THE TFT-LCD INDUSTRY IN TAIWAN ANALYSIS OF COMPETITIVE ADVANTAGE CONSTRUCTS.doc

the tft-lcd industry in taiwan: analysis of competitive advantage constructs ming-lang wang department of industrial engineering & system managementchung-hua universityno.707,sec.2, wufu rd., hsinchu, taiwan 30012, roc.tw16abstract thin film transistor liquid crystal display(tftlcd) industry is the rising star of taiwan. because of gradually applying of tftlcd panels in daily life, the demand for tftlcd panels is increasing. therefore the competition in liquid crystal television market will become intensively. recently, the establishment of tainan and taichung science-based industrial park caused the cluster of photonics industry, which will be the foundation of the future industrial development in taiwan. this study adopts close-end questionnaire, selecting the four major tftlcd firms (auo, cmo, cptt, innolux) as analytic objectives. by using literature review and statistic data analysis, this study summarizes the best competitive strategies of the tft-lcd industry in taiwan. according to the results, we propose the competitive advantage of tftlcd industry in taiwan are: the integration of supply chain, applying of experience, product innovation, external support, fixed cost, quality control, and marketing channel. there are seven constructs including twenty one factors to build competitive advantage of this industry. the firms should hold their core competitiveness; identify the cyclical trends of liquid crystal display panel, formulate firms competitive strategies, seek m&a opportunities, and integrate upper-stream, mid-stream and down-stream firms. the result suggests the government should offer a stable investment environment and improve firms r&d capability to maintain its competitive advantage in tftlcd industry.keywords: liquid crystal display, tft-lcd industry, competitive strategies, competitive advantages introductionwei (2004) suggested that the tft-lcd industry in taiwan has been reporting stellar performances in the international community within a few years amid the expectations of taiwanese and the assistance from the government. in this industry, the large tft-lcd sector has been on the priority agenda in taiwan. the tft-lcd industry has high entry/exit barriers due to its nature of capital intensive and technology intensive. the industry has to constantly expand the new generation fabrications, increase capacities and improve its r&d competences to secure its on-going development. the tft-lcd industry is confronted with greater pressures compared to the traditional industries as the business environment is characterized with global competition and constant changes. therefore, it is imperative for the taiwanese tft-lcd companies to boost their competitiveness. there are two conditions supporting the competitiveness of the high-tech industries in taiwan. one is internal conditions, i.e. an abundance of highly-qualified labour. the other is external conditions, i.e. the introduction of technologies from leading countries and imports of required materials and intermediate products. however, the economic miracle of taiwan is also faced with unforeseen challenges in the rapid change global environment. with the rising of wages, the advantage from internal conditions is gradually losing. the improvement of the technical levels in taiwan has been viewed as a potential competitor by advanced and industrialized nations. therefore, it is getting increasingly difficult to obtain key technologies or parts. to cope with rapid changes and uncertain market demands, the tft-lcd manufacturers around the world have always been adjusting their strategies in such an adverse environment. it is necessary to integrate resources so as to brace for the arrival of another competition. as a key player in the global tft-lcd industry, how should the taiwanese companies gauge the current situations in the competitive landscape and re-division of labour in order to confront with new competition? they should leverage on their established competitive advantages and formulate future strategies accordingly to ensure their status in the global tft-lcd industry. cptt (2006) indicated in its annual report that the tft-lcd panel industry in taiwan had its best year in 2006. the industry created two records. the overall flat panel industry in taiwan saw its production value stand at nt$1.27 trillion, exceeding a trillion nt dollars for the first time. in addition, the production value of large tft-lcd panels exceeded that of south korea for the first time. these figures show that the taiwanese tft-lcd industry is at its prime. although the tft-lcd industry is currently at the top of the priority list for industrial development, it requires a long-term strategic view. therefore, the purposes of this study paper are as follows: (1) exploration of the methods for the major panel makers in taiwan to continue their growth; (2) examination of the constructs of competitive advantages of the taiwanese tft-lcd industry in the future.literature reviewporter (1985) indicated in his book “competitive advantage” that competition determines the make or break of a company. it determines the innovative, cultural solidarity, execution efficiency, and other activities in association with the overall performances. advantage refers to the superiority in competition in any environment. the prerequisite of competitive advantage is that the value created by a company exceeds the cost it incurs in the value creation process. the value is expressed in the price the purchasers are willing to pay. other scholars have different definitions of competitive advantages due to their varying perspectives and observations. this paper summarizes the opinions of other scholars in the following table. table 1 definition of competitive advantagesscholardefinitionansoff & mcdonnell (1965)the characteristics that a company has in its product domains. such characteristics enable the company to achieve a strong competitive position compared with other competitors. hofer & schendel (1978)the resource allocations of an organization that enables it to achieve a different position from its competitors. porter(1990)the long-term, unique and superior competitive position that a company has in its industry compared to its competitors. the external performance of such a unique and superior competitive advantage is a market share and profitability above the average. the three general strategies are cost leadership, differentiation and centralization. aaker (1984)one or many assets or technical domains that lead to competitive edge over major competitors. bakos& treacy (1986)the application of it generates four sources of competitive advantages: 1) improvement of operating efficiency and effectiveness; 2) development of synergies and collaborations across the organization; 3) use of it to assist product innovations; 4) bargaining competitiveness. bamberger(1989)competitive advantage refers to the unique and superior positions a company has developed in its industry and market. this may include low costs or prices, better services, fast delivery and good image. barney(1991)in the implementation of the strategies to create value, the companies with better execution abilities are able to force its competitors out of the game or adopt the same strategies, so as to meet with the demands from customers. there are three constructs: cost advantages, differentiation and mass customization. sandy(1999)competitive advantage is to gain from a two-party relationship so that both can compete more efficiently in the market. generally speaking, key success factors and competitive advantages play a pivotal role in whether a company is able to sustain its strong competitiveness on the long-term basis in its industry. therefore, in the examination of competitive advantages, key success factors and their relationship with competitive advantages should also be taken into account. hofer & schendle (1978) suggested that key success factors are the variables in decision making for some corporate managers. these variables usually change across industries to differing extents. also, key success factors have profound effects on the competitive positions of individual companies in the whole industry. prahalad & hamel (1990) argue that competitive advantages of companies come from their differences in competences from those of their competitors. the competences are based on varying intangible assets of companies. they classify the differences in competences as those in culture, function, law and status. competitive advantages are originated from better value creation. to create better value, companies have to reduce their costs or differentiate their products to receive higher prices. the general foundation for competitive advantages is (1) efficiency, (2) quality, (3) innovation, and (4) customer responses. better efficiency enables companies to lower costs. superior quality enables companies to charge higher prices. better innovations may lead to higher prices or reduction of unit costs. better customer services command higher prices and could increase companys total revenue. all the generic bases are highly related to each other. for example, better quality results in improved efficiency. innovation enhances efficiency, quality and customer responses. bakos & treacy (1986) summarized the opportunities from utilizing it to obtain competitive advantages. they also translated this concept into a causal relationship model. the concepts incorporated in this model are (1) relevant search-related costs; (2) unique product features; (3) switching costs; (4) internal efficiency; (5) inter-organization efficiency. barney (1991) indicated that competitive advantages can only sustain when part of the heterogeneous and immoveable resources that a company has are valuable, rare, impossible to imitate or replace. industry snapshotin 2006, the overall demand in the tft-lcd market was strong. however, the overly optimistic attitude of manufacturers in 20052006 increased the number of fabrications by 16. the market demand was not sufficient to absorb the rapidly increasing capacity. as a result, supply exceeded demand in 2006 and the overall profitability of the industry fell below expectations. in 2007, the launch of vista prompted the growth of demand for pc and sped up the upgrade into bigger sizes and wider screens of computer monitors. the prices of lcd-tv panels have become reasonable and stabilized, which in turns has stimulated buying interest of vendors. the upgrade toward bigger sizes continues. due to the pressure from supply on profits in 2006, all the major panel makers had adjusted their expansion paces since the fourth quarter of 2006. therefore, there were only three new fabrications in 2007. therefore, the supply and demand was balanced in 2007 and the capacities are adjusted rationally to meet with the changes in demand. au optronics corp. ( /2007)au optronics corp. was formed with the merger of acer display technology inc. and unipac opto-electronics corp. in september 2001 to become the biggest company in taiwan and third biggest in the world in design, development and manufacturer of tft-lcd. the product mix covers a wide range of tft-lcd panels, from 1.5 inches to 46 inches. it is one of the few tft-lcd makers in the world with such a comprehensive product mix that covers small, medium and big sizes. in 2006, au optronics corp. created revenue of nt$293.1 billion in 2006. the number of its employees exceeds 40,000 worldwide. it has operational locations in taiwan, the u.s., japan, korea, germany and china. management philosophy1. quick steps: quality and excellence are the principles for work and services. 2. innovation: encouragement of innovations. 3. customers: working together with customers and partners to create competitiveness. 4. speed: rapid and accurate responses are the foundation of high corporate vitality. 5. teamwork: the success of the company hinges on the active contributions made by colleagues and the close teamwork. 6. employee: the work environment that is open to challenges serves as a platform for colleagues to create their sense of achievement. 7. profit: the leverage of global resources to serve the world market leads to reasonable profits. chi mei optoelectronics (.tw /2007)chi mei optoelectronics became listed on the stock exchange in august 2002. the number of its employees currently exceeds 15,000. the company has a team of r&d talents in the early days of the development of the taiwanese tft-lcd industry. at its inception, chi mei optoelectronics has been insisting on the establishment of its own development competences. it has made extensive efforts in the development of tft-lcd technologies. in addition, it is a strategic alliance with fujitsu, a major player in japan in technological development. in 2001, chi mei optoelectronics acquired id tech, a japanese company, for the latters patents in the relevant fields. chi mei optoelectronics has been endeavoring in research, development and innovation. management philosophythe chi mei group defines a company as a “means to pursue happiness”. they believe that a company could exist only to make contributions to the society. therefore, in its history of over four decades, the chi mei group has been striving to take care of its employees life and personal development, in addition to its efforts to create profits. chunghwa picture tubes (.tw /2006, 2007)chunghwa picture tubes was established in 1971. it was founded with the ideal to “return to the country with achievements in industry”. it has been dedicating itself to the r&d and production of key components for picture tubes of the video products in taiwan. chunghwa picture tubes has become one of the most important picture tube manufacturers in the world and has successfully made taiwan as a key player in the world monitor market. to meet with the demand for flat panels, chunghwa picture tubes was the first to introduce the mass production of large-screen tft-lcd in taiwan in 1997. this enabled taiwan to move into the flat panel market. chunghwa picture tubes is not only a leader in plasma tv with its rapid ramps, but also the opto-electronic manufacturer with the most complete product line. management philosophythe cpt spirit for sustainable development: c: creationp: perfectiont: teamwork innolux display corporation ( /2007)innolux display corporation, founded in 2003, is a system manufacturer of the tft-lcd panels and down-stream monitors. it is involved in the r&d, design, manufacture and sale of tft-lcd panels, tft-lcd modules and the final tft-lcd products. in 2003 and 2004, the company was in the period of building its fabrications. the trial production began in the fourth quarter of 2004. the main focus is the assembly of small and medium size tft-lcd modules and monitors. in the second half of 2005, the company ramped up the panel manufacturing in the former stage and obtained certification from major brands overseas. therefore, the bulk of its revenue comes from these international companies. additionally, its major products are tft-lcd monitors. management philosophy1. speed, reliability and low prices. 2. innovation and technological breakthroughs; quality as the top priority; the pursuit of the lowest costs possible; speed in responses; cooperation and growth; sharing of resources. 3. professionalism: going to seek the answers; detailed management (sharing of knowledge and control of resources). cooperation: vertical integration; co-competition and pursuit of performance. commitment: value of discipline, care for employees and lifelong learning. 4. high quality; focus on design, collective marketing (marketing with group-wide strategies) and attention to details. research methodologythe focus of the analysis in this study is on the four major taiwanese tft-lcd panel makers, i.e. au optronics corp., chi mei optoelectronics, chunghwa picture tubes and innolux display corporation. it intends to analyze and summarize the current situations and future directions for the leading taiwanese tft-lcd makers through the collection of relevant secondary data and the issue of questionnaires. questionnaire designthe questionnaire aims to examine the reasons that contribute to the competitive advantages of the taiwanese tft-lcd industry. it is designed to target the executives in operations and management and engineers at the tft-lcd manufactures in taiwan. the measurement of competitiveness and performance is based on likert 5 point scale. the questionnaire is first confirmed by interviews with a few select managers. managers give scores to express the importance of the competence items, in terms of 5 levels of subjective perceptions: “1” as “definitely not important”, “2” as “not important”, “3” as “fair”, “4” as “important”, “5” as “very important”. in terms of actual implementations, the scores are “1” as “to be implemented”, “2” as “to be improved”, “3” as “fair”, “4” as “satisfied”, and “5” as “very satisfied”. this is a close-structured questionnaire and it consists of two parts. the details of the questionnaire content are as follows:part 1competitive advantages: 1. low cost2 differentiationspare 2 core competencesthe data analysis used by this paper: (1) reliability analysis; (2) validity analysis; (3) factor analysis. data collection and analysis methodthe questionnaires sent in august and september, 2007. a total of 300 questionnaires sent and a total of 93 questionnaires responded. among them, 85 wer