The Case of Electronics and Pharmaceuticals
Si un Yi(suyi@kiep.go.kr)
April 29th, 2015
Santiago de Chile
Introduction
 Display Panel Industry



Pharmaceutical Industry


Case study of Samsung Display Co.,
Case study of Boryung Pharmaceutical Company
Final Considerations
Motivation and
drivers of MNCs to
include SMEs in
their supply base
Analysis on
governance structure
within a value chain
Incentives and
challenges for SMEs
to participate in GVC
Government policy
to evaluate where
assistance is
required

Research area: two export clusters-Electronics and Pharmaceuticals
 Electronics: Korea
is traditionally strong
 Pharmaceuticals: small but gradually growing

Methodology: interviews, company reports,
literature review

General description of
the Industry
Knowledge and capital
intensive
 Strong vertical operation
structure: from electronic
components to finished
products
 Exists cycle of the final
products

Stagnant
period
Strong growth
New
paradigm
Flexible,
transparent
OLED
LED
2000
3D
2010
Tablet
PC
2020
Polarizer
Glass (or plastic)
Colour filter
Organic materials
Liquid crystal
Glass
Polarizer
Back Light Unit
LCD
OLED
Materials
Components
Array glass substrate
Colour register
TAC Film,
PVA Film
Colour filter
Compensation film
Protective/release
film
Reflecting plate,
Light guide plate,
Diffusion plate, Prism
Polarizer
Driver IC
BLU (CCFL, etc.)
Panel maker
Set maker
LCD Panel
maker
Laptop PC
(Samsung
Display, LG
Display)
LCD PC monitor
LCD TV
Small LCD monitor

World’s leading producers
 Two dominant global
players: SDC, LGD
 45% share in the world’s display panel market

Strategically important sector in Korean
economy
 3.4% of
total GDP in 2013
 Employed 127,000 people
 US$ 34 billion in exports
16.4
2.85
14.24
2.34
10.91
0.79
12.31
0.47
9.74
0.52
64.85
70.45
78.53
76.8
78.04
13.35
9.76
7.59
8.19
8.81
2009
2010
2011
2012
2013
Latin America
Asia
North America
Eastern Europe
Paju Cluster: 26
thousand
employees, LG
subsidiaries
including LG
Display and
related firms,
450million m2,
Tangjeong
Cluster: 197
companies
related to display
panel industry
are clustered and
producing more
than 54% of
domestic the
production.





Employees: 31,000
Annual Sales: 21,191.6 USD (mil)
Business Description: Develop and manufacture liquid
crystal display boards and display panel components for
use in the consumer, mobile and IT sectors
Subsidiary of Samsung Electronics, with which creating
a strong industrial cluster
Manufacturing plants in Korea, China, Slovakia, and
soon in Vietnam




Back Light Unit(BLU): light
source of LCDs (belongs to a
module assembly)
Accounts for 25% of LCD panel
production cost.
Simple process and low value
added content.
SDC is purchasing BLUs from
about 20 companies.
Supplier
Capital
(USD, Mil)b
Number of
employeesb
Major products
Notes
E-Litecom
5.5
187
BLUs for mobile phones, medium-sized
liquid crystal modules (LCM)
Delivers to Samsung, LG and Apple
Samjin LND
8.6
175
Display Tech
Kumho Electric
8.4
31.4
224
246
Inzi Display
Company
Limited
15.4
276
BLUs for TVs, LED lamps, mould
frame
LCD modules for mobile phones
Fluorescent lamps, LED lamps, LED
parts (CCFLs, BLUs)
Top chassis for panel modules, BTM
chassis for BLUs
Reygen
7.5
201
BLUs for TVs and monitors, light guide
panels (LGPs)
Fine DNC
8.0
298
Korea
Computer INC.
7.2
273
Top chassis, bottom chassis for
LCD/LED TVs
Modules for LCD TVs and mobile
phones, LED surface-mount technology
(SMT) for laptops
A-Tech Solution
4.5
480
Mould frames, LED lamps, LGPs for
TVs
Contractor of Samsung Display.
Deliver product for SESL (Samsung
Electronics Suzhou LCD), SAMAX
(Samsung Mexicana)
LG and Samsung partner; also exports
to Japan and Taiwan Province of
China.
LED-SMT for laptop is exported to
China first and then indirectly
delivered to Samsung Display.

For Samsung Display



Reducing production cost
Flexible management and reduce the risks against volatile
cycles of final products and technology change
For BLU suppliers




Securing steady demand
Ensuring timely payments
Improving its image and credibility
Overcome the issue of limited capital(R&D, human capital)

For Samsung Display

Leaking knowledge
 non disclosure agreement, short duration of contract

For BLU suppliers



Competitive market: few purchasers, large number of
suppliers
High dependency and limit of sales growth
Low value added component, and weak bargaining power
for the price

Material and Component Technology Plan,
2012(Ministry of Trade, Industry and Energy, MOTIE)


Display Shared Growth and Cooperation Committee,
2014(MOTIE)


R&D capacity building for SMEs
Semiconductor Research Corporation model: universities
and research institutes conduct research, MNCs and
government invest, remove hurdles for SMEs
Technical Support Centre for Touch Panel Industry in
Daegu, 2014(MOTIE)

supports manufacturing processes: product design,
certification, pilot production and also marketing, and
networking

General Description of Industry



Technology intensive with high value
added each time a new drug is patented.
High initial capital investment and
technology intensity: process from
discovery to approval accounts almost
70% of the total cost and takes long
time.
High regulations of governments for the
sake of citizen’s health.
Development of new drugs,
production of synthetic raw
materials within value chain
Korea
Importing large volumes of drugs, repackaging
for final consumption in the local market
Discovery
Synthesis Of
substance
Clinical
test
Approval
Manufacturing
Sales
Big pharmaceutical
company
University
Venture company
Public
research
institute
Big pharmaceutical
company
Big pharmaceutical company
University
Public research
institute
CRO
(Chemical service)
Venture company
Venture company
CRO
(Clinical test)
CMO
(Manufacturing)
Local company


World’s 15th largest producer behind Mexico and Brazil
Small but growing market participation




270 companies producing final pharmaceutical products,
300 companies for drug substances
Technology capability: half way between developing and
developed economies(more generic drugs or commercial
product than developing new drugs)
High dependency on foreign contract research
organizations(CROs)
Development of 32 new drugs since 1988
Exports
Imports
(USD, Million)
4,915
5,083
4,418
3,917
1,139
2008
3,881
1,391
2009
1,530
2010
1,753
2011
2,049
2012
Substance
Finished product
145
124
95
87
32
21
2004
38
16
2005
43
79
74
64
47
93
38
50
48
54
58
24
2006
2007
2008
2009
2010
2011
2012
2013
Ecuador
1
Argentina
14
Uruguay
3
Uruguay
2
Chile
6
Argentina
1
Chile
Ecuador
9
8
Brazil
38
Peru
8
Peru
3
Colombia
13
Brazil
51
Colombia
14%
Mexico
22
Substance
Mexico
7
Finished Products
JW
Pharmaceuticals
Daewoong
Pharmaceuticals
LG Life Sciences
Dong-A Holdings
Green Cross
• Export of Imipenem (a type of antibiotic, API) to Brazil from 2005 onwards.
• Received the Good Manufacturing Process approval by the Brazilian Health
Surveillance Agency (ANVISA) in 2013.
• Export of the final antibiotic product to Brazil in collaboration with TARGO.
• In 2013, it exported their in-house developed product Nabota (a botulinum
toxin formulation) to 15 Latin American countries(Bolivarian Republic of
Venezuela, Colombia and Mexico, etc).
• It sold their diabetes treatment, Zemiglo, to the Mexican pharmaceutical
company Stendhal.
• It established a local subsidiary (Dong-A Participações Ltda.) in Brazil in 2013 and
sold its products to Latin America through this subsidiary.
• It has been exporting GC Flu to Colombia, Guatemala, Nicaragua, Paraguay and
Peru.




Employees: 1,000
Annual Sales: US$ 312 Million
Business description: Manufacture and sell
pharmaceutical products
 Specialized in producing medicines for hypertension
and antiviral treatment.
Developed its new hypertension drug Kanarb in 2010
and export to LACs from then.

R&D:



Manufacturing:


Develop: Boryung’s central lab(5% of total revenues)
Clinical test: Contract Research Organizations
developed countries such as Quintiles and Covance(UK),
Harland(Switzerland).
Drug substance supplied by SMEs, and also developed
countries
Sales(distribution and marketing):

Partnership with local companies such as Stendhal in
Mexico and Ache in Brazil

Incentives for participating in value chain



Creation of trust for other potential buyers
Regular and timely payments
Challenges for cooperating with MNCs


High dependency and low bargaining power
Regulatory barrier: needs to attain certification of good
management practices and approval from Ministry of Food
and Drug Safety

Bio Korea International Convention


Medistar Initiative, KOTRA(Korea Trade-Investment
Promoting Agency)


Fairs, to resolve the difficulties in marketing
provides market research, interpretation services,
training, matchmaking with potential buyers, network
services and marketing, global partnering service, and
R&D
Homologation Agreements with foreign countries


reduce institutional barriers
Eg. Ecuador
Opportunities
* Stable demand
* Improve credibility
* Transfer knowledge/skills
* Little negotiating power
* Probability of being isolated
* Institutional and technological
barrier
Struggles




MNC’s predominant role in
global value chain
MNC’s intents to reduce
dependency on foreign
suppliers
Open innovation strategy
of MNCs that encourages
SMEs participation
Government’s focused
support to strengthen
material and part industry
which involves large number
of SMEs.
Display Panel Industry



Yet, small participation
of MNCs in global value
chain
Majority SMEs supply
ingredients
Government’s overall
support to increase the
export of the product,
from reducing trade
barriers to financing
R&Ds.
Pharmaceutical Industry