A case study of South Korean cellular phone manufa_动视

A case study of South Korean cellular phone manufa

2025-09-29 16:30:24 责编:小OO

Technovation 28(2008)75–87

The more interactive,the more innovative?A case study of South

Korean cellular phone manufacturers

Jin-Li Hu a,Ã,Yu-Hsueh Hsu a,b

Institute of Business and Management,National Chiao Tung University,118Chung-Hsiao West Road,Section 1,Taipei City 100,Taiwan

Network Systems Group,Hon Hai/Foxconn Precision Ind.Co.,Ltd.,Taiwan

Abstract

This paper shows that there had been a gap in R&D intensity between South Korean and western cellular phone ﬁrms in past years,but this gap has closed.South Korean ﬁrm R&D efﬁciency has recently generally been superior to that of European and American competitors.South Korean innovative power came from three sources:interaction with operators,getting service information and applications from service providers,and internal and external competition.After successful experiences in innovating products for the domestic market,South Korean cellular phone makers used customised design with foreign mobile operators and their foreign R&D centres to localise design and make modiﬁcations to meet foreign market demand.Therefore,for 3C (computer,communication and consumer)latecomers in developing economies,due to capital,cost and risk issues,they should strengthen their R&D efﬁciency through these methods in place of prematurely increasing R&D intensity before the ﬁrm is large enough.r 2007Elsevier Ltd.All rights reserved.

Keywords:Innovation;Cellular phone industry;R&D efﬁciency;Developing economy

1.Introduction

The cellular phone is becoming increasingly important in the Information Communications Technology (ICT)in-dustries for global nations.The reason is that cellular phone and related product shipments and value have expanded rapidly.An International Data Collecting (IDC)research report indicates that the production value of cellular phones surpassed personal computers to become the leader in the technology industry (IDC,2005).However,a common consensus about how to be successful in the cellular industry has not emerged.

How have domestic communications equipment ﬁrms in the lately industrialised economies achieved success?One of the answers may be in their innovation ability.Fan (2006)studied the innovation capability development of four domestic Chinese ﬁrms—Huawei,ZTE,Datang Telecom (DTT)and Great Dragon Telecom (GDT).

Innovation capability and self-developed technologies are key areas for Chinese ﬁrms to catch up with multinational corporations.It was found that domestic ﬁrms should focus on in-house R&D development in order to build their innovation capability,supplemented by external alliances.Fan (2006)focused on telecom equipment such as base stations and switches and ignored cellular phones.

Latecomers sometimes need new technology from out-side ﬁrms.Hence,researchers also mentioned that ﬁrms in developing counties source their formal or informal technology from outside ﬁrms.Thus,their technological innovations have progressed by acquiring mature technol-ogy from advanced countries and at the same time have increased the absorptive capacity of these technologies (Gil et al.,2003;Kim,1997,1998;Lee et al.,1994).Moreover,the empirical results show that ﬁrms prefer in-house R&D strategy to technology purchasing.The ﬁrm often uses an inertial R&D strategy that keeps up with historical choice patterns (Cho and Yu,2000).

Aside from enhancing R&D intensity,increasing R&D efﬁciency is also a way to increase innovative capability.With increasing pressure to create and sustain competitive

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E-mail address:jinlihu@yahoo.com (J.-L.Hu).URL:http://www.geocities.com/jinlihu (J.-L.Hu).

Rapid technological innovations and increasing market competition have created the pressure to develop and introduce new products.To be successful,companies must provide innovative solutions using effective marketing activities,more demand forecasting and an increase in market attractiveness due to environmental changes and government policy(Ahn et al.,2005).As the requisite capability complexity for participation in mobile telecom-munications has increased,the complexity and extent of vertical and horizontal disintegration in the industry has increased.Whereﬁrms have been able to internalise all of their design,production and distribution capabilities in the past,the changing nature of products has made this business mode impossible(Rice and Galvin,2006). Following second-generation(2G)cellular phone tech-nology,e.g.,Global System for Mobile Communication (GSM)—the cellular phone industry has followed con-sumer electronics products by undergoing dramatic changes fuelled by rapid technological development, innovative applications and more integrated functions. The cellular phone is the most representative of all3C products.South Korean cellular phone manufacturers have succeeded in catching up with and leapfrogging their previously more advanced western progenitors in global market share,export value and company brand name consumer value.

In the early stages South Korean companies were the same as most latecomers,improving on existing product designs,exploiting their cost-down ability,focusing on their process strengths and competing on the basis of high quality and low cost.Even Samsung at one time believed that as long as international markets for low-cost,high technology hardware continued to expand,they could continue to repeat the‘‘behind the frontier cycle’’and play catch up in mobile telephony innovation as they had done before for many years.In this scenario,most South Korean ﬁrms have yet to achieve international status,particularly in higher priced,more complex products and systems, capital goods and services(Hobday et al.,2004).

South Korean cellular phoneﬁrms are now able to lower the risk and cost of new market creation,R&D expenses and innovative product development.At the same time they have improved in R&D efﬁciency.Samsung and LG lead in new product creation,especially in higher priced, design-intensive products.Samsung and LG have now surpassed most American,Japanese and Europeanﬁrms in the cellular phone industry.This paper is organised as follows:To review the chronological development,industry supply chain,and innovation process of South Korea’s cellular phone industry,we divide this subject into details and examine the know-how of Korean cellularﬁrms.

2.Research methodology

2.1.Variables and deﬁnitions

The research variables are deﬁned as follows:

(1)Product type deﬁnition(Product Mix):The deﬁnition

of cellular phones includes the standard system product in GSM,general packet radio service(GPRS),Wide-band Code-Division Multiple-Access(WCDMA)and code division multiple access(CDMA,including IS95A/B,CDMA20001X and CDMA20001X EVDO).

(2)R&D intensity and R&D efﬁciency:R&D expenditures

and R&D expenditures as a percentage of sales are commonly used to represent aﬁrm’s R&D intensity.

The number of patents is often used as an indicator of a ﬁrm’s knowledge stock(DeCarolis and Deeds,1999).

Several efﬁciency-oriented R&D performance measures such as grant patents per R&D expenditure(Deng et al.,1999),the number of patents granted and R&D spending per patent(Bowonder et al.,2000)are commonly used in the R&D management and ﬁnance literature(Lin and Chen,2005).Moreover, researchersﬁnd that R&D intensity has a positive impact on the degree of product diversiﬁcation(Galan and Sanchez,2006).

Therefore,this paper uses R&D intensity and R&D efﬁciency to measure R&D performance,whereby R&D intensity is measured as R&D expense as a percentage of sales,and R&D efﬁciency is measured as the number of patents that theﬁrm receives divided by its R&D expenses(in millions of US dollars).

(3)Average Shipment Price(ASP):Due to the national

policy on mobile cellular phone subsidies,if we use the Average Selling Price at the retail level to measure the price of cellular phones,there may be some mistakes

J.-L.Hu,Y.-H.Hsu/Technovation28(2008)75–87 76about the actual price.Therefore,we use the ASP to measure the price of cellular phones.

2.2.Data collection and testing

We collected data from the major cellular phoneﬁrms in the world from the companies’annual reports and news-letters.Our data includes Nokia,Motorola,Samsung and LG(Nokia Annual Report;Motorola Annual Report; Samsung Annual Report;LG Annual Report).Their market shares were all more than5%in2005.BenQ-Siemens and Sony-Ericsson,even though their market shares were also more than5%in2005,were not included as they had merged or been acquired.

We collected the number of patents from the United States Patent and Trademark ofﬁce.North America has been the main cellular phone market globally and the United States is the largest market of all countries except for China.Therefore,all of the mainﬁrms have taken out American and Chinese patents for cellular phones.How-ever,the number of patents in China includes those applying and those already applied,and so we use the number of American patents for cellular phones to measure R&D results.We used the Mann–Whitney test to examine the difference in R&D performance between South Korean and other countries’cellular phoneﬁrms.

3.Outlook for South Korea’s cellular phone industry in past years

3.1.South Korea’s mobile market led global trends

In2G cellular phone technology,South Korea’s government decided to follow the CDMA system speciﬁca-tion standard in1996.Since2001South Korea has been the second largest CDMA market in the world.South Korea’s mobile subscriber market grew quickly from1996to2001 because of cellular phone subsidies(Kim et al.,2004;Lee et al.,1994).

Because of its maturing market,South Korea’s mobile subscriber growth rate has begun to decline in recent years. From2002,the growth rate of its domestic cellular phone market declined to less than5%.Given the slowing demand in South Korea,SK Telecom(SKT),the biggest telecommunications operator there,announced that its3G service would be based on CDMA20001xEV-DO technol-ogy in November2002.This allowed mobile operators to expand in data services.

As3G services have emerged in South Korea,including SKT,Korea Telecom(KTF),and LG Telecom(LGT), most of South Korea’s major mobile operators have followed the CDMA2000system.Recently South Korea also promoted WCDMA and CDMA20001xEV-DO at the same time.Although the market had matured,the brisk sales of high gross proﬁt margin3G phones incited domestic vendors to launch3G phones and multimedia cellular phones to replace existing2G/2.5G series cellular phones.This allowed them to chase additional earnings growth.Thus,mobile phones with colour screens,cameras, MPEG Audio Layer III(MP3)players,Global Positioning System(GPS),and TV tuner functions are now quite popular.Colour display and camera cellular phones accounted for95%of the total shipments in2005.

South Korea has been a leader over other cellular phone markets compared to other economies.In2002,when cellular phones with colour displays,CSTN or TFT LCD only accounted for24%of total global shipments,colour cellular phone shipments in South Korea’s market accounted for more than50%.In2003,when cellular phones with camera modules only accounted for15.2%of total global shipments,camera cellular phone shipments in South Korea’s market accounted for more than50%.SKT, KTF,and LGT have been very aggressive in promoting MP3player services from2004to now,such as SKT MelOn and LGT musicON.As a result,MP3player cellular phones accounted for close to85%of total new models in Korea in2005,while only enjoying a market share of15%globally(see Table1).

3.2.Development history of South Korean cellular phone ﬁrms

This study,about developing economies in settings like South Korea,presents the result of how technology evolves through the initiation stage,the internalisation stage and the generation stage at the industry andﬁrm levels.In order to promote technological innovation,ﬁrms conduct not only in-house R&D,but also form closer technological partnerships with otherﬁrms,universities and government research institutes.Through the internalisation process, latecomers can produce their own products and decrease their dependency on foreign technologies for manufactur-ing products(Chung et al.,2003;Lee et al.,1988).

Table1shows development path and catch-up strategies of South Korean cellular phoneﬁrms.South Koreanﬁrms started to manufacture cellular phones in1983;later than Nokia(1968)and Motorola(1973).At the same time, South Korea’s industry was establishing a new research infrastructure in the1980s.Since the beginning of the 1980s,many corporate research institutes have been established which have become major players in South Korea’s innovation system.Many of South Korea’s big enterprises are able to compete with the world’s best enterprises in maintaining technological leadership (Chung,2001).Even so,that is not enough to develop a competitive cellular phone industry.The Base-Band cellular phone solution is a key point.

South Korea’s government decided to cooperate with Qualcomm(US),the biggest CDMA IC design house,to develop CDMA cellular phones in1991.The CDMA standard,just behind GSM,is the second most widely used 2G standard in the world.This decision helped South Koreanﬁrms capture market share,such as the US and China markets.This was the same strategy used by some of

J.-L.Hu,Y.-H.Hsu/Technovation28(2008)75–8777

the large cellular phone ﬁrms,such as Ericsson and Nokia,changing alliance formations over the industry life cycle in response to changing organisational needs and industry imperatives (Rice and Galvin,2006).

South Korean cooperation with Qualcomm produced mobile services based on CDMA,CDMA2000,CDMA20001x and CDMA20001xEV-DO technologies,step by step from 2G to 3G after 1996.Because the design platform had been developed by Qualcomm and South Korea’s cellular phone market is closed,operators always place an order with local vendors such as Samsung or LG as a ﬁrst priority.As a result,South Korea’s CDMA series cellular phone manufacturers developed their brand names based on how quickly the domestic market grew.On the domestic cellular phone market share side,the condition whereby South Korean ﬁrms were market leaders remained almost unchanged after 2G.There were more than 50cellular phone manufacturers in South Korea in 2003,including Samsung Electronics,LG Electronics,Pantech &Curitel Communications (spun off from Hynix Semicon-ductor)and other small and medium-sized companies.3.3.South Korean cellular phone makers’global market share and export value

Figs.1and 2show the South Korean cellular phone makers’global market share and export value.On the

global market share side,from 1998to 2005,Samsung and LG very quickly achieved remarkable global market share.They even hit a market share of over 20%of total global shipments in 2005and were only behind Finland’s Nokia.According to cellular phone maker data,Samsung,just behind Nokia and Motorola,was the third largest company by market share in 2005,with LG having the ﬁfth largest market share.

On the cellular phone export side,before 1998almost no cellular phones were exported from South Korea.Since the beginning of 1999,the cellular phone export value from there began to increase dramatically,especially in CDMA series cellular phones.Aside from CDMA phones,Samsung Electronics,LG Electronics and Pantech &Curitel,the ﬁrst three cellular phone domestic brands,also developed GSM/GPRS/WCDMA cellular phone products at the same time.In 2005the export value of South Korean cellular phones reached US$12.94billion,with a 71.69%share of total production value and a growth rate of 13.61%.4.Innovation matters—particularly in mature consumer goods

4.1.R&D employees,R&D,intensity and product ASP In the ICT industry R&D expense as a part of revenue is an important index to evaluate how a company emphasises

Table 1

The milestones in the South Korean cellular phone industry Time Cellular phone industrial milestone Innovative cellular phone product

Domestic market index

Global total market index

1983Start to manufacture 1G cellular phone 1991Cooperate with Qualcomm (CDMA)

1996CDMA service announcement

1999Music phone

2000

Cooperate with Microsoft and Palm (OS)Dual-display phone Camera phone TV phone

2002Cooperate with Symbian (OS)Video on demand (VOD)phone Colour phone accounts for over 50%Colour phone accounts for 24%

Cooperate with Mitsubishi (camera module solution)

CDMA20001x EV-DO and WCDMA 3G phone

3G service announcement

2003

Cooperate with Inﬁneon (smart-phone chipset solution)

1,2Mega pixels camera phone Camera phone accounts for over 50%

Camera phone accounts for 15.2%

Cooperate with Datang (TD-SCDMA)Video phone

Cooperate with Philips (TD-SCDMA)2004

Cooperate with Intel (WiMAX)

3,4,7Mega pixels camera phone

Colour and camera phone account for over 95%

Camera phone accounts for 30.8%;colour phone accounts for 62.5%

DMB phone MP3phone

2005Cooperate with Lucent (HSDPA)

TD-SCDMA/GSM/WCDMA phone

MP3phone account for 85%

MP3phone account for 15%;3G phone accounts for 10%

3G phone accounts for over 50%

Source :Financial statements and newsletters from South Korean companies,IDC.

J.-L.Hu,Y.-H.Hsu /Technovation 28(2008)75–87

Fig.1.South Korean cellular phones’worldwide market share by shipments.Source:Dataquest.

Fig.2.South Korean cellular phones’export value and total value.Source:KISDI.

J.-L.Hu,Y.-H.Hsu/Technovation28(2008)75–8779

engineers in 2005among its total R&D team.The ratio of R&D engineers to total employees was 22%in 1997,moving to 36%in 2005.

Fig.3shows the cellular phone ASP of the major vendors in the world.We ﬁnd that Korea’s cellular phone makers,such as Samsung and LG,do not use the low cost oriented strategy to gain market share.On the contrary,they focus their attention on the global mid-to-high end cellular phone market.Samsung’s ASP,for the most part,is above US$180and the highest in the industry.In contrast with Samsung,the industry’s average ASP is under US$160from 2002to 2005.

Table 2shows the P -values of the Mann–Whitney test of the cellular phone ASP between South Korean and other foreign ﬁrms.The result shows a signiﬁcant ASP between South Korean and other foreign ﬁrms.Compared with Samsung’s high-end focus,LG mainly aims at the mid-to-high end market as well while Nokia,Motorola,BenQ-Siemens and Alcatel have a relatively wider range of product lines.

As low-end products are the major part of sales growth,and price wars have erupted in this market,the ASP and operating margins of cellular phone ﬁrms have decreased.Major global brand cellular phone companies are divided into two categories in terms of their proﬁt capacity.The ﬁrst category group is Samsung and Nokia,whose proﬁt-ability maintained around 20–25%before 2004.The other group includes Motorola,Siemens (its cellular phone division was acquired by BenQ in 2005),and other small and medium-sized companies with proﬁtability below 10%(Table 3).

Researchers suggest that companies put more R&D resources to raise the quality of products (Galan and Sanchez,2006).However,in spite of Samsung’s high-end focus,there is no evidence that Samsung’s R&D expenses and intensity are superior to Nokia or Motorola.Table 2shows a comparison of R&D expenses,R&D intensity,and revenue of major cellular phone vendors in the world.

Samsung increased its R&D expense from 5.86%in 2000to 10.08%in 2005.Tables 4and 5show the P -values of the Mann–Whitney tests for R&D intensity and R&D expenses between South Korean and other foreign ﬁrms.The P -values represents a signiﬁcant gap between South Korean and other foreign ﬁrms.The R&D intensity and R&D expenses of South Korean ﬁrms were signiﬁcantly lower than other foreign ﬁrms in the past.However,South Korean ﬁrms are beginning to catch up and even to leapfrog.

Therefore,we explained how South Korean ﬁrms achieve competitiveness by comparing R&D efﬁciencies.Table 6shows the comparison with R&D efﬁciency of major cellular phone vendors in the world.Table 7shows the P -values of Mann–Whitney test of R&D efﬁciencies between South Korean and other foreign ﬁrms.We ﬁnd that the R&D efﬁciencies of South Korean ﬁrms were higher than that of other foreign ﬁrms.South Korean ﬁrms are able to gain more patents under the same R&D resources.

Moreover,the South Korean manufacturing strategy is very different from that used by western ﬁrms.Samsung and LG do not have an outsourcing strategy,except for a few very low-end products,such as CDMA phones that target China’s market.From 1999to 2004,South Korea was only behind China as the second largest cellular phone manufacturing base in the world.

100

130

160

190

220

Q 4

U S $

Q 1

Q 2

Q 3

Q 1

Q 2

Q 4

Q 1

Q 2

Q 3

Q 4

Q 1

Q 2

Q 305Q 4

Fig.3.Product ASP of major cellular phone vendors in the world.Source :Financial statements and newsletters of these companies.

Table 2

The P -values of Mann–Whitney test of the cellular phone ASP between South Korean and other foreign ﬁrms

Nokia

Motorola Industry AVG Samsung o 0.00001***o 0.00001***o 0.00001***LG

o 0.00001***

0.02918**

0.02875**

Note :***represents signiﬁcance at 1%level;**represents signiﬁcance at 5%level.

J.-L.Hu,Y.-H.Hsu /Technovation 28(2008)75–87

4.2.Innovation of new product models have led global trends In order to keep its product image in the high-end market,Samsung and LG are increasingly bringing new product generations to the global market place.According to them,cellular phone vendors have been looking for ways to differentiate their products from those of the competi-tion.One way is to offer added functions or applications to a cellular phone’s capabilities.For instance,currently one can receive voice and data messages with cellular phones, take pictures,enjoy music,get stock quotes and check e-mail and such.The near future functions such as bar code scanning,optical character recognition and even the ability to monitor physical health will be part of the standard cell phone repertoire(Kumar and Zahn,2003).

Table1shows that Korean makers catch up through alliances with foreignﬁrms.Although these foreignﬁrms have advanced technology,they are not theﬁrst-tier players in market share(IDC,2005).The resource-based and transaction cost theories predict that small companies or latecomers tend to catch up the industrial leaders via alliances(Prahalad and Hamel,1990;Anderson et al., 1994).As a result,South Korean innovative cellular phones have let the global trend.As with Japanese cellular phones,Korean cellular phones have integrated many extra functions,such as GPS,TV tuner,ﬁngerprint identiﬁcation,smart card,and so on.South Korean cellular phones are the top two with the highest proportion of products equipped with colour screens,camera func-tions,and MP3players in the global market.

Industry design is another quality weapon of South Koreanﬁrms.South Korean phones have popularised clamshell cellular phones and slide cellular phones and have challenged Nokia’s bar phone.Like Japanese cellular phones again,South Korean cellular phones often have innovative industry design,such as hinges,sockets, accessories and connectors to change one’s literal realisa-tion of the cellular phone.

Based on Qualcomm’s reference design solution,South Koreanﬁrms now offer added functions or applications to a cellular phone’s capabilities.The abilities of integrat-ing new components,creating interesting applications and realising innovative idea are key factors to design fancy models(Galan and Sanchez,2006).Table8shows the number of major cellular phone vendors’new models in2003.Samsung presented133models in2003,which is around3times that of Nokia and around2times that of Motorola.According to the company newsletter, Samsung presented1models in2005and kept its position as having the most models in the industry.To a

R&D expenses and revenue of major cellular phone vendors in the world

(Million US$)200020012002200320042005 Samsung cellular phone revenue5168676910,20211,92017,08516,849 Samsung cellular phone R&D expenses30239959571014301700 R&D spending of revenue(%) 5.86 5.88 5.83 6.008.3710.08 Operating margin(%)12.0017.0026.8020.5015.0012.00

LG cellular phone revenue124821912814435572657421 LG cellular phone R&D expenses599811317037

R&D spending of revenue(%) 4.76 4.47 4.03 3.91 5.04 6.02 Operating margin(%)–10.009.75 4.80 6.30 6.90 Nokia cellular phone revenue24,07625,53227,729,34227,59533,184 Nokia cellular phone R&D expenses143717592261247723423113 R&D spending of revenue(%) 5.97 6.8.148.448.499.38 Cellular phone operating margin(%)22.3020.1022.8023.6017.8013.60

Motorola cellular phone revenue13,26710,44810,84710,97816,82317,800 Motorola cellular phone R&D expenses109810121006111216021853 R&D spending of revenue(%)8.2.699.2710.139.5210.41 Operating margin(%) 4.00À3.107.30 4.8010.4011.50 Source:Financial statements and newsletters of these companies.

Table4

The P-values of Mann–Whitney test of R&D intensity between South

Korean and other foreignﬁrms

Nokia Motorola

Samsung0.2402600.0411256**

LG0.004329***0.00215***

Note:***represents signiﬁcance at1%level;**represents signiﬁcance at

5%level.

Table5

The Mann–Whitney test P-values of R&D expenses between South

Korean and other foreignﬁrms

Nokia Motorola

Samsung0.0043290***0.1796536

LG0.00215***0.00215***

Note:***represents signiﬁcance at1%level.certain extent,offering models means increasing marketing power and reducing leading time.On the other hand,ﬁrms that design more models have more time-to-market ability.

5.South Korea’s cellular phone industrial innovation mode2l 5.1.Achieving innovative capability through an integrated industry chain

Why do South Korean cellular phoneﬁrms have higher R&D efﬁciency?One of the reasons is their highly integrated industry chain.Many technology-based small ﬁrms in South Korea were spun off from Samsung and LG Electronics and received support from venture capital companies and government policies(Lee,2000).Therefore, South Korean up-stream component vendors have been enriching and improving their business with the stable growth of South Korea’s mobile phone industry.

Fig.4shows South Korea’s cellular phone industrial supply chain.The industry chain includes display compo-nents,electronic components,peripherals,multimedia function components and so on.Except for base band and radio frequency chips,most of the key parts can be supplied by domestic vendors,even including camera modules,GPS modules,TV tuners,and MP3player modules.

Table9shows a comparison of vendors’cost control ability.Samsung purchases most of its cellular phone components from its own business group.Nokia and Motorola have a different strategy of using large-scale outsourcing except for core components such as base band chips.Due to the highly integrated industry chain, Samsung has more Bill of Material(BOM)competitive cost advantages and lacks material shortages.Moreover, competition among component vendors and the complete interaction between upstream and downstream can help South Korean cellular phoneﬁrms have a better chance to use the newest componentsﬁrst and apply resources more ﬂexibly.

The highly vertically integrated structure helps Samsung create internal resource interaction,allowing more inno-vative chances(Fig.6).For example,the idea of a cellular phone with camera modules came from combining cellular phones and digital cameras in2000.Conversely to Samsung,Nokia and Motorola do not have this kind of technology and product line.Their cellular phone camera modules are instead outsourced.

R&D efﬁciency of major cellular phone vendors in the world

(Million US$)200020012002200320042005 Samsung cellular phone patents469479406392444379 Samsung cellular phone R&D expenses30239959571014301700 Samsung R&D efﬁciency 1.5530 1.20050.68240.55210.31050.2229 Samsung R&D efﬁciency(logarithm)0.19120.0794À0.1660À0.2580À0.5079À0.6519

LG cellular phone patents94117141144192163

LG cellular phone R&D expenses599811317037

LG R&D efﬁciency 1.5932 1.1939 1.24780.84710.52460.37 LG R&D efﬁciency(logarithm)0.20230.07700.0961À0.0721À0.2802À0.4381 Nokia cellular phone patents350402503628711542 Nokia cellular phone R&D expenses143717592261247723423113 Nokia R&D efﬁciency0.24360.22850.22250.25350.30360.1741 Nokia R&D efﬁciency(logarithm)À0.6133À0.11À0.6527À0.5960À0.5177À0.7592

Motorola cellular phone patents663441350302333280 Motorola cellular phone R&D expenses109810121006111216021853 Motorola R&D efﬁciency0.60380.43580.34790.27160.20790.1511 Motorola R&D efﬁciency(logarithm)À0.2191À0.3607À0.4585À0.5661À0.5672À0.8207 Source:United States Patent and Trademark Ofﬁce andﬁnancial statements and newsletters of these companies.

Table7

The Mann–Whitney test P-values of R&D efﬁciencies between South

Korean and other foreignﬁrms

Nokia Motorola

Samsung0.025974**0.1320346

LG0.002165***0.0151515**

Note:***represents signiﬁcance at1%level;**represents signiﬁcance at

5%level.

Table8

The number of major cellular phone vendors’new models in2003

Samsung LG Nokia Motorola

20031331124665

Source:Financial statements and newsletters from these companies.5.2.Catching up through a more interactive and competitive ecosystem

South Korea’s cellular phone industrial ecosystem has also created a better innovative environment.Fig.5shows the cellular phone distribution channels in South Korea. These manufacturers supply cellular phones to the mobile communications carriers as well as selling them via their own electronics retail shops.There are more than9500 dealers that sell as retail stores tied to mobile communica-tions carriers in Korea(Choi et al.,2001).

South Korean carriers give dealers mobile cellular phone subsidies and commissions for each subscriber,but there is some difference among South Korean,Japanese and western carriers.Japanese carriers,such as NTT DoCoMo and KDDI,are paternalistic operators.They have great inﬂuence and control over the whole industry chain,from cellular phone marketing research,product design,produc-tion schedule,sales,after-market,and even to brand promotion.In the Japanese market the brand of operators is shown on the cellular phones,and so cellular phone providers,such as NEC or Sharp,play a subordinate role. However,because of the close relationship with operators, Japanese cellular phones are often innovative and creative. Conversely,in Europe and the US cellular phone vendors are independent of the carriers,such as Nokia and Motorola.Europe and the US carriers such as Vodafone are not like Japanese carriers,as Japan’s business development is mainly decided by promotions and inﬂuenced by operators.In Europe and the US carriers focus on mobile services and maintain their own base stations.Europe and US cellular phone vendors are different from Japanese cellular phone providers.Nokia and Motorola designed and promoted their cellular phones around the world and had much know-how about brand management.Because of the lack of interaction with carriers,European and US innovative products and applications often face the problem of a common standard. South Korea’s cellular phone ecosystem is quite eclectic. South Korean mobile carriers combine Japanese advan-tages with Europe and US strengths.In South Korea’s market,because CDMA cellular phones do not have SIM

Fig.4.South Korea’s cellular phone industry supply chain.

cards,when end users want to change mobile phone carriers,they usually have to change cellular phones.Hence,cellular phone vendors have to maintain coopera-tion with operators.For example,SKT has vertical integration capability and can control and inﬂuence its product distribution channels.The relationship is through guidance and management instead of control.Both sides are like cooperating partners.Therefore,although cellular phone makers have to gain support from operators,brand cellular phone companies still have the most power,such as product development,decision making,channel manage-ment,pricing,and promotion (Kim et al.,2004;Berra,2003;Song and Kim,2001).

Compared with Japanese and western cellular phone makers,South Korean vendors interact with operators and manage their own brands at the same time.In the domestic market,South Korean cellular phone makers are like Japanese ﬁrms,but in foreign markets,they have become like Nokia or Motorola.

South Korea’s cellular phone ecosystem is also full of internal and external competition.Through spin-offs,alliances and investments,business groups have similar

Table 9

Comparison of vendors’cost control ability Bill of materials US$Percentage Samsung

Nokia

Motorola

Electronics

Base band 7.0

10.2Memory 7.0

10.2RF+PA

5.07.3RF Frond Module 1.5

2.2Peripherals

RF shielding 0.30.4Connector 1.0 1.5Speaker 0.5

0.7Microphone 0.40.6Audio 0.20.3PCB/FPC 3.0

4.4Battery

5.5

8.0Mechanics

Mechanics parts Cover 8.0

11.7

Housing Keyboard Add-on Comp.

Dual display 18.0

26.3Camera module 6.0

8.8Backend IC

5.07.3Total BOM cost (%)68.4

100.0

Cost control (%)

60.6

10.2

Notes

cellular phone makers can buy this kind of components in house.Source :MIC,ﬁnancial statements and newsletters of these

companies.

Fig.5.Distribution channels of mobile cellular phones in South Korea.

South Korean cellular phoneﬁrms,through external alliances and a global layout,have more chances for innovation.We note the important business cooperation in South Korea’s cellular phone industry in Table1.It has concentrated its attention on building up partnerships with chip vendors,operation system software vendors and base station makers.All of theseﬁelds are where South Korean ﬁrms are weak and lack a supply chain.Of course,South Koreanﬁrms took support from their government to negotiate with these technology sources.

The partnership targets of South Korean mobile manufacturers also include foreign operators,such as Verizon Wireless(CDMA20001x EV-DO),China Union (CDMA20001x),and Vodafone(WCDMA),especially as 3G has started to develop in the US and Europe.We also see the global layout of Samsung and LG in Table10.The localisation of design and R&D is an important strategy of Samsung and LG.Exports of EV-DO and WCDMA phones serve to improve their margins and constant strong sales growth can be attributed to a signiﬁcant increase in sales to China,the US,and Europe from new models launched after2003.

5.3.South Korea’s cellular phone industrial innovation model

Innovative ability is the key success factor for South Korean cellular phoneﬁrms.Fig.6shows South Korean cellular phone models with innovation processes.South Koreanﬁrms’innovative power comes from three sources. First,cellular phone subsidies deployed new technologies such as mobile internet and colour LCD cellular phone,as well as the early diffusion of the upcoming IMT-2000 service(Kim et al.,2004).South Korean cellular phone makers have experiences of interaction with operators and receive information of services and applications from the service providers.For instance,South Korean operators have already rolled out3G services with CDMA20001x

Table10

The worldwide layout of Samsung and LG

R&D centre Manufactures World design centre

Samsung Electronics Cellular Phone

Sao Paulo,Brazil Sao Paulo,Brazil Shanghai,China

Beijing,China Shenzhun,China Tokyo,Japan

Tel Aviv,Israel Tianjin,China Seoul,South Korea

Seoul,South Korea Gumi,South Korea London,UK

London,UK Tijunan,Mexico Los Angeles,US

Dallas,US San Francisco,US

LG Electronics Cellular Phone

Yantai,China Sao Paulo,Brazil Beijing,China

Dublin,Ireland Guangzhou,China Dublin,Ireland

Milano,Italy Yantai,China Milano,Italy

Seoul,South Korea Seoul,South Korea Tokyo,Japan

New Jersey,US Monterrey,Mexico Seoul,South Korea

New Jersey,US

Source:Samsung Electronics and LG Electronics.

Fig.6.South Korea’s cellular phone innovation process model.EV-DO and WCDMA,and this has helped Samsung and LG to promote their3G mobile phones around the world. The second success factor is internal and external competition,including design and component innovation. Cellular phone product innovations also bring operators other values.End users are interested in new services and may be stimulated by an attractive cellular phone design. This can also help the customers form a habit of using speciﬁc embedded applications in the cellular phone. After successful domestic experiences in innovative products,South Korean cellular phone makers have used through customised designs with foreign mobile operators and foreign R&D centres to localise design and modiﬁca-tions to meet foreign market demand.South Korean cellular phone makers are then able to get feedback from global customers and start the innovation process all over again for the next model.

6.Concluding remarks

South Korean cellular phone manufacturers as lateco-mers in this market have already caught up and even leapfrogged past others in global market share,export value and company image.Related examples are Samsung and LG,which are major CDMA2000and GSM/ WCDMA cellular phone vendors worldwide and are able to compete with Nokia and Motorola.The strategic position of Samsung’s cellular phones is on the high-end market,while LG is also a leader in3G gaming due to its high R&D capacity.

Ifﬁrms want to take advantage of their domestic innovative experiences for the global market,then domestic 3C makers should use customised designs and foreign R&D centres to localise their design and modiﬁcations to meet foreign market demand.By enhancing vertical integration from key components to design and assembly, cooperating with local carriers,and receiving market feedback,3Cﬁrms willﬁnd it easier to create innovative ideas and new applications.

For3C latecomers in developing economies,due to capital,cost,and risk issues,we suggest that3Cﬁrms could strengthen their R&D efﬁciency in place of prematurely increasing their R&D intensity before they are large enough.Latecomers should use external resources more efﬁciently,including alliances,investments,licenses and so on.Strengthening R&D efﬁciency also means thatﬁrms may announce more innovative products and reduce time to market at the same time.

Generalisation is one of the limitations in this paper. Due to industry ecosystems being very different in lately industrialised economies,we should study more cases, including success and failure samples,toﬁnd out how to strengthen innovation.We also should further investigate to judge if South Korea’s vertical integrated model can achieve continued success in the future.Quantiﬁcation is another limitation in this paper.We may use more quantiﬁcation methodologies in the future toﬁnd evidence of how innovation activities affect latecomers. Acknowledgements

We are grateful to two referees and an editor of this journal for their valuable suggestions.The authors also thank Kuo-Hsiung Lin,Chi-Kuo Mao,Edwin Tang and seminar participants at National Chiao Tung University for their helpful comments.The usual disclaimer applies. References

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Jin-Li Hu is a professor and the director at the Institute of

Business and Management,National Chiao Tung University in

Taiwan.Dr.Hu received a B.S.degree in industrial engineering/

economics from National Tsing Hua University in Taiwan(19)

and a Ph.D.degree in economics from State University of New

York at Stony Brook in USA(1995).His research interests

include decision science,productivity and efﬁciency,and

sustainable development.

Yu-Hsueh Hsu is a Ph.D.candidate at National Chiao Tung

University and received an MBA in Management Science from

Tamkang University in Taiwan(2000).He is also a senior

investment specialist in Hon Hai and was a research manager in

Topology Research Institute.His research interests include the

telecommunications industry,product innovation and industrial

policy.

J.-L.Hu,Y.-H.Hsu/Technovation28(2008)75–8787下载本文

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