Development Bank of Japan
Research Report
No. 62

Rebuilding Business Strategies of General Electric
Machinery/Semiconductor Manufacturers

May 2008

Economic and Industrial Research Department
Development Bank of Japan

This report was originally published in Japanese as Chosa No. 96
in May 2008.

Contents
Summary ........................................................................................................................................

iii

Introduction ...................................................................................................................................

1

I

3
3

II

Policies to Rebuild Business Strategies of General Electric Machinery Manufacturers .......
1. Increased Presence of Electronic Components in Electronics Industry ............................
2. Stagnant General Electronic Manufacturers and Booming Electronic Components
Manufacturers: Sources of Profitability for Electronic Components Manufacturers.......
2.1 High Overseas Sales Ratio .....................................................................................
2.2 Continuous Production from Materials and Manufacturing Equipment.................
3. Electronic Materials as Key Factor for Differentiation of Flat-Panel Displays ...............
4. Policies to Rebuild Business Strategies of General Electric Machinery
Manufacturers ..................................................................................................................
4.1 Emergence of Division of Labor Business Model for Set Products .......................
4.2 Distinction between Business Areas and Closer Coordination with
Upstream Materials and Manufacturing Equipment Segments ..............................
4.3 Building Strategies for Active Incorporation of Upstream andDownstream Segments ...........................................................................................

6
8
12
12

14
14
15
16

Policies to Rebuild Business Strategies of Semiconductor Manufacturers .............................
1. Emergence of Global Division of Labor Business Model in Semiconductor Industry ....
1.1. Taiwanese Semiconductor Industry: Development of Division ofLabor Business Model ................................................................................................
1.2. Evolution of Foundries from Fabrication Contractors to Solution Providers .........
1.3. Growth of Taiwanese Fabless Companies in Partnership with Foundries ..............
2. Policies to Restore International Competitiveness of Japanese Semiconductor
Industry: With Special Focus on System LSI Circuits .......................................................
3. Increased Importance of “Management” and Involvement of Funds in
Semiconductor Industry ...................................................................................................

19
19

26

Conclusion.............................................................................................................................................

29

References .............................................................................................................................................

31

19
21
22
23

Development Bank of Japan Research Report/ No. 62 i

Rebuilding Business Strategies of General Electric Machinery/
Semiconductor Manufacturers
Summary
1. The electronics industry consists of fivesectors: electric home appliances (“white
goods”), consumer electronics (e.g. digitalhousehold appliances), industrial electronics(computers, communications equipment), electronic components/devices, and heavy electricmachinery. While the shares of electric home
appliances and consumer electronics, both focused on set products, in domestic production
have plummeted largely due to the transfer of
production facilities overseas, production has
increased in electronic components/devices. Of
the total electronic machinery production of ¥28
trillion in 2007, electronic components/devices
accounted for ¥10.4 trillion (almost 40%) andhas been the largest electronics sector since 2002,
replacing industrial electronics. Orders placedwith Japanese electronic components manufacturers have been rising alongside the growing
global demand for electronic products. In addition, there has been considerable impact from therelocation of production facilities overseas byJapanese electronic machinery manufacturers
and the development of international division oflabor between production processes, as the later
processes are separated from the earlier ones,
which remain in Japan, and transferred overseas.
2. Data compiled by the Development Bank ofJapan indicate that the index of pre-tax profits of
882 domestic manufacturers (FY 1996 = 100)
had risen to 280 by FY 2006. However, the index
only increased to 149 for the 157 electronics
manufacturers, reflecting their below-average
performance during the ten years as comparedwith other manufacturing industries. The timeseries of profit margin for major manufacturingindustries shows a strong recovery in iron & steel
from stagnant growth in the 1990s; double-digit
growth in precision machinery, general machinery and chemicals; and margins of 8–9% in cement, ceramics & glass and transport equipment.
In contrast, electric machinery has suffered thesecond slowest growth over the years among allindustries, next to paper & pulp, falling further
behind other industries. It should be noted however that within the electric machinery industry,the electronic components sector enjoys a remarkably large profit margin. Indeed, the profit
margin of the electronic components sector has
almost constantly exceeded the average for
manufacturing industries as a whole, surpassing
10% in FY 2006. Thus, it is important to distinguish between general electric machinery manufacturers, which are heavily dependent on set
products, and electronic components manufacturers, when discussing profitability in the electric machinery industry. Identifying the sourcesof the strong profit-earning capacity of electronic
components manufacturers would provide useful
insights in considering how to increase the competitiveness of general electric machinery manufacturers.
3. Many electronic components manufacturers
have secured wide profit margins by boostingsales overseas, in stark contrast to general electric machinery manufacturers, which, being
highly dependent on the domestic market, haveseen their profits eroded by intensive competition
for market share among themselves. Highly profitable electronic components manufacturers haveanother aspect in common: they have developed
quality products that cannot be challenged byoverseas competitors in the global market, starting with proprietary techniques upstream such as
materials development and equipment manufacturing. By building modular components aroundkey devices and providing a whole set of specificfunctions for customers, they have succeeded instreamlining circuit designs and reducing theburden of component mounting, thus adding further value to their products.
4. Demand is expected to grow mainly inSoutheast Asian and other emerging economies,
where low-end products will account for much of
the sales. Merchandise strategies in those mar-Development Bank of Japan Research Report/ No. 62 iii

kets therefore require a different perspective thanin developed countries. In order to solidify its
overseas business base, a general electric machinery manufacturer will have to commit itself
to radical consolidation of its production facilities overseas and expansion of local procurement.
It will also need to build an optimal production/sales system on a global scale by enhancing
its product development and marketing procedures to suit local needs and actively utilizing
local human resources. A business model basedon the division of labor is becoming predominant
in the electronics industry, not only for set products but also for semiconductors, which integrate
proprietary control technology. As a result, thetypical business model for general electric machinery manufacturers, producing the whole
range of products within the group from semiconductors to set products, now finds fewer areasof comparative advantage. As added value becomes concentrated on key devices (e.g. electronic components and materials) and overseas
fabrication contractors, particularly in China,
expand their activities to the assembly of set
products, it is now imperative for general electricmachinery manufacturers to distinguish between(1) the business areas in which differentiation ispossible by incorporating upstream segments
such as materials and manufacturing equipmentand (2) the business areas in which technology
alone can no longer ensure differentiation due tosubstantial levels of commoditization, so thatthey may redevelop business strategies suited forindividual areas to increase competitiveness,while mobilizing their limited managerial resources more effectively.
5. With regard to the latter business areas,
where branding and designing, as well as businessmodels and product standardization are increasingly crucial factors for differentiation, a generalelectric machinery manufacturer is required toconcentrate managerial resources on development
and marketing, taking bold measures to cut backon fabrication activities, including through outsourcing. After focusing its attention on its areasof strength through this “selection and concentration” process, the manufacturer should proceedwith massive deployment of managerial resourcesin any areas where it has found it possible toiv

Development Bank of Japan Research Report/ No. 62

achieve differentiation by incorporating technologies related to materials and manufacturing
equipment. Possible options for a general electricmachinery manufacturer include (1) the enhancement of in-house research on technologies related
to materials and manufacturing equipment and (2)further development of partnerships with promising materials / manufacturing equipment makers
including through joint development, tie-ups andthe provision of funds for business investment.
Allocating part of its substantial R&D expenses tojoint development in the upstream segments ofmaterials and manufacturing equipment to ensure
continued growth of domestic facilities as the hub
for the development and production of innovative
new products incorporating materials technologies
will bring medium- to long-term benefits to materials / manufacturing equipment makers as well as
to the general electric machinery manufacturer
itself.
6. Even for semiconductors, which are the key
part for controlling electronics products, theglobal trend points to a division of labor between
fabless companies specialized in design andsoftware development on the one hand, andfoundries specialized in fabrication under contract on the other. In partnership with fablesscompanies and EDA (electronic design automation) tool vendors across the globe, foundries
have built a division of labor mechanism, effectively eroding the traditional advantage of vertical integration ranging from design and development to production. Since withdrawing fromthe general-purpose DRAM business, many of
the Japanese semiconductor manufacturers havefocused on application-specific custom products
including system LSI (large-scale integration)
circuits. In this field, however, they do not have awhole range of products meeting the global
standard that can ensure sufficient shipments towarrant the huge investment. Thus, investing
hundreds of billions of yen in a state-of-the-art
semiconductor manufacturing plant is not likely
to deliver sufficient profit to cover the cost. In
light of their limited managerial resources, many
Japanese semiconductor manufacturers should
now put top priority on coordinated enhancementof their product development and marketing capacities within their LSI business. As for fabrica-

tion, they should seek revitalization by leveraging complementary partnerships on a global scale,for example.
7. Until recently, fund managers did not consider semiconductors as a potential target of investment. The current inflow of some investment
money into the semiconductor industry indicatesthat the industry has entered a transition period.
Indeed, the volatility of the silicon cycle has diminished, improving the prospects for relatively
stable growth. Moreover, the performance ofsemiconductor manufacturers has come to dependon the success of management, as well as on the
superiority of advanced technology in terms ofminiaturization and yield. Faced with the changing environment, an increasing number of semiconductor manufacturers are now looking for a
new management model. For example, Texas Instruments (U.S.) has introduced a “hybrid model”
using both its own fabs and foundries for the production of advanced logic semiconductors. Indeed,
the next-generation 32 nanometer (nm) process
will be developed in collaboration with foundries.
Business strategies are also being reviewed bydomestic semiconductor manufacturers. Fujitsu,
for instance, will spin off its semiconductor business in March 2008 to expedite substantially theprocess of business judgment, while allowing for
more discretion in management to increase business value.

8. A business model based on the global division of labor is expanding rapidly in the electronics industry, not only for set products such as
PCs and digital household appliances, but also
for semiconductors, a key component in controlling such products. The common aspect of thetwo businesses is that product differentiation depends increasingly on the success of management, including branding, designing, strategic
partnerships and the establishment of a businessmodel, in addition to the development of cutting-edge technology. In Japan, many of thesemiconductor manufacturers as well as generalelectric machinery manufacturers, largely dependent on set products, trail behind othermanufacturers in profitability. In order to find a
breakthrough, they require managerial ingenuity
to think out of the box and make quick and flexible decisions in response to the three ongoingworldwide developments (i.e. progress in the
global division of labor, changing differentiatorsand expansion of emerging markets led by
low-end products).

[M. Shimizu (E-mail: report@dbj.go.jp)]

Development Bank of Japan Research Report/ No. 62 v

Introduction
In the electronics industry, the global division oflabor model has been expanding not only for set
products such as PCs and digital household appliances but also for semiconductors, a key
component in controlling such products. Also,
product differentiation depends increasingly on
the success of “management,” including branding, designing, strategic partnerships and the establishment of a business model, in addition to
the development of cutting-edge technology. In
Japan, many of the semiconductor manufacturers
as well as general electric machinery manufacturers, largely dependent on set products, trail
behind other manufacturers in profitability. The
common aspect to those two sectors is that
manufacturers have not fully responded to thethree defining developments in the world market:
progress in the global division of labor, changing
differentiators and expansion of emerging markets led by low-end products.

With that background, this two-part reportconsiders how general electric machinery andsemiconductor manufacturers should rebuild
their business strategies. Comparing the profitability of general electric machinery manufacturers with that of leading electronic components/materials manufacturers, Part I shows theimportance for general electric machinery
manufacturers to clearly distinguish between (1)the areas where the global division of labor
should be adopted and (2) the areas where they
can obtain a competitive edge by incorporating
materials and manufacturing equipment segments, and build a suitable business strategy foreach type of area. Taking the example of Taiwan,
where growth has been attained through the division of labor model between fabless companies
and foundries, Part II recommends measures forthe semiconductor industry to regain its competitiveness, with special focus on system LSI(large-scale integration) circuits, which are key
devices in many products including digitalhousehold appliances. 1

1This report is a revised version of Makoto Shimizu, “Policies to Restore the International Competitiveness of theJapanese Electronic Products Industry,” Annals of the Society for Industrial Studies, No. 23.
Development Bank of Japan Research Report/ No.62

1

I Policies to Rebuild Business
Strategies of General Electric
Machinery Manufacturers
1. Increased Presence of Electronic
Components in Electronics Industry
The electronics industry consists of five sectors:
electric home appliances (“white goods”), consumer electronics (e.g. digital household appliances), industrial electronics (computers, communications equipment), electronic components/devices, and heavy electric machinery.
Taken together, the electric home appliance andconsumer electronics sectors (i.e. producers of
set products) accounted for as much as one thirdof domestic production in 1980. The share has
plummeted since then, however, largely due tothe relocation of production facilities overseas(Figure 1). In contrast, production has been on
the rise in the electronic component/device sector.
Of the total electronic machinery production of¥28 trillion in 2007, electronic components/devices accounted for ¥10.4 trillion (almost40%), and has been the largest electronics sector
since 2002, replacing industrial electronics.
Figure 2 compares the values of electric machinery exports and imports between FYs 1985

and 2006. In just over 20 years, the share of electronic components and devices in total exportsrose substantially, while imports recorded over aneight-fold increase, from ¥1.2 trillion to ¥10.1 trillion, with most of the increment due to electronic
components and devices (Figure 1). The active
external trade in electronic components and devices in both directions has been driven by thegrowth in orders placed with Japanese electronic
components manufacturers alongside the expansion of global demand for electronic products. In
addition, there has been considerable impact fromthe relocation of production facilities overseas byJapanese electronic machinery manufacturers andthe development of international division of labor
between production processes, as the later processes are separated from the earlier ones, which
remain in Japan, and transferred overseas.
By destination (FY 2006), Asia other thanChina accounts for almost half (46%) of Japanese exports, followed by China (20%), Europe(15%) and the U.S. (14%). Although a large partof the exports still go to those countries where
Japanese manufacturers established their first
offshore production facilities, such as Malaysia
and Thailand, the share of China has been risingin recent years, attesting to the country’s increased importance as a destination for Japaneseelectronic component exports.

Figure 1. Domestic Production of Electric Machinery by Sector(¥ trillion)
35
Others30
25

Heavy electric machinery

20

Electronic
components/devices

15

Industrial electronics(PCs, cellular phones, etc.)

10Consumer electronics(TVs, digital cameras, etc.)

5Household electric
appliances (“white goods,”
etc.)

0
80

Sources:

85

90

95

00

01

02

03

04

05

06

07 (Year)

Ministry of Economy, Trade and Industry, “Machinery Statistics”; Japan Electric Machine Industry Association; Japan Electronics and Information Technology Industries Association; Association for Electric Home
Appliances, “Electric Home Appliance Industry Handbook.”

Development Bank of Japan Research Report/ No.62

3

Figure 2. Exports and Imports of Electric Machinery(Exports)

Householdelectric
appliances
5.1%

Heavy
electric
machinery
12.0%

Electronic
components/
devices
26.4%

Heavy electricmachinery
12.7%

Householdelectric
appliances
1.9%

Consumerelectronics
9.3%

Industrial
electronics
12.5%

Consumerelectronics
31.1%

Electronic
components/
devices
63.6%

Industrial
electronics
25.3%

FY 1985

FY 2006

T otal: ¥10.8 trillion

T otal: ¥17.5 trillion(Imports)

Heavyelectric
machinery
15.6%

Electrichome
Consumer
applianceselectronics
1.8%
2.2%

Electronic
components/
devices
48.7%

Sources:

4

Industrial
electronics
31.7%

Heavy electricmachinery
10.2%

Electric home
appliances
5.8%

Electronic
components/
devices
47.4%

Consumerelectronics
6.8%

Industrial
electronics
29.8%

FY 1985

FY 2006

T otal: ¥1.2 trillion

T otal: ¥10.1 trillion

Japan Electric Machine Industry Association; Japan Electronics and Information Technology Industries
Association.

Development Bank of Japan Research Report/ No. 62

A wide variety of electronic components
and devices are produced nowadays. Whereas
the production of electronic devices, including
integrated circuits, liquid crystal devices, semiconductor devices and electron tubes, exceeds ¥6
trillion, the market for general electronic components, including passive components such as
resistors and capacitors, and coupling parts suchas connectors and switches, amounts to almost¥3 trillion in total (Figure 3). Although average
unit prices for resistors and capacitors are very
low at around ¥1, they play a crucial role in controlling currents and suppressing electrical noise.
A single digital household appliance or cellular
phone requires dozens or hundreds of thosecomponents, so production is steadily increasing.

Figure 3. Composition of Domestic Production of Electronic Components and Devices(FY 2006)
Others4%
Liquid crystal devices
16%

Passive components
10%
Coupling parts
9%

Electronic circuit boards
10%Electron tubes
4%
Integrated circuits
36%

Semiconductor devices
11%

Total: ¥10,190.5 billion<Cf.> Production (FY 2006) and major products for each item
Passive components (¥1.1 trillion): resistors, condensers
Coupling parts (¥0.9 trillion): connectors, switches
Electronic circuit boards (¥1 trillion): printed control panels
Electron tubes (¥0.4 trillion): microwave tubes, vacuum tubes
Semiconductor devices (¥1.1 trillion): transistors, light-emitting diodes, etc.
Integrated circuits (¥3.6 trillion): memory, microcontrollers
Liquid crystal devices (¥1.7 trillion): liquid crystal elements

Source:Japan Electronics and Information Technology Industries Association.

Development Bank of Japan Research Report/ No.62

5

2. Stagnant General Electronic Manufacturers and Booming Electronic Components
Manufacturers: Sources of Profitability forElectronic Components Manufacturers
Electronic components manufacturers lead thewhole electronics industry in corporate performance. Data compiled by the Development Bankof Japan indicate that the index of pre-tax profits
of 882 domestic manufacturers (FY 1996 = 100)
had risen to 280 by FY 2006 (Figure 4). Apparently, Japanese manufacturers have increased
their sales by absorbing global demand, particularly in emerging economies, and have built a
corporate structure that directly links the expansion of sales with profits. However, the index
was only 149 for the 157 electric machinery
manufacturers in FY 2006, reflecting below-average performance during the ten years ascompared with other manufacturing industries.
Figure 5 shows the time series of profit
margin for major manufacturing industries. It
indicates a strong recovery in iron & steel fromthe stagnant growth in the 1990s, double-digit
growth in precision machinery, general machinery and chemicals, and margins of 8–9% in ce-

ment, ceramics & glass and transport equipment.
In contrast, electric machinery has suffered thesecond slowest growth over the years among allindustries, next to paper & pulp, falling further
behind other industries. It should be noted however that within the electric machinery industry,the electronic component sector enjoys a remarkably large profit margin. Indeed, the profit
margin of the electronic component sector has
almost constantly exceeded the average for
manufacturing industries as a whole, surpassing
10% in FY 2006.
Eleven major electronic components manufacturers, including Kyocera, Nidec, Murata
Manufacturing, Ibiden, Rohm and Taiyo Yuden,each recorded a double-digit operating profit
margin in FY 2006, substantially exceeding the
average margin (5.9%) for the nine major generalelectric machinery manufacturers (Figure 6).
Thus, the low profit margin for the electric machinery industry as described above is largely
attributable to the general manufacturers, and soa distinction should be made between generalelectric machinery manufacturers, heavily dependent on set products, and electronic components manufacturers, rather than discussing is-

Figure 4. Growth of Profit Margin for Domestic Manufacturing and Electric Machineryin the Last 10 Years

100

Manufacturing
882 companies

280

FY 1996
100

Electric machinery
157 companies

149

0

Source:6

FY 2006

100

DBJ ed., “Handbook of Industrial Financial Data (2007).”

Development Bank of Japan Research Report/ No. 62

200

300

400

sues in the electronics industry as a whole. Identifying the sources of the strong profit-earning
capacity of electronic components manufacturers
would provide useful insights on ways to increase the competitiveness of general electricmachinery manufacturers.

The following sections analyze the strengths
of Japanese electronic components manufacturers from two aspects: high overseas sales ratio
and production process integrating the upstream
segments of materials and manufacturing equipment.

Figure 5. Time Series of Operating Profit Margin in Domestic Manufacturing Industries(%)
16
Iron & steel

14

P recision machinery

12

General machinery
Chemicals

10
Cement, ceramics & glass

8

Non-ferrous metals
Transportation equipment

6
All manufacturing

4

P aper & pulp
Electric machinery2
Of which: electronic
components

095

Source:

96

97

98

99

00

01

02

03

04

05

06

(FY)

DBJ ed., “Handbook of Industrial Financial Data (2007).”

Figure 6. Sales, Operating Profit, Overseas Sales Ratio and Major Products of
Selected Electronic Components Manufacturers
Operating profit

Sales(¥billion)
Kyocera
TDK
Nidec
Alps Electric

Change y/y

FY 2005

1,173.5

FY 2006
FY 2005

Change y/yProfit margin

Overseas
sales ratio

Major products

60.2% Fine ceramic components,

0.0%

99.7

2.1%

8.5%

1,283.9

9.4%

135.1

35.5%

10.5%

61.3% SC package components

795.2

20.9%

60.5

1.2%

7.6%

78.2%

Heads for HDD

FY 2006

862.0

8.4%

79.6

31.5%

9.2%

80.1%

FY 2005

536.9

10.5%

53.4

-0.4%

10.0%

69.1%

FY 2006

629.7

17.3%

64.0

19.8%

10.2%

69.1%

FY 2005

709.6

10.3%

45.5

46.3%

6.4%

76.7% Switches, connectors,
74.8% in-vehicle electric components

Motors

FY 2006

708.1

-0.2%

22.1

-51.4%

3.1%

MurataFY 2005

490.8

15.6%

89.8

29.2%

18.3%

72.5% Ceramic filters,

Manufacturing

FY 2006

566.8

15.5%

113.4

26.3%

20.0%

74.5% ceramic capacitors

IbidenFY 2005

319.0

28.8%

43.6

116.9%

13.7%

62.1% Printed circuit boards,

FY 2006

398.6

25.0%

69.0

58.3%

17.3%

66.5% ceramics-related products

FY 2005

218.0-12.4%

4.5-51.5%

2.1%

44.1%

FY 2006

312.8

43.5%

9.0

102.1%

2.9%

32.2%

FY 2005

387.8

5.1%

68.3

-10.2%

17.6%

59.7%

FY 2006

395.1

1.9%

69.5

1.7%

17.6%

61.1%

FY 2005

236.7

-0.9%

5.2

12.8%

2.2%

60.0% Switches, coils, high-frequency

FY 2006

281.9

19.1%

26.7

413.4%

9.5%

48.5% devices, power supply ICs

FY 2005

186.5

8.3%

6.7

225.6%

3.6%

69.6% Ceramic capacitors, ferrite,

FY 2006

221.2

18.6%

22.0

229.0%

10.0%

70.5% power supply/high-frequency modules

FY 2005

120.9

14.4%

6.1

29.9%

5.1%

60.4% Aluminum electrolytic capacitors,

FY 2006

135.1

11.7%

9.4

53.9%

7.0%

68.0% Aluminum electrode foils, rubber packings

FY 2005

50,732.9

4.1%

1,695.6

14.7%

3.3%

45.0%

FY 2006

53,719.9

5.9%

1,693.4

-0.1%

3.2%

47.3%

HosidenRohm
Mitsumi ElectricTaiyo Yuden
Nippon Chemi-Con
Total for 9 major general electricmachinery manufacturers

Sources:

Connectors, switches
Custom LSIs

Corporate data.

Development Bank of Japan Research Report/ No.62

7

2.1 High Overseas Sales Ratio
Demand for flat-panel TVs, PCs and cellular
phones has been accelerating, thanks specificallyto the expansion of overseas markets. Global
demand for liquid crystal display (LCD) TVs(display size of 10 inches or more) is expected toincrease from 21.2 million units in 2005 to 155
million units in 2012. However, the share of theJapanese market will fall from 19% in 2005 toless than 7% in 2012, while Western Europe andthe U.S. will account for 44% of the global market between them, and China for 19% (Figure7). 2
PCs and cellular phones will also continue
to see their markets expand in terms of volume,
led by the BRICs and other emerging economies(Figure 8). Cellular phone subscribers in India
rose from 98.78 million in March 2006 to over
200 million in August 2007, which means that
more than the total number of Japanese subscribers became cellular phone users in India inless than one and a half years (Figure 9). Even if
we adopt a conservative estimate of 1.1 billion
for the population of India, less than 20% havecellular phones, so there is further potential formarket expansion.
Since low-end products are the mainstay for
emerging markets, however, a substantial increase in volume will not easily translate into a
corresponding increase in value. Indeed, thestrong demand in India is driven by low-end
products priced at R2,000–3,000 (about¥5,600–8,400). Nokia dominates the market,
followed by Samsung Electronics. The set products of Japanese manufacturers, although highly
appreciated for their quality, cannot easily attract
customers due to their high prices. Meanwhile,bulk orders have been placed with Japanesemanufacturers for electronic components to be
used in set products.
Figure 10 shows the performance of thenine general electric machinery manufacturers
and 11 major electronic components manufacturers. The horizontal and vertical axes indicate
the overseas sales ratio and operating profit margin, respectively. Many of the electronic com2

See Japan Electronics and Information Technology Industries Association, “Forecast of Global Demand for Selected
Audio-Visual Products.”

8Development Bank of Japan Research Report/ No. 62

ponents manufacturers secure a large profit margin by increasing sales overseas, whereas thegeneral manufacturers, being heavily dependent
on the domestic market, have thin profit margins
due to the intense competition for market shareamong themselves. Thus, Japanese electronic
components manufacturers continue to show
strong performance even after the core market
has moved overseas and foreign companies suchas Nokia, Dell and Samsung Electronics havecome to enjoy substantial market share in set
products.
The overseas production ratio in electricmachinery (23.1%) has remained almost flat inrecent years with some fluctuations (Figure 11).
In contrast, carmakers and other transport
equipment manufacturers have successfully
benefited from the expansion of global demandby rapidly accelerating overseas production since
2000. The general electric machinery manufacturers, which depend on the domestic market formost of their sales, are no match for carmakers in
profitability, in both the Euro-American andAsian markets (Figure 12).
As compared with the average for all
manufacturing industries, the overseas affiliatesof Japanese electric machinery manufacturers
sell less of their products in the local markets andexport more of their products (19%) to Japan(Figure 13). This ratio rises to 32% if we focus
on the affiliates in Asia. The stagnant sales overseas is because most of those affiliates wereoriginally established as production bases forexport to Japan and third-country markets, thus
delaying product development and marketing in
response to local needs.
Demand is expected to grow mainly inemerging economies, where low-end products
will account for much of the sales. Merchandise
strategies in those markets therefore require adifferent approach than in developed countries orSoutheast Asia. In order to solidify its overseas
business base, a general electric machinery
manufacturer must radically consolidate its production facilities overseas and expand local procurement. It will also need to build an optimal
production/sales system on a global scale by enhancing its product development and marketing
processes to suit local needs and by actively utilizing local human resources.

Figure 7. Trend of World Demand for Liquid Crystal TVs by Region(million units)
16,000160
14,000140
Others
12,000120
10,000100

WesternEurope

8,000
80
6,000
60

U.S.

4,000
40
China
2,000
20
Japan

0
2002

Source:

2004

2006

2008

2010

2012 (Year)

Japan Electronics and Information Technology Industries Association, “Forecast of Global Demand for Selected
Audio-Visual Products.”

Figure 8. World PC Shipments(million units)
450
OthersOthersMiddleEast&&Africa
AfricaMiddle East
EasternEuropeEastern Europe
Latin
America
Latin America
Asia/PacificAsia/Pacific
Japan
Japan
WesternEuropeWestern Europe
UnitedUnitedStatesUnited States
States

400

350

300

391
356
322
289
260

250

231
212
183

200
164
150

100

50

0
2003

2004

2005

2006

2007

2008

2009

2010

2011 (Year)(Forecast)

Source:Gartner, “Forecast: PCs, Worldwide,” September 2007, GJ08001.

Development Bank of Japan Research Report/ No.62

9

Figure 9. Trend of Cellular Phone Subscribers in India(milllion units)
250

India

Japan

200

150

100

50

0
3/2003

Source:3/20043/20053/20063/2007

11/2007

Telecom Regulatory Authority of India (TRAI).

Figure 10. Overseas Sales Ratio and Operating Profit Margin of General Electric Machinery
Manufacturers and Selected Electronic Components Manufacturers
Operating profit margin25%

20%
MurataRohm

IbidenKyocera

Nidec

15%

Mitsumi10%

T aiyo Yuden
T DK
Nippon Chemi-Con

Sharp
Mitsubishi
5%
HosidenDomestic
marketoriented

NEC
0%

25%

Fujitsu

Matsushita
T oshiba

Alps

Sanyo

Sony

Hitachi
0%
50%

75%

Overseas
marketoriented
100%

-5%
Overseas sales ratio

Sources:10

Corporate financial statements.

Development Bank of Japan Research Report/ No. 62

Figure 11. Overseas Production Ratio of Electric Machinery and Transport Equipment
(%)

40

37.0

Transport equipment
35
30
Electric machinery

25

23.1

20
15
All manufacturing

16.7

10
5
0
94

Notes:
Source:

95

96

97

98

99

00

01

02

03

04

05 (Year)

Overseas production ratio = sales of overseas affiliates/(sales of overseas affiliates + sales of domestic manufacturers) × 100. “Electric machinery” includes “information and communications equipment.”
Ministry of Economy, Trade and Industry, “Basic Survey of Overseas Business Activities.”

Figure 12. Sales of 3 Major General Electric Machinery and Car Manufacturers by Region(FY 2006)
3 major carmakers
Sales by region

3 major electric machinery manufacturers
Sales by region
Asia andothers16.0%

Asia andothers
21.6%
Japan
54.1%

Europe
11.1%

Japan
27.1%

Europe14.5%
NorthAmerica
42.4%

North
America
13.2%

Note:
Sources:

Electric machinery manufacturers include Hitachi, Toshiba and Matsushita. Carmakers include Toyota, Nissan
and Honda.
Compiled by DBJ from corporate financial reports.

Figure 13. Origin and Destination of Products for Overseas Affiliates of Japanese Electric
Machinery Manufacturers
Value of supply by origin
Electric
machinery

33.6%

42.9%

Value of sales by destination
Electric
machinery

23.5%

50.7%

18.8%

30.5%
3.4%

Transport
equipment

60.2%

M anufacturing
average

50.7%

33.8%

0%
Local procurement

Note:
Source:

30.0%

9.9%

15.5%

100%
Import from Japan

Import from third country

Transport
equipment

72.6%

Manufacturing
average

64.9%

24.0%

10.6%

24.5%

0%

100%
Local sales

Export to Japan

Export to third country

Electric machinery includes information and communications equipment. Data are for FY 2005.
Ministry of Economy, Trade and Industry, “Basic Survey of Overseas Business Activities.”

Development Bank of Japan Research Report/ No.62

11

2.2 Continuous Production from Materials
and Manufacturing Equipment
Another common feature of highly profitableelectronic components manufacturers is that they
have developed quality products that cannot bechallenged by overseas competitors in the global
market, starting with proprietary techniques upstream such as materials development andequipment manufacturing.
The performance of electronic components
ultimately depends on the quality of materials.
Thus, the quality of aluminum, tantalum and ceramics determines the performance of a capacitor,
while the competitiveness of hard disk drives
depends on the magnetic recording material. For
example, Murata Manufacturing, a company
which started out in traditional pottery, enjoys asignificant share in ceramic capacitors. Having
established a continuous production system
ranging from materials to final products, thecompany’s philosophy is to focus on materials toachieve the necessary functions. 3 Another company, TDK, developed various unique materials
starting from ferrite. Straightforward, ongoing
research and experiments involving mixing
powder, pulverizing it, burning it and then testing its composition repeatedly, led to substantial
expertise on materials. This materials technology
has led to numerous creative products unmatchedby rivals. 4 The performance of aluminum electrolytic capacitors, in which Nippon Chemi-Con
specializes, largely depends on the electrode foil,
as its surface area determines the amount of electricity that can be stored. The company is also
one of the world’s leading manufacturers of aluminum electrode foil. In-house production of
manufacturing equipment has helped the company boost its profits by keeping proprietary theprocessing technology to maximize the surface
area of the electrode foil. 5
In the semiconductor industry, Rohm, aleading manufacturer of custom LSI (large-scale
integration) circuits containing both analog anddigital circuits, has built a large profit margin3

See Murata Manufacturing’s website at
http://www.murata.co.jp/company/enkaku/index.html.
4
See TDK’s website at
http://www.tdk.co.jp/tjaaa01/aaa30000.htm.
5
Based on IR briefing documents prepared by Nippon
Chemi-Con.
12

Development Bank of Japan Research Report/ No. 62

through a distinct strategy that has not been
adopted by other large manufacturers. The company produces in-house elements such as 300
mm silicon wafers and also develops most of the
manufacturing equipment used in the later processes. 6 This strategy gives the firm an overwhelming advantage in quality and reliability
through continuous quality control throughout
production, from raw materials to final process.
Thus, leading electronic components manufacturers have created products that are hard forcompetitors to replicate, through in-house R&D
covering upstream segments including materials
and manufacturing equipment, followed by continuous production starting with raw materials.
By building modular components around those
key devices and providing a whole set of specificfunctions for customers, they have succeeded instreamlining circuit designs and reducing theburden of component mounting, thus adding further value to their products.
3.

Electronic Materials as Key Factor for
Differentiation of Flat-Panel Displays

The shift of profits upstream from assembly andproduction of set products to materials andmanufacturing equipment is even more significant in the display industry. An LCD panel consists of a liquid crystal sandwiched between two
glass substrates, which in turn are covered bylayers of filters, so the cost of materials accounts
for a large part of the total production cost. The
right combination of materials and equipment isalso crucial in producing LCD panels, so it isessential to develop and provide materials thatsuit the production environment of the manufacturer. Although Korean and Taiwanese manufacturers are making their presence felt in the
production of LCD panels through massive investment, Japanese manufacturers dominate themarket for core materials such as polarizing
plates and color filters. Indeed, LCD panels cannot easily be made without using Japanese materials.
Building on technologies accumulated
through core businesses, such as synthesizing,coating, film-forming and fine processing, Japa6

See Rohm, “Annual Report,” March 2007.

nese material manufacturers have developed
original materials in a bid to diversify into electronics. Thus, Nitto Denko, a dominant polarizing plate manufacturer established in 1918, leveraged its varnish synthesizing technology forelectrical insulating materials to generate semiconductor sealing materials and optical films,
among other products, as it diversified into various high-polymer materials. Zeon (established in1950) and JSR (established in 1957) applied
nano-technologies and polymer technologies developed in their core synthetic rubber business tothe coloring resist business and retardation film
business, both of which now generate as muchprofit as their core businesses. Toppan Printing(established in 1900) has also succeeded in turning its color filter and photomask businesses into
new profit bases by applying its fine processing
technology accumulated over more than a century of its printing/plate-making business.

A survey of six Japanese manufacturers ofmaterials for LCD panels found that their electronic component business has grown much
faster than their core businesses. Indeed, the operating profit margin for the electronic component business (19.6%) is more than double thatfor the core business (8.9%). Many of thosemanufacturers depend on electronic components
for most of their profits (Figure 14). 7
Thus, added value is now concentrated on
key devices including electronic components andmaterials, while overseas contractors, mainly in
China, have emerged as major competitors in set
product assembly. The following section considers which direction the general electric machinery
manufacturers should take in rebuilding theirbusiness strategies under these circumstances.

Figure 14. Year-on-Year Growth and Operating Profit Margin for
Manufacturers of Key Materials for LCD Panels in Core Business andElectronic Materials Business (FY 2005)
30%
25%
Sales
growth

20%
15%
10%

Sales
growthProfitmarginProfitmargin5%0%Core business

Sources:

Electronic materials

Compiled by DBJ from corporate financial reports.

7

The survey is based on actual FY 2005 data for Nitto
Denko, Asahi Glass, JSR, Zeon, Stanley Electric and Toppan Printing.

Development Bank of Japan Research Report/ No.62

13

4. Policies to Rebuild Business Strategies ofGeneral Electric Machinery Manufacturers
4.1 Emergence of Division of Labor Business
Model for Set Products
In the global PC industry, companies specializing in design and development are starting todifferentiate their products in terms of design andlogistics, while outsourcing the assembly process
to other manufacturers, mainly in Taiwan; Dell isa typical example. This is largely because PC
manufacturers have to depend on outside sources
for expertise on equipment control. Indeed, Inteland Microsoft virtually dictate industry standards
for the centerpieces of control (i.e. semiconductors and operating systems, respectively). Even
with regard to LCD TVs, a typical digitalhousehold appliance, fabless companies, includ-ing Visio (U.S.), are making their presence felt
by procuring panels and semiconductor chip sets
and outsourcing the fabrication process.
Thus, expertise on equipment control isavailable from specialized sources in the electronics industry, which means that any company
can create at least a commodity-level product if it
can procure key devices from around the world(Figure 15). As will be described later, a businessmodel based on the division of labor is becoming
predominant in the electronics industry, not only
for set products but also for semiconductors,
which integrate proprietary control technology.
As a result, the typical business model for general electric machinery manufacturers, which isto produce within the group the whole range of
products, from semiconductors to set products,
has fewer areas of comparative advantage.

Figure 15. Emerging Division of Labor Business Model in Electronics
Fabless
companies

PCs

Euro-America

・ Intel and Microsoft are standard providers of SC and OS, respectively.
・ PC makers depend on outside sources for expertise on equipment control.
→ Some dominant manufacturers are specialized in design, development andsales, outsourcing production to Taiwanese manufacturers.

LCD TVs
・ Companies like Visio (U.S.) make their presence felt with a business model ofprocuring panels and SC chip sets and outsourcing production.
・ System LSIs as key devicesI・・・Transition to division of labor between fabless companies and foundries.

Planning/designingskillsIP

Standardization

International divisionof labor

Specialization

Foundries
Asia

Fabrication undercontract
Large-scale
investment

Low-cost

Electronics industry
・Expertise on equipment control is widely available
in the form of semiconductors.
・Everyone can make at least a commodity-levelproduct by globally procuring cheap components.

Japan
General electric machinery/semiconductor manufacturers
Verticalintegration
model
CompanyA

Source:14

Development Bank of Japan.

Development Bank of Japan Research Report/ No. 62

Design/development

Company
B

Fabrication

CompanyY

Sales

CompanyZ4.2 Distinction between Business Areas andCloser Coordination with Upstream Materials
and Manufacturing Equipment Segments
General electric machinery manufacturers needto distinguish between the business areas inwhich differentiation is possible by incorporating
upstream segments such as materials and manufacturing equipment on the one hand, and thebusiness areas in which technology alone can nolonger ensure differentiation due to substantial
levels of commoditization on the other, to enable
them to redevelop business strategies suited forindividual areas to increase competitiveness,while using their limited managerial resources
more effectively. With regard to the latter business areas, where branding and designing as wellas business models and industrial standardization
are crucial for differentiation, a general electricmachinery manufacturer must concentrate
managerial resources on development and marketing, while cutting back on fabrication activities, including through outsourcing (Figure 16).
After focusing on its strengths through thisselection and concentration process, the manufacturer should heavily invest managerial resources in any areas where it can ensure differentiation by incorporating technologies related tomaterials and manufacturing equipment. Possible
options for a general electric machinery manufacturer include (1) enhancing in-house researchon technologies related to materials and manufacturing equipment and (2) building partnerships with promising materials / manufacturing
equipment makers including through joint development, tie-ups and the provision of funds forbusiness options.
As an example of option 1, Sony created a
new Chemical Device Division in May 2006 tostrengthen its chemical device business for LCD
panel modules for TVs. Also, Hitachi has established a joint venture for lithium-ion secondary
batteries with Hitachi Maxell, a battery manufacturer of the group, and Shin-Kobe Electric
Machinery, a subsidiary of Hitachi Chemical. By
maximizing the synergy among the three affiliates in the field of batteries, the group intends todevelop, design and fabricate all key components
of a hybrid vehicle — motor, inverter and battery— and supply them as a system. 8
However, a general electric machinery
manufacturer cannot produce all materials andequipment, nor quickly catch up with materials
manufacturers which have accumulated expertiseover the years. This is where option 2, building
partnerships, is a realistic alternative. For example, Sharp has been involved in joint development from the designing stage with materials
manufacturers to reduce the cost of backlights,
color filters and polarizing plates for LCD TVs.
The company’s new Sakai plant, now under construction, will form an LCD manufacturing complex, as materials / manufacturing equipment
makers are invited to build a fab in the plant. The
aim is to achieve vertical integration that transcends the barriers between companies by pushing the vertically integrated business model further upstream in the supply chain, from LCD
panels to LCD TVs, thus reducing distribution
costs and unifying operations, including production planning. In addition, the close collaborationof Sharp engineers working with materials andequipment manufacturers that have superior
technical capabilities should lead to technicalinnovations through the fusion of knowledge andknow-how. 9
For particularly crucial materials andmanufacturing equipment, it is important to consider the effectiveness of a differentiation strategy incorporating materials and equipment technologies, including the possibility of a joint venture involving a capital alliance or corporate acquisition. In 2000, Matsushita Electric Industrial
agreed with Toray on a partnership in the plasma
display panel (PDP) business, in an effort to integrate Toray’s rear panel manufacturing techniques with Matsushita’s production technology
ranging from panels to finished set products.
Also, Tokyo Electron, a leading semiconductor
manufacturing equipment maker, established in
February 2008 a new joint venture company with
Sharp, announcing the joint development of
manufacturing equipment for thin-film solar bat-8

See Hitachi’s press release at
http://www.hitachi.co.jp/New/cnews/month/2008/01/0121.html.
9See Sharp’s press release at
http://sharp-world.com/corporate/news/070731.html.
Development Bank of Japan Research Report/ No.62

15

Figure 16. Focusing Business Areas and Incorporating Upstream Materials / Manufacturing
Equipment

If a general electric machinery
manufacturer is to increase
competitiveness by effectively
utilizing limited managerial
resources,

Clear distinction(selection andconcentration)

Areas in which technology alone cannot ensure differentiation
Areas in which technology alone cannot ensure differentiation
any more due to substantial levels of commoditization
any more due to substantial levels of commoditization

・ Branding, designing, business models, industrial standards, etc.
are increasingly important as differentiators.
・ Managerial resources should be concentrated on productdevelopment and marketing, taking bold measures to cut backon fabrication activities, including through outsourcing.

Areas in which differentiation is possible by incorporating
Areas in which differentiation is possible by incorporating
upstream segments such as materials and manufacturing
upstream segments such as materials and manufacturing
equipment
equipment

Current status◆ Progress in international division oflabor in electronics.
◆ Commodity-level products may be
manufactured by combining generalpurpose components.

◆ Differentiation hinges on originaltechnology in key devices.
◆ Performance of core components
depends on materials andmanufacturing equipment.

Focus business on areas of strength and seek integration of upstream
materials and equipment segments in crucial areas

Business areas

Importance of accumulating material/equipment expertise

Heavy

Development ofdifferentiatedproducts
integrating
materials/equipment technologies

Focusing on
areas of strength

White goods

AV

Comm.

Smile
curve

Computer

Enhance in-house development of materials/equipment
After-sales
service

Sales

Downstream

Business processes

Development Bank of Japan.

teries. 10 Tokyo Electron’s mass production
equipment technology using vacuum plasma,
which the company has developed in its semiconductor and flat-panel display manufacturing
equipment, will be combined with Sharp’s solar
battery manufacturing technology to develop
more productive manufacturing equipment.
4.3 Building Strategies for Active
Incorporation of Upstream and Downstream
Segments
Manufacturers in materials-based industries,
such as chemicals and iron & steel, have become
involved in R&D activities downstream, including for automobiles and electric machinery.
Classifying the major manufacturing industries
into materials and processing/assembly industries,
we find that the materials industries — chemicals,
textiles, iron & steel and cement, ceramics &10

See Tokyo Electron’s press release at
http://www.tel.com/jpn/news/2008/0218_001.htm.
16

Assembly/
fabrication

Source:Components

For particularly crucial materials, consider the effectiveness of adifferentiation strategy based on material/equipment technology
including through possible joint ventures with material/equipment makers.

Equipment
Materials

Upstream

Closer partnerships with dominant material/equipment makers including
through joint development, tie-ups and provision of equipment funds

Development Bank of Japan Research Report/ No. 62

glass — invest 10–20% of their R&D budget indownstream processing/assembly industries(Figure 17).
The development of a new material often
requires decades of painstaking research, which
requires long-term management support. A
comparison of electronic components productionin Korea and Japan reveals that Korea exceeds
Japan in the production of semiconductors, buttrails far behind in general electronic components
such as capacitors, resistors and connectors (Figure 18). In Korea, the export-led growth of somemajor blue-chip firms such as Samsung and LG
Electronics contrasts sharply with the weak supporting structure including manufacturing
equipment and components/materials industries
as well as SMEs. For this reason, any increase inexports to the U.S. or China entails an increase inimports from Japan, thus aggravating the trade
deficit with the country (Figure 19). The Ministry of Commerce, Industry and Energy (currently
the Ministry of Knowledge Economy) has statedthat the trade balance in components and materials urgently needs to be improved, as the sector
apparently accounts for more than 60% of Korea’s trade deficit with Japan. 11
Although many of the dominant electronicmaterials manufacturers are still Japanese companies, overseas manufacturers have been closing the gap rapidly. If general electric machinery
manufacturers invest part of their huge R&D expenditures upstream in the joint development ofmaterials, Japan may remain a center for the development and production of innovative new
products incorporating materials technologies.
This will not only benefit the general manufac-

turers themselves but also bring medium- tolong-term profits to materials makers.
Even for semiconductors, which are the key
part for controlling electronics products, theglobal trend is toward a division of labor between fabless companies specialized in designand software development, and foundries specialized in fabrication under contract. Part II outlines the progress of the division of labor modelin the semiconductor industry, focusing on Taiwan, and examines how Japanese semiconductor
manufacturers can restore their international
competitiveness.

Figure 17. R&D Expenditures in Selected Manufacturing Industries by Destination (FY 2006)

M aterials industries

(%)

(%)

100 90 80
TextilesChemicals
Cement, ceramics & glass
Iron & steel
Non-ferrous metals

Notes:

Source:11

Processing/assembly industries

70 60

50

40 30

20

10

0

77.7

10 20

30

40 50

60

70

80

90 100

12.8

88.2

8.6
69.1

16.0

76.6

15.1
45.3

44.4

M achinery

1.7

92.3

Electric machinery

0.9

94.7

Automobiles

0.9

96.4

Materials: textiles, paper & pulp, chemicals, cement, ceramics & glass, iron & steel and non-ferrous metals.
Processing/assembly: general machinery, electric machinery, transport equipment and precision machinery.
Data do not include food & beverages, publishing & printing, petroleum & coal, rubber & metal products orother industrial products.
Ministry of Internal Affairs and Communications, “Survey of Research and Development.”

See http://www.korea.or.jp/data_view_k.asp?seq=864.
Development Bank of Japan Research Report/ No.62

17

Figure 18. Value of Electronic Component Production in Korea (Japan = 100)
0

20

40

60

100

120

71.5

Diodes48.9
26.0

Transistors

19.8
101.7

ICs

67.5
2005

22.1
21.5

Capacitors

Fixed resistors

9.6
9.4

Connectors

10.4
8.3

2003

21.5

Printed circuit boards

Source:80

17.6

The Yearbook of World Electronics Data, Volume 2, 2006, Reed Electronics Research.

Figure 19. Trade Balance of Korea by Partner($ million)
50,00040,00030,000Japan

20,000U.S.
10,000
Taiwan0

China(incl. Hong Kong)
Others-10,000-20,000(Year)-30,000
1980

Source:

18

1985

1990

1995

Korea International Trade Association (KITA).

Development Bank of Japan Research Report/ No. 62

2000

2005

2006

II Policies to Rebuild Business
Strategies of Semiconductor Manufacturers
1. Emergence of Global Division of Labor
Business Model in Semiconductor Industry
1.1. Taiwanese Semiconductor Industry:
Development of Division of Labor Business
Model
Most Taiwanese semiconductor manufacturers,
which are newcomers to the market comparedwith U.S. and Japanese companies, have specialized in specific areas, rather than developing into
integrated device manufacturers (IDMs), which
cover the entire business process from design toin-house fabrication through vertical integration(Figure 20). A division of labor business model
based on global partnerships between fablessventures in Silicon Valley, specialized in designing without having their own plants, andfoundries in Taiwan, specialized in fabrication
under contract, has fundamentally changed theworld semiconductor industry since the 1990s. A
fabless company designs and develops a semiconductor at the request of a client. Once the design is completed, the fabless company sends thedesign data to a foundry for production undercontract. The foundry often outsources the later
processes (i.e. assembly and inspection) to a specialized subcontractor or testhouse.

Figure 21 shows the structure of the semiconductor industry in Taiwan, which clearly has
an advantage in production where foundries playa key role. Thus, Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) account for 60%of the world foundry market among themselves.
Taiwan also has many leading contractors in thelater processes, including assembly and testing,such as Advanced Semiconductor Engineering(ASE) and Siliconware Precision Industries(SPIL). Furthermore, fabless companies havegrown spectacularly in Taiwan, including Media
Tek and Sunplus Technology. The number of
Taiwanese fabless companies has increased substantially, from 140 in 2000 to 260 in 2004. 12
Figure 22 plots annual sales growth and operating profit ratio for major Japanese and overseas semiconductor manufacturers. Highly profitable manufacturers may be grouped into thefollowing four categories: (1) leading IDMs (Intel, Texas Instruments [TI], Samsung Electronics), (2) foundries, (3) fabless companies and (4)intellectual property (IP) providers. Among
IDMs, only the top three companies are making
sufficient profits, with Japanese and European
IDMs trailing far behind in general. In Europe,business restructuring by IDMs has been accelerating since 2005. For example, Philips separated its semiconductor department from thecompany’s main structure, while Infineon spun
off its highly volatile memory business.

12

Industrial Technology Research Institute, “Semiconductor
Industry Yearbook 2005.”
Development Bank of Japan Research Report/ No.62

19

Figure 20. Vertical Integration and Division of Labor Business Models in Semiconductor
Industry
Vertical integration(IDMs)

Vertical specialization

Fabless
Logic design↓
Circuit design

Logic design↓
Circuit design

IP provider

Company D

Company C

Production:
1st stage

Company B

Company A

IP core/softwaredevelopment

Production:
2nd stage(assembly →inspection)

Sources:(IP core/softwaredevelopment)
Foundries
Contracted
manufacture

Subcontractor
Contracted manufacture(2nd stage)
Assembly → Inspection

Japan Electronics and Information Technology Industries Association, “IC Guidebook”; interviews.

Figure 21. Structure of Taiwanese Semiconductor Industry
Design 260 companies
Fabless

Mask 4 companies
Wafer production
8 companies
Production 13 companies
Chemicals
18 companies(of which 6 are foundries)

Assembly 35 companies

Testing 34 companies

Source:20

Testhouse
Inspection

Industrial Technology Research Institute, “Semiconductor Industry Yearbook 2005.”

Development Bank of Japan Research Report/ No. 62

Figure 22. Relations between Sales Growth and Operating Profit Margin of Major Domestic
and Foreign Semiconductor Manufacturers (2005)
40
TSMC(foundry)Operating profit ratio (%)

30Intel (large IDM)
Samsung Electronics(large IDM)
Xilinx (fabless)

ARM (IP provider)

Sunplus(fabless)
10
Sharp
Oki Electric Industry
0-20
UMC (foundry)-10

Japanese manufacturers
Foreign manufacturers

TI (large IDM)

20

-30

Media Tek(fabless)

Toshiba
Freescale
MicronPhilipsAMD
ST
Microelectronic0
Infineon

NEC Electronics

-10

10

20
30
Elpida Memory

40

50

60

Sony

Annual sales growth (%)

Notes:
Sources:

As at the end of FY 2005. The fiscal year ends in March for Japanese manufacturers and in December for foreign manufacturers except for Micron (August), Infineon (September) and Xilinx (March).
Corporations’ fiscal year end statements.

1.2 Evolution of Foundries from Fabrication
Contractors to Solution Providers
The strengths of Taiwanese foundries include (1)cost competitiveness, (2) quality service, (3)leading-edge technology, (4) broad productlineups and (5) provision of IP libraries. Figure
23 shows the level of investment in the world
semiconductor industry by region. Taiwan has
shown substantial investment in recent years,
almost catching up with Japan and North America in 2007, mainly due to the construction of
300 mm wafer fabs by foundries. Taiwanesefoundries enjoy higher production capacity perfab, and have been improving their cost competitiveness through massive economies of scale.
Indeed, the sales/cost ratio of TSMC is significantly lower than that of Japanese manufacturers.
This, coupled with its low sales and general administrative expenses, has allowed the company
to enjoy a wide profit margin (Figure 26).
Although foundries have grown rapidly by
producing low-priced semiconductors, there has

been growing concern that a simple division oflabor model may not be sufficient to meet the
new challenge of custom products such as system LSI circuits, which require coordination between design/development and fabrication. A
system LSI circuit refers to a single semiconductor chip that integrates processor cores forsound, graphics, and so forth, in addition tomemory and logic, and plays a central role incontrolling electronic equipment. Each core has
its respective IP, and it is impractical for a company to develop all the IP from scratch; it would
take too long and cost too much, affecting profitability and possibly leading to the loss of clients.
Fabless companies must therefore focus on thecore design. They need a technique for combining their own IP with other excellent IP fromaround the world to ensure the rapid delivery of
products.
Against this backdrop, TSMC and UMC
have introduced services to help shorten total
design time by creating in advance the libraries

Development Bank of Japan Research Report/ No.62

21

Figure 23. Investment of World Semiconductor Manufacturers by Region($billion)
60
48.48

47.20

4.45

4.56

50

40

10.17

3.50

4.07

2003

Source:11.87
Europe

12.76

12.05

7.19

7.77

10.56
6.45

8.14

8.25

7.00

8.97

2004

2005

2006

3.63

0

11.34

5.28

7.01
3.53

5.10

11.35
7.89

10

5.50

8.63

Japan

Asia/
Pacific

11.74

Asia-Pacific (excluding
Korea and Taiwan)
Korea
Taiwan2007 (Year)(Estimate)

Gartner, “Forecast: Semiconductor Capital Spending, Worldwide,” October 2007, GJ08006.

of IP commonly used in many products or IP for
peripheral circuits, to be provided for fablesscompanies. Since IP developed on a foundry’s
production line is verified before being included
in its library, chips designed in this way arelikely to work properly. Thus, foundries areworking closely with fabless companies and
EDA (electronic design automation) tool vendors
from an early stage of semiconductor design anddevelopment, to grow themselves from mere
fabrication contractors into providers of total solutions for the client.
1.3 Growth of Taiwanese FablessCompanies in Partnership with Foundries
Fabless companies have also been responding to
the various needs of clients with efficient design
techniques. Sunplus Technology, a Taiwanesefabless company, continues to grow strongly
through the design of consumer semiconductors,
including for toys and consoles. In the consumer
semiconductor industry, efficient design is a serious challenge for management as low-cost, fast

22

North America

11.27

7.93
20

57.14

10.86

29.66
30

56.31

Development Bank of Japan Research Report/ No. 62

development is required. In meeting this challenge, the company was one of the first to introduce the concept of “re-usable IP.” Wheneverpossible in designing a new chip, instead ofstarting from scratch, the company reuses existing IP that has been proven to work properly. It
also uses the same IP for hardware where possible and only modifies embedded memory tomeet the demands of different clients. Thismethod greatly reduces the design time by reducing the design workload. The company reportedly uses such design techniques for mostsemiconductors used in toys.
Nonetheless, client demand for early delivery is insatiable. In response, the company devised a “wafer bank” strategy in collaboration
with a foundry to cut the lead time further. For
system LSI circuits comprising 15 layers, forexample, the company accumulates on the 1st to
10th layers common circuit blocks that areneeded in every type of chip and then builds astock (“bank”) of wafers made up of these 10
layers. On receiving an order from a client, thecompany draws a 10-layered wafer from the wa-

fer bank and customizes the remaining five layers. If delivery takes six weeks when all 15 layers are designed from scratch, the new strategy
may reduce the lead time to about two weeks.
This approach is impossible without close collaboration with the foundry from the design
stage.
The semiconductor industry requires good
coordination between design and fabrication. To
compete with IDMs, which have both of thesefunctions in-house, establishment of a mutually
reinforcing system is being pursued in Taiwan by
combining fabless companies’ own efficient design techniques and foundries’ flexible production technologies to respond more promptly tothe diversified needs of clients.
2. Policies to Restore International
Competitiveness of Japanese Semiconductor
Industry: With Special Focus on System LSI
Circuits
Semiconductors are manufactured by the hundred in the form of wafers upon which circuits
are constructed with a mask. Production costs
will decline if more wafer chips can be manufactured from a single mask (the advantage ofscale). Therefore, securing an overwhelming
market share for a general-purpose product, suchas memory or processors, is the best way to ensure profitability in the semiconductor industry.
Likewise, success in application-specific products depends on standardization to allow sales to
as many customers as possible, rather than focusing on a small number of specific clients.
After exiting the general-purpose DRAM
market, many Japanese manufacturers turned toapplication-specific custom products. However,the share of Japanese manufacturers in the world
market fell by over 50% from the peak of 51% in1988 to 22.2% in 2006, reflecting the continued
decline in their international competitiveness(Figure 24).
Application-specific semiconductors can bebroadly classified into application-specific integrated circuits (ASICs) for a single client andapplication-specific standard products (ASSPs)
for two or more clients. Japanese manufacturers
hold an advantage in the former type of product.
However, demand for an ASIC heavily depends

on the sales of the final product on which it ismounted. The ensuing high-mix, low-volume
production virtually precludes the advantage ofscale. Regarding the highly promising ASSPs, on
the other hand, overseas manufacturers have thelargest market shares, indicating that Japanesemanufacturers are falling behind in the competition for standardization in the industry. As they
followed the herd and shifted to high-end custom
products, while having no product with an overwhelming market share or originality and struggling in overseas markets, competition has intensified among Japanese manufacturers in the domestic market, suppressing their profits (Figure
25).
Investment by most Japanese manufacturers
has not yet reached ¥100 billion, with the exception of memory makers. The difference in production scale with Taiwanese foundries, with acapacity of 30,000 – 40,000 chips per fab, ultimately affects cost competitiveness. Even among
IDMs, there is a striking difference in profit
structure between Japanese and U.S. manufacturers. A comparison among NEC Electronics, TI
and Intel reveals a wide gap in the operating
profit ratio, despite the fact that the ratios of sales,
administrative and R&D expenses to total sales
are similar (Figure 26). Thus, the huge R&D andsales expenses incurred by Japanese manufacturers are not sufficiently reflected in the sales
prices of products, which reduces their profitsand does not bridge the financial gap with overseas competitors.
The future of the Japanese semiconductor
industry will depend on three categories of
product: (1) memory, (2) power semiconductors/sensors and (3) system LSI circuits. As regards memory, a short-list of potential players
has already emerged for both flash memory and
DRAM. Japanese manufacturers may also capitalize on their strengths in power semiconductors
and sensors, particularly for industrial use andvehicles. Against this backdrop, the most serious
challenge facing the Japanese semiconductor
industry is how to support the business of system
LSI circuits, which are the heart of electronics
products. Although demand for system LSI circuits is expected to grow in the years ahead as
they are essential for making equipment smaller
and more sophisticated, Japanese manufacturers

Development Bank of Japan Research Report/ No.62

23

Figure 24. Composition of the World Semiconductor Market by Manufacturer Region
2.8

100%

9.7

17.7

80%
12.4
36.5
60%
47.8
40%

51.0
20%
22.2
0%
1980

1982

1984

1986

1988

Japanese companies

1990

1992

U.S. companies

1994

1996

European companies

1998

2000

2002

Asia-Pacific companies

Source: Gartner Dataquest, March 2007, GJ07198.

Figure 25. Issues Facing the Japanese Semiconductor Industry(1) Lack of products with an overwhelming market share or unique features(2) Insufficient business investment(3) Slow response to changing business models(4) Decline in cost competitiveness(5) Weak sales ability and marketing in overseas markets(6) Financial base susceptible to volatility(7) Slow progress in industry-academia-government collaboration

Source: Development Bank of Japan.

24

Development Bank of Japan Research Report/ No. 62

2004

2006
(Year)

Figure 26. Cost Structures of Major Foundries, Fabless Companies and IDMs (FY2006)
Foundries(¥billion, ratio)
Sales

Fabless companies

IDM

TSMC

UMC

XilinxAlteraNEC Electronics

1,027.1 100.0%

362.4 100.0%

215.5 100.0%

149.5 100.0%

646.0 100.0% 1,658.3

TI

100.0% 4,116.0 100.0%

Intel

Sales cost

522.9

50.9%

293.3

80.9%

84.0

39.0%

49.8

33.3%

477.5

73.9%

813.9

49.1% 1,996.7

48.5%

Gross profit

504.2

49.1%

69.1

19.1%

131.5

61.0%

99.8

66.7%

168.5

26.1%

844.4

50.9% 2,119.3

51.5%

Operating cost

92.4

9.0%

52.4

14.5%

90.8

42.1%

64.7

43.3%

204.2

31.6%

452.8

27.3% 1,461.8

35.5%

Sales & marketing expenses

12.1

1.2%

10.9

3.0%

45.4

21.1%

35.8

23.9%

83.3

12.9%

197.4

11.9%

18.9%

General & administrative expenses

28.2

2.7%

11.1

3.1%

Research & development expenses

778.6

52.0

5.1%

30.5

8.4%

45.4

21.1%

28.9

19.3%

120.9

18.7%

255.3

15.4%

683.2

16.6%

Operating profit

411.8

40.1%

16.7

4.6%

40.7

18.9%

35.0

23.4%

-35.7

-5.5%

391.7

23.6%

657.5

16.0%

Pre-tax profit

431.6

42.0%

118.4

32.7%

50.4

23.4%

41.8

28.0%

-42.4

-6.6%

421.7

25.4%

822.2

20.0%

Net profit

411.6

40.1%

104.0

28.7%

41.0

19.0%

37.6

25.1%

-98.2

-15.2%

505.0

30.5%

586.8

14.3%

Notes: 1. The financial year ends in December for TSMC, UMC, Altera, TI and Intel, and in March for Xilinx and NEC
Electronics.
2. Exchange rates: T$1 = ¥3,577 (2006 average), $1 = ¥116.3 (2006 average), $1 = ¥117 (FY2006 average).
Sources: Corporate annual reports.

are finding it difficult to be profitable in this area.
How can they increase their international competitiveness?
The decision on what to make in light of thefunctions required of the final product is a major
factor in producing a system LSI circuit. Since
success depends on design/development skills
and marketing, management should focus again
on these two factors. Larger shipments are essential for profitability. Therefore, a marketing
technique is required for turning a product into
an ASSP by building versatility into the productfrom the development stage and marketing it toother clients. Design engineers should be able toidentify the most generalized needs that arecommon to multiple clients. Assigning engineers
to the marketing department would help give
feedback to the development process (Figure 27).
In the LSI business, it is crucial to linkproduct development, fabrication and sales
strategies horizontally when making businessdecisions. An overhaul of corporate management,
organizational control and personnel evaluation
is urgently needed if Japanese manufacturers areto fully adapt to the system LSI business. For
example, thorough evaluations should be madeon a cross-departmental basis, in addition to the
traditional evaluation by individual departments
such as production and design.
In order to increase the volume of shipments,
it is important to sell products developed forin-house use to external clients. This will entail
the rebuilding of relationships with internal set
product departments. An enabling environment
needs to be developed for the semiconductor department to make independent business decisions
by clarifying in the corporate strategy whether togive preference to internal or external sales.
In partnership with fabless companies and
EDA (electronic design automation) tool vendors
worldwide, foundries have created a smooth division of labor mechanism, thus undermining the
traditional advantage gained from vertical integration of all processes, ranging from design anddevelopment to fabrication. Being focused on
application-specific custom products, Japanese
semiconductor manufacturers often do not have awhole range of products at the global standard
level that can ensure sufficient shipments towarrant huge investment. Thus, investing hundreds of billions of yen in a state-of-the-art
semiconductor fab is not likely to produce sufficient profit to cover the cost. In view of theirlimited managerial resources, many Japanese
semiconductor manufacturers should now put toppriority on coordinated enhancement of theirproduct development and marketing capacities
within their LSI business. As for fabrication,
they should seek revitalization by leveraging
complementary partnerships on a global scale,for example.

Development Bank of Japan Research Report/ No.62

25

Figure 27. Strategies to Strengthen Competitiveness in System LSI

1. Refocus operations on design and marketing
Shift from custom-made ASICs to widely marketable ASSPs.
Development of standard products through design efficiency and enhanced coordination
between design and sales
2. Active involvement in global alliances
Departure from self-sufficiency, selection and concentration of business on areas ofstrength
Enhanced partnerships with fabless companies, foundries and IP providers
3. Rebuild relationships with final set product departments
4. Overhaul of corporate management, organizational control and personnel evaluation
Horizontal linkage of product development, fabrication and sales strategies
Attitude to appreciate cross-departmental efforts
Source: Development Bank of Japan.

3. Increased Importance of “Management”
and Involvement of Funds in Semiconductor
Industry
Euro-American investment funds are increasingly becoming involved in business restructuring in the world semiconductor industry (Figure28). In September 2006, investment funds including Kohlberg Kravis Roberts (KKR) andBain Capital provided 80.1% of the capital for
NXP, a semiconductor spinoff from Philips.
They are expected to increase the value of thecompany, including through corporate acquisitions leveraging their abundant financial resources. Freescale, a Motorola spinoff established in 2004, became a private company? following the completion of a leveraged buyout(LBO) 13 in 2006 by a private equity consortiumthat included Blackstone and Carlyle. Michael
Mayer, president and CEO of the company, said
that the LBO facilitated faster decision-making
with greater flexibility and provided ample opportunity to gain additional insight and resources,
noting: “I believe this model [becoming a privatecompany through an LBO] is particularly advantageous as the semiconductor industry enters a13

Acquisition of a company using borrowed money, often
by pledging the assets of the company being acquired ascollateral. Companies whose market capitalization is undervalued are considered to be easy targets for LBOs.
26

Development Bank of Japan Research Report/ No. 62

consolidation phase.” 14
Now that some Euro-American investment
funds have been facing difficulties in financing
following the subprime mortgage crisis in the
U.S., government-sponsored funds, particularlyin the Middle East, are emerging as new shareholders of semiconductor manufacturers. In November 2007, Mubadala Development, an investment company wholly owned by the Abu
Dhabi government in the United Arab Emirates,
acquired 8.1% of the capital of Advanced Micro
Devices (AMD), a leading U.S. semiconductor
manufacturer. Previously, many government-sponsored funds focused on long-term stable investment, including in sovereign bonds.
But in recent years, they have diversified theirportfolio into other sectors including energy,
heavy industries, infrastructure and airlines, taking into account such factors as the level of return and the development of the domestic industry. As a recent example, Istithmar, an investment firm affiliated with the Dubai government,
outbid Japanese competitor Fast Retailing in theacquisition of Barneys New York, a U.S.
high-fashion retailer. Government-sponsoredfunds are also increasingly interested in generalelectric machinery manufacturers. Thus, Dubai
14

See Mayer’s address at Freescale Technology Forum
Americas 2007 at
http://media.corporate-ir.net/media_files/irol/19/196520/FT
F2007_Keynote_Michel_Mayer.pdf.

International Capital (DIC) announced in November 2007 that it has made a substantial investment in Sony. 15
Until recently, fund managers did not consider semiconductors a potential target of investment. The recent inflow of investment
money into the semiconductor industry indicatesthat the industry has entered a transition period.
Indeed, the volatility of the silicon cycle has diminished, improving the prospects for relatively
stable growth. Moreover, the performance ofsemiconductor manufacturers has come to depend on successful management, as well as on
the superiority of advanced technology in termsof miniaturization and yield.
Faced with the changing environment, an
increasing number of semiconductor manufacturers are now looking for a new management
model. For example, TI has introduced a hybrid
model using both its own fabs and foundries forthe production of advanced logic semiconductors. 16 This model aims at reducing the huge investment burden, focusing on expanding production capacity for its signature analog semiconductors, and keeping the company’s fabs runningat a high level by adjusting to demand fluctuations through outsourcing. TI believes that thefoundry industry has closed the gap in the development of cutting-edge processes and willmeet the company’s requirements. Indeed, thenext-generation 32 nm process will be developedin collaboration with foundries.
Business strategies are also being reviewed
by domestic semiconductor manufacturers. Fujitsu, for instance, will spin off its semiconductorbusiness in March 2008 to speed up decision-making, while allowing for more discretionin management to increase business value. 17

Renesas and Sharp will jointly establish a newcompany to integrate their medium- andsmall-sized LCD driver IC businesses. As a fabless manufacturer, the new company will specialize in design/development and sales, andoutsource most of the fabrication process toPowerchip Semiconductor Corp. (PSC) in Taiwan. Driver ICs for medium- and small-sized
LCDs are in high demand, led by rising cellular
phone sales in China and India, but price competition has intensified due to the emergence offabless companies. The two companies are responding to the stiffer market competition bymaking maximum use of PSC’s fine processing
capacity and production cost competitiveness. 18
As the construction of a modern semiconductor fab requires huge investment, only ahandful of manufacturers can make profits fromsemiconductor production. As noted earlier inthis report, fabless companies are also growing
rapidly in Taiwan, the home of world-leading
foundries, indicating that the source of differentiation in the semiconductor industry is shifting
to the design and marketing of standard semiconductors and software. Since success in thisbusiness depends essentially on ideas, the market
is relatively easy to penetrate even for a small
venture, provided that it has unique expertise.
Although some semiconductor ventures havestarted up in Japan, they lag far behind theiroverseas counterparts in number and scale. If
IDM-structured Japanese semiconductor manufacturers can break away from their traditional
preference for self-sufficiency and make more
effective use of external resources, business opportunities for venture companies will expand,possibly making the domestic semiconductor
industry more competitive.

15

See DIC’s website at
http://www.dubaiic.com/en/latest-news/gsef-sony-corporati
on.html.
16
Document prepared for a TI analyst meeting, available at
http://www.ti.com/corp/docs/investor/analyst2007/pdfs/Ritc
hie.pdf.
17
See Fujitsu’s press release at
http://www.fujitsu.com/global/news/pr/archives/month/200
8/20080212-01.html.

18

See Renesas Technology’s press release at
http://japan.renesas.com/homepage.jsp.
Development Bank of Japan Research Report/ No.62

27

Figure 28. Partnerships and Restructuring in Domestic and Overseas Semiconductor Industry
EuropeJapan
NECElectronics

Siemens
Spin-off in
April 1999

Infineon Technologies
Spin-off of memory business in
May 2006

QimondaSpin-off inNovember 2002

Sony

Joint development of system LSI
process technologies for 45nm
generation(announced in February 2006)→ Withdrawal of Sony in April
2007

Disposal of state-of-theart SC production lines“Fab-Lite Strategy”

ToshibaNEC

Supply of SoCs
for LCD TVs

Flash memory

Spin-off inDecember 1999

Acquisition in 2002

DRAM

KKR, Bain
Capital, etc.

NXP

DRAM

Announcement in January 2007 that thecompany will withdraw from Crolles 2
alliance with ST Micro, etc. after
completion of 45nm phase, and enhance its
partnership with Taiwanese TSMC in
fabrication and development

HitachiThomson Semiconducteurs (France)
Merger in 1987

PSC

Joint venture in
TaiwanFabrication undercontract

DRAM

Spin-off in
March 2008

Fujitsu
Microelectronics

SGS Microelettronica (Italy)

Development Bank of Japan.

Development Bank of Japan Research Report/ No. 62

SanDisk
MicronAssignment of
distributorshipIntel

IM FlashTechnologies

DRAM

Mitsubishi

Motorola
Spin-off in April 2004

Blackstone, Carlyle, etc.
FPGA contract manufacture

Fujitsu
SoC

TI

Power semiconductor, etc.

Spin-off in April 2003

Expansion of collaboration insystem LSI processdevelopment to 45nm

Integration of flash memory
business with Intel, announced in
May 2007

Integration of medium- andsmall-sized LCD driverbusiness in April 2008

RenesasTechnology

Matsushita

ST Microelectronics

Renesas SP
Drivers

IBM

Merger (announced in
November 2005)

Elpida Memory

Spin-off ofsemiconductor
department in
September 2006

28

Partnership

SoC

Sharp

DRAM

Philips

Source:U.S.
・ Joint development of CELL
processor
・ Collaboration in development of
post-32nm leading-edge process
technologies (announced in
January 2006)

Flash memory

Exit in 1999

SPANSION
JV in July 2003 8.1% ownership in
IPO in Dec. 2005
Nov. 2007

Mubadala Development

FreescaleLatticeAMD
Acquisition in October 2006

ATI Technologies

Conclusion
This report verified the causes of the decline in
the international competitiveness of Japanesegeneral electric machinery manufacturers andsemiconductor manufacturers, which mainly
specialize in application-specific custom products such as system LSI circuits, by comparing
them with electronic components and materials
manufacturers. It also identified a major challenge common to general electric machinery andsemiconductor manufacturers — how to respondto three key trends: progress in the global division of labor, changing differentiators, and expansion of emerging markets led by low-end
products.

It is reasonable for a general electric machinery manufacturer to retain a semiconductor
department within the group and continue investment in cutting-edge processes, if the group
has a significant application that serves as a differentiator. However, there are very few suchmanufacturers, if any. It is increasingly difficult
for semiconductor manufacturers to operate thewhole system LSI business in a vertically integrated manner, from designing through fabrication. For products that entail huge investment
and substantial risk, semiconductor manufacturers should concentrate resources on design/development and marketing, and consider
forming partnerships with foundries and othercompanies.

Development Bank of Japan Research Report/ No.62

29

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32

Development Bank of Japan Research Report/ No. 62

List of Back Numbers (Including JDB Research Report)
No. 62 Rebuilding Business Strategies of General Electric Machinery/Semiconductor Manufacturers(this issue)
No. 61 Forging New Corporate Alliances between the Auto Industry and the Electronic Device and Component
Industry: Opportunities and Challenges for the Electronic Device and Component Industry in Automotive Electronics, April 2008
No. 60 Survey on Planned Capital Spending for Fiscal Years 2006, 2007 and 2008 (Conducted in June 2007),
September 2007
No. 59 Do M&A Improve Corporate Financial Performance in Japan?, March 2007
No. 58 Survey on Planned Capital Spending for Fiscal Years 2005, 2006 and 2007 (Conducted in June 2006),
September 2006
No. 57 Policies to Restore the International Competitiveness of Japanese Semiconductor Industry,
August 2006
No. 56 Survey on Planned Capital Spending for Fiscal Years 2005 and 2006 (Conducted in November 2005),
January 2006
No. 55 Survey on Planned Capital Spending for Fiscal Years 2004, 2005 and 2006 (Conducted in June 2005),
September 2005
No. 54 Improving Corporate Value through Disaster Management: Prospects of Socially Responsible Investment (SRI) for Disaster Reduction, July 2005
No. 53 Japan's Innovative Capacity and Policies for Commercializing New Technologies: Using Carve-Outs toCreate New Industries, May 2005
No. 52 Intelligent Transport System (ITS): Current State and Future Prospects, May 2005
No. 51 Recent Trends in the Japanese Economy: Pause in Recovery, March 2005
No. 50 Corporate Capital Spending Behavior and Innovation Efforts: Findings of Survey on Capital Spending
Behavior (Conducted in November 2004), March 2005
No. 49 Survey on Planned Capital Spending for Fiscal Years 2004 and 2005 (Conducted in November 2004),
January 2005
No. 48 Recent Trends in the Japanese Economy: Medium-term Outlook of Japanese Industrial Structure, January 2005
No. 47 Survey on Planned Capital Spending for Fiscal Years 2003, 2004 and 2005 (Conducted in June 2004),
September 2004
No. 46 Recent Trends in the Japanese Economy: Impact of Rising International Commodity Prices on Corporate Input/Output Behavior, September 2004
No. 45 How Life Cycle Assessment (LCA) Can Enhance the Fight against Global Warming, August 2004
No. 44 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Japanese Economy with
Special Focus on the Flow of Funds and Finance, March 2004
No. 43 Survey on Planned Capital Spending for Fiscal Years 2002, 2003 and 2004 (Conducted in August 2003),
November 2003
No. 42 Promoting Corporate Measures to Combat Global Warming: An Analysis of Innovative Activities in the
Field, September 2003
No. 41 Prospects and Challenges for End-of-Life Vehicle Recycling, May 2003

No. 40 Survey on Planned Capital Spending for Fiscal Years 2002 and 2003 (Conducted in February 2003),
May 2003
No. 39 China’s Economic Development and the Role of Foreign-Funded Enterprises, May 2003
No. 38 Decline in Productivity in Japan and Disparities Between Firms in the 1990s: An Empirical Approach
Based on Data Envelopment Analysis, April 2003
No. 37 Trends in Socially Responsible Investment: Corporate Social Responsibility in a New Phase, March
2003
No. 36 Recent Trends in the Japanese Economy: A Medium-term Scenario for the Sustainability of the Japanese Economy, February 2003
No. 35 Concerns for the Future and Generational Consumption Behavior, February 2003
No. 34 Prospects and Challenges Surrounding Japan’s Electrical Equipment Industry: General Electrical
Equipment Manufacturers’ Restructuring of Operations and Future Prospects, November 2002
No. 33 Survey on Planned Capital Spending for Fiscal Years 2001, 2002 and 2003 (Conducted in August 2002),
November 2002
No. 32 Behavior Trends of Japanese Banks toward the Corporate Sector and Their Impact on the Economy,
October 2002
No. 31 Microstructure of Investment and Employment Dynamics: Stylized Facts of Factor Adjustment Basedon Listed Company Data, October 2002
No. 30 Recent Trends in the Japanese Economy: Globalization and the Japanese Economy, August 2002
No. 29 Corporate Financing Trends in Recent Years: Fund Shortages and Repayment Burden, August 2002
No. 28 Urban Renewal and Resource Recycling: For the Creation of a Resource Recycling Society, July 2002
No. 27 Labor’s Share and the Adjustment of Wages and Employment, June 2002
No. 26 Survey on Planned Capital Spending for Fiscal Years 2001 and 2002 (Conducted in February 2002),
May 2002
No. 25 Environmental Information Policy and Utilization of Information Technology: Toward a Shift in Environmental Policy Paradigm, March 2002
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information
Technology (IT) Goods, March 2002
No. 23 Microstructure of persistent ROA decline in the Japanese corporate sector: Inter-company disparities
and investment strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects ofEvolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards Utilisationof Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the Expansionof the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001

No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior,
March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its Background,
March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes since the1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on EnterpriseData, September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September 2000

No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries,
June 2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology and Market
for Underground Remediation, May 2000

No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations, theDebt Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other AsianCountries, November 1999

JDB Research Report
No. 96 Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999
No. 95 Efforts to Protect the Natural Environment in the United States and Germany: Environmental Mitigation and Biotope Conservation, July 1999
No. 94 Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999
No. 93 Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO sector
through comparison with Germany, June 1999
No. 92 The Impact of Demographic Changes on Consumption and Savings, March 1999
No. 91 Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March 1999
No. 90 Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999
No. 89 Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japan and the U.S., December 1998
No. 88 Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998
No. 87 Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998
No. 86 Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998
No. 85 Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998
No. 84 R&D Stock and Trade Structure in Japan, August 1998

No. 83 Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998
No. 82 The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public Acceptanceis Essential, May 1998
No. 81 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997 and1998 Conducted in August 1997, March 1998
No. 80 Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998
No. 79 Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January 1998
No. 78 Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series and Environmental Cost, January 1998
No. 77 Current Conditions and Issues of Computerization in the Health Care Industry: For the Construction of
a Health Care Information Network, January 1998
No. 76 Household Consumption and Saving in Japan, December 1997
No. 75 The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to Support
Diverse Consumer Choices, November 1997
No. 74 Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International
Trade, October 1997
No. 73 The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on the Effects on Productivity and Employment, October 1997
No. 72 An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997
No. 71 Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of Economic Recovery, August 1997
No. 70 Corporate Fundraising: An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and 1997
Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm Data
from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March 1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulation of theElectric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key, October 1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of the Current Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the UnitedStates and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY1995, June 1996

No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and 1996
Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995 and1996 Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October 1995
No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October 1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part 2, July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and 1995
Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March 1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private Level,
May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994 and1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and 1994
Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration, December
1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993 and1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and 1993
Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992 and1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992

No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and 1992
Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s, February
1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991 and1992 Conducted in August 1991, September 1991
No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and 1991
Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990 and1991 Conducted in August 1990, September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment andTechnology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and 1990
Conducted in February 1990, March 1990
No. 18 Petrochemicals in Japan, The US, and Korea an Assessment of Economic Efficiency, February 1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989 and1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing
Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years 1988
and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988 and1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and ASEANCountries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987