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Zhang Latecomer Strategy Catchup
Zhang Latecomer Strategy Catchup
www.emeraldinsight.com/1758-552X.htm
JSTPC
1,3 Latecomer strategy
to catch-up
The implications from Taiwan’s TFT-LCD
234 manufacturing industry
Wei Zhang
Xizi Group, Hangzhou, China
Yongjiang Shi
Cambridge University, Cambridge, UK, and
Xiaobo Wu
Zhejiang University, Hangzhou, China
Abstract
Purpose – This paper aims to answer two research questions: what latecomer advantages and
disadvantages they had, and what strategies they employed to utilize the advantages or to surmount
the disadvantages.
Design/methodology/approach – After reviews of the literatures on latecomers’ characteristics
and the notable rise of Taiwanese thin-film transistor liquid crystal display (TFT-LCD) panel
manufacturers in the global manufacturing contexts, this research project combined secondary
industrial sector data analysis and individual company case study (AUO Ltd) approaches in order to
build a conceptual framework and identify latecomers’ (dis)advantages.
Findings – This paper advances the existing literature on latecomer advantages and disadvantages
by reviewing the spectacular rise of Taiwanese TFT-LCD panel manufacturers and reveals the
importance of some unexplored source of latecomer advantage such as the competition dynamics
which is proved to be vital for Taiwanese firms to successfully penetrate into the market. The paper
finds the influence of technological regime and argues that the incremental technological advance
rather than radical innovation provides latecomers with opportunity to utilize the learning curve effect.
It has also discovered new forms of latecomer advantages, for example the free-rider effect of improved
equipment due to suppliers’ own learning curve. This paper illustrates the necessity of adequate
exploration on technology and product features to understand firms’ strategic behaviors. Moreover,
the subtle tactics found in this case study may enlighten other latecomers.
Research limitations/implications – The study leaves a number of questions unanswered which
warrant more attention. First, the theoretical arguments and experiences from this single case are not
easily extendable to the other industries. Broader investigation should be helpful to discover the
mechanism between latecomer advantage, strategy and performance. Second, the study of latecomer
(dis)advantages and strategies should take the firm features into account to get a whole picture. Third,
the examination of interactions between latecomer (dis)advantages and more detailed analytical
framework are needed.
Originality/value – Although latecomers’ characteristics and strategies have been discussed for
many years since Asia economy emerged, TFT-LCD industry is a relatively new and fast growing
industry. How can a latecomer play an important role in emerging industry growing phase? This is
Journal of Science and Technology novel in contrast with classical latecomer’s model in established industry.
Policy in China
Vol. 1 No. 3, 2010 Keywords Market entry, Competitive advantage, Strategic management, Manufacturing industries,
pp. 234-253 Taiwan
q Emerald Group Publishing Limited
1758-552X Paper type Research paper
DOI 10.1108/17585521011083120
1. Introduction Latecomer
Since the 1980s, the rise of newly industrializing economies (NIEs) in East Asia as a strategy
global economic power has been one of the central dimensions of global transformation
(World Bank, 1993). In some products areas, for example, microcomputer hardware,
consumer electronics and semiconductors, latecomer firms within this region have
gradually developed innovation capability and become remarkable rivals to MNCs from
Japan, the USA and Europe (Hobday, 1995; Mathews and Cho, 2000). The spectacular 235
success of Taiwanese firms in thin-film transistor liquid crystal display (TFT-LCD)
industry provides a recent example. Taiwan accounted for only 1 percent of market
share worldwide in 1998. But in 2007, led by flagship producers AU Optronics (AUO),
Chi Mei Optoelectronics (CMO), Chunghwa Picture Tubes (CPT), Hannstar and Innolux,
Taiwan is projected to hold the highest global market share for TFT-LCD production
capacity, at 43 percent, followed by South Korea with 40 percent.
How can latecomers succeed in catching up with early movers and even take over
the leadership position? The analysis on latecomer advantages and disadvantages
probably is a pivotal approach to answer this question. Hobday (1995) defines the
latecomer firm as “a manufacturing company (existing or potential) which faces
competitive disadvantages in attempting to compete in exports markets”. Mathews
and Cho (1999, 2000) also note the meagre resource and competitive disabilities of
latecomer. Therefore, to overcome these inherent disadvantages becomes the inevitable
challenge for latecomers when they enter new sectors. Without solutions to cope with
these disadvantages, they will have no chance to compete powerful and experienced
incumbents and even no chance to survive. Nevertheless, the late entry also provide
opportunities for latecomers since they can make use of free-rider effects and other
industrial or technological dynamics. In short, what advantages and disadvantages
latecomers had and what strategies they employed to utilize advantages or to surmount
disadvantages can be vital to explain their success or failure in catch-up.
The achievement of Taiwanese TFT-LCD manufactures has already drawn quite a
few attentions from academia. In existing literature, the strategic position of Taiwanese
TFT-LCD firms is described as classic or superior quick follower that focus on being a
superior quick follower rather than challenging the technology leaders (Fuller et al.,
2003; Hung, 2006). Regarded as a crucial strategy to overcome technological disabilities,
their acquisition of the cast-off technology from Japanese leaders is wildly addressed
(Fuller et al., 2003; Mathews, 2004). Some other strategies are also particularly explored.
For instance, Mathews (2004) underlines the timing of strategic choices and argues that
TFT-LCD firms in Taiwan entered and unleashed investments during industrial
downturns which provide “window of opportunity” for latecomers. Based on case
study, Chang (2005) discusses the benefits obtained from mergers that result in more
complete product lines and integrated resources to enhance competitiveness.
Besides, the discussions at firm level, other literature examines wider economic and
social context and considers the positive impact of institutional structures as a source of
technical efficiency and market opportunity. The perspective of national innovation
system is used to examine key elements that support the implementation of the follower
strategy, including government policy, human resources, capital investment and a
bridging institution (Hung, 2006). However, some researchers believe that the role of local
government has only been secondary in the development of Taiwanese TFT-LCD
industry in contrast to Taiwan’s semiconductor development experience described by
JSTPC Hobday’s latecomer model (Hobday, 1995), which considers government as the key role
1,3 and frontier at the initial stage for rapid learning and technological catch-up (Hsing, 2006).
Comparative studies on competitiveness of Japanese, Korean and Taiwanese
TFT-LCD firms are also conducted. Good manufacturing flexibility, strong demand
from downstream manufacturers and strong will to invest are regarded as the main
advantages, whereas the disadvantages lie in the dependent on Japan’s technology license
236 and key components imported from Japan and the USA (Chang, 2005; Hsing, 2006).
However, to our knowledge little work has been carried out on the systematic
examination of Taiwanese TFT-LCD panel manufacturers’ advantage and disadvantage
as latecomers in the process of catch-up. The actual situation they faced and the drivers
of their strategies remain unexplored. The existing literature on comparative studies
has not paid particular attention to the effect of late entry and looks like a snapshot rather
than a longitudinal review. Hence, Taiwanese firms’ evolution from latecomers to major
players has not been convincingly explained.
This paper seeks to shed some light on the development process of Taiwanese
TFT-LCD panel manufacturers, especially the early stage since their entry, by
investigating their (dis)advantages resulting from the late entry and corresponding
strategies. We intend focusing on firm-level competitive advantages and strategies
stemming from late entry, thereby wider institutional contexts such as government policy
are outside the scope of this paper. The paper is divided into sections dealing with
introduction, literature review, case study, discussion on findings and is summed up with
concluding remarks.
Demand
One of the most addressed first-mover advantages or latecomer disadvantages in
literature is the cost of switching (Lieberman and Montgomery, 1988, 1998). Switching
cost can result from tangible sources such as formal contracts and buyers’ initial
investment or transaction cost to a particular product (Cho et al., 1998). It can also result
from more intangible ones including customers loyalty due to their cognitive processes,
uncertainty avoidance and accumulate experience with the pioneer’s product (Carpenter
and Nakamoto, 1994). Especially, first-mover advantages can be significantly enhanced
by the “network externalities” of pioneer’s product as the industry standard (Katz and
Shapiro, 1994). Particularly, for latecomer small and medium-sized enterprises (SMEs)
the reputation disadvantage is more evident because these firms do not have legitimacy
and stable links to customers and supporters (Stinchcombe, 1965; Eisenhardt and
Schoonhoven, 1990; Gao et al., 2007).
However, latecomers may also benefit from free-rider effects stemming from the
evolution of market. They can avoid the costs of educating customers incurred by the
first movers. In addition, the market changes over time and the direction of change is
not entirely predictable. Changes in consumer tastes may offer acute latecomers
opportunities to disrupt incumbents’ leading position (Kerin et al., 1992; Cho et al., 1998).
Competition
First movers can benefit from preempting resources of various types (Lieberman and
Montgomery, 1988). These resources include superior positions in geographic space,
human resources, suppliers and raw materials (Cho et al., 1998). Preemption may also
interact with market opportunities, particularly when first mover focuses on exploiting
the competitive vacuum in the market. In general, latecomers have to face saturated
market and fierce competition when they enter the industry.
But in another point of view, competition and competitors may also provide
opportunities for latecomers. Latecomers can gain differentiation advantage by simply
doing things differently, for example, altering the configuration of value chain activities
involved in designing, producing, marketing, delivering and supporting a product
(Buaron, 1981). The irreversibility of investments in any of these areas might preclude
the first movers from adopting the strategies and tactics of later entrants that have the
benefit of hindsight (Porter, 1980). Besides the inertia of sunk resources, first movers
may have another type of inertial force embedded in their organizational behavior, This
path dependence is described as “incumbent inertia” (Lieberman and Montgomery,
1988), or “core rigidity” (Leonard-Barton, 1992) or “hard wired” routine (Nelson and
Winter, 1982). Furthermore, latecomers also can achieve advantages by learning from
JSTPC the pioneer’s mistakes in such areas as positioning (Hauser and Shugan, 1983;
1,3 Lieberman and Montgomery, 1988). This learning advantage can also be regarded as a
form of free-rider effect.
Overview of AUO
AUO is the largest manufacturer of large-sized TFT-LCD panels in the world, with
approximately 20.4 percent of global market share and revenues of US$14.81billion in
2007. The company was formed in September 2001 by the merger of ADT, Inc. and
Unipac Optoelectronics Corporation. In October 2006, AUO merged with QD Inc.,
forming the company as of today. AUO provides customers a full range of panel sizes
and comprehensive applications, offering TFT-LCD panels in sizes ranging from 1.5 to
65 inches. Additionally, AUO is the first pure TFT-LCD manufacturer to successfully
list at the New York Stock Exchange.
In Korea, the business is run by huge-sized “Chaebols” with more levels and rigorous
hierarchy which frustrates the employees as they have less tendency to promote. Plus,
the Korean wives prefer the Taiwanese culture which pays more respect to the female
society. Therefore, a lot of Korean engineers come to Taiwan in the prime of their life at
the age of around 30. At the moment, Hsin Chu Science Park, one of three TFT-LCD
clusters in Taiwan has more than 200 Korean engineers. This talents transfer helped
Taiwanese to surmount the latecomer disadvantage caused by pioneers’ preemption of
experienced people as a critical input factor.
As a latecomer, AUO also has employed differentiated positioning to survive and
then to grow up in the industry. Unlike most Japanese and Korean leaders pursuing
rapid generation upgrade to produce larger and larger size panels, AUO not only makes
great efforts in the large size competition but also keeps on expanding production of
small- and medium-sized panel (smaller than 10 inch). Currently, AUO is running four
G5, two G6 and two G7 fabrication plants for large-sized panels along with four G3.5
and one G4 plants for small- and medium-sized ones.
Compared with large-sized panel, small- and medium-sized TFT-LCD panel has
wider range of applications and the price is more stable. Therefore, when most firms
suffered from the unpredictable demand and price changes of large-sized panel in the
industry cycles AUO could achieve scope economies and effectively offset the lost by
profiting from the business small- and medium-sized panel such as products for digital
cameras, mobile phones and portable games. In 2004, when AUO’s world ranking was
No.3 in market share of panels for notebooks and monitors and No.5 in LCD-TV, it had
already become the No.1 in the panels for digital cameras and No.3 for car navigations.
In recent years, the surge of demand from mobile phone, portable DVD, MP3 and other
consumer electronics attracts a lot of TFT-LCD firms. However, the product lines for G5
and above are mainly designed for large-sized TV panels and the specifications such as
resolution and thickness of glass substrate are quite different from small- and
medium-sized ones. Therefore, it is not easy and economical for firms to adjust
manufacturing process for smaller panels but AUO can simply utilize its existing
fabrication lines to grasp this opportunity. As a result, in 2007 AUO’s shipment of small-
and medium-sized panels surged 80.7 percent from 2006 and reached 143.07 million
when the shipment of large-sized panels increased by 65.9 percent and reached Latecomer
80.9 million. strategy
For the competition of large-sized panels, we can also witness AUO’s differentiated
strategy. While Korean and Japanese firms are focused on large panel AUO endeavors
to improve the performance of smaller products. Take the LCD-TV sector in 2004 as a
example. AUO did not follow aggressive Korean firms but mainly concentrated on
panels that were smaller than 40 inch (Figure 1). Meanwhile, AUO launched products 243
with better performance on key attributes such as response time and brightness
(Table III). Therefore, it seems that AUO tried to produce differentiated products in
mature market and avoid head-to-head competition in new generations. Statistic data
show that the majority of demand was panels smaller than 30-inch at that time and even
in 2005 the mainstream LCD-TV screens was still 32-inch. Therefore, we infer that AUO
preferred more rational strategy to meet the current mainstream demand rather than
adventuring in high-end but highly uncertain market. In addition, we can also find quite
similar strategy in CMO, the second largest TFT-LCD panel manufacturer in Taiwan
(Table IV).
Free-rider effect deriving from learning pioneers’ mistake does not appear evident
for AUO. According to the opinion of interviewed managers, pioneers’ failures are
usually hidden by the companies and not shared.
The latecomer advantage caused by pioneers’ irreversible investment does not seem
significant in this case. Though building a new generation plant requires totally new
equipments rather than improving existing ones, it is not a problem for Korean or
Japanese to afford the vast investment.
Technology. Among all the features of technological regime, the accessibility to
external knowledge flows tends to predominate when it comes to explaining the successful
catch-up of Taiwanese TFT-LCD firms. Besides the initial import of technology from IBM
Japan and Matsushita, AUO continued acquiring and learning external knowledge,
mainly from Japanese firms. Even though Japanese Government formulated a National
Intellectual Property (IP) Strategy and enacted a Basic Law on IP in November 2002 to
pursue leading position in innovation, the knowledge inflow from Japan to AUO is not
interrupted but the relationship appears more interactive (Table V).
Based on technology acquisition, AUO also tried to develop their own R&D
capability. In the interviewed managers’ view, patent is not really an issue due to the
structural feature of TFT-LCD panel. AUO can reverse engineer the product and then
make some incremental changes and finally claim it as their own patent. However, this
approach also led to a lot of IP infringement issues. AUO has been accused by Japanese
firms such as Sharp and Semiconductor Energy Laboratory but surprisingly it does not
affect the relationship with the IP transfer. According to our interview, this is because
they had worked together as partners for such a long time. It is difficult and
uneconomical for each other to find a substitute. This created certain barriers for new
entrants as well because they will find it hard or even impossible to find someone to sell
them the technologies.
One of the most distinct features of TFT-LCD panel technology is the continuous and
rapid evolution of new generations. The first generation (G1) of panel was launched in
1990 and G2, G3, G4 were put into mass production with intervals from three to five years.
The upgrade is accelerated in the twenty-first century and new generations are launched
in almost every year. However, the major difference between each generation of plants is
JSTPC Size /Solution
1,3 54W HD SA
52W HD L
47W HD C
244 46W HD SA A
45W HD SH
42W XGA+ L SA
40W HD SA
40W XGA+
SA
40W XGA SA
37W HD C
37W XGA+ SH L A
32W XGA+ SA A C
SH
32W XGA SA
30W XGA SH L C A
27W XGA C
26W XGA– SH
26W XGA L SA A
23W XGA– C
23W XGA L SA
22W XGA SH SA
SH L C SA A
22.1VGA
2003 1Q 2Q 3Q 4Q
Time
Figure 1. 2004
Comparison of product L : LG Philips, SH : Sharp, Sa : Samsung, C: CMO, A : AUO
positioning
Source: MIC (2004)
the size of glass substrate, whereas the technology and process stay quite similar. In other
words, there are no revolutionary technology changes and most of the progress are the
incremental improvements on the production process. The learning curve effect is
significant enough for manufacturers to improve productivity step by step.
Latecomer
Size Companies Solution Response time Saturation Contrast Brightness
strategy
20.1 inch LG Phillips 640 £ 480 25 72 400:1 450
Sharp na na na 500:1 430
Samsung 640 £ 480 16 72 800:1 500
CMO 640 £ 480 16 75 600:1 450
AUO 640 £ 480 16 75 600:1 500 245
800 £ 600 16 75 500:1 500
26/27 inch LG Phillips 1,280 £ 768 12 72 600:1 600
Sharp 1,366 £ 768 12 na 800:1 450
Samsung 1,280 £ 768 16 72 800:1 450
CMO 640 £ 480 16 75 600:1 550
AUO 1,280 £ 768 12 75 600:1 600 Table III.
Comparison of product
Source: MIC (2004) performance
At the start, AUO did not have experiences in managing the process. Owing to the lack
of relevant experience and capability, the design of the factory was not ideal and the
productivity was low. It took AUO a long time to integrate the components and
equipments bought from various suppliers to achieve smooth production. However,
since AUO had limited R&D risks by just simply copying mature technology which had
already tested by Japanese leaders and had stable demand as well, it is possible for
AUO to concentrate on improving production to gradually offset the initial
disadvantage on process knowledge. AUO employed specific tactics to facilitate this
improvement. While other firms such as Sharp and Samsung built single plant with
large-scale output, AUO successively built two G5 plants with less output. Based on
the accumulated experience in building and running the first plant, the next one can be
rapidly constructed and achieve higher yield rate. Therefore, due to the learning curve
effect and subtle planning, AUO are getting better in terms of mastering the production
process of the panels.
AUO and other Taiwanese panel manufacturers had another latecomer advantage
due to learning curve effect. Since the manufacturing equipment for TFT-LCD panel is
small batch and customized product, by installing equipment for first movers the
equipment makers also accumulated experience and were able to offer better products
and tutorship of operation for latecomers. This effect was utilized by Taiwanese firms
to enhance their manufacturing competitiveness.
In order to understand more about AUO’s situation and corresponding strategies
after entering TFT-LCD industry, it is necessary to delve into the structure of panel
(Figure 2). Raw materials or key components take the major portion on total cost in
TFT-LCD panel production, accounting for about 60-70 percent (This percentage
JSTPC
Company involved Agreement contents Term
1,3
IBM Japan Transfer and cooperative R&D March 1998-March 2005
of TFT-LCD technology
Matsushita Cooperative R&D and authorization June 1998-October 2003
of TFT-LCD technology
246 Fujitsu Limited Authorization of MVA LCD module June 2000-June 2005
patents
Fujitsu Display Technologies Transfer of MVA premium LCD October 2002-Octobert
Corporation technology 2005
Fujitsu Display Technologies Authorization of MVA premium LCD From March 2003
Corporation patents and technology
Fujitsu Display Technologies Cooperative R&D of MVA premium From March 2003
Corporation LCD patents and technology
Fujitsu Display Technologies Acquisition of FDTC’s stock From March 2003
Corporation
Semiconductor Energy Mutual authorization of TFT-LCD September 2003-
Laboratory Co., Ltd patents December 2008
Hitachi Display Mutual authorization of TFT-LCD November 2004-June
patents 2009
IBM Authorization of about 170 TFT-LCD From July 2005
patents
Sharp Authorization of PC-use LCD patents July 2005-June 2010
Samsung Electronics Mutual authorization of TFT-LCD From January 2006
and OLED patents
Sharp Mutual authorization of TFT-LCD na
Table V. patents
Chronology of AUO’s
technology acquisition Source: Compiled from AUO’s annual reports
varies due to different size, generation and yield rate, etc.) Among all materials and
components, glass substrate, polarizer, color filter, back light unit and driver integrated
circuit (IC) are the most costly ones, taking up about 75-80 percent of total materials cost.
In addition, most of these key components are “design-in” products which must match
the panel manufacturers’ specific needs and specifications from the beginning of
TFT-LCD design. Production of LCD panels is impossible to complete if any component
is missing or unfit. Hence, holding the key components is doubtless vital to gain
competitive advantages in this industry.
However, Taiwanese TFT-LCD firms lacked the capability on the key components in
the initial stage due to the late entry. Most key components were monopolized by foreign
firms, mainly Japanese. For instance, the color filter is the one of the most costly
components of a panel, accounting about 15 percent of total cost. Two Japanese firms
Toppan and DNP held the largest market share, accounting for 34 and 29 percent in fourth
quarter of 2001. Considering polarizer representing approximately 9 percent of total cost,
Three Japanese suppliers Nitto Denko, Sanritz and Sumitomo capture dominated the
market with 47, 20 and 15 percent in 2001. In addition, the key components of polarizer
such as triacetyl cellulose and patterned vertical alignment film which require in-depth
knowledge and experience in optics were mastered by Japanese leaders including Fujifilm
and Konica. Before the second half of 1999, 100 percent of the polarizers that Taiwanese
panel firms used were imported. For AUO, the interviewees admitted that 90 percent
Wafer foundry
Latecomer
Photo mask
LGP
CCFL
Flim TAC PVA strategy
\LED Packaging Frame
Color resist testing PCB
film
Color filter FPC
Glass Back light unit Polarizer
substrate Driver IC
247
Panel
Manufacturing Chemicals Figure 2.
equipments power supply Components of TFT
panels
Source: Display search (2006)
of their materials were bought from foreign suppliers in the early stage so its profit was
quite limited. Furthermore, given the cyclical and fluctuant trajectory of the TFT-LCD
industry, AUO and other Taiwanese panel markers could not hold stable component
supply and thereby were at a disadvantage in the fierce competition while Japanese
competitors could preempt materials from domestic suppliers due to long-term business
relationships or “Keiretsu” affiliations (Figure 3).
In order to surmount this disadvantage, AUO employed aggressive vertical integration
strategy. AUO’s integration modes varies based on the features of components and market
dynamics. For example, color filters have a large portion on total cost and high
interdependence with panels. In addition, the cost and risk of transporting color filters for
new generation panels surges due to the larger size. Therefore, AUO internalized the
production of color filter. The IC industry in Taiwan is so mature that cooperation and
network governance is more economical than internalization. Hence, AUO just relies on
the affiliated IC vendor and invested on several design houses focusing on small- and
medium-sized panel segment. This vertical integration strategy is also employed by CMO
and other Taiwanese panel makers (Table VI).
Glass substrate
Target and chemical
materials
Color filter
Polarizer
3.0% 6.0% 6.0% 4.0%
7.0% Crystal liquid
5.0% 16.0% Driver IC
2.0%
Back light
PCB
10.0%
7.0% Others
3.0% Labor
4.0%
27.0% Depreciation
Indirect costs Figure 3.
The cost structure of
SG&A
32 inch TFT-LCD panels
Source: DisplaySearch (2006)
JSTPC Up to now, AUO’s vertical integration strategy is quite effective. The Darwin, affiliated
1,3 with AUO, can produce back light unit; the Wellypower, another affiliated firm, can
provide cold cathode fluorescent lamps (CCFL) and Light-emitting Diode (LED) which
are key components of back light unit; the Daxon, which was invested by AUO, can
produce polarized panel; the Novatek, also affiliated with AUO, is the largest TFT-LCD
driver IC manufacturer in the world. Moreover, AUO can self-provide color filters. On
248 the whole, the capability of key component production of Taiwanese panel
manufacturers had been notably enhanced within a short period (Figure 4).
4. Discussion
The overall findings from this case study are summarized in Table VII.
Our findings from this case study not only resonate with some previous arguments
but also reveal some different crucial issues which have not been emphasized in the
research area of latecomer (dis)advantages.
Some (dis)advantages addressed in previous research do not actually exist in this
case. For instance, changes in consumer tastes which are considered as an important
source of latecomer advantage do happen in the TFT-LCD sector. However, the main
change is simply the panel size expansion in every application and this trend is so
120
2001
100 2002
2003 (f)
80
Percentage
60
40
Figure 4. 20
The self-sufficiency rate of
key components of 0
Taiwanese TFT-LCD Glass substrate Color filter Polarizer Back light Driver IC
panel manufacturers
Source: IEK (2004)
Latecomer
Source Latecomer disadvantages Latecomer advantages Strategies
strategy
Market Not significant Existing customer Pure-play foundry and price
orientation
Competition Not significant Aid from Japanese leaders Close cooperation with
Differentiation advantage Japanese
A full range of panel sizes 249
Differentiated performance
on specific sizes
Technology Lack of experience in Available external Simply copy mature
and product managing the process technology source technology
Dependence on external Patents do not matter Concentration on improving
components Incremental improvement production Table VII.
rather than radical Two successive smaller Latecomer
innovation plants instead of single (dis)advantages and
Improved equipment large one strategies of Taiwanese
Vertical integration with TFT-LCD panel
various modes manufacturers
apparent that everyone can see it and cannot provide particular opportunity for
latecomers. The latecomer advantage stemming from learning pioneers’ mistake is also
not significant because they did not make notable mistake in deed. Similarly, switching
cost and reputation which are argued to be latecomer disadvantages by previous
literature do not matter in the TFT-LCD industry.
Other (dis)advantages mentioned before such as avoiding consumer education are
found in this context but they do not appear to be crucial ones. What we found as
the vital source of advantages for latecomers and want to underline in this research is
the competition dynamics. Taiwanese panel makers’ entry is not only the result of their
own strategic choice but also facilitated by the battle between Japanese and Korean
pioneers. Considering the industry downturn and challenge from aggressive Korean
competitors, Japanese firms had no other choice but to outsource production to reduce
cost. Taiwanese firms are the ideal partner with competitive manufacturing capability,
especially on cost down. Hence, it was very reasonable for Japanese to ally with these
“potential but probably minor competitors” to defeat “major rivals”. For Taiwanese
firms, the cooperation with Japanese caused by the international competition has broad
and continuous benefits. For the initial stage, Japanese provided design and
manufacturing technology which acted as the foundation for Taiwanese firms’
development. Without the technology transfer from Japanese caused by this situation, it
is almost impossible for Taiwanese firms to edge in the industry. In addition, orders
from Japanese partners ensured Taiwanese firms a relatively stable demand. Hence, this
advantage stemming from competition dynamics also significantly influenced both the
situation of market demand and technology regime. From the longitudinal view, even
though Taiwanese latecomers have already grown up today, they are still receiving
technology because Japanese firms have taken a strategy to avoid head-to-head scale
competition and concentrate their resources on developing high-value displays for new
markets. Based on this experience from the case, we advise other latecomers to pay close
attention to the competition between pioneers, understand their strategic intention and
try to seize the opportunities caused by their choice such as alliance or retreat.
JSTPC One of the major source of latecomer (dis)advantages emphasized in this paper is the
1,3 technological regime. Besides the accessibility of external technology source, the
features of technical advances seem crucial to explain the successful catch-up of
Taiwanese panel firms. The technical advances of TFT-LCD panels are mainly
incremental improvements rather than radical innovations and therefore provide
latecomers enough time to accumulate experience. However, given the numerous cases
250 of successful catch-up during technological discontinuities whether the features of
technological regime can be regarded as sources for latecomer advantage should be
analyzed by linking demand and competition dynamics.
In our opinion, the strategies to utilize advantages or to surmount disadvantages
perhaps are more important than (dis)advantages themselves in explaining latecomers’
success or failure. From this case study, we found that Taiwanese firms also adopted
specific strategies or approaches besides the acceptance of foreign technology. Some of
these strategies have been noticed in previous literature. For example, unlike foreign
competitors that focusing on large-sized sector AUO employed differentiated
positioning by providing both small- and medium-sized and large-sized panels. And
AUO also tried to achieve better performance on particular attributes in their large-sized
products. We also found other subtle approaches such as building two comparatively
smaller fabrication plants successively to accelerate learning curve effects, which is also
adopted by other Taiwanese electronics manufacturers including Foxconn. What is
more impressive is AUO’s aggressive vertical integration driven by the desire of
surmounting competitors’ preemption on key components and continuous cost
reduction. These strategies have been approved to be effective and may also be feasible
in other industries with similar context.
We also underline the importance of understanding the structure of product in
exploring latecomers’ catch-up. As illustrated by above analysis, the great portion of
key components in total cost of panel production explains the Taiwanese firms’
unfavorable situation at the beginning and their subsequent endeavor in vertical
integration. Without such knowledge, discussions and understandings about
latecomers’ disadvantage and strategies will probably remain shallow.
Moreover, we would like to address the difficulty of classifying latecomer
(dis)advantages. For instance, the free-rider effects can be found on market/consumers
and competition aspects in Cho et al. ’s (1998) framework, in terms of saving the cost of
educating customers and learning pioneers’ mistake. And in the framework proposed
by Kerin et al. (1992), some first-mover advantages such as the marketing cost
asymmetry as an economic factor and consumption experience asymmetry as a
behavioral factor seem highly correlated. In our case study, as we mentioned above the
advantage of receiving external aid caused by competition dynamics also led to the
availability of existing customer in the demand area and availability of external
technology source in the area of technology regime. Therefore, we are inclined to believe
that (dis)advantages affect interactively on latecomers rather than working separately.
In the paper presented at the DRUID Summer Conference 2004, Mathews (2004)
underlines the importance of timing in strategizing in TFT-LCD sector in that
latecomers including Korean and Taiwanese successfully entered only during industry
downturns. However, according to our interview with managers of leading Taiwanese
panel manufactures, we find that the timing of their entry may not be subject to strategic
choice, but purely because of the emerging of opportunities, especially the external
technology source. In other words, they were helped by Japanese firms to enter this market Latecomer
in the downturn rather than choosing this “window of opportunity” intentionally. strategy
5. Conclusion
To conclude, this paper advances the existing literature on latecomer advantages and
disadvantages by reviewing the spectacular rise of Taiwanese TFT-LCD panel
manufacturers, and reveals the importance of some unexplored source of latecomer
251
advantage such as the competition dynamics which is proved to be vital for Taiwanese
firms to successfully penetrate into the market. We also have discovered new forms of
latecomer advantages, for example the free-rider effect of improved equipment due to
suppliers’ own learning curve. This paper also illustrates the necessity of adequate
exploration on technology and product features to understand firms’ strategic
behaviors. Moreover, the subtle tactics found in this case study may enlighten other
latecomers.
However, our study leaves a number of questions unanswered which warrant more
attention. In the first place, the theoretical arguments and experiences from this single
case is not easily extendable to the other industries. Broader and further investigation
including cross-case study and quantitative method may be helpful to discover the
mechanism between latecomer advantage, strategy and performance. In the second
place, the study of latecomer (dis)advantages and strategies should take the firm
features into account to get a whole picture. For example, whether SMEs have specific
latecomer (dis)advantages and strategies is worth more exploration. Last but not the
least, the examination of interactions between latecomer (dis)advantages and more
detailed analytical framework are needed.
Acknowledgements
The authors gratefully acknowledge the support from the Joint Program of National
Natural Science Foundation of China and The Royal Society of United Kingdom.
The authors also thank UK EPSRC Cambridge University Integrated Knowledge
Centre (CIKC) grant providing industry access and travel funding. Many people from
the Cambridge Institute for Manufacturing (IfM) contributed in various ways, as well as
from our international collaborators in Taiwan and the Mainland China.
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Corresponding author
Yongjiang Shi can be contacted at: ys@eng.cam.ac.uk