Last updated: May 17, 2019
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Macroeconomic Factors for LCD TV Industry

 

This paper seeks to analyze and discuss the macroeconomic factors affecting the LCD TV Industry with focus on economic, social culture, legal, political, and demographic aspects of the study. This study may be used as basis for market research of any firm belonging to the industry.

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The LCV TV industry (Fund Expert, 2006) is part of the  Flat Panel Display FPD industry.   The term Flat Panel Display is  pertains  to “a class of  high performance electronic displays that have a variety of applications in the visually oriented technologies of the information age.” (Institute for Trade & Commercial Diplomacy ,2004). The FPD is an alternative technology to the traditional Cathode Ray Tube technology. Its advantages over the latter technology include being light in weight, occupying a comparatively small volume and requiring only modest amounts of power. The FPD technology is used lap top computers, hand held cameras, and High Definition TV prototypes although the technology were already applied earlier in hand held calculators and digital watches. (Institute for Trade & Commercial Diplomacy, 2004). What makes the technology different from the previous one is the presence of  several technologies competing dominant market share and the types of displays with their corresponding strengths are as follows:

 

First is the Active/Passive Matrix LCD’s which are “set to become the dominant commercial display technology.” (Institute for Trade & Commercial Diplomacy ,2004).  LCD has the main advantage versatility, lower power consumption and small size, high contrast ratio’s and fast writing speed, and full-color capability while its main drawbacks include narrow viewing angles and limited contrast, and the difficulties connected with their manufacture plus low yield rates and high start up capital investments (Institute for Trade & Commercial Diplomacy ,2004).  Second is the  Plasma Display Panels which operates “by controlling the light discharges from ionized gases.” (Institute for Trade & Commercial Diplomacy ,2004).  One advantage is of being currently the largest FPD’s currently available, while its disadvantage is the requirement for high voltages to operate. (Institute for Trade & Commercial Diplomacy, 2004). Third is  Field Emission Displays which is described as an improved and flatter CRT by means of semiconductor technology still untested technology (Institute for Trade & Commercial Diplomacy, 2004). Fourth is the Electroluminescent Displays which “generate their own light from a phosphor sandwiched between electrodes.”  (Institute for Trade & Commercial Diplomacy ,2004).  For its capacity of being addressed actively or passively, they could be similar to LCD, however, they  are described to be “very thin and compact, have high writing speed and good brightness levels, and operate at low voltages to make them better than LCD.” Institute for Trade & Commercial Diplomacy ,2004)

 

As to the economic characteristics of the television industry,   Rodiek (2007)  reported the constantly growing number of televisions in the United States (U.S.) with the 2004 market value of the televisions shipped to the U.S. reaching the amount of  $19.2 billion.   Converted into units,  it could amount to  25.6 million televisions. This was to increase in  2005 by an increase in the value of shipments increase by 19.6%  or to an amount of $23.89 billion, while the units of television could be about 29.3 million or 14% increase.  Projections if rise is continuous could reach a total of about 37.7 million units when 2009 comes. Add the fact that the TV market is shifting to a greater penetration of large, flat panel televisions and industry sources opined that by 2009 about seventy two percent of the market will be having panel televisions that measures 30 inches and above in screen size (Rodiek,2007).

 

Regarding digital televisions (DTVs), it was reported that since the arrival of the first DTVs in 1998, 62% of TVs shipped to U.S. has been digital while the  number of analog TVs will be continuously declining during the next two years.  A growth phenomenon was observed for consumers receiving digital broadcasting, where in 2006,  “38.7 % of the U.S. households were getting it increasing to 95.6% in 2010”. The use of LCD therefore is expected to amount to Billions of Factory Dollars from 1998 – 2007 with shipments of LCD TVs in 2007 to exceed those of CRTs, while come  2009,  the shipments of plasma TVs is expected to exceed  those of CRT TVs. Thus decline of the market share of CRT TVs is obviously decreasing, while the market for flat panel TVs is expected continue grow rapidly (Rodiek, 2007).
Given the characteristics of the LCD TV industry, this paper not discussed the macroeconomic factors that would affect the industry.  Economic factors are discussed first and this will be followed by political and legal and socio-cultural, technological and demographic.

 

Economic factors include those that affect the players in keeping up with the competition in the industry, investments, and how the firms or players are to be motivated by profit objectives

 

As in all kinds of industry, firms are affected as to what will cause them to invest in certain industry. Foremost of these factors are opportunities for profits vis-à-vis their investments.   Between US and Japan, it was the former who had the research and development technology after World War II but it was Japan who first went into commercial application of FPD technology. Sharp Corporation, a Japanese company took subsequent developments in FPD technologies and translated them into viable technologies. The following motivating factors were reported to have driven the Japanese to make private investment:   First is the severely competitive Japanese electronics industry that had put a premium on a rapid turnover in new commercial technologies. Thus it was reported that Sharp introduced LCD’s in calculators first to beat off severe competition from Casio and it was also noted that Japanese firms have commonly been prepared and able to take in short term losses in order for the simple advantage of moving first  in new products. Second was the capability of Japanese firms to warrant key technologies from U.S. and British sources. While it is true that new discoveries in materials and technologies were made in  U.S. university and corporate labs, with the help of the Europeans, it as the Japanese who translated basic research into production techniques.  Third factor is that investments have been the dominant factor. Japanese were able to anticipate external and internal economies of scale, and have created design of supply in a technology with a extensive variety of commercial, political, and security repercussions. (Institute for Trade & Commercial Diplomacy, 2004). In other words, it was the Japanese foresight from having a wide benefits from the commercialization of the FPD technology that caused even their government through MITI that had the companies applied the technology.

 

The US companies did not commercially produce LCD TV at the start but instead allowed the Japanese to make the lead.   It is a known to many that one industry in which U.S. firms were clearly leading was in the making of televisions. Some of the leading firms in include: General Electric, RCA, Westinghouse, and Zenith. The color televisions made by these companies as part of the consumer electronics divisions of said firms were believed to be the best in the world, but televisions provided to consumers were bulky, made use of massive amounts of power, and caused grainy images. While  visionaries from these companies might have thought of developing new display technologies that could be used to flat screens thin enough while having improved display capabilities, none really turned out  to really has d applied as what the Japanese had done. (Institute for Trade & Commercial Diplomacy, 2004). Although investments in research programs to develop Flat Panel Display (FPD) technologies none of the leading American consumer electronics firms had decided to apply FPD that were researched, such as the AM-LCD’S and ELD’S for commercial products production  (Institute for Trade & Commercial Diplomacy, 2004).

 

US companies tried to use the technology but they were not able to sustain with first applications tried by RCA’s Sarnoff Laboratory, where as early as 1968 the technology there was chance to use the same to produce clocks and watches with simple alpha-numeric electronic displays not only on TVs.  LCD’s were considered a threat to the CRT industry in which RCA had a large sunken investment, hence the technology development was not pursued. (Institute for Trade & Commercial Diplomacy ,2004)

Westinghouse although capable with the technology decided not to enter into the FPD business because of not strong weak position within the consumer television industry, considering the big capital for R and D, thus canceling its  LCD program in 1979. (Institute for Trade & Commercial Diplomacy ,2004)

 

General Electric also made research on LCD’s in the 1970’s, but its corporate strategy instead focused on systems assembly, thus the company viewed that screen technologies as components to be purchased at the lowest possible cost. There was therefore the trend of the large US integrated manufacturing firms forego large segments of their consumer electronics divisions, or focused more final product assembly instead of integrated components manufacturing (Institute for Trade & Commercial Diplomacy ,2004)

 

The Japanese was therefore the first to commercialize FPD Technologies. It is a fact that American firms sustained their research visionary applications for the new display technologies, but they started licensing basic LCD and Light Emitting Diode (LED) technologies to Japanese consumer electronics firms. Japanese companies were able to take advantage to quickly incorporate the new technologies in the lower end, high volume markets for devices that did make use of basic displays. They were successful in  calculators and digital watches. It was in effect a lack of interest on the part of the Americans because of barrier of entry caused by the Japanese that caused them not to commercially produce using FPD. With Japanese firms’ success in initial applications for FPD’s and realizing that they could never beat the America with the latter’s advanced R&D and manufacturing prowess, , they made a long-term outlooks towards the new display technologies and this attracted the support of the Japanese government (Institute for Trade & Commercial Diplomacy ,2004).

 

Thus the Japanese government supports were seen in the provision of low cost capital loans, tax incentives and subsidies for research and development, accelerated depreciation allowances, and tax deductions for exports. These incentives allowed the Japanese firms to develop long term strategies for commercial development. The long production runs characterized by enormous manufacturing volumes, resulted in substantial internal economies of scale which if protected is a strong barrier to entry for new comers in the industry.  The theory of economies of scale is a long standing economic theory that been there in the books. It was false falsely assumed to be used by the Americans in the automotive industry thus resulting to leadership at present of the Japanese firms.  Although economies of scale could provide the barrier, the same must be sustained with the technology as in undergo changes. With the partnerships and American firms to Japanese firms, the Japanese might have learned much to sustain their leadership in the production of FPD related products.

 

This economies of scale of resulted  directly into increased productivity and decreased production costs and this allowed them to realize increased yield rates. The Japanese are known for these, they capitalize on competitive advantages brought by their margin as a result of the economies of scale.   From the profits they got, they will use the same to further differentiate their products while still producing big quantity underpinning the economies of scale. One could not deny the Japanese technological leadership in electronics although the some may have just been translated by them into products.

 

The strategies of Japanese firms established a different approach towards knowledge and innovation as against  the American emphasis of basic research as the fountain of innovation. Japan view discoveries and inventions to be generally of lesser  importance than direct applications as they seemed to have adopted the advice of the Austrian economist Schumpeter, that  inventions in and of themselves will produce  no economic impact except when applied in a new productive arrangement. It’s the product after all that will be used by the consumers. (Institute for Trade & Commercial Diplomacy, 2004).

 

As a proof of this observation, this could be seen in the  efforts that was show the Sharp Corporation, a Japanese company. Although  Sharp, may be the similar with GE when the former had primarily been an assembler of finished products or integrated systems, it made a difference in 1970’s when Sharp adopted  corporate technology strategies directly the contradictory of G.E.’ by its investment in FPD technologies to follow its long-term corporate strategy of maintaining a competitive edge in components as well as finished products. GE remained with finished products.  When harp entered the display market its competitive strategies had been almost perfected in Japan’s extremely competitive semiconductor and even in electronic desktop calculator industries. With the support of MITI in using  industrial policies to foster industry wide upgrades in technology and investment capabilities, there was no reason to deny success in the domestic consumer electronics sector due to the extremely rapid innovations in process technologies. With the Japanese firms being ahead of the Americans in being first to bring new products or innovations to market, one could only appreciate how responsive the Japanese firms are.

 

These factors may include set beliefs, traditions, or  laws or rules of behavior held in common by a defined group of people that could either influence the demand or supply of the LCD TV industry.  Since the industry is basically driven the development if the technology the said factors are discussed in relation with the technological factors. In this context technological factors must be interpreted to means those factors that goes with the changes of times specially those that are driven the information technology. Since the TV industry is basically rooted on the need of the humanity to see entertainment and news from the screen it could not denied that those that are served by the TV industry may also be served by those in the internet as all TV networks may have now their links with the Internet or that TV programs can  now be stored and watched from the Internet through video clippings as done by You Tube.

 

As to technological factors, it could be argued that on the technical level,  the development of FPD  “incremental process driven by advances in materials technologies and micro-electronics systems to address the screens.” (Institute for Trade & Commercial Diplomacy, 2004).  This is not difficult to appreciate as people and industries make their communication via screen. Particularly observable is in the case of LCD screen in desktop computers and in laptops. With observed preference of the users for LCD based screens this will in effect result to the phasing out the screens using the CRT technology.

 

Demographically, it could be argued that the LCD TV industry is not only a desire of the rich countries.  One should be aware of the movement of one lap top for each child around the world which implies that everybody will not refuse the use the LCD technology given its advantages over the CRT technology. The only problem when expressed economically is the capacity of buyers to buy. But these are given matters as firms will always find the demand for their products and those that are ahead of its use and application like the Japanese could only reap more profits in return.

The economies of different nations although governed by law of supply demand may involve some political and legal maneuverings.    With the reality that the Japanese was ahead in commercialization of FPD technology over the US, they were made to answer anti-dumping charges by some US producers.  There existed a severe situation  between small US producers and the Japanese, and the former responded to the Japanese challenge by bringing a case of  an unfair trade practice to the US trade court. Thus, the Advanced Display Manufactures Association (ADMA),  supported by APRA and some government agencies, filed an anti-dumping case with International Trade Court (ITC) and the Department of Commerce (DOC) against the Japanese (Institute for Trade & Commercial Diplomacy, 2004) asking for  an investigation into allegations that twelve Japanese producers were engaging in dumping practices.
For non US players this kind of game must be faced with realism. Given the US is a big market for many LCD related products, those small producers may have really felt the  pressure coming the capacity of the Japanese to mass produces the LCD TV products. But as for other parts of the world the charge of anti-dumping is basically a legal if not a political issue as the country entertaining the complaint may after all realize that it needs the technology as may latter be found in the case of the US. Dumping may be defined  as selling products at ‘less-than-fair value’ in another country than those from where the products are coming while the fair value may mean the price at which the same product is sold in the exporting or selling country to another third country, using as basis a price at factory shipping. The US had its Tariff Act of 1930 (Anderson and Gallini,1998), where upon the filing of a petition for anti-dumping, its  Department of Commerce  (DOC) will conduct an investigation on the dumping sales, and it would be the  ITC which conduct the  investigation for  the existence of injury to the US producers as caused by the charge of dumping. With simultaneously investigations,  DOC and ITC could find that  dumping has occurred and the US firms has been materially injured, in which case the Japanese being complained could be assessed anti-dumping duties equal to the calculated dumping margin (Institute for Trade & Commercial Diplomacy, 2004).

As part of their argument, the petitioners quoted statements made in an interview Toshiba’s vice president, where said “We are prepared to accept red ink for the first five to six years. From the experience of our semiconductor business, we have learned that one has to take a long-term perspective.” The petition was banking on the material injury caused by pricing strategies by Japanese to many US firms like  AT;T and IBM, out of the display market (Institute for Trade ; Commercial Diplomacy, 2004).  In the complaint,  the ADMA wanted that all types of FPDs, which were Active-Matrix LCDs, Passive-Matrix LCDs, Electroluminescent (EL) displays and Gas plasma Displays, considered as one product for antidumping assessment with the prayer that  duties be imposed only on displays and subassemblies and not on assembled products (Institute for Trade ; Commercial Diplomacy, 2004).

The preliminary determination in  1991 by the DOC found that Japanese producers were selling FPDs at below fair market value, and recommended the imposition of ‘bonds’ much lower than the petitioners asked while the ITC usually recommend modest estimates of dumping margins in the preliminary determination, so that the bonds does not affect the exports as mush as the final duties do. The said determination also considered all types of FPD to be treated as a single class or kind. (Institute for Trade ; Commercial Diplomacy, 2004).

The final determination however by the DOC concluded that PDP pricing below fair value was not founded, negative determination on PM-LCD, as there was no PM-LCD industry in the US.  On the other hand, the ITC in its final determination ITC voted 3 to 1 to impose dumping duties of within the range from 7.02 percent on imports of EL displays and to 62.67 per cent on imports of AM-LCD from Japan. Despite the Department of Commerce’s final determination, the ITC accepted the petitioners’ argument to categorize all kinds of FPDs as one kind of products. It was to be noted however that  Commissioner Mr. David Rohr noted that  US firms failed to turn the FPD technology into a marketable product and the dissenter  Acting Chairman Anne Brunsdale argued for lack of evidence of hurt in the US industry and said the “US duping laws should not be used to shelter US companies from tough foreign competition.” (Institute for Trade ; Commercial Diplomacy, 2004).

What so interesting with the case is that while the Japanese were trying to avoid the penalty US commercial companies such IBM, Apple, Compaq and Tandy filed appeals with the Court of International Trade (CIT) for a reversal of the decision by the Department of Commerce opposing the dumping duties “claiming that there were no viable US suppliers of AM-LCDs and, therefore, they were dependent on Japanese suppliers. They argued that with the limited capacity available for producing AM-LCDs displays in the US, they would still be forced to buy from Japanese companies, which would raise their unit costs by about 30 percent.  Spokesman for the Tandy Corp. expressed the feelings of the computer industry noting that, “By trying to protect a couple of small companies in the US that manufacture these displays, it’s almost certain that the next generation of these notebook PCs are going to be built offshore.” Bill Fasig at international government affairs for Apple argued emphasizing on the Japanese producers’ competitiveness that, ”Considering that Japanese engineers can get an undergraduate degree in flat-panel displays at five universities while American students have no such options and that American investors won’t wait two or three years for their profits, waiting and hoping seem pointless. But so does the anti-dumping duty. Instead, what will really benefit consumers, manufactures and workers alike are educational and industrial policies that will let the United States compete before the market is lost.” (Institute for Trade ; Commercial Diplomacy, 2004).

On March 2, 1993, although CIT ordered the ITC to re-examine the case saying the ITC’s decision was based on misreading of the law, the ITC again ruled that Japanese’ AM-LCD products still threatened injury to the US industry.  They decided to retain punitive duties on AM-LCD, but withdrew antidumping tariffs on EL displays. An official at Ministry of International Trade and Industry stated, “The decision is extremely unfair. There could be no case of dumping damaging the US industry, since there are no manufactures in the US that make such high-definition screens for computers.”  He even expressed Japan’s intention to ask the General Agreement on Tariff and Trade (GATT) to set up a panel on the US’s violation of the International agreement (Institute for Trade ; Commercial Diplomacy, 2004).

Conclusion

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LCD TV industry is just a part of the FPD industry which serves the need for people for better used of their TV screens. As to what has contributed to the evolution of the industry require a tracing of its history from the need was actually served by the industry from what it evolved from.  This paper was able to trace the evolution of the technology and this paper now predicts the future direction of the industry on the bases of the following factors-  The economic factors which include the interest , inflation will continued to drive and affect the various firms in the industry

Towards more demand for the LCV TV

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The industry is highly influenced by technological factors but which is of course driven by economic and political factors.  It is driven be economic factors (Haig and Crea, 1974) in the sense that more firms will decide to pursue better technologies if it will give them more profits. This paper was able to observe this phenomenon in the behavior of the Japanese firms as compared to the Americans. While the American would be just using the technology in military matters for fear by some US companies that the investments are not worth it. The Japanese wasted no time to see the bigger picture. Starting with the small items like calculator and watches, they found the commercial use of the FPD to be even very useful even on high-end and low volume products.  Being there ahead of the Americans in translating the technology to commercial products, the Americans could only envy the Japanese who were able to capitalize on the research previously made by the American. The profits however went to the Japanese more as cause by the substantial economies of scale created in the process.

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The political and legal factors are also very strong determinant of the LCD TV industry.  The American’s focus of the FPD on military concerns and failure to anticipate the long term demand for LCD caused them to license the Japanese for the commercial application of the technology.  The Japanese was able to take advantage of the opportunity that they were charged by ADMA, an association of American producers of dumping their products to the US. The industry must be therefore lend itself to power decision of authorities of possible charges of violating US laws on anti- trust and monopoly.

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The industry is however strongly affected by the high tech industries which may further drive further innovation in the industry. From what was forecasted however, industry players have much to celebrate given the big demand for the use of LCD not only in television industry but in many areas of communication.

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References:

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Anderson and Gallini (1998) Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy, University of Calgary
Press

Fund Expert (2006) Watch this space: Television’s Tech Wars, {www document} URL   http://www.investments.fortis.com/Publications/FundExpert/fundexpert_2006-Q4.pdf, Accessed July 31, 2007

Haig and Crea (1974) Major Economic Factors in Metropolitan Growth and Arrangement: A Study of Trends and Tendencies, Reprint of the 1927 ed. published by Regional Plan of New York and Its Environs, New York, USA.

Institute for Trade ; Commercial Diplomacy (2004) Trade and Investment Strategies in the Flat Panel Display Industry (1968-1998), {www document} URL   http://www.commercialdiplomacy.org/case_study/case_flatpanel.htm, Accessed July 31, 2007

Rodiek (2007) External Environmental Analysis the U.S. Television Manufacturing Industry, {www document} URL  http://www.grin.com/en/preview/69655.html, Accessed July 31,2007