Technology
strategy of Korean firms and
comparative analysis with Japan in display
industry and implications for smes
Seonmin Junga, Sunyoung Yunb, Joosung J. Leea*
Department of Management Science
Graduate School of Innovation and Technology Management,
Korea Advanced Institute of Science and Technology (KAIST),
335 Gwahak-ro, Yeseong-gu, Daejeon, Republic of Korea
a*
Corresponding Author: jooslee@kaist.ac.kr
a
b
Abstract
The Republic of Korea successfully caught up with Japan in electronics industry during
the 1990s and 2000s. The display (LCD) industry is one unique example of the shift in
market leadership positions between Japan and Korea. To examine this case, we make
a comparative study of Samsung and Sharp. We assume that a major factor involved in
the reversed market position is the system integration capability and open innovation
practice of Samsung in comparison to Sharp LCD Display. In this paper, we have showed
some differences of the process to integrate resources through the internal activities and
the external activities of each firm. With a flexible mindset to monitor emerging technological trends, an effort to integrate such resources, and early investment in advanced
manufacturing capacity, Samsung was able to leapfrog into the high-tech arenas such
as LCD industry. We call this method of learning as “learning-by-integrating”. In addition, this LCD industry case shows that open innovation should be exercised effectively;
companies should analyze external environmental factors such as industry economic
cycles and policy supporting, evaluate internal competency, and then create an open
innovation culture in order to compete and reap from technological breakthroughs in
today’s economy. This paper shows some distinctive technological strategies for Small
and Medium Enterprises (SMEs) as it offers insight on how Korean companies have
excelled so well in such a short amount of time. It also discusses what SMEs must do in
order to cope with the new technology-convergence paradigm to stay ahead.
Introduction
I
n 1990, Japan had many leading global
companies in the electronics industry.
However, in 2000, the Republic of Korea’s
companies became the leading players in
the electronics industry. Today, as Japan
faces an economic crisis, and practitioners and scholars suggest that changing
the innovation model did not just help
to develop technology but also took the
business model into consideration (Senoh,
2011). According to Inchijo (2006), the traditional Japanese business system is good
at cumulative technological innovation,
which produced the competitiveness of
such industries as automobiles and digital
cameras. However, the Japanese business
model, which is a “go-it-alone” attitude,
32 TECH MONITOR • Apr-Jun 2014
is being challenged. Particularly in the
field of electronics, Japan integrated its
manufactures and began offering a wide
range of products while maintaining its
reliance on proprietary in-house technology, which may have caused it to lose its
competitive position to a more specialized
component company that exploits open
systems and modularity.
System integration has been regarded
as an important capability in the operations, R&D strategy, and competitive
advantage of major corporations in a
wide variety sectors such as computing,
telecommunications, military systems,
and aerospace (Hobday et al., 2005).
Lansiti and West (1997) showed that superior technology integration is the factor to
achieving superior R&D productivity, speed,
and good products and by utilizing this
approach, US semiconductor companies
had regained their market position in 1990.
Hobday et al. (2005) referred to the fact that
there are‘two faces’about system integration.
The first face is the internal activities of firms
by developing and integrating the input to
produce new products.The second face is the
external activities of firms by integrating components, skills, and knowledge
from outside of firms to produce more
complex products and services. In recent
years, the second face has become more
important.
Chesbrough and Crowther (2006) surveyed twelve firms on open innovation
adoption and identified as early adopters
of open innovation in mature and assetintensive industries, such as aerospace and
chemicals in the United States. Other scholars such as Vanhaverbeke (2006), and Van
der Meer (2007) investigated the adoption
of open innovation in Dutch innovative
firms operating in several heterogeneous
sectors, such as food and beverage, chemicals, and machinery and equipment. As the
previous research shows the differences in
the countries helps to create an open or
closed environment irrespective of the
type of industry and then motivates companies to accept open innovation.
Complicated factors have led to the
change in market position. However,
based on the previous supporting papers,
the authors assume the factors involved in
the changing market position are integration ability and open innovation in Japan
and Republic of Korea’s electronic companies. The LCD industry is one example of
the change in market positions between
Japan and Republic of Korea (Fig 1).
The study involved Sharp in Japan and
Samsung LCD in Republic of Korea, which
were studied from the late 1990s to the
early 2000s. Sharp and Samsung are
Technology strategy of Korean firms and comparative analysis with Japan
compared by their perspectives regarding open innovation. Traditionally, the
former leading industrial enterprises
feared remarkably strong competition
from many newer companies, so they
developed a closed innovation strategy.
Even though Samsung follows Sharp in
the LCD market, Samsung was the number
one leading global company in 2010, followed by Sharp. Samsung consisted of task
force teams that focused on developing LCDs
and utilizing outside networking. Samsung
used its investment capability and strategic leadership to maximize its technology
through open innovation. For those reasons,
this paper analyzes Samsung and Sharp. After
this, the authors show distinctive strategies
for Small and Medium Enterprises (SMEs) as
it offers insight on how Korean companies
have excelled so well in such a short amount
of time and discuss what SMEs must do in
order to cope with the new technologyconvergence paradigm to stay ahead.
Theoretical background
Prencipe et al. (2003) presented drivers of system integration, which include
the increasing complexity of products
and systems such as the rapid pace of
technological change and the increasing breadth of knowledge, modular
design strategies, and change in the competitive environment. The LCD industry,
which has typical characteristics such as
capital-intensity, technology-intensity,
rapid replacement speed of product production technologies, large fluctuations in
product prices, and spread of international
horizontal outsourcing (Hsiao et al., 2011), is
a good case to utilize integration capability.
In order to utilize integration capability,
firms have to establish relationships with
a variety of partners. As noted by Dittrich
and Duyster (2007), inter-organizational
relationships might be established with an
explorative or exploitative intent, the former enabling the inflow of external knowledge and the latter allowing for the external
exploitation of technological opportunities.
Best (2003) considered the question of the
technological resurgence of US information and communication technology (ICT).
In this study, the author pointed out a new
competitive advantage in the innovative
Figure 1: Change of market positions in LCD industry
Source: Jang,S.W., & Yang. B. 1999. The successful of TFT LCD.
Published by Samsung Economic Institute. CEO information 209 and Displaysearch. 2010.
dynamics of regional clusters. As Kostoff
(1994) presented that “the entrepreneur
can be viewed as an individual or group
with the ability to assimilate this diverse
information and exploit it for further
development. However, once this poll of
knowledge exists, there are many persons
or groups with capability to exploit the
information, and thus the real critical path
to innovation is more likely to be the knowledge poll than any particular entrepreneur”.
Through these clusters, firms could develop
and use the ‘poll of knowledge’ from other
partners, and eventually could enhance
their technologies, skills, and products.
The integration capability means
firm’s capability to integrate their internal
resources such as technology, skills, knowledge from external resources. In this regard,
open innovation is similar to system integration in utilizing ideas and knowledge
from outside of firms. Implementing open
innovation requires the innovating firm
to act upon on a number of managerial
levers along which the change process
unravels.
The knowledge management process
represents an area where open innovation has an impact. Open innovation is, in
fact, all about leveraging and exploiting
knowledge generated inside and outside,
thereby enabling firms to develop and
exploit innovation opportunities. Implementing open innovation requires using
the knowledge management process to
share and transfer knowledge within the
firm and to the external environment. Managers might be required to intervene on the
knowledge management process in favor
of the introduction of the new innovation
management paradigm. Polanyi and Van
den Berg (1996) delineate knowledge as
two dimensions: explicit and tacit. Explicit
knowledge is knowledge that is codified
and transmittable in formal, systematic language. It, therefore, can be acquired in the
form of books, technical specifications, and
designs or embodied in machines. Tacit
knowledge, in contrast, is so deeply rooted
in the human mind and body that it is difficult to codify and communicate and can
be expressed only through action, commitment, and involvement in a specific context. Kim (1998) referred the fact that tacit
knowledge can be acquired only through
experience, such as observation, imitation,
and practice. Therefore, closed innovation
companies just transfer tacit knowledge
through in-house members without using
the knowledge management process. On
the other hand, when pursuing an open
innovation company, the knowledge management process needs to operate in and
out of boundaries. Therefore, the knowledge management process is the managerial lever of open innovation.
Open innovation implies an extensive use of organizational relationships to
in-source external ideas from a variety of
innovation sources and to market internal
ideas that fall outside the firm’s current business model using a range of external market channels. This requires the innovating
firm to establish relationships with a variety
of partners, in particular universities and
research institutions, suppliers, and users. As
noted by Dittrich and Duyster (2007) in their
analysis of the innovation network of Nokia,
inter-organizational relationships might
be established with an explorative or
TECH MONITOR • Apr-Jun 2014 33
Technology strategy of Korean firms and comparative analysis with Japan
exploitative intent, the former enabling the
inflow of external knowledge (outside-in
dimension of open innovation), and the
latter allowing for the external exploitation
of technological opportunities (inside-out
open innovation). Laursen and Salter (2006)
go further by identifying, as a key factor in the
shift towards open innovation, a change in
the way by which firms search for new ideas
and technologies. Davide, Vittoroio and Federico (2011) suggest that open innovation
increase both firms’ search breath, which
is the number of external sources they rely
upon in their innovative activities, and firms’
search depth, which is the extent to which
firms draw deeply from the different external sources of their innovation networks.
The firm’s adaptive culture has an effect
on utilizing external resources. Many firms
shift their innovation model from a closed
approach to an open system approach.
However, there are some differences
about culture requirements between two
approaches. First, evidence can be found in
the literature arguing that employees of an
open innovation organization need to be
much more adaptive than their counterparts when applying a closed innovation
approach (Chesbrough, 2003). Openness
to new ideas is addressed by taking into
account employees’attitudes toward external technology sourcing (Phillipp and
Jens, 2010). The underlying attitude that
will be discussed is the not-invented here
(NIH) syndrome that generally denotes a
negative attitude toward external technol-
ogy sourcing. Accordingly, it is critical for the
success of open innovation to overcome
certain attitudes that inhibit the firm from
fully exploiting its potential (Lichtenthaler
et al., 2010). Many scholars and practitioners have referred to the NIH syndrome to
describe the negative effects resulting from
an overemphasis on internal technologies,
ideas, or knowledge (Chesbrough, 2006).
Comparative case study
The business cycle has the recurrent phenomenon in which market demand tends
to peak in one year only to plummet one
or two years later. The business cycle can
be observed in a variety of sectors and
it manifests itself in an especially vicious
form in innovation-driven and/or capitalintensive environments. Figure 2 shows
the LCD industry cycles.
Samsung poured investment funds
into an industry as the very time when
prices were falling, production was falling, and other firms were cutting back on
investments with no end in sight. It was
an act of faith believing that the downturn
would be followed by an upturn. Finally,
Samsung created 3.5 generation and
changed the market rules (Jang and Yang,
1999). In contrast, in 1995-1996, when the
industry tipped it into a second downturn
due to excess capacity and the world financial crisis happened in 1997, Sharp delayed
investing in and producing the huge TFT
panel and remained with its own strategy
of focusing on small LCD panel production.
Figure 2: Crystal cycles and strategic initiatives
Source: Kerry, L. C. 2004. Asian TFT-LCD market drives manufacturing trends.
Published by ElectroIQ.
34 TECH MONITOR • Apr-Jun 2014
Moreover, Figure 3 shows the trajectory of R&D intensity from 2000 to 2012. As
Figure 3 demonstrates, for a certain period
of time, Samsung and Sharp have shown
an opposite tendency in R&D investment.
According to Berchicci (2012), firms with
a high level of R&D capacity are more
efficient in recognizing and assimilating
crucial knowledge from external sources,
while firms with a limited basic R&D capacity are hard to screen, recognize, exploit
and finally benefit from new external
knowledge. In other words, in order to efficiently utilize external knowledge, firms
also have to possess their own capabilities.
Samsung has steadily increased their R&D
intensity; however, Sharp has lost its own
R&D capability during the same period.
In order to catch up with advanced technology, in 1996, Samsung opened a R&D lab
in Japan to take advantage of unemployed
Japanese engineers to acquire technology from without licensing it. Even though
it entered the new LCD panel industry, it
had supplier networks with Japan’s microfabrication process equipment companies.
At first, it acquired each process of TFT-LCD
module manufacturing technology and
gradually collaborated with advanced technology companies. In contrast, Sharp kept
its knowledge and technology under wraps
in order to remain competitive. They usually
conducted new technology developments
in secrecy and did not reveal outside of the
patent application. They also transferred
tactical knowledge within the organization.
When Sharp established the Kameyama
plant, the LCD panel department and LCD
TV department’s engineers worked together
to determine whether that type of tacit
knowledge could be smoothly adjusted.
In Kamyama, the LCD technology development department engineers were directed
to oversee the development process of LCD
TVs; to manage performance, engineers
developed a new LCD, which was assembled
in front of TV division engineers. The combined development of new LCD technology
and TV production was becoming more
complex for Sharp and created a significant
barrier to protecting its intellectual property.
The Republic of Korea and Japan form
the LCD clusters. Samsung was located
in Tangjeong “Crystal Valley”, which is the
Technology strategy of Korean firms and comparative analysis with Japan
12.00
10.00
R&D Intensity %
world’s largest LCD cluster. The cluster contributes to a competitive and cooperative
open environment. Samsung has partnerships with other companies, universities, and
research institutes. Samsung was focusing
its partnerships on technology and market
research, and not just on outsourcing. The
inter-industry results in companies adopting external knowledge and technologies
into internal activities. Sharp is the central
company in Japan’s largest LCD industry in
Kameyama, where it consistently has a vertical integration, from materials and parts to
the final products. In contrast to Samsung,
Sharp outsourced the manufacturing of
machines and parts but not the partnership.
They just ordered customized equipment
and regularly changed subcontractors.
Samsung sought partnerships to improve its
development of LCDs within the clusters; on
the other hand, Sharp attempted to reduce
the cost of non-core businesses and functions unrelated to technology or products
by outsourcing within the clusters.
Samsung had shown an active strategy
to form relationship with competitors. For
example, Samsung and Sony have competed in most of the domains; however,
in 2003, Samsung and Sony established
a joint LCD venture (S-LCD). The two companies joined through the patented technology, which enabled them to increase
sales, because the companies produced
the product continually and faster thanks to
the accumulation of patents, which saved
money on new patent development costs.
They shared information with each other,
excluding confidential design information.
Sony accepted the stable TV panel without
testing, and Samsung improved its imaging
technology for LCDs. In case of Sharp, they
created a closed innovation environment,
networking through a horizontal division
inside the company. Until the Kameyama
plant began to produce LCD panels, the
development of LCD technology and the
TV Sector Development Division were
separate from each other. Sharp was locked
in the company’s pride and would not
accept outside innovation, which resulted
in a decrease in competitiveness, brand on
Sharp’s decreasing TV sales. It had missed
the opportunity to look for the market
demand because of cultural lock-in.
8.00
6.00
Sharp
Samsung
4.00
2.00
0.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
Figure 3: R&D intensity (R&D expenditure/net sales)
Discussion and conclusion
This study seeks to provide a comprehensive
overview from theoretical and practical perspectives of integration capability and open
innovation in the LCD industry. Samsung utilized the advance knowledge from outside
the company and was able to leapfrog into
the high-tech arenas such as LCD industry
with a flexible mindset to monitor emerging
technological trends, an effort to integrate
such resources, and early investment in advanced manufacturing capacity. However,
without understanding the resources from
outside of firm, it could not have been possible for Samsung to lead the LCD industry. We
call this method of learning as “learning-byintegrating”. However, Sharp protected its
knowledge and wanted to reduce the cost
of non-core business activities or functions
outside of technology or product development by outsourcing within clusters.
Through these results, we could show
some distinctive technological strategies for
SMEs as it offers insight on how Korean companies have excelled so well in such a short
amount of time. Several CEOs for Korean
SMEs also emphasize on the capability for
finding opportunities by monitoring technology trend and cumulating their own technology with resources from firms’outside.‘Dasan
networks’, which is the first network device
production company of Republic of Korea,
found their new business items, which are
the internet transaction and network device,
when they had been working at Silicon Valley. After then, through joint venture with
Siemens, they learn their know-how and
cumulate their own technology capability.
In case of Humax which is the global set-top
box maker for digital TV in Republic of Korea,
the CEO said that there are opportunities for
ventures or SMEs if the environment began to
change. When they established venture business in 1989, they monitored the changes of
technology trend from analog to digital and
decided to entrance digital products business. In 21 years after beginning venture
business, their sales reached KRW 1 trillion. In
recent years, they finished five M&As for trying to implement open innovation in order
to find new business beyond the set-top box
from outside of firm.
In conclusion, in order to cope with the
new technology-convergence paradigm to
stay ahead, SMEs should analyze external
environmental factors such as industry economic cycles, evaluate internal competency,
and then create an open innovation culture
in order to compete and reap from technological breakthroughs in today’s economy.
References
ü Berchicci, L. (2012), “Towards an Open
R&D System: Internal R&D Investment, External Knowledge Acquisition and Innovative Performance.” Research Policy, dopen
innovation:10.1016/j.respol.2012.04.017.
ü Best, M. H. (2003), “The Geography of
Systems Integration,” in A. Prencipe, A/
TECH MONITOR • Apr-Jun 2014 35
Technology strategy of Korean firms and comparative analysis with Japan
Davies and M/ Hobday (eds), The Business
of Systems Integration. Oxford University
Press: Oxford.
ü Chesbrough, H. (2003), “Open Innovation, The New Imperative for Creating
and Profiting from Technology,” Boston,
MA: Harvard Business School Press.
ü Chesbrough, H., and A. Crowther, (2006),
“Beyond High-Tech: Early Adopters of
Open Innovation in Other Industries, R&D
Management, Vol. 36(3), pp. 229–236.
ü Davide, C., Vittorio, C., & Federico F.
(2011), "The open innovation journey:
How firms dynamically implement the
emerging innovation management paradigm", Technovation, Vol. 31(3), pp. 34–43.
ü Dittrich, K., and G. Duyster (2007), “Networking as a Means to Strategy Changes:
The Case of Open Innovation in Mobile
Telephony,” Journal of Product Innovation
Management, Vol. 24, pp. 510–521.
ü Hobday, M., A. Davis, and A. Prencipe
(2005), “Systems Integration: A Core Capability of the Modern Corporation,”Industrial
and Corporate Change, Vol. 14, pp. 1109–43.
ü Hsiao C. T., P. I. Chang, C. W. Chen,
H. H. Huang (2011), “A System View for the
High-Tech Industry Development: A Case
Study of Large-Area TFT-LCD Industry in
Taiwan,” Asian Journal of Technology innovation, Vol. 19(1), 117–132.
ü Inchijo, K. (2006), “Strategic Management of Knowledge-Based Competence:
Sharp Corporation.” In H. Takeuchi, and
T. Shibata (eds.), Japan, Moving Toward
a More Advanced Knowledge Economy
Vol. 2: Advanced Knowledge-Creation
Companies: 41–50. Washington: The International Bank for Reconstruction and
Development/ The World Bank.
ü Jang, S. W., & Yang. B. (1999), The successful of TFT LCD. Published by Samsung
Economic Institute, CEO information 209:
1–20.
ü Kim, L. S. (1998), “Crisis Construction an
Organizational Learning,” Organizational
Science, Vol. 9(4), pp. 506–518.
ü Kostoff, R. N. (1994), “Successful Innovation: Lessons from the Literature,” McKinsey
Quarterly, Vol. 2, pp. 99-105.
ü Lansiti, M., and J. West (1997), “Technology Integration: Turning Great Research
into Great Products,” Harvard Business Review, May–June.
ü Laursen, K. and A. Salter (2006), “Open
for Innovation: the role of openness in explaining innovation performance among
U.K. manufacturing firms”, Strategic Management Journal, Vol. 27, pp. 131-50.
ü Lichtenthaler, U., H. Ernst, and M.
Hoegl (2010), “Not-sold-here: How Attitudes Influence External Knowledge
Exploitation,” Organization Science, Vol.
21(5), pp. 1054–1071.
ü Phillipp, H., and L. Jens (2010), “Open and
Closed Innovation: Different Innovation
Cultures for Different Strategies,” Technology Management, Vol. 52(3/4), pp. 322–342.
ü Polanyi, L., and M. H. van den Berg
(1996), “Discourse Structure and Discourse
Interpretation,” In P. Dekker & M. Stokhof
(eds.), Proceedings of the Tenth Amsterdam
Colloquium: 113-131, Amsterdam: University of Amsterdam.
ü Prencipe, A., A. Davies and M. Hobday
(eds) (2003), The Business of Systems
Integration, Oxford University Press,
Oxford.
ü Senoh, G. (2011), “The Reason Failure
of Japanese Company Business Even
Having the Technology,” Seoul: 21 Century Books Press [translated from Korean
by Shin, E. J.].
ü Van der Meer, H. (2007), “Open
innovation – The Dutch threat: Challenges in Thinking in Business Models,” Creativity and Innovation Management, Vol.
16/2(June), pp. 192–202.
ü Vanhaverbeke, W. (2006), “The InterOrganizational Context of Open Innovation,” In H. Chesbrough, W. Vanhaverbeke, and J. West (eds.), Open Innovation:
Researching a New Paradigm: 205–219.
Oxford: Oxford University Press. n
Global Innovation Index 2014
The Global Innovation Index 2014 was released jointly by World Intellectual Property Organization (WIPO), Cornell
University, INSEAD and its Global Innovation Index 2014 edition Knowledge Partners, the Confederation of Indian
Industry (CII), du and Huawei. Switzerland, the United Kingdom and Sweden topped this year’s Global Innovation
Index, while Sub-Saharan Africa posted significant regional improvement in the annual rankings. The GII leaders
have created well-linked innovation ecosystems, where investments in human capital combined with strong innovation
infrastructures contribute to high levels of creativity. In particular, the top 25 countries in the GII consistently score
high in most indicators and have strengths in areas such as innovation infrastructure, including information and communication technologies; business sophistication such as knowledge workers, innovation linkages, and knowledge
absorption; and innovation outputs such as creative goods and services and online creativity.
The GII 2014 surveys 143 economies around the world, using 81 indicators – to gauge both their innovation capabilities and measurable results. Published annually since 2007, the GII is now a leading benchmarking tool for business
executives, policy makers and others seeking insight into the state of innovation around the world. This year’s study
benefits from the experience of its Knowledge Partners: the Confederation of Indian Industry, du and Huawei, as
well as of an Advisory Board of 14 international experts.
For more information, contact:
Media Relations Section, World Intellectual Property Organization
Tel: (+41 22) - 338 81 61 / 338 72 24; Fax: (+41 22) - 338 81 40
Web: http://www.wipo.int
36 TECH MONITOR • Apr-Jun 2014