When it comes to the liquid crystal display (LCD) industry, many well-known players include Samsung Display and LG Display from South Korea, BOE and Tianma from China, and AUO and Chi Mei from Taiwan. While the U.S. invented liquid crystal technology, it was Japan that truly mastered and advanced it. Over the past six decades, the dominance of the LCD industry has shifted multiple times, moving from the U.S., Japan, and South Korea to China. To better understand this transformation, let's examine the industry through the lens of the "liquid crystal cycle."
In the early days, before LCD technology emerged, cathode-ray tube (CRT) display technology was dominant. When the American Radio Corporation developed the first LCD prototype, there was a mix of excitement and disappointment. The excitement stemmed from the birth of a revolutionary new technology, while the disappointment came from its initial limitations—monotony, sluggish response times, and small sizes, making it unsuitable for flat-panel TVs. However, the Japanese recognized the potential of this technology and were quick to adopt it. They initially implemented LCDs in watches and later expanded their use to calculators, instrument displays, and eventually flat-panel TVs.
Throughout the continuous cycle of research and development, production, product applications, and technological breakthroughs, Japan poured immense resources into the LCD industry. By the 1990s, Japanese companies had nearly monopolized the LCD market. Companies like Sharp, known for their "artisan" dedication to LCD technology, played a crucial role in advancing LCD development.
However, over time, as the LCD production cycle evolved, Japan's LCD industry began to face numerous challenges. The LCD industry is characterized by generational divisions, where each generation refers to the size of the LCD panel that can be produced. Higher-generation production lines allow for larger panel sizes. As demand for liquid crystals grew exponentially with size (approximately doubling every three years), higher-generation production lines became a key competitive advantage. Initially, LCD monitors could only accommodate small sizes, suitable for watches. To apply LCDs in notebook displays, flat-panel TVs, and other products, companies needed to invest in building higher-generation liquid crystal production lines. This gave rise to the unique "liquid crystal cycle."
For instance, when 10.4-inch notebook displays met market demand, panel manufacturers would rush to invest in producing these panels. Soon, supply would exceed demand, causing profits to plummet or even lead to losses for companies. However, the drop in panel prices due to overproduction often led to increased demand, prompting companies to expand production further. This cyclical pattern became known as the "liquid crystal cycle."
The LCD industry differs significantly from consumer products, as it gradually creates demand by introducing LCD panels into increasingly diverse应用场景. Japanese companies failed to grasp this dynamic. When the liquid crystal cycle entered a downturn in 1993-1994, facing losses, they cut production and laid off workers. During this time, South Korean companies hired retired Japanese engineers and began heavily investing in higher-generation LCD panels. By the time demand for larger panels grew, Japanese firms were unable to keep pace.
In 2001, Samsung and LG achieved a major breakthrough with the fifth-generation LCD production line, surpassing Sharp and other Japanese companies. The decline of Japanese firms wasn't solely due to the liquid crystal cycle but also rooted in their deeply ingrained obsession with "unique skills," making them unable to adapt to rapidly changing market demands and losing their competitive edge step by step.
In the CRT and plasma technology era, Japanese companies, through innovations like "one-shot three beams," "Tili," and "diamond enamel," earned a stellar reputation and significant sales. However, LCD technology, being more aligned with semiconductor technology, moved toward modular and standardized production. The product technology and quality differences among manufacturers diminished, shifting industry competition away from technical expertise to areas like R&D speed, supply chain management, cost control, and marketing.
One of the greatest innovations in modern electronics is the efficiency gained from separating hardware and software. For example, Apple focuses on product design and R&D, outsourcing manufacturing to contract manufacturers like Foxconn. Yet, Japanese firms initially resisted this model, preferring vertically integrated business models that they believed would create differentiated and unique skills. Unfortunately, they underestimated how quickly the electronics manufacturing industry was evolving, leaving them behind as more efficient companies capitalized on innovation.
Today, the rapid pace of innovation in industries like mobile phones means designs and developments are updated every six months. Maintaining in-house production not only increases innovation costs but also prolongs the innovation cycle. Outsourcing production to factories like Foxconn allows companies to focus on product design, enhancing innovation.
China's rise in the LCD industry provides a prime example of this trend. Through acquisitions of Japanese and South Korean firms, accumulating factory technology, and strategic investments during the liquid crystal cycle, Chinese LCD panel makers seized tremendous opportunities.
How critical is tight collaboration and supply chain networks? On China's southeastern coast, numerous small and medium-sized enterprises have clustered, with each specializing in precise tasks. For instance, in product mold companies, tasks range from design to machining and finishing. Design is further divided into CAD and CAM, machining includes electrical discharge machining, wire cutting, and numerical control (NC) machining, and finishing involves detailed processes like grinding and assembly.
When new innovation needs arise, thousands of supply chain networks can swiftly reorganize and cooperate efficiently, creating a network with scale, efficiency, and flexibility unmatched globally.
Many believe the LCD industry lacks innovation due to a lack of technology. However, the industry requires not only lab-developed patents but also accumulated factory technologies. While these may not be inscrutable, they require countless details, improvements, and insights to evolve into powerful technologies hard to replicate.
Against this backdrop, Chinese LCD companies have made significant strides. BOE, China's largest panel maker, now accounts for 22.3% of global shipments, surpassing LG Display and claiming the top spot. Chinese LCD panels rival those from Japan and South Korea in quality, with similar pricing. Many Japanese and Korean TV brands utilize domestic LCD panels.
The rapid growth of China's LCD industry also owes much to government investment. Establishing new liquid crystal production lines requires billions in investment, with a lengthy profit cycle. Without short-term gains, few investors would commit. Government funding and policy support are essential for the industry's survival and expansion. Employment, infrastructure, utilities, and other factors depend on government backing for orderly development.
In summary, the LCD industry's handover symbolizes the shift in the electronics industry's balance of power among China, Japan, and South Korea. The liquid crystal cycle's impact on investment strategies, global supply chain collaboration on innovation, and policy conditions on industry survival and expansion are reshaping the LCD landscape. Survival of the fittest remains the ultimate rule.
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