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Date:2010-11-26
China LED enterprises’ total strategy and key successful elements for segmental market
 

1、Our LED enterprises should have a strategy breaking through: 

    Under the circumstance of energy saving, less emission and low carbon economy advertised by State, our LED enterprises focused and strengthened themselves first and grasped the opportunity of good domestic development to resist global finance crisis, achieving an excellent result.


   Our LED enterprises still face great challenges and crisis behind the results and opportunities. Lacking of epi-wafers and chip technology patent, depending on imported core technology for long term, poor self-innovation ability, high cost are the great weakness of LED enterprise.


  Superficially, lacking of core technology is the bottle neck of our LED enterprise. In fact, strategy is the biggest bottle neck of our LED enterprises.


  Enterprises benefit from operation, develop from management while success from strategy, last long from culture. Technology is a great weapon to competitor. However, with the instruction of strategy, it can play its key role.


    Zhongyang Pei, GM of Jinhaiwan Consultant, said, strategy position decides expanding model while expanding model decides resource allocation. In turn, technology resource allocation is determined by expanding model and expanding model is determined by strategy. So strategy position decides the allocation efficiency and output of technology resource.


  As a result, our LED enterprises should re-consider strategy to realize a strategic breaking through.


  2、Analysis of our LED industry value chain

(1)、”Smile curve” rule in industrial value chain

 Generally speaking, a complete value chain includes technology research, material purchase, logistic supply, assemble line, order processing, marketing sales and brand service total seven main subjects.


  In last century 90th, Zhenrong Shi, president of Taiwan Hongji issued smile curve, using a parabola with an up open to show added value of industrial value chain. The front technology research and the end brand service have the greatest added value while assemble line has the lowest. Added valued between different industrial chain forms single line which shape is like smile, that is why it is called smile curve.


  LED industrial value chain includes Epi/wafer design research, single chip design research, epitaxial etc material purchase, chip assembling, package testing, LED usage, brand service, total 7 main sections.


In international LED industrial value chain’s division work, enterprises from Japan and US monopolize the research on Epi/wafer design and single chip design which locates in the top level of added value in value chain; Most of Chinese LED enterprises engage in LED package testing and LED usage which locates the lowest level of value chain.


  (2) features of LED industrial value chain long tail curve


We found by research that the smile curve of Chinese LED industrial value chain of added value is not a symmetrical curve or long tail curve, as Fig 1 curve A showing.

中国LED企业总体战略及细分市场关键成功因素


  In our LED industrial chain, LED Epi/wafer and LED chips possess about 70% profit of industry while package possesses 10%-20% and usage 10%-20%

  What locate in the front of value chain are Epi/wafer, LED chips design research and assemble which possess a super high added value while LED usage, brand service at the end of chain possess the low added value. So the front, end and packaging testing which is at the low level of value chain form a curve. The curve doesn’t make up symmetrical smile curve but a long tail curve.


    LED industry belongs to hi-tech industry. One feature of its high technology somehow decides high added value from LED epi/wafer, LED chip design and assemble line. However, these aren’t the main reasons. Our LED industry competitive situation right now is the main reasons which cause the outcome of long tail curve for LED industry added value.


  Our LED enterprises locate in a definitely weak competitive position on Epi/wafer design research and chip design research while Japan and US enterprises improve the added value from high-tech research with help of technology and patent monopolized advantages. So our LED industrial high added value in front of the chain are captured by Japan and US enterprises.


  face a high technology cost while the price for LED has an upper limit. Under the competitive environment, domestic LED enterprises use price battle most often for entering LED usage market. This will lead to added value for package testing to shrink and profit space cut. Furthermore, our LED industry is still not mature and LED enterprises have low brand operation and service marketing ability, small brand service added value.


  Therefore, our LED enterprises which use imported patent technology On one hand, added value of Epi/wafer and chip technology research has been magnified. On the other hand, added value for usage and brand service has been compacted. So our LED industrial added value curve shows a long tail curve rather than a smile curve.


  (3)、Development rule from long tail curve to smile curve


  Only one is forever: enterprise should devote great energy to focus in industrial developing trend, industrial edge dynamics and upgrades.


  Our country has a potential market in LED usage. LED can be used widely in large display, mobile display, TV display, auto lighting, scene lighting, business lighting, home lighting, traffic indicator etc. This means added value for LED usage will be improved greatly.


  With the out LED usage market scale expanding, one side, more and more powerful enterprises enter into the area of LED epi/wafer and single chip development research and assemble. The other side, the added value from usage and brand service on LED is sharper. Domestic LED enterprises have involved in technology research competition and it is possible to break the Japan and US’s lock. The aim is to reduce added value of usage and assembling line to a reasonable level. With the increasing control ability to LED market in China, added value of usage and brand service will also be improved.


 Therefore, added value from our LED industrial value chain absolutely develops from long tail curve to smile curve.


 Breaking through method one: research on LED package testing technology step by step, apply for related international patent; Entering Epi/wafer, chip technology research and assemble gradually through accumulation of capital, technologies. These are the models of Chinese manufacturers to break through. We called it Galanze model.。


  Breaking through method two: Innovated market model, control huge LED usage market; set up service brand by controlling the market to push LED core technology to reduce its added value; at the same time, improve added value of LED usage and brand service. It is a new path to break through, we call it Lenovo model. Chinese LED enterprises must devote much to its usage market. By grasping usage marketing, controlling terminal, creating new brand, our enterprises can gain a greater bargain and industrial competence.


3、Key successful elements in niche market


  From above analysis, we can know that our LED enterprises can realize the breaking through by technologies innovation and marketing control to push technologies. This is a total strategic orient. Because of niche marketing’s competition and difference between demand and supply, there is some difference for strategy. We will show the strategic difference by key successful elements in niche market.


  Key successful elements in niche market are based on value chain theory which is an outcome by analysis of niche market competition situation and target market’s demand.


 We can divided LED industry into LED display, LED backlight, LED auto lighting, LED home lighting and LED scene lighting, LED business lighting six niche markets according to usage of LED.


  (1) LED display


  LED display started early. It can widely used in station, bank, securities exchange, hospital, hotel etc. LED display demand occupied a second position in LED requirement, what share a 23.1% market scale in the total LED sales volume, becoming our main usage market. Recently, LED full color display increases strongly. Stadium, city plaza, concert and airport places etc demand a lot.


  Key successful elements: Public marketing, dig deep demand


  The key successful elements of LED display are not due to the technologies researches in front value chain but the public marketing and digging deep demands at the end. Public marketing is a key role playing in using LED display in station, bank, securities, hospital, hotel, stadium, city plaza, concert and airports etc. Furthermore, LED display has an obvious advantage, digging deep demands, expanding new customers is a key such as LED advertisement display.


  (2) LED backlighting


  Niche marketing overview:  With the push of color display mobile, mobile crystal panel backlighting LED market has increased fast. However, the mobile market develops gently in recent years and the demand to LED backlighting is also slow. With the demand for crystal TV increasing, there will be a good future for crystal TV panel backlighting LED market.


  Key successful elements: Resource integration, cost control


 Although, LED backlighting develops fast with the push of mobile and crystal TV market, the cost of LED backlighting is still high. This becomes a problem to prevent the use of LED in this area. The key elements are resource integration and cost control if we want to succeed in LED backlighting niche market. On one hand, cost of purchase, production, logistics should be controlled; on the other hand, powerful enterprise technical research and market controlling ability can be realized through strategic resources integration.  Enterprises can ally with crystal TV, consuming electronics dealers to obtain a strong market control for pushing Epi/wafer, chip technology business to reduce cost of patent to saving enterprises’ cost. Furthermore, enterprises can also integrate foreign companies’ technologies and improve their competition through merge and technical cooperation.


  (3) LED auto lighting


  Niche market overview: Advantage of using LED lighting in auto: low power consumption, long life, quick response. However the problems of LED auto lighting long term certification, low lumens per watt etc lead to a non-comprehensive usage in auto lighting. However, LED auto lighting has a potential market with the quick development of auto car.


Key successful elements:  Industry ally, make standards


  That LED auto lightings aren’t wildly used shows that the niche market isn’t opened completely. At this time we need industry ally to push LED auto lighting marketing to develop. The leaders should take responsibility of industry to do the products to industry and solve the technology problems, make standards, apply policy corresponding to LED auto lighting.


  (4)LED home lighting


Niche market overview: with awareness of energy saving and environmental protection increasing, the global has entered into a century when incandescent lamp is prohibited. As china has 3000million families and LED lighting just starts, there will be an unbelievable potential.


  Key successful elements: Technology and marketing innovation


  Different from LED backlight and LED auto lighting, LED lighting marketing’s target customers are dispersed too much and it is hard to reduce cost by marketing pushing technologies. LED enterprises only can realize technology innovation, breakthrough and solving poor heat emission etc by technology innovation. Marketing innovation is also a key element to break through market bottle neck by product design innovation and brand conception innovation etc.


  (5) LED scene lighting


  Niche marketing overview: LED scene lighting is mainly used in plaza, street, topic parks etc. Its target customers are governments. LED lightings are more comprehensively used in scene lighting because of low power consumption and good decoration effect.  Furthermore, with the push of governments, LED traffic lightings also have a quick development. The present market opportunity has transferred to inferior cities from the large cities.


  Key successful elements: public marketing, cooperation with governments


  Customers are not sensitive to LED scene lightings and also have no tough requests to technologies. So the key successful elements to scene LED are public marketing and cooperation with governments. Many cities in China has began the plan of ten thousands lights in ten cities, one thousands lights in thousand miles. Enterprises grasp good opportunity to cooperate with government through public marketing.


  (6)  LED business lighting


  Niche Market overview: LED business lighting market means LED usage in hotel, high level office, high level entertainment, large service cooperation etc. It has a huge market but not explored. The main reasons are poor heat emission, high cost and standards missing etc for LED lighting.


  Key successful elements: Contracted manage resources and industry ally


  On one hand, the customers of LED business lighting are interested in LED merits of energy saving and environmental protect, high level decoration etc. On the other hand, they are very sensitive to business lighting price. Contracted resource management can solve the high cost burden problems that customers don’t need any devotion in order to create a good condition for using LED lighting in business area.  However, contracted resource management can’t completed be used in economical environment of China. Further research should be done to figure out a suitable contracted resource management to Chinese practical status.


 


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