As China, with its price competitiveness, is rapidly narrowing the technology gap, Korean companies are increasing their market share in the business areas they were focusing on. Accordingly, domestic industries are responding by withdrawing business in areas that overlap with those in China or switching their portfolios to high-value-added items instead of general-purpose items.
According to the display and investment banking (IB) industry on the 20th, LG Display is negotiating to sell its factory in Guangzhou, China, which produces liquid crystal displays (LCDs) for TVs, to two or three Chinese companies. Recently, it was reported that Chinese display companies such as BOE and China Star (CSOT) submitted letters of intent (LOI) to LG Display. Although there are differences of opinion on the current price, it is expected that the sale will be carried out.
The Guangzhou factory is the last factory where a Korean company produces LCD panels for TVs. Following Samsung Display, which closed down its business in June last year, LG Display also sells its Guangzhou factory, marking the end of the era of Korean large-sized LCD panels that once ranked first in the world.
LG OLED TVThe reason Korean companies are withdrawing from the large LCD business is because of the low price offensive by Chinese companies. As Chinese display companies such as BOE, which grew with subsidies from the Chinese government, intensified price competition, panel prices fell, forcing Korean companies to suffer losses in the LCD business. According to market research company Omdia, the global display market share flipped from 42.6% in Korea and 25.0% in China in 2018 to 30.8% in Korea and 48.9% in China in the first half of last year (January to June). The domestic display industry, which has withdrawn from the large LCD business, is reorganizing its portfolio to focus on small LCD and organic light-emitting diode (OLED) panels for smartphones and monitors.
The petrochemical industry is an example where China, which was a major customer, turned into a competitor. China, the largest export market for domestic petrochemical companies since the 2000s, has announced a mid- to long-term development plan for 2022 and is working to improve self-sufficiency in petrochemical products. It is predicted that China’s self-sufficiency rate in basic oils such as ethylene will reach 100% by next year. Because of this, the Korean petrochemical industry is facing a structural recession originating from China.
Accordingly, the domestic petrochemical industry is shifting its business focus from general-purpose products to high value-added products. LG Chem is pursuing the sale of the second naphtha cracking facility (NCC) plant in Yeosu, Jeollanam-do. Lotte Chemical sold its local factory in Jiaxing, China last year and withdrew from basic petrochemical business in China. Instead, LG Chem is focusing its investment on advanced materials and bio, and Lotte Chemical is focusing on battery materials and hydrogen energy as future growth engines.
The shipbuilding industry is breaking through China’s competition for low-priced orders by winning orders focusing on high-value-added ships such as liquefied natural gas (LNG) ships. Chinese shipbuilders are increasing their market share by offering low prices to global ship owners, taking advantage of the financial support they received from the government.
The steel industry is also securing competitiveness through a decarbonization strategy as China increases exports due to its domestic economic slowdown. This is a method of reducing carbon emissions during the steel production process, such as hydrogen reduction steelmaking and the introduction of electric furnaces.
In the industry, it is pointed out that a new strategy that goes beyond portfolio conversion at the individual company level is needed. A business official said, “Just as Korean companies were chasing Japanese companies, Chinese companies are now chasing Korean companies, and the speed is faster.” He added, “It is time to devise new strategies for major Korean industries and companies that have been successful with the fast follower strategy. “He said.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.