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EPTE Newsletter from Japan - The Korean Electronics Market - Stuck in the 1980's
October 23, 2007 |Estimated reading time: 7 minutes
The Korean electronics market has been featured in a few electronic trade publications over the last few weeks. The buzz within the industry is the increase in orders to component suppliers and circuit boards manufacturers due to the increase in demand within the electronics market. Unfortunately, major electronics companies are considering overseas procurements from Taiwanese manufacturers for some of their components and assembled products in an effort to reduce costs. Samsung Electronics, the electronics giant from Korea, announced they will begin importing circuit boards for cellular phones this year from a few major Taiwanese PWB shops such as Compeq and Unitech. LG Electronics, a major competitor for Samsung Electronics followed suit and now purchases assembled LCD TVs from a major ODM company in Taiwan.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
"Buy Korean" has been the national policy in place for South Korea over the last quarter century. The battle cry began in the early 1980s when the Korean consumer electronics market was in its infancy. They relied heavily on imports for components and materials, especially from Japan, and spent a lot of foreign money on these imports. The goal of the Koreans was to have equivalent technologies and manufacturing capabilities for electronics materials compared to other countries. The government provided a lot of benefits to help fund the establishment and growth of domestic manufacturers, which was very successful. Nowadays, the Korean consumer electronics industry has climbed the global ladder and is now a significant leader for both technology and market share. Fierce competition between the capital conglomerates in Korea forced them to be on top of their game and helped contribute to their success and growth. The Korean electronics industry has realized its dream of being self sufficient; however, new hurdles now stand in their way. The "Buy Korean" policy works well when all participants in the manufacturing cycle follow the game plan and keep the money in the "family". A significant growth in their electronics business is attributed to exports, and competing countries also rely on exports. Korean manufacturers now face significant competition from developing countries in Asia, especially China. Unfortunately, domestic component and material suppliers are not competitive compared to Japanese and other Asian suppliers. Korean suppliers compete only with manufacturers from other conglomerate groups, and don't consider the foreign supply chain. The cost savings for these supplies will run down hill, making components from the developing countries lower in price. Herein lies the conflict. How can the Koreans compete globally, when their buying ideals limit them to a domestic supply list? Another variable to consider in the global arena is labor costs. Korean wages are higher compared to other Asian countries, again, another problem facing Korean component manufacturers.
Korean companies have several choices to overcome these obstacles. The best one is to copy the Japanese model and significantly improve productivity within the manufacturing cycle. It's not an easy fix, but employing the Kaizen Method of continuous incremental improvements is a philosophy the Japanese adopted and proved to be effective. The second choice is to outsource production to lower labor cost markets such as China and Vietnam. Recently, many circuit board companies built new manufacturing plants in the northern part of China where many Korean Chinese people live. The third approach calls for South Korea to use its trump card - re-establish its relationship with North Korea and employ the country's very low labor cost pool. The president of South Korea visited North Korea in the beginning of this month for a high level summit meeting. A large contingent of top management from several major companies in South Korea visited North Korea. I am speculating that talk may have circled around manufacturing opportunities from the North. High-tech electronics companies are still hesitant to consider these possibilities because of an unclear political situation in North Korea; however, many low-tech Korean companies already operate production in North Korea using this extremely low cost labor.
Procurement of products from Taiwanese companies will have a long term positive contribution to the electronics industry in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Korea. Small sized domestic suppliers in Korea will face rough waters because of the cost competition from Taiwanese manufacturers, but they will have to cross these waters. Once they become competitive with their prices, new opportunities could arise from not only the domestic markets, but foreign markets as well.
Korea's long term sustained economic growth is dependent on an open domestic market.
Dominique Numakura, DKN Research (dnumakura@dknresearch.com)
Headlines of the week
(Please contact haverhill@dknreseach.com for further information of the news.)
1. Fuji Film (Major camera and film supplier in Japan) 10/10
Will withdraw from chip manufacturing of CCD chips for digital cameras. It will hold the assembling process of the devices.
2. Mitsui High Tech (Major lead frame supplier in Japan) 10/10
Will have a business alliance with ASE, major packaging manufacturer in Taiwan for the assembling technologies of semiconductors.
3. CCS (Photo device supplier in Japan) 10/10
Has started the operation of the new manufacturing center of LED devices for industrial applications. CCS supply wide band ranges of LEDs with various packages including BGA.
4. TNCSi (Major PWB company in Japan) 10/10
Had a business alliance with Tat Chun PCB in Hong Kong. TNCSi will focus on the high technology products subletting Tat Chun general and low end products.
5. Shirai (Major PWB manufacturer in Japan) 10/10
Has founded a new marketing subsidiary in Shanghai for the customers in China. The company will start the operation soon.
6. Kyocera (Major electronics company in Japan) 10/12
Has agreed to acquire the cellular phone business of Sanyo Electric. The final agreement will be made by the end of the year.
7. Seiko Epson (Major electronics company in Japan) 10/16
Has developed a new organic EL system for color displays with an excellent black color quality. The new EL devices work more than 50,000 hours.
8. Hitachi (Major electronics and electric company in Japan) 10/15
Has developed a new CPP type GMR head device for the next generation disc drives. The new device increase the memory density five times larger.
9. Hitachi AIC (Major PWB manufacturer in Japan) 10/15
Will merge with Hitachi Chemical Electronics as a manufacturing division to make business efficiency higher.
10. Nippon Densan Lead (Equipment manufacturer in Japan) 10/17
Will increase the manufacturing capacity of the test proves for the electrical tests of the printed circuit boards and semiconductor substrates.
11. MTDT (Major display manufacturer in Japan) 10/17
Has developed a circle shape (75 mm diameter) LCD panel for automobile use. The basic technology enables various shapes for LCD panels.
12. Denka (Major ceramic material supplier in Japan) 10/18
Will double the manufacturing capacity of the ceramic boards, especially aluminum nitrates as the substrates of the power semiconductor devices by 2010.
13. Toray Dow (Silicone materials supplier in Japan) 10/18
Will roll out a new silicone base encapsulation resin for LED devices. The new resin has very high heat resistance and hardness at over 150 degree C keeping good transparency.
14. Sharp (Major electronics company in Japan) 10/15
Has built the second assembling plant of LCD modules and flat panel TVs in Mexico.
15. Kyocera (Major electronics company in Japan) 10/19
Has developed the world highest efficiency (18.5%)of poly-silicon base solar cell units.
16. Pioneer (Major electronics company in Japan) 10/19
Has postponed the construction of the 8G manufacturing plant of PDP devices again because of unclear demands in the market.
17. Dai Nippon Printing (Major printing company in Japan) 10/19
Will invest 43.5 billion yens for the new manufacturing line of color filer of LCD devices assuming 10G LCD manufacturing lines.
18. Bridgestone (Major tire manufacturer in Japan) 10/19
Has developed a thin (0.29 mm thick) bendable color electronic paper.
Interesting literatures about the packaging industry
Articles of DKN Research
1. New "Screen Printing for High-Density Flexible Electronics", Robert Turunen, Masafumi Nakayama and Dominique Numakura, Printed Circuit FAB, October, 2007
2. New "Total Process Solution for the High-Density Multi-layer Flexible Printable Electronic Circuits", (Japanese only) Dominique Numakura, Denshi Zairyo, October, 2007
3. New "The latest electronics package, Part XXXI, Cellular Phones", Dominique Numakura, Electronics Packaging Technology, October, 2007
4. New "Coombs' Printed Circuits Handbook, 6th Edition, Part 15-Flexible Circuits", Dominique Numakura, McGraw Hill, New York, September, 2007
5.New "DKN Research Develops Film Base Connector", Circuits Assembly, September, 2007.
6. "Flexible Circuit Materials", (Japanese only) Dominique Numakura, Denshi Zairyo, April, 2007
7. "Business Trends and Technology Trends of the HDI Flexible Circuits -
Roadmap for the Ultra High-Density Advanced Flexible Circuits", Dominique Numakura, KPCA, October 31, 2006
From the Major Industry Magazines
1. "Rigid-Flex Technology: Mainstream Use but More Complex Designs", John Isaac, CircuiTree, September, 2007.
2. "Using AOI in the 01005 Assembling Process", Owen Sit and Joshua Petras, Circuits Assembly, September, 2007.
3. "Corner and Edge Bond Dispensing for BGAs", Al Lewis, SMT, September, 2007
4. "OPTOELECTRONIC SUBSTRATES - Will it happen?", Jack Fisher, Printed Circuit Design & Manufacturing, September, 2007.
5. "Single Wafer Surface Conditioning", Scott Drews, Advanced Packaging, August/September, 2007
7. "Under the Hood, Efficiency vs. Speed", presented by EE Times and Techonline, October 8, 2007
8. "Tape Substrate Manufacturers Have Been Facing Conversion Phases", (Japanese) The Semiconductor Industry News, September 26th, 2007