The underlying revelation of the rise and fall of the LCD industry over the past 30 years

The underlying revelation of the rise and fall of the LCD industry over the past 30 years

- Analysis of the adaptation of technical systems and organizational practices in the transformation from CRT to LCD

Introduction: In 2026, Sony and TCL established a joint venture to divest their home entertainment TV business, Panasonic transferred its TV sales business to Skyworth, and Sharp completely withdrew from independent production of large-size LCD panels. The once glorious Japanese display industry leaders came to an end one by one, and few were spared. This leads to a thought-provoking question: Why has Japan's LCD display industry developed to this point?

This study deeply explores the impact of corporate organizational practices on the rise and fall of the global display industry during its leapfrog transformation from CRT to LCD.

Through comparative analysis of major display companies in Japan, South Korea, Mainland China, and Taiwan, our conclusion is:

Japanese companies relied on profound "point-based practices" to achieve industrial hegemony in the CRT era, but in the LCD era, these practices have become obstacles to transformation; through modular production and continuous learning, Korean companies such as Samsung have formed the "investment-learning-reinvestment" practice of scale-for-technology, achieving rapid catch-up; BOE has adopted industrial funds, local government joint investment, and market-oriented financing diversified financing models to change the traditional market selection mechanism and achieve industrial leaps through "financing-scale-refinancing".

In the OLED era, the issue of the adaptability of various organizational practices to the technical system has come to the fore again. Which organizational practices can win the last prize in the display industry?

The puzzle of the evolution and rise and fall of the display industry

In the past forty years, the display industry has actually experienced a typical change of dominance, which has crystallized the concepts of industry evolution and rise and fall. Looking back at this period of time seems to be reminiscing about the past. However, it cannot be denied that this period of history is still profoundly affecting the current market structure. The traces of grass and snakes are often hidden, and there are thousands of miles of hidden dangers. This kind of review is still of practical significance for understanding today's industrial structure and the fate of enterprises.

On the surface, this seems counterintuitive. According to traditional economics, Japan has both technology and talent, as well as the most complete industrial chain and capital strength. It should have continued to lead in technology switching, especially since the Japanese began to develop LCD technology in the 1970s. By the 1990s, Japan occupied almost the majority of the global LCD panel market share, and Sharp became synonymous with this field. But the reality is that the strongest pioneers eventually collapsed collectively, while the latecomers who had no advantage in resources or technology caught up.

Despite the appreciation of the yen after the Plaza Accord and the long-term stagnation of the Japanese economy, Japanese companies fell into a "balance sheet recession", which undoubtedly deeply weakened the competitiveness of Japanese display companies and their ability to support long-term investment from the macro-environmental level. However, this article attempts to shift the perspective from the macro environment to the interior of the industry, and reinterpret the rise and fall of the display industry in Japan, South Korea, and Taiwan from the perspective of changes in technological paradigms and adaptation of organizational practices.

From this perspective, the enterprise can no longer be regarded as a machine that can be recalculated and re-selected at any time, but as an organic organization with history and inertia. What this kind of enterprise development process really relies on is not the abstract operations research-style "optimal decision-making", but the way of doing things and the inertia of thinking accumulated over a long period of time.

We can roughly understand this change from several angles:

First, companies operate on "routines." These routines include how to produce, how to make decisions, and how to flow information. Like biological genes, they will be inherited, fine-tuned, and eliminated in competition. The problem is that once a certain set of practices is very successful in the old era, it will solidify into the "gene" of the company, and it will be difficult to voluntarily abandon it.

Second, history will become a burden. The path an enterprise has taken in the past will narrow its options for the future. The original successful experience will continue to be strengthened, eventually forming a "locked" state - the environment has changed, but the organization's habits remain on the original track. This is the so-called path dependence.

Third, technology has changed, and what actually happened at a deeper level is that the "organizational adaptation relationship" has changed. From CRT to LCD, it is not just a simple product upgrade, but the entire technical system has changed from integration and strong coupling to a technical structure that can be split and outsourced. This is tantamount to modifying the game rule system that shows industry competition. Some players who were originally good at overall coordination may not be suitable for the new division of labor. This "paradigm shift" is not a linear change, but a transitional one.

Fourth, it is not just the market that determines life or death. Price and performance are only superficial phenomena. Behind them are non-market factors such as the financial system, government policies, and industrial coordination. They also constitute factors that shape competitiveness. Who can obtain massive funds, who can withstand the impact of the industrial cycle at the bottom, and who can effectively organize resources will all affect the final outcome.

If you look at these factors together, this transformation of the industry is actually a very typical "live case teaching of industrial evolution."

The problem with Japanese display companies may not be that they are lagging behind in technology, but that their set of organizational operating habits formed in the era of integration have not been transformed into corporate resources in the modular era, but have become constraints. Path dependence makes it harder for them to turn around. In the end, they fall into the trap of being better at old things and less able to adapt to the new paradigm.

Samsung's approach is exactly the opposite. On the one hand, it opens its mind and continuously absorbs knowledge from the outside. On the other hand, it dares to use the support of the country's will and the strong strength of the chaebol to make bets when the industry is at a low point. It is a lone warrior in the counter-cyclical period, investing large-scale capital, and then using time and cycles to exchange space.

BOE is taking another path. It does not rely solely on the enterprise itself, but with the help of continuous financing capabilities, a huge home country market, and strong policy support, it recombines and utilizes these conditions, supports scale effects and derived learning effects, and single-handedly rewrites the external environment in which industrial competition occurs, thereby breaking the original pattern.

This whole process may illustrate one thing. In an industry with rapid technological changes, what determines the fate of a company is not who has a higher starting point, but who can change the way they do things faster. Sometimes, the ability to make and divide the cake is far less important than the ability to "change the way you play."

Routine, system and choice of enterprise evolution

Nelson and Winter have long said something very simple but often ignored. Enterprises do not act by precise calculations at any time and at any time, but by "routines" accumulated from past successful experiences. In other words, most companies actually use "habits" to make decisions iii, because on a daily basis, this is the lowest-cost way to make decisions.

In the display industry, this practice is reflected in many places, such as which technical route to take, when to expand production, and how to organize the supply chain. Once these things run smoothly, they will be copied repeatedly within the organization. Unless serious problems arise, generally no one will question the rationality of the "routines."

Routine has a good side and a bad side. The advantage is that it can reduce the cost of trial and error and make the organization run more smoothly; but the problem is that once the external environment changes, these originally successful experiences often become burdens. The better a company is at old technologies, the less willing and less likely it is to switch to new technologies. This is the so-called "capability trap."

According to Fujimoto Takahiro iv, behind this is actually a problem of "product architecture". Simply put, technical systems can be roughly divided into two types: one is "highly integrated" (integral type v), where each part is tightly coupled and must be optimized as a whole; the other is "can be disassembled and assembled" (modular), where different links can divide labor and collaborate.

Specific to the display industry, for example, the entire organizational style of Japanese companies was developed under an integrated structure and is very suitable for precise integration; but the rise of LCD is essentially pushing the display industry in the direction of modularization. This mismatch between "organizational habits" and "technical direction" may be the fundamental reason why Japan later fell behind.

Let’s talk about the selection mechanism. When many people mention the selection mechanism, they only think of market competition. In fact, it is much more than that. There are at least three levels of selection environment that really play a role: the first is the market, such as whether consumers value price or performance more; the second is the system, such as which types of enterprises the government and banks are more willing to support; the third is the technology itself, such as which routes are simply unworkable in engineering. Each level of selection is like a sieve, filtering out candidates that do not meet the selection criteria. The structure is similar to the evolutionary mechanism of the biological world described by Darwin.

It can be said that the long-term evolution of the display industry is the result of the superposition of these choices. We will see later that Samsung and BOE are not simply "working harder" than Japanese companies, but are constantly adapting and even actively transforming these selection environments to gain room for survival for themselves.

The CRT hegemony of Japanese manufacturers is both the pinnacle and the shackles

CRT (Cathode Ray Tube - CRT) display technology is essentially a highly integrated display technology. The electron gun, deflection coil, and phosphor screen together constitute the key components of the CRT. They are not simply assembled and ready for use, but require very fine overall adjustments. Even if there is a slight deviation in a certain link, the final picture effect will be significantly worse.

This determines that whoever can achieve the ultimate "point-based" overall cooperation will be able to grasp the commanding heights of this industry. At its peak, Japanese companies were the dominant species under this mechanism and almost monopolized the market for a time.

Japanese display companies, especially Sony, have reached their peak at this point. A technology like "Trinitron" cannot be replicated by a few clear technical parameters. It relies more on the tacit understanding formed by long-term running-in between one or two generations of engineers and front-line workers. This experience is difficult to write into standard procedures and can only be passed down from generation to generation within the organization.

Sony’s first Trinitron color TV (Image source: Sony)

Japan’s institutional environment at the time provided the most suitable soil for this ability. Lifetime employment allows people to stay in a system for decades, and serial enterprises (Keiretsu) firmly bind upstream and downstream companies. Suppliers and machine manufacturers are not simply buyers and sellers, but work together to polish products for a long time. As a result, Japanese companies have pushed the image quality of CRT to an almost impeccable level.

But therein lies the problem.

Once a system reaches its extreme in the old days, it will be difficult to accept another completely different set of rules.

The first is cognitive lock-in. According to the standards of Japanese engineers, "good TV" means deep blacks, high contrast, wide viewing angles, and almost no delay - these are the strengths of CRTs. The early LCD lagged behind in almost all of these indicators, and was therefore regarded by the industry mainstream as a "substandard technology." As a result, many companies chose to continue improving CRTs, such as making flatter picture tubes, rather than seriously investing in LCDs. This is actually a typical path dependence. The old road has begun to go downhill, but people still instinctively add more money to the original road.

The second is the inertia within the organization. In a company like Sony, the CRT business is the core of making stable money and naturally has the right to speak; while the LCD department is immature and cannot see short-term returns, so it is easy to be marginalized. Resource allocation seems rational, but in fact it is "locked" by the existing structure. Money will continue to flow to departments that have been successful, rather than directions that may be important in the futurevii.

The result is that the external environment is changing, but the judgment, resources and incentive mechanisms within the company are still stuck in the old era. Once this dislocation is formed, it is difficult to correct it through partial adjustments. In the end, it often requires the loss of the status of the entire industry to "liquidate" it.

From integration to modularization, how are the rules of the technical system rewritten?

The emergence of LCD, on the surface, is an ordinary upgrade of industrial technology. In fact, it is more like replacing the underlying game rules of the entire display industry.

The CRT era is essentially a highly integrated system. The performance of the end product comes from the overall adjustment, and the various components are tightly coupled. It is difficult to replicate the same effect without a specific factory and environment, a specific team and specific people. For example, the introduction of China's color tube technology mainly relies on Japan's mature color tube industry system. However, different factories are connected to different corporate standards such as Hitachi, Toshiba or Panasonic, and often adopt the method of whole-line transfer to package and migrate physical entities, intellectual property rights, process technology, personnel experience and other "soft and hard" assets.

The LCD is completely different, although at the beginning, it was also a similar integral product. However, its technical nature determines that splitting production into different links in the industrial chain will lead to higher efficiency. Each link such as the panel, backlight unit, driver IC, control circuit, etc. can establish standardized and clear interfaces, and can be produced separately and reassembled. One manufacturer does not need to invest in all links. Each company can correspond to multiple upstream and downstream manufacturers, buy lower-priced standard products on the market, and sell products to customers with the best bids in the market. Therefore, it is more efficient in terms of economies of scale and scope.

The real change behind this is actually a fundamental change in the "knowledge form".

In the CRT era, key capabilities are in people’s experience. There are a lot of things that cannot be explained verbally or written down, and can only be accumulated through long-term practice. But in the LCD era, more and more core processes are programmed into equipment. Links such as photolithography and thin film deposition are highly dependent on standardized machines and parameters provided by a few equipment manufacturers.

This means a very critical thing. Latecomers do not need to repeat the learning process for decades. As long as they have the capital to buy back the equipment, it is equivalent to acquiring a considerable amount of implicit technical knowledge. They only need to focus on polishing their own core capabilities. In this way, they can greatly accelerate the accumulation of experience curves and bring manufacturing capabilities to a level close to the cutting-edge in a short period of time. They do not need to start all over again, which fundamentally improves the efficiency of knowledge accumulation and dissemination in the entire LCD industry.

In other words, the technological threshold has not disappeared, but it has changed from "barriers of time and experience" to "barriers of capital and organizational capabilities", and the leverage effect of the latter is much greater than the former.

At the same time, modularization also brings another level of change: the upstream and downstream industries can be separated, making vertical division of labor technically possible.

In the CRT era, making a complete machine basically meant that you had to master most of the core capabilities; but in the LCD era, terminal manufacturers could simply purchase Open Cell panels, add their own casings and systems, and launch products. As a result, the competition in the industry has undergone a significant shift - from "who can do it more precisely" to who can lower costs and do it on a larger scale. As the scale becomes larger, costs can be lowered.

Under this new structure, the rules of the game have also changed. The criteria for winners are completely different from before, and have become more cruel.

First is the typical panel cycle. The panel industry is highly cyclical, and every round of competition revolves around investment in higher-generation lines. The larger the glass substrate, the higher the cutting efficiency and the lower the unit cost. The problem is that the investment scale of these production lines is huge and the decision-making window is very short. Whoever can make up his mind faster and increase investment when the industry is at a low will be able to take advantage of the cost in the next cycle.

This is actually screening for a completely different ability, which is no longer fine manufacturing and meticulous production management, but the ability to mobilize capital on a large scale, withstand fluctuations, and make quick decisions.

Next is the standard rewrite. In the CRT era, manufacturers can achieve the ultimate picture quality through constant "fine-tuning" and "polishing", and earn a premium based on this. But in the LCD era, consumers increasingly use a few simple indicators to make choices. What buyers care about is the size of the screen, how high the resolution is, and how low the price is. The technological differentiation strategy that players were accustomed to in the CRT era cannot be implemented in the LCD era.