Exploring Industrial Knowledge Flow for Identifying Technological Development Strategy: The Case of Korea’s TFT-LCD Industry

Abstract

Korea’s technological achievement in the thin film transistor liquid crystal display (TFT-LCD) industry became possible primarily through a catch-up strategy in technological development. Through qualitative and quantitative analyses of the Korean TFT-LCD industry’s knowledge management, the researchers highlight the strategies that key Korean firms utilized to enable a successful technological catch-up. On a national level, patent citation information is analyzed to evaluate the Korean industry’s technological knowledge position compared to other Asian countries. Results from this analysis indicate that Korea plays a central role within the knowledge network, as evidenced by the highest centrality value. On a firm level, Samsung and LG Display are investigated in the areas of technological development and manufacturing strategies. Samsung and LG Display show strength in the technological specialization of devices’ arrangements/optical operation and arrangement/circuits of control indicating devices. In addition, these two firms show more diversification to allow for new business opportunities. By integrating quantitative and qualitative methods to analyze the TFT-LCD industry on national and firm levels, this research demonstrates the industry’s trajectory with depth and precision. In addition, this study contributes a meaningful strengthening of analysis methods in technological knowledge management and provides successful management factors for new latecomers in the industry.

Keywords

TFT-LCD industry patent citation analysis technological diversification technological specialization

Introduction

Display industries have been growing and expanding with the shift to the N-screen era, whereby many screens are required for IT devices, such as the mobile phone, television and computer. The Markets and Markets (2013) reports that the total display materials market revenue is expected to reach USD 50.63 billion by 2020, and among the technological segments, TFT-LCD displays accounted for the largest share. In the late 1990s, the plasma display panel (PDP) and liquid crystal panel (LCD) were selected as promising technologies within the flat panel display (FPD) market, particularly as a replacement of the cathode ray tube (CRT) technology. TFT-LCD is the key technology in the FPD market owing to its production in various sizes and cost benefits. In the 1990s, the United States and Japan were leading the TFT-LCD technology market. However, since the turn of the millennium, Korea and Taiwan have been leading the TFT-LCD industry. The center of technological knowledge was moved from Japan to other Asian countries such as Korea and Taiwan. During the growth period, Korean and Taiwan companies witnessed tremendous changes. In particular, Korean LCD companies have come to dominate the market during the growth periods (e.g., Samsung: 23.9%, LG: 19.8% in 2008; Samsung: 27.1%, LG: 24.5% in 2009).

The LCD industry can be characterized as infrastructure products developed through a complex combination of the right supporting technology, capital and human resources. The growth of the display industry is, therefore, analysed at the national or regional level. The majority of such research has involved looking at ways to absorb technological capability and create a network between business partners for supply chain (Chuang & Hobday, 2013; Liao & Kuo, 2014). Many researchers use patents to analyse knowledge flows and innovation capabilities in the LCD industry (Hu, 2008; 2012). Among these, Hung (2006) analyses Taiwan’s LCD industry and derives four success factors (industry policy, human resources, amount of investment and collaboration between firms and institutions) as a national system of innovation framework. Through capital investments, the LCD industry accumulates technological knowledge. Despite the success of Korea and Taiwan as latecomers in the LCD industry, there are limited studies on the Korean LCD industry. In the case of Taiwan, Taiwan LCD companies specialize in the display business, which makes it easy to trace the historical or financial performance by analysing patent data; whereas, in Korean LCD cases, these were developed by two Korean conglomerates, which causes the problem of generalizing implications for developing countries. However, given that two Korean companies have led the LCD industry since the 2000s, as evidenced by the Samsung and LG Display, it constitutes 85% of the FPD market (Displaybank, 2012). In addition, LCD products have commerce transactions between electronic products’ manufacturers. This means that the production plan matches the partners’ needs. Hence, the LCD manufacturing companies consider business-to-business alliances with partners and network relations. There are some successful cases of alliance network such as LG display/Phillips, Samsung display/Sony, and Sony/Toshiba/Hitachi. Lin (2012) also considers Taiwan’s representative TFT-LCD companies’ network with other participants in the industry as one of the successful factors, which was increased under the uncertain environment. Some researchers proposed multiple criteria decision-making methods or algorithms to develop effective development strategies of TFT-LCD manufacturers to improve their performance or enhance their competitive advantage in Taiwan (Lu & Huang 2015; Lu, Kuo, Lin, Tzeng, & Huang, 2016; Tsui, Tzeng, & Wen, 2014).

At present, business environments have changed, which means that firms should strategically manage their technological knowledge well to gain technological competitiveness. In other words, firms should consider the coverage and scope of technological fields that they want to specialize in and strategically decide and plan how much resource they will invest in technological knowledge development compared to other competitors (Cantwell & Andersen, 1996; Lazear, 2004). It is indeed important to identify successful strategies and policies of the TFT-LCD industry, but the current understanding of successful factors for a catch-up strategy in TFT-LCD is limited given few existing studies.

Therefore, this study aims to explore the Korean TFT-LCD industry’s knowledge flow and derive the successful strategies in the industry’s growth through a historical analysis. In this study, first, the Korean LCD industry’s change of know-ledge activities and positions through patents data is investigated. Patents are quantitatively interrogated to examine patterns of knowledge flows and identify the comparative Koreans’ capabilities and roles of knowledge distribution in the TFT-LCD industry. Second, Korean TFT-LCD firms’ technological development strategies are analysed: technological specialization and diversification. Samsung and LG displays emphasized more on capabilities and diverse technological ranges for fast catching up forward learners; thus, technological strategies are investigated by analysing firms’ patents data. Lastly, Korean TFT-LCD firms’ strategies are identified through a qualitative analysis. Interviews are conducted with participants in the TFT-LCD industry to identify successful factors from their overall strategies. This research is meaningful as the researchers suggest the integrated point of view in national level (macro-) and firms’ level (micro-) as well as in quantitative and qualitative methods to thoroughly understand the industry’s trajectory. In turn, it can strengthen the body of knowledge of management analysis methods. In addition, effective strategies can be recommended for new latecomers in the industry through the results of Samsung and LG displays’ successful management factors.

The remainder of this research is structured as follows. A literature review on the Korean LCD industry, patent analysis and technological management strategies is provided in ‘Literature Review’section. The data collection and methodological background adopted, including patents citation network analysis and technology diversification/specialization measurement are detailed in ‘Methods’ section. ‘Empirical Results and Implications’ section explains the results of quantitative and qualitative analyses. Lastly, in ‘Conclusion’ section, conclusions, limitations and recommendations for further research are provided.

Literature Review

Korean LCD Industry

The Korean LCD display industry was aggressively and intensively expanded between the mid-1990s and early 2000s. In 1995, Samsung and LG entered into the LCD market as latecomers and began to expand their production lines with an aggressive strategy to achieve economies of scale. Despite the economic crisis that swept Asia in 1997, Korean firms focussed on investing in new technology development as well as product lines to supply goods, while most competitive firms in the LCD industry reduced their new investment and new product lines to avoid risks. Huge investment in the early stage has helped Korean firms develop technologies relevant to the large size of TFT-LCD panels, develop a driving force, and be the market leader. Mathews (2005) points out that in the industrial period, the so-called crystal cycle led to Korea’s success in the TFT-LCD industry. The crystal cycle allows Korean firms to enter the market while in downturn, making them catch the market leaders. In summary, in accordance with industrial cycle, the Korean LCD industry enters the market at the right time and manages the technological knowledge and production capabilities well at an early stage.

In addition, Korean firms with a production capacity of various sizes can formulate a strategy for continuous standardization of product trends and technology through the generation of production to provide small, medium and large sizes of more quickly and efficiently optimized products. Table 1 shows the increasing production efficiency of Samsung by generation and the rising efficiency of all sizes of 7th-generation products. Although Korean firms did not have the initial and primary technologies of TFT-LCD given that they were latecomers, they had overcome their technological limitations by concentrating on the development of applied and next-generation technologies. Through huge investments in the development of applied and next-generation technologies with the construction of basic infrastructure, Korean firms were able to develop the fastest-growing technology capabilities within a short period. Based on a standard process and technology capacity, they focussed on developing a new structure of panels and improving backlight modules or driving circuit units. Even though Korea is the latecomer, it has become a global leader in thin film transistor liquid crystal display (TFT-LCD) panels through various success factors such as technological development and innovation. In 2012, Korean companies, such as Samsung and LG Display, constitute 85% of the FPD market (Displaybank 2012).

Table 1.

Efficiency of Production by Generation of TFT-LCD in Samsung

	4 generation	5 generation		7 generation
	L4	L5	L6	L7
Size(mm²)	730 × 920	1,100 × 1,250	1,100 × 1,300	1,870 × 2,200
17’’ Wide	6 (79%)	12 (77%)	12 (74%)	36 (77%)
22’’ Wide	3 (65%)	6 (64%)	8 (81%)	36 (85%)
26’’ Wide	2 (60%)	6 (88%)	6 (84%)	36 (88%)
30’’ Wide	2 (79%)	3 58%)	3 (56%)	36 (77%)
32’’ Wide	1 (43%)	2 (42%)	3 (61%)	36 (86%)
37’’ Wide	1 (59%)	2 (58%)	2 (56%)	36 (78%)
40’’ Wide	–	2 (65%)	2 (65%)	36 (91%)
42’’ Wide	–	2 (72%)	2 (72%)	36 (75%)
46’’ Wide	–	2 (89%)	2 (86%)	36 (90%)
54’’ Wide	–	1 (61%)	1 (59%)	36 (61%)

*Source: http://www.samsungdisplay.com/kor/index/index.jsp

Patents Analysis for Knowledge Management

As the importance of knowledge management increased, many firms have considered and evaluated their internal knowledge capacity to enhance their capability to produce and retain knowledge. Patents can be an indicator of knowledge production from firms’ internal R&D and is commonly used for planning firms’ technological strategy from a knowledge management perspective. As patent information is also used to detect competitors’ technology development and manage their R&D portfolio, firms can formulate an alternative technological strategy, whether defensive or offensive in intent.

Patents are a measure of entities’ innovation performance by reflecting success in R&D activities. Thus, they are widely used as an alternative to measure knowledge and technological ability produced from internal R&D (Trajtenberg, Henderson, & Jaffe, 1997). Within academic research, many scholars have used patents to evaluate innovative activities and conduct empirical research for statistical analysis. This is because patent applications are an accumulated longitudinal database and a diverse and quantitative indicator of knowledge within the technology management field (Griliche, 1990; Hall, Jaffe, & Trajtenberg, 2001; Jaffe & Trajtenberg, 2002). Patent analysis is, therefore, often undertaken for substantial periods. Initially, research that used patent analysis only included counting the number of patents to compare and analysing the numbers of patents used by region (country) and industry or company (von Wartburg, Teichert, & Rost, 2005). However, many indices and indicators have been developed using patent information such as patent date, applicants, assignee country, international patent classification (IPC), citing number and references.

Patent citation is the most used metric for analysing the relationship of patents in recent studies, particularly through knowledge flows or technology diffusion. New patents cite existing patents as a reference; hence, it can measure knowledge flows. A number of studies have sought to understand the citation linkage between patents and have analysed knowledge structure from diverse perspectives: the national, regional, industry, firm and technology levels (von Wartburg et al., 2005). At the national or regional level, there have been studies involving the comparative analysis of patent citation effect as dependent on regional location (Jaffe, Trajtenberg, & Henderson, 1993; Tijssen, 2001) and the relationship between national knowledge flows through analysis of patent citation among countries (Bosworth, 1983; Jaffe & Trajtenberg, 1999; Hu & Jaffe, 2003). Many scholars used patent citation to identify the technological characteristics of patterns extant in a specific industry, particularly a high-technology industry or R&D-intensive industry (Han & Park, 2006). Knowledge structure has been examined through technology–industry linkage at the industry level (Bergeron, Lallich, & Le Bas, 1998). At the firm level, because of the vast amount of practical studies of technological value or competitiveness in firms’ R&D activities as measured by patent citations (Narin, Noma, & Perry, 1987), the use of this metric can be thought of as enabling managers within a firm to formulate their technological strategy by finding patterns of technological standards for development. It can also allow analysis of the firm’s R&D portfolio and economic value by technological capacity (Bigwood, 1997). Lastly, from a technological perspective, there have been studies that analysed the current structure and path of a specific technology field and found the core or fusion technology (Archibugi & Pianta 1996; Basberg, 1984, 1987; Chen, Chang, Huang, & Fu, 2005; Ganguli, 2004; Grupp, Lacasa, & Schmoch, 2003). As it is a widely used tool to measure technological change and forecast future technology (Fleming & Sorenson, 2001; Rosenkopf & Nerkar, 2001; Hu & Jaffe, 2003), patent citation is making a significant contribution to technology strategy and policy establishment (Cho & Shih, 2011).

Technological Knowledge Development Strategies

Numerous studies have examined the relationship between technological knowledge and innovation performance (Peteraf, 1993; Tyler, 2001). In general, the technological knowledge of a firm is determined based on how much the activities of technological knowledge affect the firm’s performance (Ernst, 2001). However, the way technological knowledge is utilized according to technological life cycles can contribute to the competitive advantage of a firm alongside having the requisite technological knowledge. Hence, firms should strategically develop, enforce and renew knowledge to adapt to changing business environments (Wang, Lo, & Yang, 2004). In other words, firms should strategically manage their technological knowledge to gain technical competitiveness. While firms aim for technology development, they should plan how much resource they can invest in technological knowledge development compared to other competitors. Technological specialization is a type of enhancing technological knowledge. In the following step, firms should consider the coverage of technological fields, namely technological diversification. Hence, this research covers two technological development strategies: technological specialization and diversification.

Technological Specialization

Technological specialization is defined as the investment of institutions primarily in a specific knowledge domain (Lazear, 2004). Technological specialization is used in two broad areas: first, regional industrial characteristics (Archibugi & Pianta 1992; Malerba, Orsenigo, & Peretto, 1997), and second, technological knowledge accumulation activities at the firm level (Duysters & Hagedoorn, 2000; Hitt & Hoskisson, 1994). This research is applied to accumulating firms’ knowledge in a specific technology area. Díaz-Díaza, Aguiar-Díaz, and De Saá-Pérez (2008) find that technological knowledge assets have a positive impact on firm performance through innovation performance. Furthermore, Dunning (2000) claims that technological competencies have been derived from globalization, technological discontinuities and industrial dynamics. Based on technological specialization, firms develop new products and processes directly or transfer their technological capabilities to other firms (Cantwell & Iammarino, 2001; Duysters & Hagedoorn, 2000).

Patel and Pavitt (1997) insist that specialized technological capabilities benefit firms’ technological profiling and the direction of proper products in a market. Thus, technological specialization strategies can possibly create core competence and ultimately increase the firm’s financial performance and level of innovation (Cantwell & Iammarino, 2001; Duysters & Hageddorn, 2000; Lettl, Rost, & Wartburg, 2009). In addition, technological, specialized firms lead to price competitiveness because of the production in economies of scale (Bunn & Oliveira 2007; Wong & Singh, 2005). Subsequently, manufacturing firms have high possibility to position as market leaders.

Technological Diversification

Technological diversification is defined as the development of various technological fields in a specific industry. Cantwell and Andersen (1996) posit that the firms with technological diversification are rather stable under the competitive and unstable industry change because they can modify an existing product and service based on firms’ competencies (Breschi, Lissoni, & Malerba, 2003). Even though the technology is not effective in a certain product, it can be applied in other products or other firm’s R&D activities. Thus, it is an effective strategy for technological knowledge-based firms.

Numerous studies have shown that technological diversification has a positive effect on a firm’s innovation and financial performance by reducing the lock-in effects of R&D (Gambardella & Torrisi, 1998; Suzuki & Kodama, 2004; Miller, 2006). Technological diversification accelerates the search for complementarities and novel solutions (Kim and Kogut, 1996) through cross-fertilization between different technologies (Granstrand, 1998) to bring solutions to problems. In addition, firms can invest more in R&D expenses through diverse technologies, which means that their diversified research portfolios carry reduced risk of performance success or failure (Garcia-Vega, 2006). Even though the technology is not effective in a certain product, it can be applied in other products or other firms’ R&D activities. Therefore, technological diversification is beneficial in reducing R&D investment risks. The economies of scale benefits and productivity are also investigated in many studies. Granstrand and Oskarsson (1994) posit that technological diversification derives the economies of scale, scope, speed and space and results in financial growth of firms. Suzuki and Kodama (2004) demonstrate that technological diversification is beneficial for a technology-based firm to sustain in a competitive market through economies of scope advantages. Watanabe, Hur, and Matsumoto, (2005) also analyse Japanese technological diversification cases and conclude that it increases technology’s marginal productivity.

Methods

Research framework

This study is composed of three steps. First, to analyse the knowledge position of Korea’s TFT -LCD industry, the patents information was collected. This study uses patent data as an alternative for the production of firms’ R&D or innovation activities (Griliche, 1990; Trajtenberg et al., 1997; Hall et al., 2001; Jaffe & Trajtenberg, 2002) to analyse and explore patterns of technology development of firms in Korea. The term ‘Thin Film Transistor Liquid Crystal Display’ was searched in Thomson’s Innovation Patent database, and 2,919 patents were obtained from 1996 to 2013 for TFT-LCD. After that, the number of patents of each market participant was calculated, and patent citation analysis was used to measure the technological capability and competitive advantage of Korea over time. The patent citation relationship is analysed among 13 leading national firms: Samsung, LG, Hyundai, Hynix, AUO, CMO, Quanta, Hannstar, CPT, Hitachi, NEC, Fujitsu and Seiko Epson. Three countries are analysed across four-year time periods according to technology life cycle: emerging stage (1996–1999), growth stage (2000–2003), maturity stage (2004–2007) and decline stage (2008–2011). Then, the patent-level citation matrix was transformed into a nation-level matrix such as 3 × 3 citation matrix of nations.

Based on the citation matrices constructed, this study used two analyses: quantitative and qualitative approaches for investigating the Korea firms’ successful factors of technology development and production strategies compared to other countries. For a quantitative analysis, Korean companies Samsung’s and LG’s technological specialization and diversification strategies were calculated by patents data. These three active countries in the TFT-LCD industry are compared according to their technological capabilities and the different patterns of roles of countries are derived through network indices such as centrality, technological specialization, and technological diversification. For qualitative analysis, 10 people (Samsung 5; LG 5) working in the R&D division, including technology planning, development and management and sales, were interviewed. The main interview discussed how to absorb production capabilities and, in the process, absorbing external partners and players over time.

Methodology

Patents Citation Analysis

This study examines the patent citation relationship among firms in three countries (Korea, Japan and Taiwan) from a network perspective. Changing patterns of technological dominance or position are identified, and Korea’s technological capability is compared to those of other countries by using centrality measurement. Network analysis, which is derived from graph theory, is a method of apprehending correlation across various types of social systems and network structures. It is characterized by quantitatively analysing the linkage between nodes (Rogers & Kincaid, 1981; Wasserman & Faust, 1994). In addition, the quantitative derivation of the network index can judge the size and influence between nodes. This has the advantage of being able to be utilized in various types of analysis (Wasserman & Faust, 1994). Freeman (1979) classifies centrality into types of degree centrality: closeness, betweenness and eigenvalue centrality. In this study, the researchers employed two main centrality measurements: degree and betweenness centrality.

First, the degree is defined by the level of relationship formed by one node to another. It is a quantified index to show the amount by which that point is located from the centre. For directional network, it is largely classified into in- and out-degree centrality (Freeman, 1979). In the directional graph, the direction of connections coming to that point is called in-degree centrality, and the direction of connections going out of that point is out-degree centrality. Therefore, in the total number of connections, degree centrality is measured by the ratio of in- and out-degree for each subject. In the directional graph, the direction of connections coming to that point is called in-degree centrality, and it is computed as:

Z_{D, i n} = \sum_{j = 1}^{N} Z_{i j, i n}

(1)

where Z_D is the number of relation of actor j received from other actors i. The direction of connections going out of that point is out-degree centrality and is measured as:

Z_{D, o u t} = \sum_{j = 1}^{N} Z_{i j, o u t}

(2)

where Z_D,out is the number of relation of actor i going out to other actors j. Therefore, in the total number of connections, degree centrality is measured by the ratio of in-degree and out-degree for each subject.

Second, betweenness centrality is an index to measure the degree of role for the individual in charge of the mediator or arbitrator in the network. It is shown by the degree of one individual locating ‘between’ other points in the network (Freeman, 1979). It is measured as:

\sum_{i \leq j} \frac{g_{i j} (a_{k})}{g_{i j}}

(3)

where g_ij is the number of geodesics that connect actors a_i and a_j, and g_ij(a_k) is the number of those paths that pass through a_k.

Technological Specialization and Diversification

Technological specialization. Technology specialization of the region or industry can be measured by patents (Ejermo, 2005). The index of the change of technological specialization is the revealed technological advantage (RTA). This measure is applied at the country level by Soete (1987) and then expanded to research at the company level (Cantwell, 1989; Patel & Pavitt, 1991). RTA is the share of patents among the total patents of each technological field, as divided by the firm’s total share in all fields (Patel & Pavitt, 1997). Wift means the ratio of country i’s number of patents in a specific technology field in year t, and Wint means the ratio of country i’s number of patents in total patents in year t. When the RTA is higher, the relative strength of technology specialization is also higher.

T S_{i t} = \log \sum_{i} W_{i f t} / W_{int}

(4)

Technological diversification. To identify how countries focus on a specific technological field in the TFT-LCD industry, technological specialization and diversification measurement were employed in this study. For this analysis, technology was classified according to the IPC established by the World Intellectual Property Organization. To calculate technology diversification, Hirsch-Herfindahl Index (HHI) is employed in this study, which is commonly used to measure technological diversity in technology management (Gambardella & Torrisi, 1998; Hall 2005; Garcia-Vega 2006). It measures the degree of concentration of patents among patent classes.

The number of firms in a market as well as the concentration account for HHI is calculated by incorporating the relative size of all firms in a market. It is computed by squaring the market shares of all firms in a market and then summing the squares. The equation used is as follows:

T D = 1 - \sum_{i = 1}^{n} {(M S_{i})}^{2}

(5)

Focus Group Interview (FGI)

A group interview is useful in finding a systematic examination of interdependent industry phenomena, players and mechanisms. First, interviewees were selected from the Samsung and LG TFT-LCD group. Face-to-face and FGIs were conducted with five people working in the R&D and management and sales division of the firm. Majority of the interviewers were managers who had more than 10 years of experience in this area. Direct workplace visits were made by the researchers, and a list of questions was posed relevant to the TFT-LCD industry.

The FGI is a technique by which interviewers are selected within the group, and they focus and discuss together a given topic. It has several advantages in terms of the ability to generate more detail and large amounts of data because the group members have focussed on one topic and can relate and interact with each other. Discussions can be held in a comfortable place, and the nature of the social interaction can enhance the reliability of the data recorded (Thomas, MacMillan, McColl, Hale, & Bond, 1995).

Empirical Results and Implications

Overall Patents Activities in the TFT-LCD Industry

In its transition to display technologies, Korea actively pursued success in TFT-LCD technology. Korea has become a global leader in TFT-LCD panels through various success factors such as technological development and innovation. Korean companies such as Samsung and LG Display constitute 85% of the FPD market (Displaybank, 2012). Figure 1 shows the total number of TFT-LCD patents in all fields and in Korea. Longitudinal patent data is useful in exploring patterns of activity for technology development. Before 1999, there were not many patents developed because it was the emerging stage of TFT-LCD in the technological life cycle. However, the market changed after 2000, and the total number of patents rapidly increased until 2002. This shows that this period is likely to be the growth stage. The numbers did not significantly increase from 2002 to 2010, and the number of patent applications remained over 200 per year.

Figure 1.

Total Number of TFT-LCD Patent in Korea

Despite the continued increase in overall patent numbers, the number of patents in Korea exhibits different patterns at different stages. Patents in Korea were actively developed before 2002. Subsequently, there was a consistent decline trend, which means there has not been extensive technological development. Figure 2 represents the changing rate of patent publications in Korea. It shows that most technologies relevant to TFT-LCD have been developed in Korea in the 1990s, while the portion rapidly diminishes after 2000. Therefore, the Korean R&D capacity of the TFT-LCD industry focussed on the early stage, and the majority of the major technologies before 2000 were developed in Korea. Korea is compared with the experience of other countries, such as Japan and Taiwan. Figure 3 shows the different patterns of each of the three countries at different stages. The trend for patent development in Korea differed from those of other countries because Korea focussed on R&D development at an earlier stage. Although Japan has been a first mover in the LCD industry, Korea rapidly moved and developed many more patents at an earlier stage than other countries because each of the three countries had formulated different strategies for technology development and knowledge management. Korea focussed their lavish investment on the core and standard technology that would be dominant in the market, while Japan had changed its strategy to risk management rather than technology investment. Most firms in Japan used a closed innovation strategy, which meant that they only transferred technology to Taiwan to reduce risk and gain profit royalties from this technology transfer. Taiwan had designed a fast-follower strategy based on transferred technology so the number of patents rapidly increased after 2000.

Figure 2.

Changing Rate of Patent Publication in Korea

Figure 3.

Total Number of Patent in Korea, Japan, and Taiwan

Korean TFT-LCD Industry’s Knowledge Position

Patent citation information is widely used to identify the influences of one technology on other technologies. The total number of patents cited in three countries, as measured by patent citation information, is given in Figure 4 with different patterns of knowledge flow among them. Korea has a relatively higher number of patent citations than other countries at an early stage. This implies that it has the most active knowledge flow in the TFT-LCD field. In the 1990s, technology capability and interacting knowledge of Korea were relatively high. It can be seen that the number of cited patents in Taiwan rapidly increased after 2000, while there was little patent development before 2000. Their technology can be improved to a dominant position in the TFT-LCD industry because technology inflow from Japan seems to be the decisive factor for Taiwan’s technology expansion to enhance technological ability. Japan has a higher number of patents cited at the emerging stage, but after 2000, there was no influence of technology on other countries.

Figure 4.

Total Citing Number of Firms in Korea, Japan, and Taiwan

Patent citation analysis was conducted using network measurement. Several indices of network analysis are useful in measuring the patterns or characteristics of nodes in a network, and this study employed it to identify the patent citation network of the three countries. To compare the patent citation network in three countries, a total of 13 firms were chosen from the leading firms of each country. The relationship of the patent citations was analysed by measuring the centrality value of them. Table 2 summarizes the results of the overall centrality over time. It can be seen that the three countries have a different value of centrality with a different role played by the knowledge network in the TFT-LCD industry. Some differences among the three countries have been found when comparing the value of centrality in the knowledge network. Korea has the highest value of both out-degree and in-degree centrality compared to other countries in all period, which means that knowledge interaction is more actively performed than others. This has a central role in the knowledge network of the TFT-LCD industry. Korea has undergone a remarkable change in the patterns of networks over time because the ratio of out-degree to in-degree decreased from over 1 to less than 1. It implies that Korea has changed the role it plays from a knowledge supplier at the emerging stage (1998–2001) to a knowledge consumer in the growth, maturity and decline stages (2001–2013). With the highest value of betweenness centrality, Korea has been a knowledge distributor in the TFT-LCD industry. Japan shows a higher value of knowledge inflow and outflow in the initial period. After 2006, their knowledge did not interact with the technology of other countries. They have a higher value of in-degree centrality rather than out-degree values. This means that they played the role of a knowledge consumer over time. In particular, the value of betweenness centrality is calculated too high from 2002 to 2005, which implies that a broker or intermediary is one of the main roles and characteristics of Japan in the growth stage of the TFT-LCD industry. For example, the technological knowledge of Japan was transferred to Taiwanese firms in this period because of their stable and conservative business strategy. Since 2002, the technology development of Taiwan rapidly increased. Accordingly, the value of degree increased as it started playing a central role with Korea in the TFT-LCD industry. The ratio of out-degree to in-degree of Taiwan is higher than one, which means that they supply more knowledge and technology rather than inflow. This is because they can develop more high-quality and competitive technology based on the know-how of Japan.

Table 2.

The Change of Centrality by Year

			Year
No	Country	Centrality	1998–2001	2002–2005	2006–2009	2010–2013
1	Korea	Out-degree	13.121	14.063	18.325	11.182
		In-degree	8.294	17.377	26.171	15.364
		Ratio	1.582	0.809	0.701	0.727
		Betweenness	6.364	8.924	6.205	10.91
2	Japan	Out-degree	2.437	3.377	3.306	0.606
		In-degree	3.936	4.325	9.55	3.636
		Ratio	0.619	0.681	0.346	0.167
		Betweenness	1.515	6.379	1.98	1.576
3	Taiwan	Out-degree	0.000	2.336	11.111	6.667
		In-degree	0.75	1.342	4.637	4.546
		Ratio	0	1.741	2.396	1.467
		Betweenness	0	0.215	0.801	2.121

Korean TFT-LCD Firms’ Technological Development Strategies

Patents are classified according to the IPC, which indicates the technological field in a specific industry. The TFT-LCD industry generalized three main technological IPC codes: G02F, H01 and G09G (Hu, 2008), which were analysed to investigate the specialized technological field in each country. In the technological specialization strategy aspect, since the 2000s, all countries’ specialization value is above 1 (see Table 3). That means that all countries are specialized in the LCD industry. Japanese, Korean and Taiwanese companies have been leading the TFT-LCD industry. They created the technologies that became the industry standard and dominant. In particular, Korea and Taiwan have steadily strengthened their position since 2006. However, the specialization index of Japanese companies has been continually increasing. This means that Japanese companies have reached the maturity of technological development. As seen from Table 4, prior to 2009, Japan and Taiwan were strong in the H01L technological field: semiconductor devices technologies; Korea was powerful in G02F (devices or arrangements, the optical operation) and G02G (arrangement or circuits of control of indicating devices). Between 2010 and 2013, Taiwan possessed technological strength in H01L and G09G relative to Japan and Korea. In sum, technological specialism historically moved and transferred from Japan to Korea and Taiwan.

Table 3.

The Change of Technological Specialization by Year

		Year
No	Country	1998–2001	2002–2005	2006–2009	2010–2013
1	Korea	1.048	1.194	1.757	1.773
2	Japan	1.747	1.754	1.806	2.118
3	Taiwan	1.178	1.215	1.817	1.819

Table 4.

The Change of Number of Main Technology IPC Code by Year

		Year
IPC code	Country	1998–2001	2002–2005	2006–2009	2010–2013
G02F	Korea	102	279	378	235
	Japan	39	113	108	78
	Taiwan	1	77	378	119
H01L	Korea	50	158	193	110
	Japan	29	157	266	82
	Taiwan	0	103	310	164
G09G	Korea	43	51	107	48
	Japan	4	17	6	29
	Taiwan	1	8	93	64

Korean and Taiwanese LCD companies have continually increased their technological diversification activities. Japanese companies had a turbulent technological diversification strategy (see Table 5). In the early 2000s (2002–2005), Japanese companies activated diverse technological fields. However, during 2006–2009, the technological diversification activities decreased. Since the 2000s, Korean companies have been positioned as the world leader, which means that they aggressively invested in the production line within a one- to two-year gap. To lead the market, diverse and new technology development is necessary. As a result, Korea has a higher diversification value compared to Japan and Taiwan.

Table 5.

The Change of Countries Technological Diversification by Year

		Year
No	Country	1998–2001	2002–2005	2006–2009	2010–2013
1	Korea	0.835	0.842	0.865	0.918
2	Japan	0.759	0.832	0.731	0.882
3	Taiwan	0.751	0.764	0.848	0.871

Discussions for Korean TFT-LCD Firms’ Strategies

Consequently, this result shows that each country has different strategic patterns of technological development to gain more competitive advantage. These different strategic patterns by various perspectives relevant to knowledge flow are summarized in Table 6. The pattern of Korea’s strategy has been characterized as a technological catch-up strategy because they have developed core and standard technologies in the early stage to build dominant capability in the TFT-LCD industry. They play a central role as well as a gatekeeper role in the knowledge network based on their technological competitive advantage. In contrast, Japan has its own strategy to develop its own technology as a first mover in the TFT-LCD market, which is called the pure technology development strategy. Most firms in Japan used a closed innovation strategy so their knowledge does not interact with the technology of other countries in the knowledge network. Lastly, Taiwan has designed a fast-follower strategy, which is called a technological leapfrogging strategy because they have developed rapidly intellectual property at the growth stage of the TFT-LCD market to catch up their technological gap with other leading countries. As a result, they have played a central role with high-quality and competitive technology in the network.

Table 6.

Summary of Different Strategic Patterns by Knowledge Flow

Strategy type	Korea	Japan	Taiwan
Patent development	Increased rapidly in early stage	No change	Increased rapidly in growth stage
Ratio (Knowledge outflow/inflow)	Around 1 (similarly high value)	Less than 1 (Higher value of outflow rather than inflow)	Over 1 (Lower value of outflow rather than inflow)
Technological specialization	Increased (Radical)	Increased (Incremental)	Increased (Radical)
Technological diversification	Increased (highest value)	No change	Increased
Overall strategy	Technological catch-up strategy	Pure technology development strategy	Technological leapfrogging strategy

Despite global fierce competitions with different strategies in the TFT-LCD industry, Korean firms have been positioned as the global leader in TFT-LCD market for a long time. In particular, Korean TFT-LCD firms, Samsung and LG Display, had differentiated technological development strategy to gain a competitive advantage in the global market. At the early stage, Samsung and LG Display attempted to catch up with the advanced technological level of Japan and the United States counterparts. In 1996, Samsung had managed to acquire technology from Japanese companies without licensing it. Samsung opened an R&D lab in Japan to take advantage of the unemployed Japanese engineers. Samsung and LG Display acquired the technological capability to build panels during a downturn crystal cycle. They combined this new knowledge with their mastery of semiconductor fabrication to build Generation 2 pilot fabrication lines. When they attempted to catch up with the LCD technology, they already had the capability to merge the micro-fabrication process with semiconductors. Even though they entered the new LCD panel industry, they had supplier networks with Japan’s micro-fabrication process equipment companies. They acquired each process of the TFT-LCD module manufacturing technology and gradually collaborated with advanced technology companies. Samsung and LG Display focussed on rapidly producing wide, high-quality LCDs, which was seen as a sign of success in the market. They purchased most of the requisite materials and parts from the leading global market suppliers, rather than relying on its own development to speed up production.

One of the success factors of Korea’s LCD industry is the strategic alliance with other companies. Korean LCD companies such as Samsung and LG Display expanded their business with each business synergy and reduced risk through diversification under a turbulent technological environment. In the initial stage, to absorb technology, Samsung has a joint venture with Sony called S-LCD; LG had one with Philips called LG-Phillips. In 2004, Samsung Electronics and Sony built a joint venture called S-LCD. They built a 7th generation manufacturing line located in Asan Industrial Park. Samsung and Sony owned approximately 50% equity and had 50% responsibility for selling the production volume. The initial investment amount was approximately USD 3 billion, and this jumped from 5th generation to 7th-generation LCD for television panels. They enjoyed a strong working relationship until the development of the 8th generation line. In 2006, even though Japanese and Korean companies continued to engage in an offensive action blocking competition, Samsung Electronics and Sony came to an agreement to share 20,000 patents, and reached the peak of collaboration. In 1998, Philips suggested a strategic alliance in the TFT-LCD business to LG electronics. Eventually, in 1999, LG Philips LCD was formed as a joint venture between LG and Philips for manufacturing TFT-LCD screens. Phillips invested resources to secure the stable supply of promising TFT-LCD technologies and cultivate selling points in East Asian countries. LG attempted to build a core capability in display manufacturing using Phillip’s global brand image and networks. That is, the strategic alliance relations were based on the win-win strategies of LG Electronics’ technology and manufacturing capabilities, and Philips’ sales and marketing capabilities. In 2006, the 7th-generation line TFT-LCD was produced. The above strategic alliance cases similar to Samsung and LG display were beneficial in effectively and efficiently catching up on technological abilities. The strategic alliance had a risk reduction from the huge initial investment of new business development. Firms share the investment of new generation technologies so that they can be first movers in the latest advanced panel development and manufacturing. The main characteristics of the liquid crystal’s function and size were unified and advanced between the companies who had formed an alliance together. Korean companies were pursuing an advanced marketing and commercialization strategy based on standardized optimal mother glass and panel sizes and cost benefits from mass production. Finally, firms had win-win relations. Sony and Philips had a stable supply from Korean companies, and Korean companies took benefits of the stable demand from alliance companies. LCD Display had huge investment and management costs to achieve next generation technologies, which means that LCD manufacturing companies need to secure stable demand. Through alliance manufacturers and end customers, it is possible to create a production plan and avoid inventory loss and over-investment.

The LCD industry is integrated with high technologies such as liquid crystal, mother glass, LED, mold and driver-IC. These technologies are linked with various materials and manufacturing so that LCD companies need to collaborate with other industries within the vertical industry structure. In addition, LCD panels are core components in electronic devices such as televisions, computer monitors and tablets. Thus, the LCD industry has a vertical value chain in the front and back sides. Samsung and LG display vitalized their communications with materials/components suppliers and customers to build an effective vertical structure. Within vertical integration studies, Samsung and LG display prioritized retaining their next generation manufacturing technologies. When manufacturing LCD displays, there is the fabrication facility process, which makes the LCD panel and a module process, which assembles the driving and backlight parts. Sharp, a Japanese firm had an internally organized fabrication facility process and module process and manufactured televisions in a single closed factory through an integrated manufacturing system. This system maximized the efficiency of the supply chain and minimized manufacturing costs. In addition, Sharp tried to hide their core technologies internally and pursue products on its own. In contrast, Samsung and LG Display considered the core technology of the LCD as the fabrication facility process, so they outsourced the module process from Taiwanese and Chinese Original Equipment Manufacturing companies to reduce manufacturing costs. Outsourcing module process had several advantages: first, the fixed cost of the module process manufacturing system was reduced; second, the amount of manufacturing was flexibly operated; finally, the logistics and inventory costs were reduced because of carrying the panel, not the final products. The difference in manufacturing strategies, such as outsourcing and collaboration R&D between Japanese and Korean companies, caused a substantial difference in companies’ performance, especially given the ongoing economic crisis.

Korean display companies continually absorb external knowledge and build open networks related to materials and components in which they have a relative lack of capabilities. At first, Samsung and LG Display changed from being manufacturing companies to technology development companies. Japanese materials and components companies faced an internal market crisis, which meant that they actively sought an alliance with Korean display companies. From a long-term view, the firms planned next generation research and development with companies within the alliance and customers. They also undertook short-term commercialization studies. They sought to make up for a lack of core material and components in the LCD industry through collaboration. To acquire market leadership, Samsung display aggressively absorbed next generation technology through collaborative research and dispersed promising technologies through vertical business areas. Since 2011, numerous overseas firms have operated an R&D centre in Korea or collaborating/licensing technology development. Among them, six companies have invested capital in manufacturing. Through the horizontal relations between global material/components companies and manufacturing companies, the Korean display industry internalized the capabilities of the whole in-line process. Table 7 shows examples of the status of overseas companies that have collaborated with Korean display companies.

Table 7.

The Status of Oversea Companies Collaborated with Korea Display Companies

Value chain	Investment companies	Owned types	Descriptive
Manufacturing facilities	Ulvac	Solitary	R&D center
	Tokyo electron	Solitary	R&D center
Touch panel	Sumitomo chemical	Joint company	TSP (Touch Screen Panel) manufacturing
Mother glass	Ube industries	Joint company	Next generation glass manufacturing
Display materials	Dow chemicals	Solitary	R&D center
	JSR	Solitary	R&D center
Liquid crystal	Merck	Solitary	R&D center
Back-light materials	3M	Solitary	R&D center
Display materials	JSR	Solitary	R&D center
LED	Opto design	Alliance	Technology licensing / Collaboration in R&D
Process	Film tech	Alliance	Technology licensing / Collaboration in R&D
OLED	Hodogaya chemical	Joint company	Collaboration quota / Collaboration in / R&D center
	Idemitsu	Alliance	Technology licensing / Collaboration in building manufacturing systems

* Sources: “A” internal sources.

Moreover, one of the last reasons why Korea’s firm succeeded was the vast support of the Korean government. The government decided to establish a full support policy for the development of the TFT-LCD industry because it would have a great influence on the national economy, so they established and developed regional clusters of TFT-LCD industry for firms to develop TFT-LCD-related technologies, stably produce LCD panels and continuously train professionals and technicians for new generation technologies. The factors that led to the development of regional cluster in the TFT-LCD industry were the leadership of core enterprises, Samsung and LG, government support in training professionals and technicians, cooperative relationship between firms and the government.

In conclusion, in terms of qualitative analysis, this study undertakes a case study of Samsung and LG Display to identify the characteristics of the Korean TFT-LCD industry as well as to examine their relative competitive advantages, growth strategies, and success factors. The researchers found that there are three steps of a growth strategy with success factors and particular strategic patterns to develop and expand their market power in the TFT-LCD industry. The three different stages of the technology strategy of Korea were described: 1) technology investment stage (internal core competence strategy), 2) technology absorption stage (strategic alliance) and 3) technology application and take-off stage (open R&D and internalization strategy).

Conclusion

Korean companies such as Samsung and LG Display hold 85% of the display market (Displaybank, 2012) and have become global leaders and first movers in the TFT-LCD industry by adopting a fast-follower strategy. This study examined the industrial and firm level analysis to derive the success factors of technological development and production strategies in Korea through consideration of industrial crystal cycle. For this analysis, this research employed the integrated point of view in national level (macro-) and firms’ level (micro-) as well as in quantitative and qualitative methods to thoroughly understand industry’s trajectory.

First, in the national level, Korean technological development was quantitatively and historically analyzed for each industrial crystal cycle by comparing Japan and Taiwan using patent information and the centrality measurement of network analysis. Consequently, Korea had a different strategic pattern of technological development than other countries. In Korea, patents were actively developed before 2002, which means the Korean R&D capacity of the TFT-LCD industry focused on the early stage. Korea focussed on earlier, lavish investment for core and standard technology to establish a dominant position in the market, while Japan changed its strategy to risk management rather than technology investment. Moreover, patent citation analysis showed that Korea has the highest value of both out-degree and in-degree centrality compared to other countries in all periods. This means that it performed knowledge interaction more actively than others and that it occupies the central role in the knowledge network of the TFT-LCD industry. With the highest value of betweenness centrality, Korea plays the role of a knowledge distributor in the TFT-LCD industry.

Second, in the firm level, this study analysed the patterns in technology strategy in Samsung and LG cases. From the results of the technology diversification and specialization analysis, Korea has increased its technological diversification activities, while Japanese companies have increased their specialization index. This means that Japanese companies reached maturity in their technological development. Since 2006, Korean companies have covered several technological fields and not extended their technological coverage. Moreover, the case study of Samsung and LG identified the competitive advantage, growth strategies and success factors of firms in Korea. Three specific steps of growth strategies were proposed as ways that Korean firms strengthened their competitive advantage. As a latecomer in the display market, Korean firms intensively invested in technology to enhance their internal core competencies before reaching the maturity stage of the technology life cycle for TFT-LCD. After securing the core and standard technologies, they immediately changed strategy to technology absorption through strategic alliances and conducted open R&D and internationalization with technology application and take-off. There are several implications for academic and practical fields from these results. In particular, several indices for quantitative analysis such as centrality and diversification/specialization measurement are helpful in measuring detailed technological capacity in the TFT-LCD industry. This analysis was used to explain specific trends and characteristics over time.

Finally, the qualitative approach provided in-depth and important evidence for the fast- follower innovation strategy adopted by Korea, which became the first mover from having been a late entrant in the TFT-LCD industry. This research is expected to provide an important basis for evaluating and establishing the innovation strategy and policy for latecomers, whether firms or countries.

This research has several limitations, with further studies needed. First, despite the way the display market has changed from CRT to FPD with the appearance of various technologies, such as PDP and LCD, only patent data was used for searches of technology queries related to TFT-LCD, because it is the most prominent type of all FPD technology fields and is widely used in various applications such as PC, navigation, and TV. This study thus faces the limitation that it is inadequate to provide an exhaustive analysis of all parts of the LCD display technology field. More specific and detailed results can be obtained from further research that examines the implications of the technology strategy adopted. Second, this study only used patent and patent citation to identify successful technological strategies of Korean firms, and patent is just a partial indicator to understand the overall technology capabilities of firms. Therefore, further studies should provide several indicators or variables such as trademark applications, the share of high technology exports, human resources for technology development, R&D investment and infrastructure for R&D to figure out factors of firms’ successful technology development. Lastly, the sample used in this study is only composed of display firms in three different countries for the analysis of patterns in the TFT-LCD industry. However, the TFT-LCD industry, which needs large-scale investment, requires governmental support and a good relationship with the government or other players for a firm to develop technology and grow in market share. Further studies that measure the relationship with other players such as firms, governments, universities and research institutes are needed. The triple helix model can be one of the methodologies used to describe and represent the relationships among them.

Footnotes

Declaration of conflicting interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT) (2019R1F1A1058719 and 2019R1A2C1090655).

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