Escolar Documentos
Profissional Documentos
Cultura Documentos
ACRJ
This case was written by Pro
fessor Bowon Kim (KAIST),
Director Hanyoung Kim
(LG Display), MS Candidate
Jeong Eun Sim (KAIST), and
Senior VP Chanshik Shin
(LG Display), as a basis for
class discussion rather than
to illustrate either effective
or ineffective handling of an
administrative or business
situation.
Please address all correspond
ence to Professor Bowon Kim,
KAIST Business School, Seoul,
130-722, Korea. E-mail: bwkim
@business.kaist.ac.kr
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DOI: 10.1142/S0218927514500138
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LG DISPLAY
In 2004, LG Display was one of the largest LCD manufacturers
in the world. Being headquartered in Seoul, South Korea, LGD
had 1 R&D center, 12 LCD panel plants, and 9 LCD module
plants in Korea and China (see Exhibit 1). In a relatively short
period of time, LGD had grown to be a major LCD manufacturer and been continuously making new records of success,
not only from the sales volume perspective but also from a
technological point of view. In 2004, LGD recorded revenue
of US$8.0 billion with operating income of US$1.7 billion
and enjoyed nearly 20% share of the global LCD market (see
Exhibit 2).
LGD continued to retain its leadership in the global
LCD industry after 2004. In 2010, LGD recorded revenues
of US$22.5 billion, operating incomes of US$1.2 billion, and
over 25% global market share. While investing aggressively
to improve its technological competency, LGD also built
additional panel and module plants since 2004 (see Exhibits 1
and 2).
History of LG Display
In 1985, Geumsung Software (former LG Display) was established as an affiliate of Lucky Geumsung (former LG) Group.
Since its investment in TFT-LCD technology in 1987, it continued to build a solid foundation for future LCD business
steadily. In 1995, it completed its first panel plant for the 2nd
generation LCD with the LCD glass size of 370470 mm, as
well as the first module plant in Korea, and started massproducing the LCD. In 1998, it changed the corporate name
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corporate name finally changed to LG Display in 2008, when Philips sold its
equity stake.
b The exchange rate applied is 774 Korean won to the US dollar based on the
exchange rate of December 1995.
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LCD manufacturing process at LG Display was conducted in two types of plants: a panel plant and a module
plant. A TFT array glass substrate and a color filter glass substrate were manufactured and made into an LCD panel in
a panel plant, and an LCD module was manufactured in a
module plant by integrating an LCD panel with various parts
such as polarizer film, PCB and back light. The LCD module
was then ready to be installed in television sets or monitors
(see Exhibit 3).
In a panel plant, a TFT array glass substrate and a
color filter glass substrate were produced from separate fabrications the TFT process and the color filter process by
repeating deposition and patterning processes. These glass
substrates were assembled vertically, partitioned into smaller
size, and then liquid crystal material was filled between two
assembled glass substrates in the cell process. High degree
of technical skills was required in the entire process in a
panel plant because of its complexity; for instance, as the
size of a glass substrate increased, assembling two glass substrates required more and more advanced technology with
great accuracy and delicacy since defects might be found
on the LCD panel even when it was dislocated by a really
small quantity. Because of the risk of technology leakage and
immense investment cost, panel plants were mainly located
in Korea.
In the module plant, a polarizer film and a PCB
which controlled light and electrical signal respectively were
installed to an LCD panel from the panel plant, and also
back lights were installed during the process. The assembled
LCD module was subsequently inspected and packaged for
delivery. Unlike the process in the panel plant, the process
in the module plant was seen as a simple fabrication process
from a technological point of view, and there were nearly
no critical concerns about the leakage of core technology.
Moreover, the shipping rate for an LCD module was several
times higher than that of an LCD panel, and the shipping cost
increased significantly since the size of LCD TV got larger
recently. Because of all these factors, it was often considered
to be reasonable to have module plants near major client
sites.
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Strategic Importance
The first issue which his team struggled to define was
whether it was really necessary to build a new module
plant. It requested an extremely careful analysis, since total
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investment in building a new module plant would be enormous: it was expected that at least $500 million would be
required to build a new module plant in Europe. After a
lengthy and intensive brainstorming, the team finally identified two primary justifications for building a new plant in
Europe. The first was concerned with the potential of the
market growth. The market for LCD TV had grown rapidly
and was expected to surpass the traditional CRT TV market
in the near future. For instance, the annual growth rate was
expected to be 123% in 2004, 131% in 2005, and 76% in 2006.
Although the industry experts predicted slower growth rates
in the later years, it would be still 47% in 2007, 33% in 2008,
and 19% in 2009. In terms of the volume, about 83 million
units of LCD TV would be sold worldwide in 2009, compared
to only 8.7 million units in 2004. Although LGDs capacity
plan for TFT glasses showed continuous growth from 547,000
in 2004 to 953,000 in 2009, it was expected to be necessary to
build a new module plant so as to capitalize on the growing
demand in the market (see Exhibits 6 and 9).
There was another justification. Geographically speaking,
the Japanese market accounted for about 30% of the global
LCD TV market in 2003. But, since the European market was
expanding fast, it was estimated to be the largest market sometime soon after 2004 (see Exhibit 7). Moreover, Europe had been
a strategic market to LG Display, whose sales in that region
accounted for almost 50% of the companys global sales. As
such, LGD desperately needed to have the presence in Europe
so as to enjoy flexibility to make and deliver LCD panels to
its customers and to become the unquestionable number one
player in the market.
Operational Efficiency
In addition to the strategic importance, LGD needed a
European module plant for an efficiency imperative. In
2003, the company could afford to air-ship TV LCDs to
Europe since the volume was not large yet. However, as
the European market would grow 10 times and the popular
size of a TV LCD enlarged from 1520 to 3242 inches,
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Product Types
Once Mr. Shins team agreed upon the need to build a
new LCD module plant in Europe, they discussed what
sizes of TV LCD the new plant should make. It was important because the plants production lines and capacity all
depended on the product types. Although currently 20 and
23 inch LCDs were selling more, it was expected that larger
sizes like 32 and 42 inch LCDs would dominate the market
from 2006 or 2007, when the operations at the new plant
would start in earnest. As a result, the team decided to recommend larger LCD sizes for the new plant.
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Entry Mode
With the site chosen for the new plant, the team had to
decide the entry mode the new plant should take. Although
LGD wanted to play the major role, it worried a little bit
because of the large investment required to build the plant.
Thus the team searched for an investment partner and succeeded in persuading a Japanese company to invest 20%. The
Japanese partner was mostly interested in the investments
profitability and therefore would not participate in management actively.
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Finally, the team realized it was necessary to suggest a welldesigned HRM (human resource management) plan for the
European plant. They listed four key areas for which they
had to prepare well before constructing the plant. First, in
order to secure highly capable employees, it would be necessary to build a good relationship network with local universities. The team suggested conducting promotional activities
regularly in the local universities, offering scholarships, and
sponsoring educational programs between local universities and R&D centers in Korea. Second, it would be critical
to fully understand local labor laws and labor-management
relationships. They observed other companies had hard times
when globalizing due to their failure to understand these
issues thoroughly. The team decided to recommend hiring
local experts in such areas as labor laws and related rules and
regulations in the country. Third, it would be important to
study the national characteristics of the people in the foreign
country and their work ethics, i.e., general attitudes towards
working, since whether LGD would be successful in drawing
wholehearted cooperation from the local employees could
determine whether the companys foreign operations would
eventually succeed or fail. They knew if the company would
control the local employees solely from its own Korean perspective, it would most likely fail. The key to success was
how to motivate the local workers to work responsibly and
eventually to have loyalty for the company. The first step
was to find ways to reduce the turnover rates and the rates
of absenteeism among the local employees: LGD should
do so before starting actual operations there. Finally, LGD
should design the workforce composition to utilize the local
employees effectively. Depending on the levels of skills and
expertise required by different tasks and jobs, the company
should define different employee categories such as regular
full-time workers, part-time workers, and contactors. For
instance, tasks requiring simple and repetitive activities like
cleaning and logistics could be outsourced to outside contractors. The team also suggested hiring part-time workers and
paying them more generously for the initial period before
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WHATS NEXT?
Almost five years after the European plant was completed
or eight years after he worked hard to analyze the feasibility of building the plant, Mr. Shin finally had a chance to
assess the entire process including both decision-making and
implementation. Observing the performance measures, Shin
believed that overall the decision was right. But, he wanted
to make sure that what the company had learned during the
decision-making process should not be lost, i.e., it should
help the company make a better decision in a similar situation in the future. Thats why he asked whether the decisionmaking processes were systematic and reasonable, whether
he didnt fully take into account other possible limitations
or constraints, and what might have been possible loopholes
or weaknesses in the analyses. He also wanted to assess
whether the company implemented the strategy effectively,
i.e., whether it should have done something differently, once
it had been approved by the top management.
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Exhibit 1
Plant Capacity and Product Types
Gen.1
Input
Substrates
Size
(in mm)
Mass Production
Commencement
(MM-YY)
Nominal
TFT
Capacity2
Primary Size of
Panels
Produced
P1
370470
SEP-95
60,000
P2
590670
DEC-97
90,000
P3
680880
JUL-00
122,000
P4
1,0001,200
MAR-02
154,000
P5
1,1001,250
MAY-03
175,000
P6
1,5001,850
AUG-04
205,000
P7
1,9502,250
JAN-06
200,000
P8
2,2002,500
MAR-09
123,000
P62
1,5001,850
APR-09
62,000
Facility
Panel
Fabrication
P82
2,2002,500
MAY-10
107,000
32.0, 47.0
P83
2,2002,500
MAR-11
N/A
32.0, 47.0
AP2
730920
JUL-10
24,000
Module
Assembly Facility
Gumi (1)
MAR-95
Nanjing (3)
MAY-03
Paju (1)
NOV-05
Wrocaw (1)
MAR-07
Guangzhou (2)
DEC-07
Yantai (1)
JUN-10
R&D center
1. Based on LGDs internal definition of evolutions in facility design, material flows, and input substrate sizes. There are
several definitions of generations in the TFT-LCD industry. There has been no consensus in the TFT-LCD industry
on a uniform definition.
2. In input substrates per month. Reflects processing capacity for TFT glass substrates only. All of fabrication facilities
except P1 have the capacity to process both TFT and color filter substrates. The capacities of P83 have not yet been recorded in the annual reports.
Source: LG Display Annual Reports (2010).
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Exhibit 2
Selected Financial Data of LG Display
2001
2002
2003
Total Assets
2,693
2,961
3,855
Total Liabilities
1,219
1,900
2,388
3,320
4,599
6,043
6,622
5,595
8,461
Total
Shareholders
Equity
1,474
1,061
1,467
2,894
5,663
7,574
6,874
8,248
Revenue
1,864
1,780
3,007
6,031
Gross Profit
(Loss)
615
(118)
361
1,138
2,079
1,006
(286)
2,280
2,665
2,560
3,730
Operating
Income (Loss)
534
(203)
252
1,086
1,760
478
(882)
1,478
1,234
1,010
1,310
Net Income
(Loss)
429
(225)
293
1,019
1,704
542
(693)
1,344
905
1,117
1,159
1,267
1,314
1,186
1,192
1,035
1010
930
936
1262
1168
1139
Exchange rate
(KRW/USD)
2004
2005
2006
2007
2008
2009
2010
9,663 12,796
2004
2005
2006
2007
2008
2009
2010
978
890
991
805
985
1,066
1,205
1,705
3,770
5,673
6,689
6,534
8,971
10,154
12,591
16,829
America
577
753
1,062
1,034
1,490
2,088
2,491
2,852
Europe
752
1,009
1,330
1,754
2,604
2,655
3,751
4,125
Others
22
202
3,324
497
303
311
Notebook
1,739
2,119
2,113
2,167
3,085
3,700
3,568
4,424
Monitor
3,517
4,662
4,740
2,907
3,709
3,935
4,640
5,390
LCD Television
686
1,163
2,805
4,939
6,841
8,020
10,965
14,079
156
381
417
611
717
619
865
1,619
By Geography
Domestic
Asia
By Product
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Exhibit 3
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Exhibit 4
Exhibit 5
TV Display Share Forecast
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Exhibit 6
Exhibit 7
LCD TV Market Share Forecast by Region
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Exhibit 8
Tariff Condition in EU
Category
Size
Cell
assembly
LCD
Module
Monitor
under
19 inch
0%
5%
(but duty suspension is
allowed from July 2005
to December 2013)
19 inch
TV
Set
(Finished Products)
0%
Normal (5:4) 0%
Wide 14%
over
19 inch
14%
All sizes
14%
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Exhibit 9
Mid- & Long-term Plan
Facility
(Panel
Fabrication)
2002
2003
2004
2005
2006
2007
2008
2009
P1
100
104
105
114
103
104
105
105
P2
92
97
100
107
106
107
108
108
P3
86
101
105
124
119
120
120
120
P4
51
69
90
104
105
105
105
105
P5
69
100
120
115
115
115
115
P6
47
117
120
120
120
120
50
105
108
111
P8
33
77
Others
59
92
873
953
P72
Total
329
440
547
686
718
776
1. Reflects processing capacity for TFT glass substrates only. Also, Figures from year 2002 to 2005 indicate actual
capacity level. From year 2006 to 2011, capacity plan information is included.
2. P7, P8, P62, P9 are the panel plants under construction stage or planning stage.
Source: LG Display Annual Report (2004, 2005), LG Display document (2005).
Application
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Notebook
4.7
7.4
0.9
13.9
15.9
19.2
21.6
26.7
28.4
32.1
Monitor
5.8
11.9
15.4
23.8
26.4
30.2
32.0
36.9
41.3
43.8
TV
0.3
1.4
2.4
6.2
11.1
16.5
21.7
28.1
34.3
37.9
Total
10.8
20.7
18.7
43.9
53.4
65.9
75.4
91.6
104.0
113.8
3. Figures from year 2002 to 2005 indicate actual panel sales volume. From year 2006 to 2011, production plan
information is included.
Source: LG Display Annual Report (2004, 2005), LG Display document (2005).
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Exhibit 10
Initial Criteria for Country Selection
Country Competitiveness1
Country Attractiveness
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Exhibit 11
Weights and Scores for Site Selection
Category
Strategy
Weight
50%
Criteria
Weight
Poland
Wrocaw
Alliance/collaboration
with set manufacturers
30%
13.5
11.7
12.0
8.7
Strategic conditions
congruent with LGD
business
50%
23.5
20.5
21.0
14.5
Sites investment
environment
20%
8.6
8.0
5.4
7.0
45.6
40.2
38.4
30.2
Subtotal
Operations
50%
Human Resources
30%
13.1
11.8
10.5
10.5
Environment
5%
1.9
2.0
1.9
1.9
20%
9.0
9.6
9.1
8.6
Logistics
35%
10.5
10.6
10.8
10.4
SCM
10%
3.6
3.0
2.7
3.0
38.1
37.0
35.0
34.4
83.7
77.1
73.4
64.6
Subtotal
Total
Wrocaw, Poland was determined as the best candidate site for module plant based on overall assessment. The team
planned to use Lodz, located in central Poland, as a bargaining chip for negotiation. Also, the team considered country C,
a big player of FDI (Foreign Direct Investment), as another bargaining chip to maximize negotiation power.
Source: LG Display document (2004).
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Exhibit 12
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Exhibit 13
Developing Supply Infrastructure
Categorization
Item
Number of companies
Polarizer
Group A.
Backlight assembly
Top case
Others
Group B.
Packaging
Local sourcing
Others
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Exhibit 13 (Continued )
Module Plant in Europe Plan for Group A and Group B Suppliers
Category
Plan
Description
Group A.
Korean suppliers
to build new
plants near
LGDs in EU
To evaluate potential
partners
Group B.
Local sourcing
Schedule
~ JUN 05
~ OCT 05
~ OCT 05
~ JUN 05
~ SEP 05
~ DEC 05
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Exhibit 14
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Exhibit 15
The percent figures are relative values based on the data of year 2007.
Source: LG Display document (2011).
The percent figures are relative values based on the data of year 2007.
Source: LG Display document (2011).
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