An announcement made this week regarding a decision for future sourcing of advanced LCD panels in China has some significant implications.

Both the Financial Times and the Wall Street Journal reported that Samsung and LG Display, the two largest producers of LCD flat panel displays for televisions have secured approval to build new generation technology factories within mainland China.

We believe this announcement is significant because it represents the first time where these two Korea based companies have elected to source the next generation of technology production within mainland China.  The announcement is also a further indication of the constantly shifting tide in outsourcing. The decision also comes in spite of some ongoing concerns concerning intellectual and technology protection, as well as potential production overcapacity.

Samsung plans to establish a joint-venture and invest $2.3 billion in a 7.5 generation LCD plant in Suzhou. LG Display also plans to establish a joint venture and invest $4 billion in a more advanced 8.5 generation plant in Guangzhou. While final approval still needs to be granted from Chinese authorities, both companies felt confident enough to make the announcement.

Current television production in China is an assembly process where the largest and most expensive LCD panels are produced in Taiwan or other countries.  With this announcement, the two largest producers of LCD panels are betting that China’s future demand for televisions will be substantial enough to have in-country production of next generation technology.  The Financial Times further notes that a total of 11 proposals for advanced LCD plants were in the decision pipeline, which raises concerns for overcapacity if all proposals are approved.

Both Samsung and LG are obviously betting that access to China’s future market of next-generation LCD televisions is attractive enough, and that they will be able to manage any issues of IP protection or overcapacity.  Contrast that strategy with certain Japan based consumer electronics providers, who favor the sourcing of newest technology within borders. Establishing market presence is an important motivation, and investing for future competitiveness is an action trait of calculated risk takers.  Time will tell the results of such decisions and risks.

Bob Ferrari