The basic metanational concept is that knowledge is created by bringing together and concentrating specific information sources that are widely dispersed throughout the world.

It is necessary to take "speed" and "timing" into consideration in order to efficiently utilize information that exists and is dispersed throughout the world.

While the metanational concept can be applied to any strategic unit, various risks related to confidentiality and intellectual property do exist. However, in order to survive, serious thought must be given to putting the metanational concept into practice, even if it involves accepting these risks.

Moreover, another basic requirement in management is for top executives to constantly have their eyes on a grand design for the company and a vision of the path the company should take.

In conclusion, the discussion boils down to the following two points: MMM or "management by metanational mind," and MBA, "management by architecture."

The following questions were received from the floor concerning the discussions.

Q: China is the world's largest manufacturer of CRT televisions. What are the chances that it will become the world's largest exporter of LCD televisions?

A: (Mr. Tamura) The leading manufacturers of panel televisions are concentrating on in-house manufacturing. LCD televisions will continue to penetrate the Chinese market, but more time will be needed for manufacturing.

Q: What measures does Samsung take to prevent the leakage of technologies?

A: (Professor Song) Core employees and engineers are paid very well. However, transactions with Chinese and Taiwanese companies cannot be avoided.

Q: What risks does an open innovation system pose for a country in terms of maintaining its competitive position in core industries?

A: (Professor Murtha) The risk lies in choosing the wrong timing for accessing partners, suppliers, customers and other knowledge sources. The timing is affected by the speed at which an industry is evolving. In a fast-evolving industry, the learning process must be timed so that the company is not left behind.

Q: What can governments do and what must private companies do to promote the development of LCD industries?

A: (Mr. Fukuda) Private companies should exit the market as soon as they feel they have lost. Governments should perform a catalytic function for facilitating the exchange of information among private companies.

Q: Why did Sony go to a foreign company to acquire technology instead of going to Sharp?

A: (Mr. Nakata) That is because companies will not share their core strategic technologies and trapped technologies.

Q: It seems that vertical manufacturing relations exist among Samsung subsidiaries. What are pricing arrangements in this system? What role is performed by the headquarters?

A: (Professor Song) Internal transactions are based on market prices.