A Study on the LED Industry Structure and New Entrant Strategy

• Main Authors: Pin-Nan Tseng, 曾炳南
• Other Authors: Ji-Ren Lee
• Format: Others
• Language: zh-TW
• Published: 2012
• Online Access: http://ndltd.ncl.edu.tw/handle/53733170477093805803

碩士 === 國立臺灣大學 === 國際企業管理組 === 100 === The LED industry covers the upstream raw wafer crystal growth, cutting and polishing; the midstream has multi-layers epitaxial growth and manufacturing; the downstream packaging and testing; and lastly, the application of LED, such as backlighting, displaying and residential lighting. Ever since the first visible lighting found in 1962, and the first Taiwanese packaging company, LiteOn Technology Corp., was founded in 1975, the LED industry has been developing for nearly 40 years. Through many years of technology development and the enhancement of light-emitting efficiency, the whole LED industry structure has also been changed significantly. Taiwanese manufacturers tended to invest in lower-cost technologies with lower technical barriers. Therefore, even though there were many of them, none of them was large-scale. Under the fierce competition, Taiwanese manufacturers grew with little profit. With the energy-saving and carbon-reduction trend, LED is now replacing the traditional lighting. How do the current Taiwanese LED manufacturers keep growing and survive from the competition, and what are the feasible entrant strategies of the new entrants? These are the topics worth exploring. This research starts with an analysis of global LED industry, including exploration on the life cycle of LED application products, the future application trend, the demand characteristics of LED, the change of the worldwide LED demand and supply, and the growth and decline in each country. With all these analyses, we further identified the driving factors for the change of LED industry. Next, we analyze the LED’s industry structure both in Taiwan and China, such as the industry transition, and the industry value chain plus potential entrant and replacement manufacturers. Lastly, we discuss the new entrants’ strategies based on a focused case of the T-company’s new LED business. We found that the central problem of Taiwan LED industry lies in their small scale and cross-investments, causing the bargaining power in the industrial structure being too weak. The competition within the industry is fierce. The manufacturers do not have long-term technology research and development plans, and the patents are controlled by the largest five manufacturers, a structure which makes Taiwanese manufacturers barely profitable. According to the profit pool analysis of nearly five years’ average earnings, we discovered that the upstream crystal growth’s net profit margin is about 12%, the epitaxial growth is about 8%, and packaging is about 11%. To keep the revenue and profits growing within the fierce competition, the manufacturers need to differentiate from one another. An example would be shifting from horizontal to vertical integration, to strengthen the bargaining power against up and downstream; or breaking the dilemma by acquiring American and European companies with the technologies and patents. If the Taiwanese manufacturers could ally with their co-opetitors in Mainland China and co-establish standards through governmental supports from both sides, it will be beneficial for them to enter the vast Chinese market. Finally, the T-company case shows a feasible entry strategy based on its businesss model and cmpetitive ecosystem. Further competitive advantages could be created by additional acquisitions or cross-strait alliance, which can serve as a reference model for other companies.