4. Industrial Development and Linkage Formation in Korea: A Case Study of the FPD Industry

LCD panels are classified into twisted nematic (TN), super twisted nematic (STN), and TFT types. The TFT type accounts for approximately 98 % of the LCD panel market. In this chapter, ‘LCD’ refers to TFT-LCDs.

In the Samsung and LG groups, the firms manufacturing LCDs and OLEDs have changed repeatedly. In this chapter, when I refer to individual firms that manufacture FPD panels, I use ‘Samsung’ and ‘LG’ as the representative firm name.

OLED panels are classified into AM and passive matrix (PM) types. Although the PM type was the early mainstream OLED panel in the market, shipment of AM panels surpassed those of PM panels in about 2010, and they now account for more than 70 % of the OLED panel market. In this chapter, ‘OLED’ refers to AMOLEDs.

The localization ratio is calculated as the ratio of domestic production to domestic sales of components, materials, and equipment in Korea. Although products for export are included in domestic production, exports account for only a small proportion of production.

Mitarai (2011, p. 168) estimated that in 2009, approximately 50 % of LCD equipment was locally produced by Korean firms. Shintaku (2008, pp. 68–9) also indicated, based on a survey of LG Display (formerly LG Philips LCD), that in 2007 approximately 40 % of the LCD equipment for sixth-generation (G6) glass substrates at LG’s Gumi factory was Korean-made, and the percentage was even higher for G7 at LG’s Paju factory.

The production of semiconductors in Korea began in the early 1980s, more than 10 years prior to FPDs.

The author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 5 September 2012.

The author’s interview at a Korean FPD component firm in Korea on 25 September 2012.

A wide range of R&D was eligible for support, including LCD components and materials, LCD equipment, OLED emissive layer materials, OLED transport layer materials, OLED infection layer materials, OLED sealing materials, OLED components, and OLED equipment. Korea’s Ministry of Commerce, Industry and Energy (MOCIE) provided 33.5 billion won of funding for R&D through an FPD-related equipment consortium over 3 years starting in 2004 (Mitarai 2011, p. 169).

The author’s interviews at local subsidiaries of two Japanese FPD components and materials firms in Korea on 7 September 2012.

The number of LCD televisions for sale in the world was only one-fifth of that of cathode-ray tube televisions in 2004.

For instance, polishing sheets supplied by one foreign supplier were originally developed for metals and had problems such as scratching. In major foreign firms with diversified products, the LCD components and materials businesses did not have sufficient financial resources for new technology development and sustainable upgrading because of the low percentage of LCD-related products to total sales (KEIT 2013, pp. 21, 29).

Although the relative price changes based on the prevailing currency exchange rate, Korean-made LCD equipment was 20–30 % cheaper than equipment of the same model made by Japanese firms in 2012 (the author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 5 September 2012).

In Korea, economic disparities have widened between large companies and SMEs, between export-oriented and domestic demand-oriented producers, and between regular and non-regular employees. In case of disparities between companies, this refers to gaps in such performance indicators as sales growth rate, profitability, and R&D investment.

Another factor causing the economic disparity between large companies and SMEs was the unfair subcontracting transaction. Therefore, the aim of this policy was also to remedy the unfair transaction practice.

According to our interviews with an employee of a Korean FPD firm (the author’s interview at a Korean FPD firm in Korea on 2 August 2013), the target domestic procurement ratio set by the Korean government was 70–80 % by the end of the 2000s. The ratio seems to include procurement from foreign-owned factories located in Korea.

The author’s interviews at the local subsidiaries of a Japanese equipment components firm and a Japanese FPD equipment firm in Korea on 5 and 24 September 2012.

The Korean Small and Medium Business Administration (SMBA) has implemented a ‘new product development business on condition of procurement’ to support the development of SMEs in line with the procurement demands of large companies for joint development of technologies, improved technological capability, and consolidation of SMEs’ sales routes. This support business originated from ‘an agreement on technology development for national defense’ with the Ministry of National Defense in 2002 and then played a role in promoting mutual cooperation between large companies and SMEs after 2005. For a product development project proposed by a user (or a large companies), the program could provide SMEs up to 500 million won of subsidies over 2 years. The Korean government had invested about 210 billion won and supported more than 1000 SMEs’ technology development projects by 2010 (KEIT 2010).

The author’s interview at a local subsidiary of a Japanese equipment components firm in Korea on 5 September 2012.

The author’s interview at a Korean FPD firm by e-mail on 11 June 2013.

The author’s interviews at the local subsidiaries of a Japanese equipment components firm and two Japanese FPD materials and equipment firms in Korea on 5 and 7 September 2012.

Korean FPD firms have established cooperative relationships with their subcontractors through councils called the ‘Hyup-Sung Club’ (for Samsung Electronics suppliers), the ‘Best Club’ (for LG FPD equipment suppliers), and the ‘Twins Club’ (for LG FPD component and material suppliers). Of the Korean suppliers shown in Tables 4.1 and 4.2, Cheil Industries, Samsung Corning, SEMES, and SFA were affiliated companies. AP System, DS, Duksan Hi-Metal, ICD, Joosung, KC Tech, Osung LST, SFC, STI, Toptec, and Wornik IPS were members of the ‘Hyup-Sung Club’. FPD-related committees were separated from the Club when the FPD business division of Samsung Electronics spun off as Samsung Display in April 2012. LG-affiliated companies included LG Chem, Avaco, and LG MMA. According to our interviews with a senior director of an FPD equipment firm (the author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 24 September 2012), the ‘Best Club’ and ‘Twins Club’ had 25 members and 30–40 members, respectively. No further details are known about their members.

The author’s interview at a local subsidiary of a Japanese FPD materials firm in Korea on 7 September 2012.

The author’s interview at a Korean FPD firm in Korea on 2 August 2013.

The author’s interviews at a local subsidiary of a Japanese FPD equipment firm and a Korean FPD firm in Korea on 5 September 2012 and 2 August 2013.

The author’s interviews at local subsidiaries of two Japanese FPD components and materials firms in Korea on 4 and 7 September 2012.

The author’s interview at a local subsidiary of a Japanese OLED materials firm in Korea on 7 November 2013.

The author’s interview at a local subsidiary of a Japanese equipment components firm in Korea on 5 September 2012.

The author’s interview at a local subsidiary of a Japanese FPD components firm in Korea on 7 September 2012.

The author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 5 September 2012.

The author’s interviews at local subsidiaries of two Japanese FPD materials firms in Korea on 7 September 2012 and 7 November 2013.

The author’s interview at a local subsidiary of a Japanese FPD components and materials firm in Korea on 4 September 2012.

The author’s interview at the local subsidiaries of a Japanese equipment components firm and three Japanese FPD components, materials, and equipment firms in Korea on 4, 5, and 24 September 2012 and 5 November 2013.

For example, in the case of manufacturing equipment, because of the enormous effort required to test and correct the defects in the equipment so that it meets the specifications, once an FPD firm adopts a certain supplier’s manufacturing equipment, it becomes difficult to switch to another supplier (the author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 5 September 2012).

The author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 24 September 2012.

The author’s interview at a local subsidiary of a Japanese equipment components firm in Korea on 5 September 2012.

The author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 5 September 2012.

The author’s interview at a local subsidiary of a Japanese FPD equipment firm in Korea on 24 September 2012.

The author’s interview at local subsidiaries of two Japanese FPD components and equipment firms in Korea on 7 and 24 September 2012.

The author’s interviews at the local subsidiaries of a Japanese FPD components and materials firm, a Japanese equipment components firm, and a Japanese OLED materials firm in Korea on 4 and 5 September 2012 and 7 November 2013.

The author’s interviews at the local subsidiaries of three Japanese FPD materials and equipment firms in Korea on 7 and 24 September 2012 and 5 November 2013.

The author’s interview at a Japanese FPD components and materials firm in Korea on 4 September 2012.

The author’s interviews at the local subsidiaries of five Japanese FPD components, materials, and equipment firms in Korea on 4, 5, 7, and 24 September 2012 and 5 November 2013.

The author’s interview at a local subsidiary of a Japanese FPD materials firm in Korea on 5 November 2013.