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SHARP CORPORATION: BEYOND JAPAN1

Derek Lehmberg wrote this case solely to provide material for class discussion. The author does not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality.
Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.
Copyright © 2011, Richard Ivey School of Business Foundation

Version: 2012-07-06

Mikio Katayama was the president of Sharp Corporation, a company that in the last 10 years had become recognized as a top-notch competitor in electronics products, leaving behind its image as a second-rate player. Sharp could brag about its leading positions in the Japanese cell phone handset and TV set markets as well as its worldwide reputation as a leader in liquid crystal display (LCD) technology. Despite these successes, however, the outlook for Sharp was far from optimistic. In the spring of 2009, Sharp reported its first loss since 1956, the year its shares began trading on the Tokyo Stock Exchange. At the subsequent annual shareholders’ meeting, Katayama apologized for “causing great anxiety and trouble to shareholders,” and also announced that the firm’s dividend would be cut.2 With slowing sales due to the deepest worldwide recession since the 1930s, Sharp’s competitors were also facing hard times. However,
Sharp’s problems went beyond the current downturn. Katayama felt Sharp’s fundamental way of doing business needed to be reconsidered.3
SHARP CORPORATION

Sharp Corporation was an electronics company with headquarters in Osaka, Japan. Its business consisted of electronic products and electronic components (see Exhibit 1). Electronic products were grouped into three categories: audio-visual and communication equipment, health and environment equipment, and information equipment. Electronic components included LCDs, solar cells, and other electronic devices.
Many of these components relied on Sharp’s expertise in opto-electronics.
Sharp’s technology strategy focused on synergies between electronic components and the end products
Sharp made. End consumer products provided component sales as well as opportunities for Sharp to improve its component-related technologies. Sharp also looked for new market needs that it could meet using its component capabilities. It strove to develop and manufacture “Only-one” products: those that combined Sharp’s knowledge and capabilities in ways other firms could not imitate. This approach had
1

This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case are not necessarily those of Sharp Corporation or any of its employees.
2
“Sharp — Akajide Katayama-shachora Chinsha,” The Mainichi Newspaper, Tokyo, June 24, 2009.
3
H. Sagimori, “Sharp Ishin: Saraba Kameyama Model,” Nikkei Business, July 6, 2009, pp. 18-21.

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been at the heart of Sharp’s impressive history of developing unique, groundbreaking products (see Exhibit
2).
Sharp was active in international markets, but had chosen to manufacture its electronic components exclusively in Japan. Often, these components employed cutting-edge technology and required capitalintensive plants to manufacture. Sharp’s overseas plants, on the other hand, typically focused on the final assembly of products for local consumption. The Japanese domestic plants had become centres of highvalue-added knowledge, whereas the overseas plants had not.
MIKIO KATAYAMA

Mikio Katayama joined Sharp in 1981 after graduating from Tokyo University with a degree in engineering. He had followed an unusual career path at Sharp. Early in his career Katayama worked on solar panels, but he later moved into Sharp’s LCD business. Katayama was promoted to the position of corporate director in 2003, and made corporate senior executive director in 2006, becoming responsible for both large LCDs and LCD TVs. Still in his 40s, Katayama was much younger than Sharp’s other senior managers. In April 2007, Katayama became president of Sharp and the previous president, Katsuhiko
Machida, was appointed chairman.4
Katayama had an unusual combination of abilities. Although he had an engineering background, his ability to develop and communicate a broad strategic vision made him stand out. Facing challenges on a number of fronts simultaneously, Sharp needed the kind of unconventional leadership Katayama could provide. LCDS

Over the years, the name “Sharp” had become associated with leading LCD technology. The company first took notice of the technology after one of its engineers saw a TV clip showing an RCA LCD prototype in 1968. Sharp licensed the technology in 1970.5 RCA’s presentation of LCD technology had focused on its promise as a flat screen TV display. However, RCA had later concluded that the technological barriers
LCD faced were too high and had ceased LCD development. Sharp had treated LCD very differently;
LCD could be useful for many other applications besides TV. Calculators and watches were applications where even basic LCDs provided clear advantages to other display technologies.
Sharp had continued to develop LCD technology actively for many years. Although early LCD had many limitations, many of these were overcome as the technology developed. In the late 1980s, thin film transistor LCDs (TFT-LCDs) were developed, making possible bright, high-contrast displays. However, these were difficult and expensive to produce, limiting adoption to applications where the low energy usage and flat design of the LCD were absolute requirements. Sharp identified display applications where the displays were attractive despite their high cost and small size, such as navigation systems and laptop computers. Sharp was not alone in its pursuit of LCD technology. A number of other electronics firms, LCD fabrication equipment manufacturers, and input suppliers also invested heavily in LCD R&D. Much of the technological progress made in LCD technology during the 1990s was due to exchanging and integrating
4
5

Mikio Katayama interview with Nikkei Business, “Kukyo koso Seicho Vision,” Nikkei Business, July 6, 2009, pp. 22-24.
T. Numagami, Ekisho Display no Gijutsu Kakushinshi, Hakuto Shobo Publishing, Tokyo, 1999.

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knowledge from these different kinds of firms. In particular, LCD production yields — the amount of usable displays producible from a certain amount of inputs — increased dramatically, resulting in lower production costs per display produced.
There was a downside to cooperation within the industry. By the time production technology reached its fifth generation, it had been improved to the point that firms with little LCD experience could buy a new plant and get it to function reasonably well with limited outside help. Improved production equipment, increased mobility of LCD engineering talent and technology transfer agreements had facilitated the development of LCD technology by firms in South Korea and Taiwan. Once these new competitors learned to operate, the incumbent Japanese LCD firms found it increasingly difficult to compete.
Although the industry’s cooperative approach had facilitated the development of LCD production and cost performance, Sharp became concerned that too much of its proprietary knowledge was being learned by the outside world, decreasing its competitive lead. To protect its major investments in LCD and retain its cost advantage, Sharp decided to operate much more secretly. Beginning with the first of what would become two plants in Kameyama (Mie Prefecture, Japan), Sharp pursued a “black-box” approach to its manufacturing operations.6 Outsiders were not allowed to see the inside of Sharp’s LCD plants. Even key partners including suppliers and equipment producers were not admitted beyond the loading dock. Sharp believed this focus on secrecy had helped it maintain its lead in proprietary technologies that otherwise might have been lost.7
IMPROVEMENT OF OTHER LCD ATTRIBUTES

LCD had faced other performance issues in addition to production yield issues and high costs. Early LCDs looked blotchy when viewed from the side, could not display deep black, and had blurry output of moving images. These were not major concerns for some applications such as laptops, although they were major problems for video and TV applications.
Major LCD producers were concerned about these image quality issues and invested in R&D to rectify them. While Sharp had a respectable record in these areas, it was hardly the only firm that could claim this. Over time, many of these issues with LCDs were resolved to the point that typical consumers could not identify problems with LCDs produced by any of the major firms.
THE LIQUID CRYSTAL DISPLAY PANEL INDUSTRY

Sharp competed with a number of large-scale LCD producers. These firms were primarily located in
South Korea and Taiwan, although China was interested in becoming a player in LCD production. Up until this point, Chinese LCD capabilities had been limited to simple LCD types and outdated-generation production facilities, but things appeared likely to change.
Some major LCD producers such as Sharp had large internal demand for their output, but others primarily sold LCD modules on the open market or to strategic partner companies. Although some displays were customized for specific applications, commonly used display sizes with standard resolutions were traded as commodities. Notebook computer displays, which were very profitable in the early 1990s, became an example of such a commoditized LCD product.
6
7

“04 Nihon Keizai/3 Chusho-Hiseizogyo no Katusriki,” The Mainichi Newspaper, Tokyo, July 21, 2004.
Sharp Corporation Annual Report 2006.

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LCD production facilities were categorized by the generation of glass substrate they used (see Exhibit 3).
With each introduction of new-generation production equipment, the size of the glass substrate used grew.
Production using larger substrates was more cost-effective, although investment requirements were large.
Due to the large scale of cutting-edge plants, each time one came on line it had a noticeable impact on market prices for LCD panels.
The LCD panel market was characterized by large price swings. These swings increased the volatility of
LCD producers’ earnings. This pattern of boom and bust had become known as “the crystal cycle.” High levels of commoditization and rapid improvement in production efficiencies had also been behind the longterm trend towards lower LCD panel prices.
THE TELEVISION SET BUSINESS

Although Sharp had been the first Japanese firm to produce a television set, it had never been a major player in the cathode ray tube-based (CRT) TV set business. Lacking its own CRT production capability,
Sharp TVs had been made using tubes produced by its competitors. Sharp had considered itself to be at a major disadvantage in TVs for this reason.
As Sharp’s LCD technology improved, the company began making LCD TV sets. Early models carried exorbitant price tags despite having very small screens. In 1995, Sharp introduced two LCD TVs with 8.4inch and 10.4-inch diagonal screens. The 10.4-inch model carried a suggested retail price of 150,000 yen
(approximately US$1,600 at the time).8 Although the prices had fallen significantly compared with prior models, they were still quite expensive, and screen sizes remained small for TV set applications. Despite these drawbacks, the models sold more rapidly than Sharp had expected. The following year, Sharp added a larger 13-inch model and increased production of LCD TVs.9
Sharp’s TV business had an important year in 1998. Sharp’s president at the time, Katsuhiko Machida, announced the company’s intent to make its entire TV lineup LCD-based by 2005. Inside the industry, this statement became known as “The Machida Declaration.”10 Considering the high price and limited screen size of LCDs at the time, this was a bold statement. CRT TVs provided much bigger screen sizes for a fraction of the cost, and had better image quality. Plasma TVs were also beginning to enter the market.
In 2001, Sharp introduced its Aquos line of LCD TV sets. These TVs featured an elegant industrial design in addition to the latest display technology. Sharp’s advertising of the new line featured Sayuri Yoshinaga, a Japanese actress with whom many Japanese housewives strongly identified. This appeal to housewives was a new tactic in the Japanese TV set market. Considering the size of the purchase, targeting the
Japanese housewife — who generally managed the family finances — was viewed as smart.
The Aquos line caused a major sensation, dramatically improving Sharp’s position in the TV set market.
Sharp followed up with a stream of new models and continued brand development. While several other firms including Hitachi and Pioneer also benefited from early entry into flat panel televisions, their success was not long-lived. Sharp stood out as the only firm to maintain its newly attained market share over the long term.

8

Flat Panel Display 1996, Nikkei BP, Tokyo, 1996.
Ekisho Maker Keikaku Soran 1996, Sangyo Times, Tokyo, 1995.
10
“Sharp Braun-kan TV Zenpaihe 7-nengo madeni subete Ekishoka,” Sankei Shimbun, Tokyo, August 19, 1998.
9

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Sharp had differentiated its TVs in the market through good product design, well-conceived advertising, and high-quality displays. As the quality of LCDs produced industry-wide had improved, advantages due to display quality had become smaller and smaller. In 2008, the Japanese news weekly Nikkei Business published an article comparing a Sony LCD TV with a no-name brand LCD TV one-quarter its price.
Although engineers extolled Sony’s elegant design when the two products were disassembled, an image quality specialist was quoted as saying consumers would not be able to discern quality differences by comparing video on the two sets.11
Japanese consumer electronics maker Pioneer had differentiated its TV set offering based on high-quality imaging and display. Image quality experts applauded Pioneer’s TV sets and the plasma displays used in them.12 However, Pioneer’s high-end pricing strategy had not worked well for the firm. Customers balked at paying thousands of dollars more for Pioneer TVs compared with competing models in the same size class. While its competitors realized lower costs through scale advantages and production experience,
Pioneer fell far behind in cost effectiveness. Citing losses, the firm exited display production in 2008 and in early 2009 announced it would exit the TV business altogether.13
Pioneer’s failure reaffirmed the limitations on differentiation in the TV business. Sharp could price a set in line with top brand names such as Sony and Panasonic, but it would have a difficult time convincing consumers that it was worth more unless the features of the set — not just the image quality — were greatly improved. Consumers clearly valued the display size; larger was generally better, all else being equal. Differentiation on size was possible because some of Sharp’s competitors lacked the capability to produce large sets economically. However, there would be limitations to making ever-larger sets. There were limits to the size consumers could use practically, and once this size was reached it would only be a matter of time until competitors caught up to Sharp.
Other technologies that could bring about different dimensions of differentiation were in the works at
Sharp and its competitors. These included such features as dynamic light-emitting diode (LED) backlighting that could increase image contrast and decrease energy usage, edge backlighting using LEDs that could dramatically reduce the thickness of the set, enhanced color capability made possible by using more color filters in the LCDs, and displays capable of displaying 3D images. Sharp had also developed process technology to be implemented at the new Sakai plant that would both increase productivity and result in brighter displays.14 While each was interesting, which, if any, of these technologies would lead to meaningful or lasting differentiation was not known.
SHARP’S BUSINESS MODEL

Sharp had followed a formula of making large investments in production capability in Japan and exporting key devices such as LCDs. End products were assembled in Japan and overseas. Sharp’s sales revenues by product type and location may be found in Exhibit 4.
Although the operating model wasn’t new, Sharp’s previous president, Katsuhiko Machida, had reemphasized the importance of keeping most manufacturing in Japan. According to Machida, Sharp was to develop and produce products that could only be made in Japan, products that only Sharp could design

11

“Ekisho Terebi ha Daredemo Tsukureru,” Nikkei Business, Tokyo, May 18, 2009.
“Saishin Terebi Gijutsu,” FPD International 2008 Forum Session G-21, Yokohama, Japan.
13
“Usugata Terebi Jigyo Pioneer Tettai,” Sankei Shimbun, Tokyo, February 8, 2009.
14
Sharp Annual Report 2010.
12

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and produce.15 This was especially the case with LCD. Although Sharp assembled some LCD TVs overseas, the highly capital- and knowledge-intensive process of producing LCD panels was performed exclusively in Japan. Panels used in Sharp’s overseas TV assembly plants were either produced in Japan and shipped overseas or were procured from competing LCD producers overseas.
The “make in Japan, sell overseas” model had worked reasonably well for Sharp until recently. It had a number of advantages. Sharp’s most important plants were relatively close to each other (see Exhibit 5).
The proximity kept a lid on travel costs, made it easier for people in different facilities to meet, and facilitated resource sharing. Keeping most production in Japan also made it easier for Sharp to maintain strong control over its plants and protect its proprietary technology.
Furthermore, Sharp’s primary focus had been on the Japanese domestic market, and therefore maintaining its main production base in Japan had been practical. Recently, however, Sharp was becoming more international. Over the period of 2000 to 2009, the ratio of foreign sales to total revenues for Sharp grew from 34 per cent to 54 per cent.16 Although Sharp was less international than its competitor Sony (for which international sales represented 76 per cent of total revenue in 2009), this growth put it on par with rival Panasonic in terms of proportion of international sales. As Sharp’s international sales grew, the strain put on its business model became more apparent.
Currency risk was a major drawback to Sharp’s operating model as the firm increased overseas sales.
Sharp was spending Japanese yen to produce products that were shipped abroad and sold in local currencies. When the yen strengthened, the value of overseas revenues decreased in yen terms. This had recently happened (see Exhibit 6) and the impact on Sharp’s bottom line was not inconsequential. The operating performance comparison (see Exhibit 7) breaks down the causes of decline in Sharp’s operating income for the quarter ending December 31, 2008, with comparison to the same quarter in 2007. Sharp was not the only Japanese firm to be hurt by currency swings recently. Sony had also started losing money around the same time as Sharp.17
Extremely high infrastructure costs and high taxes were further disadvantages of producing in Japan.
Corporate taxes in Japan were on average nearly double the level they were in Korea. A popular Japanese business magazine compared tax rates for Sharp and Samsung in 2008 and found that Samsung’s tax rate was less than one-third of Sharp’s.18 Transportation and utility costs were also very high in Japan. Sharp was competing with firms in Taiwan and Korea that did not face these same disadvantages.
The logistics required by Sharp’s model were also problematic. A substantial portion of the output was consumed in parts of the world far away from Japan. Shipping LCD panels overseas by air was expensive, but lower-cost shipment methods opened up other risks. LCD prices were generally decreasing, and sometimes rapidly. This meant that the panels lost value during shipping. For example, Sharp had found that LCD panels could lose as much as 10 per cent of their value during transportation if shipped by sea.
There was no easy way around this dilemma with the current model.
Even though Sharp’s international revenues were growing, several of the company’s most important consumer product lines, including TVs and air purifiers, enjoyed very high market share in Japan but not abroad. Most striking was Sharp’s cell phone handset business. Sharp had had the highest market share in
15

A. Miyamoto, Sharp Dokoso no Himitsu: Naze Only One Shohin wo Dashitsuzukerunoka, Jitsugyo no Nihon sha, Tokyo,
2007.
16
Sharp Annual Reports 2004 and 2009.
17
“Denkigyokai Sokuzure Endaka Hanbaifushin ga Chokugeki Sony, Toshiba, Akaji no Mitoshi,” Yomiuri Shimbun, Tokyo,
January 14, 2009.
18
“Nihon deha tatakaenai,” Nikkei Business, October 11, 2010, p. 37.

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the Japanese handset market for the last five years running, but internationally was only active in China and on a small scale. While success in Japan did not necessarily translate into success overseas, Sharp’s performance there suggested there were many opportunities for it to grow in international markets.
Becoming closer to these markets might help Sharp better understand and penetrate them.
Sharp’s operating model had not historically emphasized cooperation with other firms, but this was changing. Cooperative agreements, including joint ventures, were increasingly common. Sharp’s new
Sakai facility involved numerous partners including co-located suppliers such as glass and filter companies as well as firms using the output from the plant. Whether to cooperate and with whom were important questions Sharp’s operating model did not answer.
SHARP’S TV SET COMPETITORS

In the days of CRT TV, Sharp was a third-tier competitor in TV sets. Now, however, Sharp was in league with the leading firms in Japan: Panasonic and Sony. Panasonic was an efficient manufacturer that had a goal of maintaining a large presence in the global market. In Japan, Panasonic was also known for implementing impressive marketing campaigns. Panasonic’s TV business had focused primarily on plasma display technology, which it had found more suitable for large living room TV-sized displays than
LCD. Although most of Panasonic’s plasma display plants were in Japan, it had also invested in a joint venture plant in Shanghai, China. Starting in 2002, the plant produced plasma panels and TV sets.19
Well known for its Trinitron CRT technology, Sony had been considered the leader in image quality amongst the large CRT TV producers. However, Sony had fallen behind its competitors when the flat panel TV market began to grow. Industry rumors suggested that Sony had not been happy enough with the image quality of flat panel displays to invest in producing them. Although Sony was one of the last to introduce flat panel TVs, once it began to put effort into developing and marketing them, it was able to regain market share. On Sony’s side were its strong brand, ability to create aesthetically pleasing product designs, and deep experience with TV set image quality. Sony did not have its own LCD or plasma display panel plant, and relied on other LCD producers for panel supply. In 2004, Sony invested in an
LCD-producing joint venture with Samsung Electronics to obtain stable panel supply. The JV was located on a Samsung campus in South Korea. Recently, Sony agreed to enter a similar production JV with Sharp.
In terms of final TV set assembly, Sony was moving towards increased outsourcing to contract manufacturers. Outside of Japan, Sharp was a smaller player. In North America, Sharp’s competitors ranged from the highly integrated global players, such as Samsung Electronics, to local and regional players, such as Vizio, that outsourced all production to firms largely from the personal computer supply chain.
DEMAND FOR TV SETS

Overseas, demand for flat panel TVs in high-income countries was forecast to fall. The current dismal economic conditions would dampen demand in the short run. An economic recovery would not necessarily increase demand in higher-income countries, because customers had already replaced their
CRT TVs with flat panel TVs. In these areas, the number of replacement sales was on the decline.

19

“Ekisho PDP EL Maker Keikaku Soran 2009 Nendoban,” Sangyo Times, 2009.

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In order to grow, Katayama felt it was imperative to capture a large number of middle- and lower-income customers overseas, particularly in emerging economies.20 The Chinese market was especially important.
Sharp’s pursuit of the Chinese market had gained attention in the business press recently. To appeal to
Chinese customers, Sharp had begun producing TVs developed especially to meet the needs of rural
Chinese households. Amongst other modifications, the sets used particularly tough electrical cords to protect them from being chewed through by mice. Until recently, the Chinese market for flat panel TVs had primarily consisted of well-off families in coastal areas, but Sharp expected demand to expand rapidly in regional cities and rural areas.21
Sharp was not alone in pursuing these new customers. Sony and Panasonic, amongst others, were also actively competing in these emerging markets. Given the needs of these new customers and the strength of its competitors, Sharp could not win on just product design or quality. Getting and maintaining low costs
— far below their current levels — was an absolute requirement.
SHARP’S OUTLOOK

Sharp’s current financial results were not looking good. Although times were tough now, Sharp had been doing well until quite recently (see Exhibit 8). During the first quarter of 2007, Sharp reported record profits. At the time, Sharp’s investment in cutting-edge LCD production facilities had given it an advantage over its competitors. Whereas the average sale price of LCD TVs had fallen by 20 per cent industry-wide, Sharp had been able to increase its average sale price seven per cent by offering larger and larger sets. While increasing its average sales price, Sharp had also maintained a 50 per cent share of the
Japanese TV market.
The construction of Sharp’s Sakai plant was proceeding as planned. That was good news. More efficient than competitors’ existing plants, and also capable of producing improved panels using Sharp’s Four
Primary Color Technology, Sakai would give Sharp some breathing room once finished. However, this lead would not last forever.
At the same time, the size of the Sakai project and the stage it was at reduced Mikio Katayama’s room to maneuver. Perhaps the project could be completed more quickly than originally planned, but it simply was not feasible to dramatically change course on it now.
With its ability to produce large LCDs efficiently, the Sakai plant allowed Sharp to continue its strategy of maintaining profits by increasing the sizes of TV sets it offered. However, TV screens had already grown quite large. There was a limit to the size of TV sets consumers would be likely to buy. At some point, sooner or later, Sharp would reach that size.
The large production volume of the plant, while a source of its cost effectiveness, also raised another issue:
Sharp could not use all of the panels it could make.22 It would need to sell panels to its competitors. While
Sharp had sold TV panels in the past, the volume would be much greater than before. To address the situation, Sony and Sharp had agreed to enter into a joint venture that would supply Sony with Sharp-made panels from the Sakai plant. Sony would gain reliable access to top-quality panels while Sharp reduced some of the investment risk in the plant.
20

H. Sagimori, “Sharp Ishin: Saraba Kameyama Model,” Nikkei Business, July 6, 2009, pp. 18-21.
Nikkan Kogyo Shimbun, “Keiei hitokoto / Sharp Hamano Toshishige fuku-shacho ‘chugoku senryoku ha bantan,” August
27, 2009.
22
FPD 2008 Sangyo Doko Hen, Nikkei BP, Tokyo, 2008, p. 45.
21

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Sharp was also aggressively investing in solar collector technology and production and the company believed the market for solar power would soon take off. Sharp’s history with solar cells went back around fifty years, however, it had yet to develop into a major source of revenues. In fiscal year 2009, solar contributed to six per cent of Sharp’s total revenues, the majority of which was from sales outside of Japan.
In addition to producing LCDs, the new Sakai plant would also produce thin-film solar collectors.
CHARTING A NEW DIRECTION FOR SHARP

With Sharp’s recent losses, there was an increased sense of urgency. Investors and employees would want to see how the firm was going to rectify the situation. The fact that many other firms were experiencing difficulties due to the general economic situation was not comforting. From Katamaya’s point of view,
Sharp’s losses were emblematic of a business model that no longer fit with the firm’s strategy or the environment.23 Sharp was struggling with a change in its identity. No longer an “also ran,” Sharp now found itself a major player in several technologies and product markets. Did that mean that Sharp needed to reconsider its priorities? The capabilities that had helped Sharp become a major player might not be those it would need to be successful in this new role over the longer term.
In a recent press interview, Katayama emphasized how Sharp needed to change its operating model to one where it produced in major markets. He suggested that Sharp’s new model should put focus on developing and applying specialized knowledge and put less emphasis on large investments in physical plants. While discussing the direction of change, Katayama did not discuss actual plans. Given the scale and nature of the changes he envisioned, adjustments were likely to occur over a series of steps taking place over several years. Sharp was exploring several options as next steps. If Sharp planned to produce in major overseas markets, it needed to identify where and how. Recently, Sharp was in contact with China’s largest producer of cathode ray tubes, a firm called IRICO. IRICO was interested in purchasing the sixth-generation equipment at Sharp’s Kameyama Number One plant and installing it in a new facility to be built in
Nanjing, China. Sharp had an existing TV assembly plant in Nanjing that could be supplied with these panels.24 Sharp was also in discussions with CEC Panda, another Chinese company. CEC’s plans were more ambitious. Like IRICO, CEC was also interested in purchasing the Kameyama sixth-generation production equipment, however, CEC and Sharp were also discussing a joint venture to build and operate an eighth-generation line. Like with IRICO, these facilities were to be located in Nanjing.25 As part of this discussion, Sharp was considering building an LCD technology centre in China.
Reliable, Sharp-related LCD production in China could give the company an edge in the growing Chinese
TV set market. The larger the facilities’ capacity, the greater this edge was likely to be. Sharp’s Korean competitors LG and Samsung also heard the siren song from China’s markets and were in the midst of considering options for building LCD production capabilities there for this same reason.

23

Mikio Katayama interview with Nikkei Business, “Kukyo koso Seicho Vision,” Nikkei Business, July 6, 2009, pp. 22-24.
“Sharp, ekisho seizou sochi no baikyaku-de chuugoku saiko shudan to kosho,” Nikkan Kogyo Shimbun, July 2, 2009.
25
“Sharp, dai 6 sedai ekisho sochi-wo chugoku CEC Panda ni baikyaku,” Nikkan Kogyo Shimbun, September 1, 2009.
24

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At the same time, moving Sharp’s prized LCD technology abroad was risky, and it was considered controversial inside the company and in the Japanese business community. China’s reputation for problems related to intellectual property increased the concerns. After having spent great time and expense developing, maintaining, and protecting its proprietary technology, such a move would signal a major change in Sharp’s direction and strategy. Once Sharp had moved operations and knowledge to China, it could not easily change its mind.
The China options, if implemented, would only be a start in the new direction. How early steps in the new direction worked out would have a profound impact on the path Sharp took thereafter. Katayama continued to contemplate how to become a major player beyond Japan.

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Exhibit 1
SHARP’S PRODUCT GROUPINGS

Electronic Components / Devices

Consumer / Information Products

Product
Grouping

Major
Products

Audio-Visual and Communication
Equipment

LCD televisions, projectors, DVD recorders & players,
Blu-ray Disc recorders & players, cell phones

Health and
Environment
Equipment

Refrigerators, microwave ovens, small cooking appliances, air conditioners, electric heaters, air purifiers, dehumidifiers, humidifiers, washing machines, vacuum cleaners, LED lights

Information
Equipment

Personal computers, LCD computer monitors, electronic dictionaries, calculators, telephones, POS systems & cash registers, digital MFPs (multifunction printers), facsimiles

LCDs

LCD modules (Types: TFT-LCD, Duty, System)

Solar Cells

Thin-film solar cells, crystalline solar cells

Other

CCD/CMOS image sensors, LSIs for LCDs, microprocessors, flash and combination memory chips, laser diodes, LEDs, optical pickups, optical sensors, components for optical communications, broadcasting and tuning components, power supplies

Source: Company website.

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Exhibit 2
SHARP TIMELINE

Year
Event
1925 Produces first Japanese-made radio set.
1953 First to mass produce TV sets in Japan. The technology is licensed from RCA.
1964 Produces world’s first all-transistor-diode calculator.
1970 Licenses LCD technology from RCA, begins LCD development.
1973 Begins selling world’s first LCD calculator, LC Mate EL805.
1974 Orient begins selling LCD watches with displays supplied by Sharp.
1986 Sharp’s “Shoin” Japanese word processor with STN-LCD display becomes a hit product. 1987 Begins mass production of 3” color TFT LCD TVs.
1989 Releases video camera with LCD viewfinder.
1989 Uses LCD in car navigation application.
1991 Begins selling the world’s first wall-hanging LCD TV. It has an 8.6” display and is priced at 500,000 yen.
1992 Begins selling LCD “View Cam” video camera with 3” TFT-LCD display.
1993 Introduces Zaurus LCD-based personal digital assistant (PDA).
1995 Introduces “Window” LCD TV in 10.4” and 8.4” sizes.
1995 Introduces Mebius line of laptop computers with Sharp-made LCDs.
1995 Introduces 43” rear projection TV using LCD microdisplays.
1998 Declares it will replace its entire TV lineup with LCD TVs by 2005.
1998 Announces world’s first full lineup of flat panel TVs.
2001 Introduces AQUOS brand LCD TV line in 13, 15 and 20 inch sizes.
2002 Announces two 37” LCD TV models.
2004 Begins selling 45” full high definition LCD TV.
2004 Begins production on the world’s first generation 6 LCD line at the Kameyama plant. This is the world’s first LCD line dedicated to TV production.
2005 Teleases its final three CRT TV models for the Japanese market.
2005 Begins construction of Kameyama Number 2 LCD plant, which will be the world’s first generation 8 plant. Plant to come on line in October, 2006; total investment is 150 billion yen.
2007 Announces it will build the world’s first generation 10 LCD plant in Sakai,
Japan. Sharp’s investment will be approximately 380 billion yen. Production is planned to start in 2010.
2007 Announces world’s largest LCD TV (108”) at Consumer Electronics Show.
Source: Compiled from flat panel display industry serial publications including series from Nikkei BP (1991-2008), Sangyo
Times (1990, 1992-2008), and Fuji Chimera (1998-2007).

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Exhibit 3
SUBSTRATE SIZE BY GENERATION AND YEAR OF PRODUCTION START
G 1(1991): 300 X 400 mm
G2 (1993): 360 X 465 mm
G3 (1995): 550 X 650 mm
G4 (2000): 680 X 880 mm
G5 (2002):
1100 X 1250 mm
G6 (2004):
1500 X 1850 mm
G7 (2005):
1870 X 2200 mm
G8 (2006):
2200 X 2500 mm

G10:
2880 X 3150 mm

Sources: Substrate sizes from Deutsche Bank, 2003; Fuji Chimera, 2006; Sharp’s website. Production start data from Nikkei
BP (1990-2008).

Exhibit 4
SALES REVENUES BY PRODUCT SEGMENT, FINANCIAL YEAR 2009
(in millions of yen)

AV and Communications Equipment
Health and Environmental Equipment
Information Equipment
LCDs
Solar Cells
Other Electronic Devices
Source: Company website.

International
495,341
97,842
173,386
514,338
118,576
145,483

Japan
872,259
127,448
132,691
59,516
38,519
71,828

Total
1,367,600
225,290
306,077
573,854
157,095
217,311

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9B11M007

Exhibit 5
SHARP’S LCD FACILITIES BY GENERATION

Plant Name
Tenri NF-1
Tenri NF-3
Mie #1
Mie #2
Mie #3
Kameyama #1
Kameyama #2
Sakai

LCD Generation
1
2
3
4
4
6
8
10

Production Start
1991
1994
1995
2001
2003
2004
2006
2010 (Planned)

Production End
1999
2001 (partial)
2009 (partial)

Source: Compiled by author based upon data from Nikkei BP (1990-2008) and Sankei Shimbun (2008).

Exhibit 6
JAPANESE YEN TO U.S. DOLLAR EXCHANGE RATE (2006-2008)
130
120
110
100

-23%

90
80

Six months

Source: Bank of Japan.

2009/01

2008/12

2008/11

2008/10

2008/09

2008/08

2008/07

2008/06

2008/05

2008/04

2008/03

2008/02

2008/01

2007/12

2007/11

2007/10

2007/09

2007/08

2007/07

2007/06

2007/05

2007/04

2007/03

2007/02

60

2007/01

70

Page 15

9B11M007

Exhibit 7
SHARP OPERATING PERFORMANCE COMPARISON

Units: billions of Japanese yen
Operating Income for Quarter Ending 12/07
51.9
Price Declines
-175.5
Forex Fluctuations
-19.5
Cost Reductions
127.3
Operating Income for Quarter Ending 12/08
-15.8
Source: Sharp quarterly report, March 31, 2008.

Exhibit 8
SHARP CORPORATION FINANCIAL SUMMARY

Units: millions of Japanese Yen
Financial Year (ending 3/31)
Net Sales
Domestic
Overseas
Operating Income (Loss)
Net Income (Loss)
Capital Investment
R&D Expenditures
Return on Equity
Source: Company annual reports.

2009
2,847,227
1,302,261
1,544,966
(55,481)
(125,815)
260,337
195,525
-11.1%

2008
3,417,736
1,590,747
1,826,989
183,692
101,922
344,262
196,186
8.4%

2007
3,127,771
1,526,938
1,600,833
186,531
101,717
314,301
189,852
8.9%

2006
2,797,109
1,397,081
1,400,028
163,710
88,671
238,839
154,362
8.4%

2005
2,359,859
1,329,711
1,210,148
151,020
76,845
243,388
148,128
7.9%