Abstract

Regardless of how the industry changes, one thing that has remained unchanged is Samsung AM LCD's determination to establish and maintain its status as the leading player in the LCD industry. In its second-phase strategy, Samsung is in fact aiming to do more than just strengthen Samsung AM LCD's position as industry leader; by developing new applications, Samsung is also hoping to create new markets for its semiconductor, mobile phone and consumer electronics divisions, thereby helping to enhance the competitiveness of the Samsung conglomerate as a whole. This is very much a "total" business development strategy.

Despite the limited resources available to them, Taiwan's LCD panel makers have succeeded in leveraging the vision of their senior managers and their strong managerial capabilities to catch up with the leading international panel manufacturers within a very short space of time. Whether in terms of production capacity, panel technology, product quality, or managerial performance, the Taiwanese panel makers have already reached high standards. However, the LCD TV market is dominated by Japanese and Korean vendors, most of which have their own in-house panel manufacturing capabilities. When Taiwanese makers supply these brands, either they have had to work with low costs, or the orders have been aimed to supplement the leading vendors' own panel production capacity. With uncertainty regarding market demand, the Taiwanese manufacturers have had to endure a high level of uncertainty and risk when planning the establishment of next-generation production lines.

While Samsung's own-brand end-product businesses were already strong enough to support the continued growth of its component manufacturing operations, Samsung continues to expand the scope of its business activities at an impressive pace. For Taiwanese LCD panel makers, a key decision is whether to try to develop own-brand production, or whether to continue with their current role as strategic partners for the leading international vendors.

One point worth noting is that, of the five key products that Samsung AM LCD has identified as having the greatest potential to drive growth in the LCD panel market in the future, besides small portable products, the other products -digital signage, advanced TVs for home users, and E-boards for offices and schools -would all be marketed to business users rather than consumers. Corporate purchasing behavior in the B2B (Business To Business) market is significantly different from purchasing behavior in consumer markets such as the LCD TV market. Besides budget considerations, corporate decision-makers also attach considerable importance to product quality, after-sales service, and the availability of total solutions. Brand image is a less significant consideration than it would be in the B2C (Business to Consumer) market. In the case of digital signage and information display products, most system operators would prefer to have the brand logo hidden or out of sight, so as to avoid distracting consumers from the message that they are trying to get across.

Marketing models also vary depending on the nature of the market. In the digital signage segment, business development would be undertaken in close collaboration with outdoor media companies, or with agencies involved in satellite broadcasting, transportation or healthcare-related organization. With advanced TVs for home use, the collaboration would be with property developers, installing the TVs as standard fittings in new apartment complexes; companies in Japan and Korea are already starting to make the concept of the smart home a reality. The introduction of E-boards in schools would be promoted by individual national governments, which might also subsidize their installation, while E-boards for corporate use would probably be sold bundled with other electronic equipment. A wide range of different models will be developed, and the emphasis in product sales will shift away from the marketing of individual items of hardware towards the provision of total solutions that integrate hardware with application software, content, and services. The relatively narrow range of distribution channels will limit the number of potential competitors, creating an oligopolistic market in which a handful of companies will enjoy high profit margins.

As B2B application products become the main drivers of growth in the LCD panel market, those companies that are able to offer total solutions will find it relatively easy to grow market share and secure high profit margins. Revenue will come not only from hardware sales, but also from the provision of services etc. If profit margins are high, there will be less incentive to divide the value-chain into different activities and outsource some of these activities. This presents a challenge to makers focusing on outsourcing for branded vendors.

Faced with the challenges that the next ten years will bring, panel makers should not be thinking only about when such-and-such a company will ramp up production at its new 8G or 10G production line. Production capacity and economies of scale are no longer the key factors influencing competition within the LCD panel market. Instead, as Samsung AM LCD has foreseen, to the focus will be on successfully creating value and integrating LCD panel with digital media.

Given the importance that B2B sales will occupy in the LCD panel market of the future, brand image will no longer be as important as it has been in the past. As with the vision that Samsung AM LCD has developed for the second phase development, the growth of the LCD panel industry will help to drive growth in other industries such as digital content, animation, wireless Internet, the semiconductor industry, and contract manufacturing.

Appendix

List of Companies