How to Become Top Players by Profiting from a Crisis: the Case of Korea’s LCD Sector

Enterprises are the driving forces of an economy. Korea is one of a few newly industrialized countries that have had the high tech sectors as the major industries in the course of its rapid economic growth. The Korean economy has thrived on high-tech firms.

These are not normal times. Amid concerns over the governments’ expansionary measures, currency devaluation, oil exporters demanding new reserve currency, some corporations are faring relatively well. After all, businesses are central to job creation and income generation which hold up the economy. In this context, how some firms have taken profit greatly from the downturn by making the right moves is worth discussing. Hence, I’ll share some of my analysis on Korea’s success in the LCD sector.

The Korean LCD makers, Samsung and LG Display, are dominant players in display markets, occupying 54% of the global LCD market in Q2. Samsung is the world’s largest LCD maker and is expecting to see the sharp increase in operating profits for Q3, topping one trillion won.

There are several reasons behind their success. Among them, they made very astute strategic decisions during industry downturns. The Korean LCD makers entered the LCD business during industry downturns and took advantage of resource availability during this period.

Samsung and LG effected the entry during the second downturn in 1995-1996. Both Samsung and LG enabled to acquire the needed technology to build panels in the first downturn in the FPD industry in 1993-94 without licensing. Samsung set up an overseas R&D lab in Japan since Japanese engineers became available due to industry contraction. Samsung was capable of building Generation-2 pilot fab lines by incorporating the transferred knowledge into its DRAM technology base accumulated.

As was the case in the semiconductor sector, timing in terms of entering business or investing was very critical in the LCD industry. Whereas other incumbents were cutting back on investment due to falling prices, Samsung made bold countercyclical investment in 1995-96 before the upswing arrived in 1996-97.

During 1997-1998, due to the LCD market downfall and price fall again, the leading Japanese screen makers reduced their investment. However, Samsung foresaw a growing market demand for TFT-LCD panels and invested accordingly to target the major flat panel market. Thanks to this investment, Samsung occupied the Number One market share with 12.1 inch panels for the notebook computer in 1998. Samsung’s strategic bet is not limited to the LCD business. Samsung has been one generation ahead of other global contenders in the U.S., Japan, and Taiwan in the memory sector during an industry down.

Although Samsung did not own proprietary technology and was behind from Japan when it started the TFT-LCD business, it adopted and utilized the technology developed elsewhere to exploit the emerging opportunity in the sector. Samsung’s success demonstrates that with keen insight into competitive dynamics around volatile industry cycle, competitor’s move, technological possibility, and emerging applications for the panels, high-tech firms can become the market leader within a short timeframe.