LG in Europe

ASIAN CASE RESEARCH JOURNAL, VOL.
18, ISSUE 2, 339370 (2014)
Asian Case Res. J. 2014.18:339-370. Downloaded from www.worldscientific.com

by MONASH UNIVERSITY on 03/08/15. For personal use only.
ACRJ
This case was written by Pro
fessor Bowon Kim (KAIST),
Director Hanyoung Kim
(LG Display), MS Candidate
Jeong Eun Sim (KAIST), and
Senior VP Chanshik Shin
(LG Display), as a basis for
class discussion rather than
to illustrate either effective
or ineffective handling of an
administrative or business
situation.
Please address all correspond
ence to Professor Bowon Kim,
KAIST Business School, Seoul,
130-722, Korea. E-mail: bwkim
@business.kaist.ac.kr
LG Displays First Module Plant

in Europe
INTRODUCTION
Just before the Lunar New Year holidays in January 2012,
Champ Shin, Senior Vice President at LG Display (LGD,
http://www.lgdisplay.com/), stayed in his executive suite
for several hours. As the head of his companys Strategy and
Marketing Center, Mr. Shin was evaluating one of the most
important long-term strategic choices he had helped LGD to
undertake in 2004. It was the companys decision to build its
first module plant in Europe: it was the first plant LGD had
ever built outside Korea and China. In fact, he had been one
of the companys star players. He had managed to pull off
great successes for products such as computer monitors, notebook computers, and small-and-medium size LCD from their
early life cycle. In particular, in 2003 when he had been in
charge of sales of the companys IT products, he had played
a major role in enabling his company to earn an operating
profit of $1 billion. That achievement had led LGD to appoint
him as an executive director to head the Sales Division of TV
LCD at the time when LCD had been expected to be the next
big thing in the industry in the near future.
In a week, Mr. Shin had to report the overall evaluation result about the Poland plant along with his centers
long-term strategy to the companys executive committee. To
garner the support from the committee for implementing his
strategy, it was extremely important for him not to disappoint
the committee members. After consulting with his team, he
concluded to prepare the report in two parts, one about the
2014 by World Scientific Publishing Co.
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DOI: 10.1142/S0218927514500138
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decision-making processes his team had gone through in 2004

to decide to build the European plant in Poland and the other
about the plants performance since its construction completed in 2007. Then, he thought he would add his centers
strategic plans consistent with the stellar success at the plant
in Poland.

LG DISPLAY
In 2004, LG Display was one of the largest LCD manufacturers
in the world. Being headquartered in Seoul, South Korea, LGD
had 1 R&D center, 12 LCD panel plants, and 9 LCD module
plants in Korea and China (see Exhibit 1). In a relatively short
period of time, LGD had grown to be a major LCD manufacturer and been continuously making new records of success,
not only from the sales volume perspective but also from a
technological point of view. In 2004, LGD recorded revenue
of US$8.0 billion with operating income of US$1.7 billion
and enjoyed nearly 20% share of the global LCD market (see
Exhibit 2).
LGD continued to retain its leadership in the global
LCD industry after 2004. In 2010, LGD recorded revenues
of US$22.5 billion, operating incomes of US$1.2 billion, and
over 25% global market share. While investing aggressively
to improve its technological competency, LGD also built
additional panel and module plants since 2004 (see Exhibits 1
and 2).
History of LG Display
In 1985, Geumsung Software (former LG Display) was established as an affiliate of Lucky Geumsung (former LG) Group.
Since its investment in TFT-LCD technology in 1987, it continued to build a solid foundation for future LCD business
steadily. In 1995, it completed its first panel plant for the 2nd
generation LCD with the LCD glass size of 370470 mm, as
well as the first module plant in Korea, and started massproducing the LCD. In 1998, it changed the corporate name
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LG DISPLAYS FIRST MODULE PLANT IN EUROPE 341
to LG LCD, announcing the companys vision to focus on the

LCD business. One year later, LG Philips LCD was formed as
a joint venture with the European company, Philips, one of
the major LCD TV manufacturers at that timea. Through this
cooperation, LGD was able to secure both technological competitiveness and stable channels to the market.
At that time, LGDs business outlook seemed rather
uncertain and precarious. Although the company started LCD
sales in 1995, it recorded only $1.9 million in revenues and
marked a loss of $14.2 millionb. Because of the dominance of
the Japanese companies and the depression in the global LCD
market, people both inside and outside the company had
a pessimistic view on LGD. Despite all of these unfavorable
market conditions, top management still believed that it was
an opportunity to jump up to becoming a leading company.
While fearing the recession in the market Japanese firms hesitated to make necessary investment, LGD invested aggressively in the LCD technology since they believed the LCD
market would grow exponentially. Thus, from its first mass
production in 1995 to 2004, LG Display expanded its production capacity aggressively by building five more panel plants
in Korea and one more module plant in China, approximately
one new plant every 1.5 years. The company launched many
of the world first panel plants, i.e., for the 4th generation LCD
in 2000, the 5th generation in 2002, and the 6th generation in
2004. The 6th panel plant was producing the 6th generation
LCD with a glass size of 1,5001,850 mm, which implied significantly improved production efficiency (see Exhibit 1).
Through these strategic and timely investments, in less
than 10 years from launching its first plant, the company
rapidly emerged as a worlds market leader in the LCD
industry. LGD continued to retain the market leadership ever
since it was ranked as the worlds No. 1 in the market share
for the large TFT-LCD in 2002 for the first time. LG Display
was also leading the world LCD industry in terms of technological breakthroughs. By 2004, the company introduced
a The
corporate name finally changed to LG Display in 2008, when Philips sold its
equity stake.
b The exchange rate applied is 774 Korean won to the US dollar based on the
exchange rate of December 1995.
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various world first TFT-LCDs such as LCDs for 52 inch and

55 inch HDTV, along with the world largest AMOLED, which
was considered as the next major display following LCD.
Instead of settling for the present success, LGD prepared
for another growth since 2004, by starting to establish the
worlds largest Display Cluster in Paju, South Korea, in the
area of over 3.3 million m2, integrating the backward industry
of materials and parts and the forward industry of finished
products.
Even though LGD went through difficult times in 2005
and 2006 due to the steep price decline caused by oversupply
in the industry and the falling exchange rates, LGD returned
to positive profits after 2007. LGDs revenues in 2010 reached
US$22.5 billion, increased by almost three times since 2004
(see Exhibit 2). In addition, the company continuously kept
its market leadership in the global LCD industry. It attained
30% market share in 2011, the largest the company had ever
achieved in the highly competitive market. LGD also continued to strengthen its position as a technology leader: since
2004, it introduced such innovative products as the world
first LCD for 100 inch HDTV, 4 inch full-colored AMOLED,
14.1 inch colored flexible e-paper, and the thinnest 47 inch
LCD TV panels. In 2008, to cope with fast changing market
competition more effectively, the company restructured its
governance and changed its corporate name from LG Philips
LCD to LG Display.
LIQUID CRYSTAL DISPLAY (LCD)

In the early 2000s, LCD along with a FPD (flat panel display)
was a leading product in the display industry. An LCD had a
sandwichlike structure and consisted of two glass substrates,
combined with a TFT (Thin Film Transistor) array and color
filter respectively, and liquid crystal filled between two glass
substrates. A TFT array glass substrate, made by depositing
thin films of semiconductor and electrodes over a glass substrate, controlled the pixel, the basic unit of image. A color
filter glass substrate, a mosaic of color filters placed over a
glass substrate, provided color information.
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LCD manufacturing process at LG Display was conducted in two types of plants: a panel plant and a module
plant. A TFT array glass substrate and a color filter glass substrate were manufactured and made into an LCD panel in
a panel plant, and an LCD module was manufactured in a
module plant by integrating an LCD panel with various parts
such as polarizer film, PCB and back light. The LCD module
was then ready to be installed in television sets or monitors
(see Exhibit 3).
In a panel plant, a TFT array glass substrate and a
color filter glass substrate were produced from separate fabrications the TFT process and the color filter process by
repeating deposition and patterning processes. These glass
substrates were assembled vertically, partitioned into smaller
size, and then liquid crystal material was filled between two
assembled glass substrates in the cell process. High degree
of technical skills was required in the entire process in a
panel plant because of its complexity; for instance, as the
size of a glass substrate increased, assembling two glass substrates required more and more advanced technology with
great accuracy and delicacy since defects might be found
on the LCD panel even when it was dislocated by a really
small quantity. Because of the risk of technology leakage and
immense investment cost, panel plants were mainly located
in Korea.
In the module plant, a polarizer film and a PCB
which controlled light and electrical signal respectively were
installed to an LCD panel from the panel plant, and also
back lights were installed during the process. The assembled
LCD module was subsequently inspected and packaged for
delivery. Unlike the process in the panel plant, the process
in the module plant was seen as a simple fabrication process
from a technological point of view, and there were nearly
no critical concerns about the leakage of core technology.
Moreover, the shipping rate for an LCD module was several
times higher than that of an LCD panel, and the shipping cost
increased significantly since the size of LCD TV got larger
recently. Because of all these factors, it was often considered
to be reasonable to have module plants near major client
sites.
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THE GLOBAL TV LCD MARKET IN 2004
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Until the early 1990s, Japan dominated the global LCD

market. But, Japans grip on the market rapidly dwindled as
Korean companies entered the market in the late 1990s and
also Taiwanese counterparts grew fast in the early 2000s.
More recently, the two countries, Korea and Taiwan, were
fiercely competing for global hegemony in the industry.
Amidst the competition between Korea and Taiwan, Chinese
companies geared up investing in manufacturing LCD to
enter the global arena. Nevertheless, it was too early to count
out the Japanese. In fact, Japan was still playing a leading
role in R&D, while Korea was trying to improve its technology level by increasing the patents, leveraging its expertise
and experience in the mass production. As such, there was
fierce competition among rival countries to be the first mover
in the HDTV market.
Since 2000, the LCD market was growing rapidly by
47% annually, and the profitability of the LCD manufacturers
improved significantly after they achieved the mass production capacity as the market expanded.
In general, there were three groups of LCD products: the IT group for PC monitors and notebooks, the small
LCD group for mobile phones, and the TV group. As of
2003, the IT group LCD was ruling the market, accounting
for about 92% of the LCD market: within the IT group, the
market share of PC monitor LCD was 54% and that of notebook LCD 38%. Although the market share of TV LCD was
hovering around 5%, it was expected that the share would
grow up to 40% of the global LCD market by 2006 (see
Exhibit 4). In anticipation of such a rapid growth of the TV
business, LG Display built its 5th panel plant in 2003 and the
6th in 2004, and considered investing in the next two more
plants.
As of 2004, CRT topped the global TV display market,
accounting for almost 61% of it. But, it was estimated that
LCD would replace CRT by as much as 50% by the end of
2005. The volume of the global TV LCD market was expected
to be 8.7 million (MM) units in 2004, 20.3MM in 2005,
35.7MM in 2006, 52.6MM in 2007, and 69.6MM in 2008.
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Geographically, it was estimated that the European market

would account for 3538% of the global TV LCD market, the
US for approximately 28%, and the Chinese for approximately
10% in 2007. However, the Chinese market would grow most
rapidly and become the largest TV LCD market by 2015 (see
Exhibits 5, 6 and 7).
Despite the strong prospect of TV LCD, as of 2004, PC
monitors and notebook computer were still the major products in the LCD industry. Although its future potential was
estimated to be sizable, TV LCD didnt make great contribution to the current profit. As a result, LG Display was primarily organized to conduct its production, R&D, sales, and
investment so as to support IT LCD products.
Since most countries didnt impose any import duty on
complete sets of notebook computers and computer monitors, many IT companies manufactured those products in
Mainland China or Taiwan and exported them across the
world. Similarly, most of the LGDs direct customers, who
manufactured IT set products, were concentrated in China
or Taiwan. Moreover, LCDs for IT products were small and
light so as to make it economical for LGD to airship them
from Korea to its customers in China or Taiwan. To support
its customers in China more efficiently, however, LGD set up
a module plant in Nanjing, which was the only module plant
outside Korea as of 2004.
The situation was completely different for TV LCD. The
smallest size of a TV LCD was 15 inch, which would be one
of the largest sizes for a computer monitor. Moreover, the
TV size was expected to get bigger and bigger. As such, if
the current air-shipment would continue for the TV LCD, LG
Display should suffer from the exponentially increasing transportation costs. Unlike the IT set products such as notebook
computers and computer monitors, most countries imposed
heavy import duties on complete TV sets and therefore all of
the global TV manufacturers, LGDs key customers, located
their production plants close to their end consumer markets.
Many market analysts also believed that the EU countries
would soon impose import duty on TV LCDs in the near
future (see Exhibit 8). It would be a devastating situation for
LGD, since more than 50% of its sales were from Europe and
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the company expected the European market size to be the

largest and its growth rate to be the fastest in the world.
Therefore, in order to capitalize on the fast-growing
demand for TV LCD globally, LGD had to fast increase the
capacity of its module plants significantly. The question was
where to build the new capacity?

DECISION PROCESSES TO BUILD A

MODULE PLANT IN EUROPE
For several weeks in January 2004, Mr. Shin was intensively
working with his team. After lengthy analysis and heated
discussion, his team finally chose Wrocaw in Poland as the
site for the European module plant: they decided that it was
crucial to build a module plant in Europe because of the
markets strategic importance and the need for operational
efficiency; they chose Poland as the most desirable country
based on the countrys economic performance, government
efficiency, business efficiency, and infrastructure; finally,
they selected Wrocaw as the final location of the plant, after
assessing such strategic aspects as the possibility of forming
alliance/collaboration with the set manufacturing companies,
strategic congruence with LGD, and the sites investment
environment, and also such operational aspects as the human
resources, natural environment, land & utility, logistics, and
SCM (supply chain management).
But, the bigger issue was how to convince the companys top management to accept the decision made by
his team. Daunted by the task ahead of him, Mr. Shin realized that the most important thing should be to organize the
issues related with the capacity expansion and the decision
processes in great detail.
Strategic Importance
The first issue which his team struggled to define was
whether it was really necessary to build a new module
plant. It requested an extremely careful analysis, since total
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investment in building a new module plant would be enormous: it was expected that at least $500 million would be
required to build a new module plant in Europe. After a
lengthy and intensive brainstorming, the team finally identified two primary justifications for building a new plant in
Europe. The first was concerned with the potential of the
market growth. The market for LCD TV had grown rapidly
and was expected to surpass the traditional CRT TV market
in the near future. For instance, the annual growth rate was
expected to be 123% in 2004, 131% in 2005, and 76% in 2006.
Although the industry experts predicted slower growth rates
in the later years, it would be still 47% in 2007, 33% in 2008,
and 19% in 2009. In terms of the volume, about 83 million
units of LCD TV would be sold worldwide in 2009, compared
to only 8.7 million units in 2004. Although LGDs capacity
plan for TFT glasses showed continuous growth from 547,000
in 2004 to 953,000 in 2009, it was expected to be necessary to
build a new module plant so as to capitalize on the growing
demand in the market (see Exhibits 6 and 9).
There was another justification. Geographically speaking,
the Japanese market accounted for about 30% of the global
LCD TV market in 2003. But, since the European market was
expanding fast, it was estimated to be the largest market sometime soon after 2004 (see Exhibit 7). Moreover, Europe had been
a strategic market to LG Display, whose sales in that region
accounted for almost 50% of the companys global sales. As
such, LGD desperately needed to have the presence in Europe
so as to enjoy flexibility to make and deliver LCD panels to
its customers and to become the unquestionable number one
player in the market.
Operational Efficiency
In addition to the strategic importance, LGD needed a
European module plant for an efficiency imperative. In
2003, the company could afford to air-ship TV LCDs to
Europe since the volume was not large yet. However, as
the European market would grow 10 times and the popular
size of a TV LCD enlarged from 1520 to 3242 inches,
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air-shipping from Korea to Europe could become almost

impossible due to the soaring transportation costs. According
to the teams simulation, the total module cost to make a
32 inch TV LCD in Europe, including raw materials, production, and delivery costs, would be 6.1% less than that in
Korea, mainly due to lower logistical costs. Moreover, it was
expected that the European government would soon impose
an import duty on LCD. Without the LCD module plant in
Europe, LG Display would be in a severely uncompetitive
position since it would not be able to compete with the competitors that had plants in Europe, if it had to pay the import
duty in addition to higher transportation costs. In addition,
further investment in the module plant was inevitable, considering its future business growth (see Exhibit 9).
Product Types
Once Mr. Shins team agreed upon the need to build a
new LCD module plant in Europe, they discussed what
sizes of TV LCD the new plant should make. It was important because the plants production lines and capacity all
depended on the product types. Although currently 20 and
23 inch LCDs were selling more, it was expected that larger
sizes like 32 and 42 inch LCDs would dominate the market
from 2006 or 2007, when the operations at the new plant
would start in earnest. As a result, the team decided to recommend larger LCD sizes for the new plant.
Plant Site Selection

Although it was decided to build a module plant, the team
had to determine exactly which country in Europe. First, they
defined four initial criteria with which to select the country,
i.e., the countrys economic performance, government efficiency, business efficiency, and infrastructure. For the initial
evaluation, the team considered six countries in Eastern
Europe. Using both publicly available information and inhouse research, the team short-listed four countries: some
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countries failed to be short-listed due to severe bureaucracy,

lack of managerial transparency and/or natural disasters such
as frequent earthquakes (see Exhibit 10).
In order to select the final destination, the team visited
the prospective sites in the short-listed four countries. Unlike
the four criteria used to decide the short-listed countries, the
team used more managerial criteria to select the final site.
There were two categories of criteria, strategy and
operations. For strategy, the team adopted three specific criteria, i.e., the possibility of alliance/collaboration with the
set manufacturing companies (e.g., TV manufacturers), strategic conditions congruent with LGD business, and the sites
investment environment. To assess the possibility of collaboration, they considered such factors as strategic importance,
location, infrastructure, and supply chain capability of the
set manufacturers. Regarding the strategic conditions, they
evaluated how much each countrys government was willing
to support LGDs plant construction. Also, they checked
whether there were other competitors that had already built
strong ties with the local government or strong market recognition in the country. Airport accessibility of each country
was important as well. In terms of the sites investment environment, they evaluated the level of economic development:
for instance, they employed such indicators as unemployment
rates, annual growth rates, and the countrys gross domestic
product (GDP). Each countrys labor culture was examined,
too.
Regarding operations, they used five criteria, i.e.,
human resources, environment, land & utility, logistics, and
SCM. For human resources, the general wage level and benefit
packages as well as working conditions of each country were
reviewed. In evaluating the environment, the team gathered
information on each countrys climate of the country such as
temperature, precipitation, and humidity. Conditions like air
quality and noise level were also evaluated for the workers
health and safety. Concerning the land and utility, they evaluated factors such as geography, real estate price, electricity,
water, and communication networks along with inbound and
outbound logistics infrastructure and government policies on
customs clearance. In terms of SCM, the possibility of local
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sourcing was primarily examined. Working with consulting

companies and using the companys internal data, the team
finally determined the weights to use and also the final scores
for the four potential sites (see Exhibit 11). Eventually they
chose Wrocaw in Poland as the site for the new LCD module
plant in Europe. In fact, LGD expected its major suppliers and
a TV set maker to set up their own plants nearby to form a
cluster in the area of about 0.8 million m2 (see Exhibit 12). In
addition to the formal criteria, Poland had extra advantages.
For instance, geographically Poland was close to the largest
market in Europe, i.e., Germany. As the fourth largest city
in Poland, Wrocaw would be able to provide highly competent workers at relatively low wages: the city had about
10 colleges and universities and Wrocaw University alone
boasted 10 Nobel prizewinners among its alumni and faculty.
Entry Mode
With the site chosen for the new plant, the team had to
decide the entry mode the new plant should take. Although
LGD wanted to play the major role, it worried a little bit
because of the large investment required to build the plant.
Thus the team searched for an investment partner and succeeded in persuading a Japanese company to invest 20%. The
Japanese partner was mostly interested in the investments
profitability and therefore would not participate in management actively.
Supply Chain Management

As the LCD panel was a part for the finished product like
TV, computer monitor, and notebook computer, it in turn
required many parts and raw materials. Since it would
be very expensive to transport those required parts and
materials from Korea to Europe, local sourcing would be
extremely critical to the success of LGDs operations in
Europe. Unfortunately, however, the local suppliers were not
cost-competitive, i.e., working with the local suppliers would
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put LGD in a seriously uncompetitive position in the market.

As the first step to resolve this issue, the team tried to categorize parts so as to identify those that had to be supplied
by capable Korean suppliers. In fact, LGD had to ask some of
them to build their own plants close to LGDs LCD module
plant. For the categorization, the team employed two dimensions, i.e., the need for strategic partnership and the logistic
risk. The need for strategic partnership would increase if
the parts were strategically and technologically important to
LCD manufacturing. When the need for strategic partnership
would be high, the company should invest in developing its
suppliers core capability from a long-term perspective. As
more parts were expected to be customized and the market
demand volatility intensified more severely, the company
should face higher logistical risk if it would try to supply
the parts from Korea to Europe, taking more than 30 days by
ship.
Using the framework, the team categorized parts
into three groups, i.e., group A that required Korean suppliers building their own plants near LGDs module plant in
Europe, group B that would be OK with local sourcing, and
group C that would be supplied by Korean suppliers without
any additional suppliers plant construction in Europe,
meaning parts would be supplied from Korea. Group A consisted of such parts as polarizer, backlight assembly, top case,
and inverter, which the company believed could require 58
Korean suppliers to build their plants close to the LGDs in
Europe. Actually, the parts classified as group A were the
core and most important parts for manufacturing LCD. Thus,
intensive coordination between part suppliers and LGD was
critical to the stable operation. For instance, if there were any
changes in the product design or quality problems arose, suppliers and LGD needed to communicate immediately and
have face-to-face meetings frequently until the issues could
be resolved satisfactorily. Furthermore, the parts were often
customized for each major customer of LGD rather than
standardized, thus planning and managing inventory of customized parts at an appropriate level would be quite challenging. Securing high quality of these parts was also crucial
to overall LCD quality. Since LGD had developed long-term
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relationship with many Korean suppliers of group A parts,

they often had extensive knowledge about LGDs product
and retained sufficient technology and knowhow to meet
LGDs requirements. Thus, from LGDs perspective, effective
utilization of existing suppliers was one of the key factors for
starting operations smoothly in Europe. For local sourcing
of group B parts, the team estimated about 5 local suppliers
to be needed. Many of group B parts were not as critical as
group A parts, but often required high flexibility and prompt
delivery during manufacturing. As such, establishing a
supply network in Europe for local sourcing would provide
substantial advantages compared to sourcing from Korea. The
group C parts were mostly standardized, i.e., it was not necessary to maintain extensive coordination with the suppliers
as long as there were many alternative suppliers willing to
supply those parts at competitive prices.
Now the team had to plan for developing the parts
supply infrastructure in two ways simultaneously: on the
one hand, it had to identify competent Korean suppliers for
the group A parts and work with them to build their supply
plants in Europe; on the other hand, it should identify competent local suppliers for the group B parts and train them
to improve their quality to meet the standards set by LGD.
The team developed a tentative time schedule for developing
the supply infrastructure (see Exhibit 13). After determining
potential partners of group A based on the overall assessment
of their supply capability as well as financial status, LGD suggested them to set up new plants near LGDs module plant in
Europe. While that was a big decision to the suppliers, there
were two major reasons that partners decided to build plants
in Europe. First, they expected the investment to be profitable. LGD guaranteed sufficient sales volumes for the suppliers and furthermore they could jointly receive substantial
benefits from Polish governments supports for the infrastructure investment, which LGD obtained by negotiating with the
Polish government. Also, they had built up trust in LGD over
the years and desired to maintain close relationship with the
company for future businesses.
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Human Resource Management
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Finally, the team realized it was necessary to suggest a welldesigned HRM (human resource management) plan for the
European plant. They listed four key areas for which they
had to prepare well before constructing the plant. First, in
order to secure highly capable employees, it would be necessary to build a good relationship network with local universities. The team suggested conducting promotional activities
regularly in the local universities, offering scholarships, and
sponsoring educational programs between local universities and R&D centers in Korea. Second, it would be critical
to fully understand local labor laws and labor-management
relationships. They observed other companies had hard times
when globalizing due to their failure to understand these
issues thoroughly. The team decided to recommend hiring
local experts in such areas as labor laws and related rules and
regulations in the country. Third, it would be important to
study the national characteristics of the people in the foreign
country and their work ethics, i.e., general attitudes towards
working, since whether LGD would be successful in drawing
wholehearted cooperation from the local employees could
determine whether the companys foreign operations would
eventually succeed or fail. They knew if the company would
control the local employees solely from its own Korean perspective, it would most likely fail. The key to success was
how to motivate the local workers to work responsibly and
eventually to have loyalty for the company. The first step
was to find ways to reduce the turnover rates and the rates
of absenteeism among the local employees: LGD should
do so before starting actual operations there. Finally, LGD
should design the workforce composition to utilize the local
employees effectively. Depending on the levels of skills and
expertise required by different tasks and jobs, the company
should define different employee categories such as regular
full-time workers, part-time workers, and contactors. For
instance, tasks requiring simple and repetitive activities like
cleaning and logistics could be outsourced to outside contractors. The team also suggested hiring part-time workers and
paying them more generously for the initial period before
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hiring regular full-time workers, in order to give more time to

LGD in finding highly competent and well qualified workers
for the full-time positions.

PERFORMANCE EVALUATION OF THE

EUROPEAN PLANT
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After organizing and documenting the decision processes for

the European module plant, Mr. Shin had made a presentation to the companys top management on a cold day in
January 2004. Although a few top managers had expressed
some concerns about the tight schedule, Shins recommendation to build the plant in Poland had got the final approval.
Now with the full support from the top, LGD had immediately embarked on construction and the new plant in Poland
started churning out TV LCDs in 2007.
When opened in 2007, the new plant was not without
a few serious problems. As somehow anticipated during the
decision-making process, there was an issue in managing
human resources. Korean managers from LGD in Seoul tried
to manage the plant operations in a Korean way, which put
too much emphasis on improving performance at any cost,
respecting strict hierarchy, and top-down communicating.
Unfamiliar with these demanding management styles, Polish
employees were not embracing the management wholeheartedly and worked rather passively. Mr. Shin noticed the
lower-than-expected productivity at the plant and also many
complaints from the local workers. Although it was too early
to say, nonetheless, Shin became very concerned about the
initial poor performance at the plant. He appointed Jeongwoong Yeo as the plant manager and gave him an urgent
mission to fix problems in HRM. Upon arriving at the plant,
Yeo launched several initiatives to boost the morale among
the Polish employees. First, he implemented the employee
exchange program, under which Polish employees visited
LGD in Korea to learn more advanced technology and skills
from Korean employees and managers, and also experience
Korean culture that helped them better understand the corporate culture at LGD. Second, Yeo launched a company project,
2/2/2015 2:58:00 PM

05_S0218927514500138.indd 355
called Joyful Company, which organized training sessions

for learning new skills, sponsored various social and sport
events for socializing among Polish employees, and opened
forums, where the local employees expressed their opinions
and suggested ideas to build trust with the management and
to improve their capabilities to enhance performance and
problem solving skills (see Exhibit 14). Shin delivered a clear
message that the companys effort to improve the working
conditions was not a single isolated event, but a sustaining,
long-term endeavor.
Thanks to these on-going, consistent efforts, employee
satisfaction index was improving: it was 3.4 out of 5 in
January 2009, 3.8 in October 2009, and 4.3 in December 2010.
Other plant performance indices were also improving significantly: compared with the performance in 2007, the plant
productivity improved by 286%, the module defect rate
decreased by 85%, and the return rate decreased by 69% in
2010 (see Exhibit 15).
WHATS NEXT?
Almost five years after the European plant was completed
or eight years after he worked hard to analyze the feasibility of building the plant, Mr. Shin finally had a chance to
assess the entire process including both decision-making and
implementation. Observing the performance measures, Shin
believed that overall the decision was right. But, he wanted
to make sure that what the company had learned during the
decision-making process should not be lost, i.e., it should
help the company make a better decision in a similar situation in the future. Thats why he asked whether the decisionmaking processes were systematic and reasonable, whether
he didnt fully take into account other possible limitations
or constraints, and what might have been possible loopholes
or weaknesses in the analyses. He also wanted to assess
whether the company implemented the strategy effectively,
i.e., whether it should have done something differently, once
it had been approved by the top management.
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356 ACRJ
05_S0218927514500138.indd 356
Although it was important to assess the decision-making

and its implementation so far, Shin believed he should map
out his centers future strategy as well. Currently LGD produced 2647 inch TV LCDs in Poland, while 50+ inch TV
LCDs were manufactured in Korea. Considering that the
market was increasingly demanding larger TVs, Shin was
much concerned about this division in manufacturing between
Poland and Korea. He asked How should we change our
manufacturing strategy to respond to the changing market?
How should we reallocate product lines and coordinate operations in Poland and Korea? In addition, he was considering what changes to make in roles played by the plant in
Poland. Although LGD was currently making TV LCDs only
in the plant, it became critical for the company to be flexible
in dealing with the changing market, which was increasingly
demanding more diverse product lines such as mobile and
smart phones, and their applications (see Exhibit 2). As the
companys sales in these new product lines were increasing
fast, LGD found it necessary to utilize its manufacturing
capacity in Poland more flexibly.
Mr. Shin asked himself How should we leverage
our experience of building the European module plant to
enable us to break through the difficulties caused by the fast
changing markets?
2/2/2015 2:58:00 PM
Exhibit 1
Plant Capacity and Product Types
Gen.1
Input
Substrates
Size
(in mm)
Mass Production
Commencement
(MM-YY)
Nominal
TFT
Capacity2
Primary Size of
Panels
Produced
P1
370470
SEP-95
60,000
2.4, 2.6, 1.4
P2
590670
DEC-97
90,000
2.0, 2.2, 2.4
P3
680880
JUL-00
122,000
14.1, 2.4, 2.0
P4
1,0001,200
MAR-02
154,000
10.1, 14.0, 17.1
P5
1,1001,250
MAY-03
175,000
15.6, 15.4, 17.0
P6
1,5001,850
AUG-04
205,000
37.0, 21.5, 18.5
P7
1,9502,250
JAN-06
200,000
42.0, 19.0, 23.0
P8
2,2002,500
MAR-09
123,000
32.0, 47.0, 55.0
P62
1,5001,850
APR-09
62,000
18.5, 15.4, 20.0
Facility

Panel
Fabrication
P82
2,2002,500
MAY-10
107,000
32.0, 47.0
P83
2,2002,500
MAR-11
N/A
32.0, 47.0
AP2
730920
JUL-10
24,000
LTPS panels and

backplanes for
AMOLED
Module
Assembly Facility
Gumi (1)
MAR-95
Nanjing (3)
MAY-03
Paju (1)
NOV-05
Wrocaw (1)
MAR-07
Guangzhou (2)
DEC-07
Yantai (1)
JUN-10
R&D center
1. Based on LGDs internal definition of evolutions in facility design, material flows, and input substrate sizes. There are
several definitions of generations in the TFT-LCD industry. There has been no consensus in the TFT-LCD industry
on a uniform definition.
2. In input substrates per month. Reflects processing capacity for TFT glass substrates only. All of fabrication facilities
except P1 have the capacity to process both TFT and color filter substrates. The capacities of P83 have not yet been recorded in the annual reports.
Source: LG Display Annual Reports (2010).
05_S0218927514500138.indd 357
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358 ACRJ
Exhibit 2
Selected Financial Data of LG Display

Unit: in billions of KRW

2000
2001
2002
2003
Total Assets
2,693
2,961
3,855
6,214 10,262 13,617 13,496 13,844 17,512 19,703 23,857
Total Liabilities
1,219
1,900
2,388
3,320
4,599
6,043
6,622
5,595
8,461
Total
Shareholders
Equity
1,474
1,061
1,467
2,894
5,663
7,574
6,874
8,248
9,050 10,039 11,060
Revenue
1,864
1,780
3,007
6,031
8,325 10,076 10,624 14,352 16,274 20,037 25,511
Gross Profit
(Loss)
615
(118)
361
1,138
2,079
1,006
(286)
2,280
2,665
2,560
3,730
Operating
Income (Loss)
534
(203)
252
1,086
1,760
478
(882)
1,478
1,234
1,010
1,310
Net Income
(Loss)
429
(225)
293
1,019
1,704
542
(693)
1,344
905
1,117
1,159
1,267
1,314
1,186
1,192
1,035
1010
930
936
1262
1168
1139
Exchange rate
(KRW/USD)
2004
2005
2006
2007
2008
2009
2010
9,663 12,796
Revenue Segment Information of LG Display

Unit: in billions of KRW
2003
2004
2005
2006
2007
2008
2009
2010
978
890
991
805
985
1,066
1,205
1,705
3,770
5,673
6,689
6,534
8,971
10,154
12,591
16,829
America
577
753
1,062
1,034
1,490
2,088
2,491
2,852
Europe
752
1,009
1,330
1,754
2,604
2,655
3,751
4,125
Others
22
202
3,324
497
303
311
Notebook
1,739
2,119
2,113
2,167
3,085
3,700
3,568
4,424
Monitor
3,517
4,662
4,740
2,907
3,709
3,935
4,640
5,390
LCD Television
686
1,163
2,805
4,939
6,841
8,020
10,965
14,079
Mobile & Others
156
381
417
611
717
619
865
1,619
By Geography
Domestic
Asia
By Product
05_S0218927514500138.indd 358
2/2/2015 2:58:01 PM
05_S0218927514500138.indd 359
Source: LG Display document (2011)
LCD Production Process
Exhibit 3

2/2/2015 2:58:01 PM
360 ACRJ
Exhibit 4

LCD Application Share Forecast
Source: LG Display document (2004).
Exhibit 5
TV Display Share Forecast
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2/2/2015 2:58:05 PM
Exhibit 6

LCD TV Market Forecast
Exhibit 7
LCD TV Market Share Forecast by Region
05_S0218927514500138.indd 361
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362 ACRJ
Exhibit 8
Tariff Condition in EU
Category
Size
Cell
assembly
LCD
Module
Monitor
under
19 inch
0%
5%
(but duty suspension is
allowed from July 2005
to December 2013)

19 inch
TV
Set
(Finished Products)
0%
Normal (5:4) 0%
Wide 14%
over
19 inch
14%
All sizes
14%
05_S0218927514500138.indd 362
2/2/2015 2:58:11 PM
Exhibit 9
Mid- & Long-term Plan

Mid- & Long-term Capacity Plan
Unit: 1,000 glass sheets per month1
Facility
(Panel
Fabrication)
2002
2003
2004
2005
2006
2007
2008
2009
P1
100
104
105
114
103
104
105
105
P2
92
97
100
107
106
107
108
108
P3
86
101
105
124
119
120
120
120
P4
51
69
90
104
105
105
105
105
P5
69
100
120
115
115
115
115
P6
47
117
120
120
120
120
50
105
108
111
P8
33
77
Others
59
92
873
953
P72
Total
329
440
547
686
718
776
1. Reflects processing capacity for TFT glass substrates only. Also, Figures from year 2002 to 2005 indicate actual
capacity level. From year 2006 to 2011, capacity plan information is included.
2. P7, P8, P62, P9 are the panel plants under construction stage or planning stage.
Source: LG Display Annual Report (2004, 2005), LG Display document (2005).
Mid- & Long-term Production Plan3
Unit: million pieces
Application
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Notebook
4.7
7.4
0.9
13.9
15.9
19.2
21.6
26.7
28.4
32.1
Monitor
5.8
11.9
15.4
23.8
26.4
30.2
32.0
36.9
41.3
43.8
TV
0.3
1.4
2.4
6.2
11.1
16.5
21.7
28.1
34.3
37.9
Total
10.8
20.7
18.7
43.9
53.4
65.9
75.4
91.6
104.0
113.8
3. Figures from year 2002 to 2005 indicate actual panel sales volume. From year 2006 to 2011, production plan
information is included.
Source: LG Display Annual Report (2004, 2005), LG Display document (2005).
05_S0218927514500138.indd 363
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364 ACRJ
Exhibit 10
Initial Criteria for Country Selection

Country Competitiveness1
1. Country D and E failed to be short-listed.

Country Attractiveness
05_S0218927514500138.indd 364
2/2/2015 2:58:12 PM
Exhibit 11
Weights and Scores for Site Selection

Category
Strategy
Weight
50%
Criteria
Weight
Poland
Wrocaw
Alliance/collaboration
with set manufacturers
30%
13.5
11.7
12.0
8.7
Strategic conditions
congruent with LGD
business
50%
23.5
20.5
21.0
14.5
Sites investment
environment
20%
8.6
8.0
5.4
7.0
45.6
40.2
38.4
30.2
Subtotal
Operations
50%
Human Resources
30%
13.1
11.8
10.5
10.5
Environment
5%
1.9
2.0
1.9
1.9
Land & Utility
20%
9.0
9.6
9.1
8.6
Logistics
35%
10.5
10.6
10.8
10.4
SCM
10%
3.6
3.0
2.7
3.0
38.1
37.0
35.0
34.4
83.7
77.1
73.4
64.6
Subtotal
Total
Wrocaw, Poland was determined as the best candidate site for module plant based on overall assessment. The team
planned to use Lodz, located in central Poland, as a bargaining chip for negotiation. Also, the team considered country C,
a big player of FDI (Foreign Direct Investment), as another bargaining chip to maximize negotiation power.
05_S0218927514500138.indd 365
2/2/2015 2:58:12 PM
366 ACRJ
Exhibit 12

Preliminary Site Plan
Area of A to E would be allocated to major suppliers and area of F would be utilized

by set makers (e.g., TV manufacturing companies).
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Exhibit 13
Developing Supply Infrastructure

Categorization
Example Module Plant in Nanjing, China

Category
Item
Number of companies
Polarizer
Group A.
Backlight assembly
Korean suppliers building

new plant near LGDs in EU
Top case
Others
Group B.
Packaging
Local sourcing
Others
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368 ACRJ
Exhibit 13 (Continued )
Module Plant in Europe Plan for Group A and Group B Suppliers
Category
Plan
Description

To determine the items

Group A.
Korean suppliers
to build new
plants near
LGDs in EU
To evaluate potential
partners
To prepare the set-up

plan of partners for
entering Europe
To determine the items
Group B.
To search for candidates

of local suppliers
Local sourcing

To select final local

suppliers

Finalize the list of items which

require Korean suppliers near
LGDs module plant in Europe
Schedule
~ JUN 05
Assess QCD (Quality Cost

Delivery) and financial status of
potential partners
Evaluate partners
responsiveness to LGD
sourcing strategy
~ OCT 05
Determine the necessity of

strategic supplier development
Confirm the number of
personnel required, size of
plant, and appropriate timing
~ OCT 05
Finalize the list of items which

require local sourcing
~ JUN 05
Identify candidate local

suppliers, considering physical
distance from LGDs module
plant in Europe and capability
of each local supplier
~ SEP 05
Conduct actual inspection of

capability and quality of each
local supplier candidate
~ DEC 05
Finalize evaluation and make a

decision
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2/2/2015 2:58:14 PM
Exhibit 14

Project of Joyful Company
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370ACRJ
Exhibit 15

Polands Module Plant: Production Quantity & Head Count
The percent figures are relative values based on the data of year 2007.
Polands Module Plant: Module Defect & Customer Line Return
The percent figures are relative values based on the data of year 2007.
05_S0218927514500138.indd 370
2/2/2015 2:58:16 PM

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ASIAN CASE RESEARCH JOURNAL, VOL.

18, ISSUE 2, 339370 (2014)

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LG Displays First Module Plant

2014 by World Scientific Publishing Co.

decision-making processes his team had gone through in 2004

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LG DISPLAYS FIRST MODULE PLANT IN EUROPE 341

to LG LCD, announcing the companys vision to focus on the

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various world first TFT-LCDs such as LCDs for 52 inch and

LIQUID CRYSTAL DISPLAY (LCD)

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THE GLOBAL TV LCD MARKET IN 2004

Until the early 1990s, Japan dominated the global LCD

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LG DISPLAYS FIRST MODULE PLANT IN EUROPE 345

Geographically, it was estimated that the European market

the company expected the European market size to be the

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DECISION PROCESSES TO BUILD A

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air-shipping from Korea to Europe could become almost

Plant Site Selection

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LG DISPLAYS FIRST MODULE PLANT IN EUROPE 349

countries failed to be short-listed due to severe bureaucracy,

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sourcing was primarily examined. Working with consulting

Supply Chain Management

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LG DISPLAYS FIRST MODULE PLANT IN EUROPE 351

put LGD in a seriously uncompetitive position in the market.

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relationship with many Korean suppliers of group A parts,

LG DISPLAYS FIRST MODULE PLANT IN EUROPE 353

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Human Resource Management

hiring regular full-time workers, in order to give more time to

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PERFORMANCE EVALUATION OF THE

After organizing and documenting the decision processes for

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LG DISPLAYS FIRST MODULE PLANT IN EUROPE 355

called Joyful Company, which organized training sessions

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Although it was important to assess the decision-making

LG DISPLAYS FIRST MODULE PLANT IN EUROPE 357

2.4, 2.6, 1.4

2.0, 2.2, 2.4

14.1, 2.4, 2.0

10.1, 14.0, 17.1

15.6, 15.4, 17.0

37.0, 21.5, 18.5

42.0, 19.0, 23.0

32.0, 47.0, 55.0

18.5, 15.4, 20.0

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LTPS panels and