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Strategic Capacity Development and Vigorous Competition

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Strategic Capacity Development and Vigorous Competition06



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Title Strategic Capacity Development and Vigorous Competition
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Material Type Report
Date 2015
Language Korean
File Type Theme
Subject Industry and Technology < Science/Technology
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Abstract

Sub-Theme 3 | Strategic Capacity Development and Vigorous Competition





In the second half of the 1960s, when the government began to formulate comprehensive plans to promote the electronics industry, Korean firms also began to pay attention to the potential of the electronics industry. Goldstar had already entered the electronics industry in 1958, followed by Taihan Electric Wire in 1968 and Samsung in 1969, as well as a number of other companies.



As a latecomer in the industry but the largest business group in Korea, Samsung thought that setting up joint ventures with leading electronics firms would address four problems at once: securing access to foreign markets, acquiring advanced technology, procuring core components in early years, and cooperating with the government on electronics industry promotion. Samsung set its objective as “complete localization, from materials and components to final products.” Its emphasis on vertical integration set Samsung apart from incumbents. Samsung decided to set up a joint venture with Sanyo Electric in final products such as TVs and another joint venture with NEC in major parts and components such as vacuum tubes and cathode-ray tubes as well as telecommunications equipment.



Samsung’s entry into the electronics industry precipitated a sharp reaction from the incumbents. They felt threatened by Samsung’s move and tried to block Samsung Sanyo Electric’s entry into the domestic market by citing the limited size of the domestic market and reverse discrimination against domestic companies. After much deliberation, the government approved of the new joint venture on the condition that it export all its products for a certain period, rather than 85% as had been originally proposed.



In 1969, companies in the Korean electronics industry could be divided into two groups: Korean-owned companies that were producing various electronic products and foreign-owned or joint-venture companies focused on assembling and exporting electronic components. Goldstar had more than 40% of the domestic consumer electronics market, three times the market share of its closest competitor. However, Samsung quickly built up its own capabilities and increased its market share, triggering vigorous competition in the electronics industry. In fact, based on domestic and export shipments, Goldstar’s market share declined from 12.6% in 1969 to 7.1% in 1971. By contrast, Taihan Electric Wire’s market share increased from 2.9% to 4.6% over the same period, and Samsung Sanyo Electric had a market share of 4.0% in 1971, barely one year after starting its production, as shown in Table 4.



 
[Table 4. Market Shares by Firm in the Electronics Industry: 1969 vs. 1971]

 































































































  Company Products Shipments (mil. won) Share (%)
1 Motorola Korea Components 3,581 15.0
2 Goldstar Consumer Devices 3,001 12.6
3 Goldstar Communications Industrial Devices 2,094 8.8
4 Fairchild Korea Components 1,787 7.5
5 Signetics Korea Components 1,653 6.9
6 Dongyang Precision Industrial Devices 1,303 5.5
7 Control Data Korea Components 1,203 5.0
8 IMEC Components 784 3.3
9 Taihan Electric Wire Consumer Devices 693 2.9
10 Dongnam Electric Consumer Devices 688 2.9
11 Others - 6,549 27.4
Total - 23,859 100.0




Source: KDB (1970)



 































































































  Company Products Shipments (mil. won) Share (%)
1 Motorola Korea Components 7,039 13.8
2 Goldstar Various Devices 3,613 7.1
3 Signetics Korea Components 3,524 6.9
4 Daehan Micro Components 3,276 6.4
5 Goldstar Communications Industrial Devices 2,488 4.9
6 Taihan Electric Wire Various Devices 2,331 4.6
7 Honam Electric Components 2,108 4.1
8 Samsung Sanyo Electric Various Devices 2,070 4.0
9 Dongnam Electric Consumer Devices 1,891 3.7
10 Fairchild Korea Components 1,720 3.3
11 Others - 21,033 41.2
Total - 51,093 100.0




Source: Editorial Board, Journal of the Korea Electric Association (1972: 16)





In December 1972, Samsung Electronics established a new technology development center to improve its R&D system and to acquire advanced foreign technology, starting with reverse engineering. As foreign firms were extremely concerned about the “leakage” of technology, it was not realistic to promote technological development by attracting foreign direct investment. Samsung Electronics actively pursued vertical integration to become an integrated manufacturer of consumer electronics products. Established in August 1973, Samsung Sanyo Parts produced such core parts and components as VHF-tuners, deflection coils, and electrolytic capacitors, which had all been imported from overseas. Samsung Electronics' vertical integration strategy culminated with its entry into the semiconductor business in December 1974.



Since the 1970s, Goldstar and Samsung Electronics have competed intensely against each other and developed their capabilities to become world-class electronics companies. Goldstar established the Central Research Laboratory in July 1973 to conduct research on production technology for special processing, material testing, and welding. In August 1979, LG Electronics acquired Daehan Semiconductor and changed its name to establish Goldstar Semiconductor, laying the groundwork for semiconductor production.

Over the long run, firms that proved successful were those that managed to develop capabilities to produce final products, components, and materials through R&D and vertical integration and to generate synergies from product diversification ranging from household appliances to information and communication sectors. By contrast, firms that stuck with labor-intensive assembly or only household appliances had to move their operations abroad or face a decline in performance.