연구보고 2002-11
Case Study on Technological
Innovation of Korean Firms
Yong-Ho Bae/ Sungsoo Song/ Mi-Jung Um/
Dae-Hee Lee/ Michael Hobday
Preface
Korea has made strenuous efforts for the past 40-plus years to develop
science and technology, and now entered the doorstep of the advanced
countries. The cumulative total investments of research and development
reached US$130 billion (in terms of the total of current prices) from
1962 to 2001. Also, Korea recorded US$20.9 billion (in terms of the
total of current prices) in technology import from overseas from 1962 to
1999. Given the country's economic power and usable resources, this
investment size is enormous. This was made possible, as amid difficult
circumstances, the nation tightened its belt and concentrated its resources
in developing science and technology.
Also, Korea has shown its abilities over the past 30 years to create
and develop a large number of industries. After the 1960s, it developed
consecutively, fabrics, home electronics, petrochemical, steel, automobile,
shipbuilding, and other major industries. The country succeeded in
developing DRAM, TFT LCD, CDMA and other maj or products, thus
giving it a very diverse and complex industry structure over the past
30-plus years. In a short period of time, the country has realized a
desirable industrial structure that has added state-of-the-art industries to
its traditional industries. Certain sectors have reached the level at which
they create globally competitive products.
Despite these many technological innovation in Korea, knowledge on
these achievements have been very scanty, and efforts have been lacking
to conduct in-depth analysis on them and conceptualize and theorize
them. Likewise, efforts have been neglected to explore technological
innovation models of Korea. When technological innovations are divided
into national, industrial, firm levels, very scanty is the knowledge of
cooperations that have appeared as the mainstream of technological
innovations.
This research aimed to examine the structure and characteristics of
these firm's technological innovation activities. In particular, it sought to
investigate the system and type of technological innovation activities
pursued by the representative industries of Korea such as semiconductor,
automobile, steel, and shipbuilding industries. Through these efforts, it
suggested what implications firms' activities held for technological
innovation theories. In this respect, the research is expected to contribute
to widening the knowledge on firm level's technological innovation
activities and to establishing innovation models of Korea.
Lastly, The interpretations and conclusions expressed in this research
are views of the authors, not the official views of STEPI.
Youngrak Choi
President, STEPI
i
Contents
Summary
1
Chapter 1. Introduction
7
1. Background and Purpose of Research
7
2. Methodology and Scopes of Research
9
Chapter 2. A Review of Firm Level Innovation Models In Industrially
Advanced Countries: Implications For Korea
11
1. Introduction
11
2. Five Generations of Innovation Models
13
3. Assessment of Specific Innovation Models
21
4. Linking Innovation Models to Developing Countries
29
5. Problems, Challenges and Opportunities in the Innovation Field 34
6. Conclusions
52
Annex 1: Definitions of Technology, R&D and Innovation
56
Chapter 3. Samsung's DRAM Technology Development
59
1. Introduction
59
2. Characteristics of the DRAM Industry
64
3. The Dynamics of Samsung's Technological Development Capability
Accumulation
4. Conclusion
Chapter 4. Technological Capability Building in Hyundai Motor Company
1. Introduction
66
75
77
77
ii
2. Outline of HMC's Development Process
79
3. The process of building up the Essential Knowledge Base
85
4. Towards Building up Strategic Capabilities
93
5. Conclusion
95
Chapter 5 Historical Development of Technological Capabilities in
POSCO
1. Introduction
97
97
2. Technological Acquisition and Japan's Role in the 1970s
100
3. Features and Cases of Technological Catch-up in the 1980s
111
4. Technology Creation in the 1990s : Case of Next-generation
Steel Technology
5. Summary and Implications
120
128
Chapter 6. Shipbuilding Technology Development in Hyundai
Heavy Industries Co., Ltd.(HHI)
132
1. Introduction
132
2. Characteristics of Shipbuilding Industry
134
3. HHI's Technology Development and Growth Process
137
4. Process of HHI's Technological Capabilities Accumulation
148
5. Conclusion
154
Chapter 7. Conclusion
156
1. Technology Accumulation Process of Major Korean Firms
156
2. Implications of Innovation Theories
163
3. Concluding Remarks
166
References
168
iii
Tables
<Table 2-1> Five Generations of Innovation Models
14
<Table 2-2> Criticisms of First and Second Generation Models of
Innovation
26
<Table 2-3> Innovation Benchmarking Framework for Firm Level
Research in Korea.
51
<Table 3-1> Korea's world DRAM market share trends
60
<Table 3-2> Top seven corporations' historical trends
60
<Table 3-3> Gap between advanced countries and Korea in DRAM 61
<Table 3-4> Trends of Technologies Composition by Product
Generation
74
<Table 4-1> Product History of HMC
81
<Table 4-2> Technological Capabilities Development of HMC
82
<Table 4-3> HMC's Technology Dependency Trends Regarding its
Indigenous-Model Passenger Cars
83
<Table 4-4> HMC's Organizational Reshuffle Following Knowledge
Evolution Periods
92
<Table 4-5> Characteristics of HMC's Technology Accumulation Process 96
<Table 5-1> The Growth of Iron and Steel Industry in
Korea(1970-99)
99
<Table 5-2> Comparison of Major Technological Enhancements
between the 1970s and the 1980s
119
<Table 5-3> Next-generation Steel Innovation Technology
and Curtailment of Process
121
<Table 6-1> Trends of HHI's Shipyard Construction Plans
140
<Table 6-2> R&D Investment of HHI
147
iv
<Table 6-3> Level of Shipbuilding Technology of Korea
(merchant ship)
148
<Table 6-4> Maj or Technology-related Activities of HHI by
Development Stage
154
v
Figures
[Figure 2-1] First Generation Technology Push Models
(1950s to mid1960s)
16
[Figure 2-2] Second Generation Demand Pull Models
16
[Figure 2-3] The Coupling or Interactive Model of Innovation
17
[Figure 2-4] An Integrated (Fourth Generation) Innovation Model
18
[Figure 2-5] An Example of a Systems Integration and Networking
Model
20
[Figure 2-6] Time-Cost Curves for Product Development in Third,
Fourth and Fifth Generation Processes
21
[Figure 2-7] Example of a Stage-Gate Model of Innovation
25
[Figure 2-8] A Simple Life Cycle Model of Catch up Innovation
32
[Figure 4-1] Korean vehicle production and Export (1962-2001)
80
[Figure 4-2] Trends of HMC's Production and Export(1968-2001)
80
[Figure 4-3] Trends of Technology Import by Year
88
[Figure 7-1] Dynamic Jigsaw Puzzle Model
165
1
Summary
This research aimed to examine the structure and characteristics of
these firm's technological innovation activities. In particular, it sought to
investigate the structure and type of technological innovation activities
pursued by the representative firms of Korea such as semiconductor,
automobile, steel, and shipbuilding industries. Through these efforts, it
suggested what implications firms' technological innovation activities held
for technological innovation theories.
The research details are as follows. Chapter 2 outlines the existing
research results of innovation models of advanced countries, and
reviewed their implications for firms' technological innovation in
developing countries, particularly, innovation activities of Korea's firms.
Chapters 3 to 6 analyze cases of individual firms. Likewise, in-depth
research is conducted on respective firms' technology development
process, its characteristics and technology accumulation mechanism.
Chapter 3-Chapter 6 consists of case studies; Samsung Electronics'
DRAM (Chapter 3), Hyundai Motors' automobile (Chapter 4), POSCO's
steel technology (Chapter 5), and Hyundai Heavy Industries' shipbuilding
(Chapter 6). And, lastly, Chapter 7 outlines characteristics of individual
firms' technology development process, and technology accumulation
process, and reviews what implications these hold for firm level
innovation theories.
2
The major findings in this research are summarized as follows.
First, some Korean firms, through technology accumulation processes,
transcended the reform within their existing technology system and
entered the stage of forming a new technology system. Samsung
Electronics and POSCO transcended the stage of re-implementing the
existing technology system and reforming the components in the existing
technology system, and moved towards the stage of developing a new
technology system. Unlike in the past when they followed or were
modelled after foreign technology systems, they conducted the work of
establishing the technology system with Korea taking the initiative.
Second, Korean firms jumped to the status of global leaders in a short
span of time, in the areas of DRAM, automobiles, steel, shipbuilding
and other technology-intensive products and maj or products; this was
made possible, because they focused on all three elements, namely,
internally accumulated technology, externally acquired technology, and
external dependent technology, and exerted strenuous efforts to positively
secure them, and effectively use them. Notably, they exercised
integration capabilities to combine all these elements, thus sharply
shortening the period of internalizing the advanced technology and
accelerating the formation of core technology and achieving successful
innovations.
Third, the Korean firms, from the early stage, aimed to compete
directly with global leaders, and made tremendous efforts to sharpen
time management
aimed at
compressing technology
and product
development. In particular, in case of DRAM, since the early
establishment of mass production system and speedy product manufacturing
3
are the key to the success, the Korean firm, as late-comer, exerted
strenuous efforts to develop products and technology at an early time as
it strictly managed the time schedule. This provided the important basis
for the company to catch up with advanced countries.
Fourth, the Korean firms all adopted the outsourcing method in order
to pursue product innovation activities. In particular, for them as
late-comers to catch up with leading corporations, they mobilized the
best manpower, equipment and resources at home and abroad. This
outsourcing-type innovation system played a crucial role in enabling the
Korean firms to equip themselves with stable production systems in a
short span of time, and secure the global competitiveness. Likewise,
these products, commonly, depend highly
on foreign equipment,
materials, and core parts, and this has yet to be resolved. However, this
dependence was inevitable and effective for them to make an early entry
with the weak domestic base.
In light of these results, this research support dynamic j igsaw puzzle
model which Choi & Lee(2001) proposed. The concept of dynamic
j igsaw puzzle model is as follows. First, the firm's innovation activities
handle
three
elements,
namely,
internally
accumulated
technology,
externally acquired technology, and external dependent technology,
together and simultaneously. Second, the innovation activities, like playing
a jigsaw puzzle, undergo innumerable explorations and trials and errors,
and move towards perfecting the final and complete picture, thus
experiencing a very complex, flexible and dynamic process. Third, it is
important to secure the respective technology, and no less important is
the ability to integrate these elements and lead them into a successful
production. Also, this integration ability includes both technical and
4
non-technical elements, and resources mobilization ability is cited as one
of non-technical elements. Fourth, the composition ratio of these three
elements changes as the early products transit to the next-step products,
and this change indicates a conversion into technology accumulation and
improvement.
However, to enable this dynamic jigsaw puzzle model to be widely
used, many tasks have to be done to complement it. Above all, the case
study should be expanded. Beside cases mentioned here, maj or Korean
industries with the importance ever growing such as IT industry
products, chemistry, machinery, and fabrics, could be good case for
analysis. Also, with the cases handled in this research, a more in-depth
research has to be done on the dynamic change process of import to
technology innovation creation. In particular, detailed research should
also be conducted to determine how the relative portion and role of
internally accumulated technology, externally acquired technology, and
external-dependent technology, change, according to the passage of time,
and what helps with quality leapfrogging. Also, comparative research
between Korea and advanced nations should be carried out to determine
whether the characteristics of Korean innovation cases are differentiated
from or are similar to those of cases of advanced countries.
To sum up, This research sought to conduct analysis on innovation
activities with maj or Korean firms aiming to appropriately analyze the
types
of
innovations
recently
occurring
in
Korea.
Viewed
macroscopically through this analysis, the Korean firms' innovation
process followed the
improvement
linear
steps of
import
absorption
creation, but, during each stage, it is noted that
internally accumulated technology, externally acquired technology, and
5
external dependent technology, are
simultaneously
integrated with
efficiency. Likewise, the Korean firms, based on prior internally
accumulated technology, efficiently integrated externally accumulated
technology and external dependent technology simultaneously, thus
compressing and accelerating the innovation process. As a result, they
could secure world-class technological capabilities in a short span of
time. Also, as suggested implicitly in the existing model, a series of
stages from technology import to their own creation of innovation
abilities, are not automatically accomplished, but, rather, the actual
innovation process is a series of evolutionary process to handle complex
elements under flexible and unstable circumstances, thus implying that
crucial
is
the
evolution
aforementioned three elements.
capability
to
effectively
mange
the
7
Chapter 1
Introduction
Yong-Ho Bae (STEPI)
1 . B a c k g r o u n d a n d Pu r p o s e o f Re s e a r c h
Korea's science and technology have developed at the unprecedentedly
fast speed over the past 30-plus years. As a result, the main frame of
the national innovation system (NIS) has been formed, a remarkable
quantitative growth has been recorded, and certain sectors have reached
the world-class levels. However, a more qualitative enhancement has yet
to be made, a more quantitative expansion is also required. Also,
national innovation system and regulations should be advanced.
Through this development of science and technology, many new
industries have been created, and to support them, innovation activities
have been active. Of these, particularly, technology development and
accumulation have been achieved so as to manufacture globally
competitive products in semiconductor, information communications,
automobile, steel, shipbuilding, and fabric industries. In this process,
likewise, technology import from advanced countries was actively
pursued, and to absorb and use it, tremendous efforts were made. As a
result, Korea departed from the status of early developing country, is
now the leader of developing countries, and is about to enter the rank of
advanced countries shortly.
Research on Korea's development of science and technology was
8
Case Study on Technological Innovation of Korean Firms
actively conducted at home and abroad. This is divided into three types.
First, at the national level, the research focused on the national
innovation system's strong and weak points, the relation between
economic growth and innovations, and the effect of policy means on
innovations. Second, at the industrial level, the research focused on
technology development process by industry, sectoral innovation system,
factors that had effect on technological development, and relation
between industrial development and innovations. Third, at the firm level,
research focused on technology accumulation process by maj or products,
innovation strategies, innovation systems, and successes and failures of
innovations. However, the firm level research has not been done much
in light of its necessity.
On the other hand, the necessity of researching the innovation models
of Korea is raised aiming to determine Korea's pursued innovation
activities and system. To this end, structures and characteristics of the
innovation activities and innovation system should be induced through
empirical research, and the theories should also be reviewed. Likewise,
to compare Korea's experience and characteristics with those of other
countries, international comparison research is deemed a good method. In
this respect, in conducting research on Korea's technological innovation,
it is pointed out that in-depth research on its corporations and products
should be actively carried out.
Thus, this research, through the international joint research with the
British SPRU, targeted Korea's representative products with global
competitiveness, conducted an in-depth analysis of fims' innovation
activities and types in connection with those products, and induced the
characteristics of firm level innovation models of Korea. Also, the
research determined what implications this would hold for innovation
theories.
Chapter 1. Introduction
9
This research is significant in the following points. It determines
characteristics of Korea's pursued innovation development process,
defines the country's innovation activities theoretically, and helps
establish innovation models of Korea. Through these efforts, it will
present useful references for the country's researchers to perform research
on this area, and also it will contribute to the country's relevant science
and technology development. Also, when efforts are made to cooperate
with developing countries, the research will provide Korean cases to help
them establish their policies of science and technology. Also, the
research will be used as the basic data for the government to establish
the national R&D proj ects and science and technology policies in
supporting firms.
2 . Me t h o d o lo g y a n d S c o p e s o f Re s e a r c h
This research targeted Korea's representative products such as DRAM,
automobiles, steel, and shipbuilding, conducted in-depth analysis of firm
level's technology accumulation process and innovation activities, and
then induced characteristics of firm level innovations of Korea. To this
end, it selected firms representing respective industries as case study
targets. Likewise, these firms are the leaders that have led their
respective industries in terms of production, exports and economic
achievements. Simultaneously, of Korean firms, they have achieved the
fastest technology development, as well as laid the groundwork for their
respective industries as pioneers, thus fitting to the purpose of the
analysis obj ectives of this research. Also, with very limited data on
technology development of individual firms, those firms have the basic
data relatively well arranged, and are frequently handled as research
targets, thus providing ample data.
10
Case Study on Technological Innovation of Korean Firms
The methodology of this research included literature study, interviews,
on-the-scene attendance, and other positive means. Primary data included
company history and internal data. And, for the periods not covered by
these data, externally announced corporate data, other internal data,
newspaper data and secondary
literature, were
secured. Through
interviews with researchers and others of target firms, efforts were made
to confirm whether the existing data were true or not, and to enhance
the obj ectivity of the research, interviews with researchers of firms other
than the research target firms were conducted. In this course, valuable
informations and knowledges on technology could be obtained.
The research details are as follows. Chapter 2 outlines the existing
research results of innovation models of advanced nations, and reviewed
their implications for firms' technological innovation in developing
countries, particularly, innovation activities of Korea's firms. Chapters 3
to 6 analyze cases of individual firms. Likewise, in-depth research is
conducted on respective firms' technology development process, its
characteristics and technology accumulation mechanism. Chapter 3
handles Samsung Electronics' DRAM technology development, Chapter 4
Hyundai
Motors'
automobile
technology
development,
Chapter
5
POSCO's steel technology development, and Chapter 6 Hyundai Heavy
Industries' shipbuilding technology development. And, lastly, Chapter 7
outlines characteristics of individual firms' technology development
process, and technology accumulation process, and reviews what
implications these hold for firm level innovation theories.
11
Chapter 2
A Review of Firm Level Innovation Models In Industrially
Advanced Countries: Implications For Korea
Michael Hobday (SPRU)
1 . In t r o d u c t i on
The purpose of this paper is to provide a critical review of firm level
innovation models in the advanced countries and to draw implications for
Korea. The paper summarizes different categories of innovation model,
presents examples of each category and identifies major achievements
and weaknesses of advanced country innovation models. The aim is to
provide useful background context for the study of innovation in Korean
industries and to identify the differences between innovation in Korea
and in the industrially advanced countries (IACs). 1)
One of the chief contributions of IAC models is that many of them
go substantially into the management of innovation and the decision
making processes within the firm. In doing so, they go 'beneath' high level
general models of innovation and delve deeply into the nature of
innovation itself. In reviewing available IAC models, the paper asks
1) The technology frontier is defined as the point at which R&D becomes central to
new product development and overall competitive advantage of the firm. For an
assessment of Korean firm leadership innovation in important electronic
components such as semiconductor dynamic random access memories (DRAMs)
see Choi(1994) and in thin film transistor/liquid crystal displays (TFT/LCDs) see
Oh(2002).
12
Case Study on Technological Innovation of Korean Firms
whether or not these models are realistic and relevant to the
understanding of both Korea's past industrial development and future
paths and challenges, as more Korean firms approach or reach the
technology frontier and compete as world leaders with firms from the
IACs.
Strictly speaking the definition of an innovation is the successful
introduction of a new or improved product, process or service to the
marketplace (Dorfman, 1987, p.4; SPRU, 1972, p.7; Kamien and
Schwartz, 1982, p.2). However, this definition fails to capture the
incremental innovations which can lead to large gains in productivity and
product quality, and are often the source of structural change, economic
growth and catching up (Nelson, 1959; Phillips, 1966; Malerba, 1992).
In the developing countries (and sometimes in the IACs) innovation
tends to occur from 'behind the technology frontier' defined by leaders in
the
advanced
countries.
Therefore,
following
Nelson
and
Rosenberg(1993), Kim(1997), Gerstenfeld and Wortzel(1977), Myers and
Marquis(1969), and Schmookler(1966) in this paper innovation is defined
as a product, process or service new to the firm, not only new to the
world or marketplace.2) This broader definition also encompasses the
stream of minor innovations which follow on from radical new products
and processes. Innovation is also interpreted as a process which involves
the application of new knowledge and skills, rather than easily
identifiable once-and-for-all events.
Part 2 examines the evolution of IAC innovation models using
Rothwell's notion of 'five generations' of innovation processes (Rothwell,
2) The paper focuses mainly on technological innovation. However, organisational
innovation, which is closely linked to technological innovation (Stata, 1989;
Garvin, 1993), is also touched upon.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
13
1993). Part 3 provides a critical assessment of each generation of
models, highlighting both strengths and weaknesses. Part 4 shows how
some researchers have successfully linked high level IAC models to
innovation processes found within advanced developing nations such as
Korea. Part 5 provides an overall assessment of the innovation modelling
field, raising concerns over the lack of empirical evidence and the failure
to sufficiently recognize the diversity of the innovation process. Part 5
argues that innovation models often embody 'implicit' assumptions which
are not necessarily correct and proposes that a useful explicit firm level
innovation theory is offered by the modern resource-based view of the
firm. Part 5 also deals with the uses and abuses of innovation models,
suggesting what they should and should not be used for. This leads on
to implications for further innovation research in general and in Korea in
particular. Part 6 provides a summary of the main findings and
implications for the field.3)
2 . Fiv e Ge n e r a t i o n s o f In n ov a t io n Mo d e ls
Since the 1950s, there has been a proliferation of innovation models,
each purporting to explain and/or guide the process of innovation within
industrial firms. In a seminal contribution to the field, Rothwell(1991,
1992 and 1993) argued that the Post-War era was characterized by
successive
waves
of
technological
innovation
associated
with
a
corresponding evolution in corporate strategy. Table 1 summarizes
Rothwell's view of the evolution of innovation models from the 1950s to
the 1990s in five successive generations.4)
3) Annex 1 provides definitions of terms such as technology, research and
development (R&D) and innovation.
4) Most post Rothwell models fall into the category of fourth or fifth generation.
14
Case Study on Technological Innovation of Korean Firms
<Ta ble 2- 1> Five Ge ne rations of Innovation Mode ls
1st Generation
Technology Push
1950s to Mid-60s
Simple linear sequential process. Emphasis on R&D
push. The market 'receives' the results of the R&D
2nd Generation
Market Pull
Mid-1960s to
1970s
Market (or need) pull; again a simple, linear
sequential process. Emphasis is on marketing. The
market is the source of ideas and provides direction
to R&D. R&D has a reactive role.
3rd Generation
Coupling Models
Mid 1970s ? 1980s
Sequential model, but with feedback loops from later
to earlier stages.
Involves push or pull-push
combinations. R&D and marketing more in balance.
Emphasis is on integration at the R&D-marketing
interface.
4th Generation
Integrated Model
Early 1980s to
1990
Parallel development with integrated development
teams. Strong upstream supplier linkages and
partnerships. Close coupling with leading edge
customers. Emphasis on integration between R&D
and manufacturing (e.g. design for manufacturability).
Horizontal collaboration including joint ventures and
strategic partnerships
5th Generation
Systems
Integration and
Networking Model
Post-1990
Fully integrated parallel development supported by
advanced information technology. Use of expert
systems and simulation modelling in R&D. Strong
linkages with leading edge customers (customer focus
at the forefront of strategy). Strategic integration with
primary suppliers including co-development of new
products and linked CAD systems. Horizontal
linkages including: joint ventures, collaborative
research groupings, collaborative marketing arrangements
etc. Emphasis on corporate flexibility and speed of
development (time-based strategy). Increased focus
on quality and other non price factors
Source: Compiled from Rothwell(1991, 1992 and 1993).
Before examining individual models, it is useful to emphasize five
caveats stressed by Rothwell in his introduction to the five generations
(Rothwell, 1993, pp.1-2):
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
15
the evolution from one generation to another does not imply any
automatic substitution of one model for another; many models exist
side-by-side and, in some cases, elements of one model are mixed
with elements of another at any particular time;
each model is always a highly simplified representation of a
complex process which will rarely exist in a pure form;
often the progress from one generation to another reflects shifts in
dominant perception of what constitutes best practice, rather than
actual progress;
the most appropriate model will vary from sector to sector, and
between
different
categories of
innovation
(e.g. radical
or
incremental)
the processes which occur within firms are to an extent contingent
on exogenous factors such as the pace of technological change.5)
1) F irs t Ge n e rat io n Mo d e ls : Te c h no lo g y P u s h ( 19 50 s - m
The first generation models of innovation, so called technology push
models, were simple linear models developed in the 1950s (see [Figure
2-1]), which treated innovation as a sequential process which took place
in discrete stages. The models assumed that scientific discovery preceded
and 'pushed' technological innovation via applied research, engineering,
manufacturing and marketing. As Rothwell(1993) argues, the model was
often used to justify additional R&D spending by firms and governments
as, it was held, this would lead to greater innovation and, in turn, faster
5) The importance of contingency was emphasised later by Drejer(1996) in his
review of technology management approaches.
16
Case Study on Technological Innovation of Korean Firms
economic growth.
Public policies towards innovation stressed supply
side interventions (e.g. R&D subsidies and credits) in support of
innovation.
Basic Science
Engineering
Manufacturing
Marketing /
Sales
Source Rothwell (1991, p.33; amended).
[Figure 2- 1] First Ge ne ration Technology Pus h Mode ls
(1950s to mid 1960s)
2 ) S e co n d Ge ne rat io n : De m a nd P u ll Mo d e ls ( Mid 19 6 0 s
Rothwell(1993) argues that in the latter half of the 1960s empirical
studies of innovation processes, notably Myers and Marquis(1962) began
to emphasize market led (or need pull) theories of innovation.
These
were again linear in nature, stressing the role of the marketplace and
market research in identifying and responding to customer needs, as well
as directing R&D investments towards these needs. In these models, the
marketplace was the chief source of ideas for R&D and the role of
R&D was to meet market demands.
Market Need
Development
Manufacturing
Sales
Source: Rothwell (1991, p.33)
[Figure 2- 2] Second Ge ne ration De ma nd Pull Mode ls
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
3 ) T h ird Ge n e rat io n : Co u p ling o r Int e ra ct iv e
17
Mo d e ls
( 19 7 0 s )
Detailed empirical studies during the 1970s showed that both the
above linear models (technology push and market pull) were extreme
and atypical examples of industrial innovation.
In particular, Mowery
and Rosenberg(1978) argued that innovation was characterised by a
coupling of (and interaction between) science and technology (S&T) and
the marketplace. The coupling model presented in [Figure 2-3] was
described by Rothwell(1993, p.3) as "a highly simplified, but nevertheless
more representative model of the innovation process". Rothwell also
noted that the process of interaction was not necessarily continuous but
could
be
understood
in
terms
of
functionally
interacting
and
interdependent stages, involving complex communication paths and
intra-and inter-organizational linkages. Unlike the two previous models,
the interactive model explicitly links the decision making of firms to the
S&T community and to the marketplace.
New Need
Needs of Society & The Marketplace
Idea
Generation
Research,
Marketing
Prototype
↔Manufacturing ↔
Design & ↔
&
production
Development
Sales
New Tech.
State of the Art in Technology & Production
Source: Rothwell (1993, p.21)
[Figure 2- 3] The Coupling or Inte ractive Mode l of Innovation
Market
place
18
Case Study on Technological Innovation of Korean Firms
4 ) Fo u rt h Ge n e rat io n : Int e g rat e d Mo d e ls ( 19 8 0 s )
Although third generation models were non linear with feedback loops,
Rothwell(1993, p.4) nevertheless criticised them as being essentially
sequential in nature. During the 1980s, following observations of
innovation in Japanese automobile companies, integrated or parallel
models began to be developed which involved significant functional
overlap between departments and/or activities.
These models attempted
to capture the high degree of cross functional integration within firms, as
well as their external integration with activities in other companies
including suppliers, customers and, in some cases, universities and
government agencies.
Marketing
R&D
Product Development
Product Engineering
Parts Manufacture (Suppliers)
Manufacture
Marketing
Launch
Source: Rothwell (1993, p.22)
[Figure 2- 4] An Integrated (Fourth Ge ne ration) Innovation Mode l
5 ) F ift h Ge ne rat io n S y s t e m s Int e g rat io n a nd Netw o rking
Mo d e ls (Po s t 19 9 0 )
Fifth
generation
systems
integration
and
networking
models
emphasized the learning which goes on within and between firms,
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
19
suggesting that innovation was generally and fundamentally a distributed
networking process.
These models were based on observations during
the 1980s and 1990s of an increase in corporate alliances, partnerships,
R&D consortia and j oint ventures of various kinds. These interpretations
were
extensions
of
fourth
generation
integrated
models,
further
emphasizing vertical relationships (e.g. strategic alliances with suppliers
and customers) and with collaborating competitors. According to
Rothwell(1993, p.6) the fifth generation approach was brought about by
time pressures on leading edge innovators.
Rothwell's fifth generation process also relied on the use of
sophisticated electronic tools in order to increase the speed and
efficiency of new product development across the entire network of
innovation, including in-house functions, suppliers, customers and
external collaborators.
As Rothwell put it: "5G essentially is a
development of 4G in which the technology of technological change it
itself changing(1993, p.6) and '5G represents the electronification of
innovation'". (1993, p.11; emphasis from original text).
The shift towards 5G, Rothwell argued (1993, pp.7-11), was driven by
a range of interrelated factors including: (a) adoption of time-based
strategies; (b) top management commitment and support; (c) horizontal
management styles; (d) empowered product champions; (e) high quality
initial product specification; (f) the use of cross functional teams in
development and prototyping; (g) designed in flexibility; and (h) the
engagement of leading edge users in the innovation process. [Figure 2-5]
presents a recent version of a fifth generation model.
20
Case Study on Technological Innovation of Korean Firms
Source: Trott (1998), cited in Mahdi (2002, p45).
[Figure 2- 5] An Exa mple of a Syste ms Integration a nd Networking Mode l
The fifth generation model, like its predecessors, was both a
descriptive and normative model, put forward to suggest the processes a
firm company should put in place if it wished to become a leading edge
innovator (Rothwell, 1993, p.11). The main difference between fourth
and fifth generation models according to Rothwell was the use of an
electronic toolkit operating in real time to speed up and automate the
process of innovation within the firm. More recently, some versions of
'business process re-engineering' also emphasized the application of
information technology systems in corporate strategy and innovation (e.g.
Davenport, 1993). Rothwell was clearly 'ahead of his time' in preempting this trend in thinking.
Rothwell(1993, p.12) also argued that
despite the difficulties and costs of moving in the direction of 5G, the
benefits to be gained were considerable in areas such as speed of
innovation, cost reduction and attaining market leadership.6)
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
21
[Figure 2-6] presents product development times and cost relationships
for the third, fourth and fifth generation models. Note that, at the time,
the US was characterized as being mainly third generation, Japan fourth,
with a few leading firms in the fifth generation.
Japanese firms were
praised for moving quickly towards 4th and 5th generation models,
gaining from cross-functional (parallel) developments and more effective
overall integration, leading to high information processing capacity and
more efficient new product development (Rothwell, 1993).
3G Process
Development
Cost
4G Process
5G Process
Development Time
Source: Rothwell (1993, p.23).
[Figure 2- 6] Time- Cost Curves for Product Deve lopme nt in Third, Fourth
a nd Fifth Ge ne ration Processes
3 . As s e s s m en t of Sp e cific In n ov a t ion Mod els
In assessing the above models it is helpful first to examine the
strengths and weaknesses of individual models (and generations of
6) Note that models equivalent to fourth and fifth generation were also developed in
parallel in the software engineering community around this time (e.g. Boehm,
1983; 1998) with high level IT tools essential to software development.
22
Case Study on Technological Innovation of Korean Firms
models). Later, in Part 5, a deeper analytical assessment is made of the
general approach to innovation modelling and problems with it.
1) S t re ngt h s a nd Be n e f it s o f In no v at io n Mo d e ls
On the positive side, each generation of model captured the academic
knowledge of the time and summarized perceptions of 'best practice'.
Each generation served as a foundation for more sophisticated models
allowing the incorporation of additional factors relevant to the innovation
process. Also, each model generated useful insights and hypotheses into
the nature of innovation and decision making requirements at the level
of the firm, pointing to important links between innovation and other
key processes within the firm (e.g. management, marketing and
manufacturing) and external to the firm (e.g. the S&T environment,
universities and government policies).
In addition to serving as a foundation for understanding, the various
models have been widely used by companies within the IACs to guide
the innovation process. Major consultancy firms frequently adopt one or
other of the innovation models, and further develop them for guiding
businesses wishing to improve their innovation processes. For example,
Cooper(1987) introduced the well known, stage-gate model of innovation
(see [Figure 2-7]) with advice on each decision phase, linking innovation
with market assessment at every stage of the process and identifying key
milestones at which to assess performance.
This model has a second
generation character (market pull) with some aspects of third generation
(push-pull combinations and integration of R&D with the market place).
Another well known decision model is the 'development funnel model'
of Wheelright and Clark(1992) which is widely used by industrialists.
The funnel model shows how innovation ideas are gradually narrowed
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
23
down and selected and how proj ect portfolios could be managed. It
allows for feedback between stages of the innovation process, moving
from idea generation to the overall design of a project, on to rapid
focused development. This model can be seen as an example of a third
generation model because it incorporates feedback loops from one stage
to another. As noted earlier, similar software development models (e.g.
the waterfall and spiral models) are also widely used in industry
(Boehm, 1998).
Various kinds of spiral models are used within the
software field to provide guidance on how to manage the software
process through its life cycle. The spiral model can be see as a fourth
generation model because of the intensity of iteration involved.
To sum up, Rothwell's idea of five generations enables us to chart the
progress and sophistication of various models, the implicit assumptions
adopted by innovation research, and the key factors included and
excluded.
firms
are
The five generations is a useful device to assess the way
approaching
innovation
and
for
suggesting
possible
improvement to innovation procedures.
2 ) C rit ic is m s a nd W e a kne s s e s o f In n o v at io n Mo d e ls
First and second generation models
Turning to first and second generation innovation models, as Forrest
(1991, pp.440-441) notes, these have been widely criticised by many
observers for their linear, sequential nature and for oversimplifying the
innovation process. These criticisms also apply to well known higher
level linear stages models (e.g. Utterback and Abernathy, 1975;
Mansfield et. al; 1971; Bright, 1969; and Tushman and O'Reilly, 1997)
24
Case Study on Technological Innovation of Korean Firms
where firms (and/or entire industries) are viewed as moving from one
stage to another (e.g. from research to engineering to production, or
from early to late stage product cycles).
Other models criticised for
linearity include various firm level 'pipeline' or departmental models
where innovations move from one department to another in sequence
(e.g. Saren, 1984).
<Table 2-2> presents six well known criticisms of naive stages models
(summarized from Forrest, 1991, pp.441-442).
The sequential, pipeline
nature of stages models tends to view innovation as one discrete activity
followed by another, with each activity or stage isolated from each
other.
In practice, the evidence shows that the sequential nature is
seldom valid, and there is much feedback from one stage to another, as
well as inter-dependencies between the stages (e.g. Kelly and Kranzberg,
1978). Innovation activities are often 'concurrent', with overlaps between
activities and/or departments.
At the industry level there is occasional
'de-maturity', when whole industries begin new cycles of development as
a result new technologies.
At the firm level, there is reversal as, for
example, prototypes are returned to design departments for re-design.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
Source: Cooper (1987) cited by Mahdi (2002, p.28)
[Figure 2- 7] Exa mple of a Stage- Gate Mode l of Innovation
25
26
Case Study on Technological Innovation of Korean Firms
<Ta ble 2- 2> Criticis ms of First a nd Second Ge ne ration Mode ls of
Innovation
1. Sequential nature not valid in practice; non linearity often observed
2. Many activities concurrent; feedback loops from later to earlier stages
common
3. Little systematic evidence to verify the claims of models
4. Other inputs from the 'environment' not considered (e.g. S&T knowledge,
customers,
users,
suppliers,
competitors,
policy
agencies
and
universities)
5. Little to say about what goes on within each stage
6. An overly orderly 'rational' process implied; no recognition of
alternative pathways; human decisions and choices underplayed
Source: derived from Forrest (1991).
There is little evidence to verify general claims regarding stages and,
often, important inputs from the wider environment are ignored. Stages
models have little to say about what goes on within each stage. They
do not explain 'what happens' to an innovation as it 'leaves' one stage
and goes on to another, nor indeed how an innovation arrives in the first
place. They underestimate the often 'chaotic' nature of the innovation
process, especially in the early stages when a new concept is being
generated and tested, with designers and engineers working with other
groups to test out whether it is possible to translate an innovation idea
into a practical reality.
Second generation market pull models make marketing and market
research integral to the innovation process, for example, by pointing to
the importance of interaction between marketing and R&D.
However,
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
27
like the pure technology push models they tend to ignore other important
aspects of the innovation process including working relationships with
customers, feedback loops from later to early stages, and interactions
with the S&T environment.
Third generation models
Third generation coupling models are a maj or improvement on earlier
models, and explicitly and/or implicitly attempt to address some of the
weakness outlined in <Table 2-2>. For example, the Schmidt-Tiedemann
(1982) 'concomitance' model can be seen as a third generation model
which divides innovation into three spheres: exploration, innovation and
diffusion. It is a practical business oriented model with decision points
and feedback loops, identifying key milestones in each phase.
Unlike
earlier models, feedback from the post-innovation diffusion stage is
recognised and with it the need for firms to adapt new products to
competition by improving quality and product features and reducing
costs. The term concomitance is used to show how the various business
functions (e.g. research, technical evaluation, engineering development,
market research, sales and distribution) accompany and interact with each
other during the innovation process.
The main criticism of this, and
other third generation models, is that they do not deal sufficiently with
environmental factors (e.g. the S&T environment and government
regulations).
Another well known model with some coupling features is that of
Utterback and Abernathy(1975).
This highlights the changing character
of the relationship between process and product innovation as firms
grow, volumes increase, industrial structure evolves, and markets mature.
This model introduces the concept of a 'dominant design' (or industry
28
Case Study on Technological Innovation of Korean Firms
standard) which paves the way for a shift from product innovation in the
early (or fluid) stage, to process-centred innovation as volumes grow.
As markets mature, large firms dominate and an industrial 'shakeout'
occurs. However, as Forrest notes, when this model was tested
empirically by de Bresson and Townsend(1981) and Martin(1984), it was
found that it did not apply to all industries, as initially suggested (and
subsequently proposed more recently by Klepper, 1996).7) As Woodward
(1958) and Kim(1997) point out, there are maj or differences
in the relationship between product and process innovation, according
to the product and technology in question. The distinction between unit
(or project based) production, large batch/mass production, and continuous
process technologies is especially important.
For example, in complex
products made in proj ects the process-intensive innovation phase is never
reached and product design remain at the early stage of the innovation
'life cycle' (Hobday, 1998).
Fourth and fifth generation models
With respect to fourth and fifth generation models, there is little
evidence to demonstrate that firms have adopted these models of
innovation or that, in the case of fifth generation models, that the
adoption of information technology (IT) leads to the benefits proposed.
Indeed, some studies have questioned the value of IT, pointing to maj or
disappointments in the adoption of IT systems at the firm level.8) These
studies stress the negative aspects of IT (high costs, difficult and lengthy
learning curves and unrealistic claims) and the need for strong internal
7) Also see Pavitt and Rothwell(1976) for an empirical critique of the Utterback and
Abernathy model.
8) See for example, Davenport(1996), Benjamin and Levinson(1993), Martinsons and
Chong(1999), and Dooley and O'Sullivan(1999).
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
29
capabilities as a pre-requisite for the successful use of IT in complex
tasks such as innovation. These studies show that without accompanying
organizational changes, the implementation of sophisticated IT systems
can be a costly and inefficient exercise which can lead to worsening
rather than improving performance.
In some cases, IT appears to improve efficiency.
In others is does
not. The ability of IT to improve innovation efficiency probably depends
on the nature of the product and technology in question and the depth
of IT knowledge within the firm. Also, if a task requires a great deal
of tacit knowledge and informal communications then it is unlikely that
IT alone will be able to improve efficiency. For simpler tasks, IT
systems may well be able to automate and speed up operations. While
IT may well be able to support 'lower level' routine tasks it is unlikely
to be a substitute for essential human interactions, team building, group
work and the leadership required in successful product and process
innovation.
In any event, in the absence of systematic evidence, the
fifth generation model remains a hypothesis for testing, as do all the
performance claims presented in [Figure 2-6].
4 . Lin k in g In n ov a t io n Mo d e ls t o Dev e lo p in g Co u n t r i e s
1) T h e Ca t c h Up Dim e ns io n
None of the five generations of models above attempt to deal with the
issue of latecomer catch up from behind the technology frontier, as
defined by state of the art R&D. Most models implicitly assume firms
with leadership status (or ambitions) and most are oriented towards large
firms (e.g. with R&D departments and elaborate organizational divisions
of labour), rather than medium or small firms which might operate with
30
Case Study on Technological Innovation of Korean Firms
more informal processes (with perhaps no official R&D or engineering
department). Most of the models deal with R&D-centred activities, where
innovation is defined in the strict sense as a product or process new to
the world or marketplace (see Introduction). Therefore, these models are
not appropriate, at least in their current form, for dealing with catch up
innovation. In catch up cases, the evidence shows that substantial
innovation can occur based on minor improvements to existing processes
and product designs via the absorption of foreign technology from
abroad.
Although it is outside of the scope of this paper to review developing
country catch up innovation models, it is clear that the building of firm
level innovation models for understanding how catch innovation occurs,
and how it can be improved, is important for Korea and other
developing countries.
This work is needed not only for understanding
past patterns of innovation but also for guiding and improving current
and future processes of innovation as latecomer firms increasingly reach
the frontier, perform R&D and compete as leaders.9)
2 ) Lin kin g IAC Mo d e ls t o De v e lo p ing Co u nt rie s
Although there are few attempts to explicitly link IAC innovation
models with innovation paths in developing countries one important
exception is Kim(1997) who connects the well known model proposed
by Utterback and Abernathy(1975) with innovation processes in developing
economies.
Kim(1980 and 1997) argues that the process of innovation in catching
up countries is fundamentally different from that of developed countries.
9) The notion of a latecomer firm, as distinct from a leader or follower, is
introduced by Hobday(1995, Chapter3).
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
31
Initially, Kim(1980) proposed a three stage model, with developing
countries moving from acquisition of foreign technology, to assimilation
and eventually to improvement. During the early phase of industrial
development, firms acquire mature, foreign technologies from IACs,
including packaged assembly processes which only require some limited
local production engineering. In the second phase, process development
and product design technologies are acquired. In the third phase R&D
is applied to produce new product lines. As Kim(1997) notes, the
sequence of IAC innovation events is thus 'reversed' with developing
countries moving from mature to early stages of the innovation process.
Building on Kim's(1980) model, Lee et. al(1988) link the reversed
sequence with that of Utterback and Abernathy(1975) as shown in Figure
8.
The upper half of the figure presents the Utterback and Abernathy
model in which the rate of product innovation is high in the early fluid
stage while the rate of process innovation is low. In the transition stage,
a dominant design is selected by buyers in the market place and
suppliers begin to fix on a specific process technology.
In the third
phase, competition is largely based on incremental process improvements
as product design matures.
Lee et al.(1988) counterpose Kim's catch up model onto the Utterback
and Abernathy model as shown in [Figure 2-8]. In this version of the
catch up model, developing countries catch up not only in mature
technologies but also during the transition and fluid stages as they
progress in their capabilities.
Later, Lee and Lim(2001) extend this
model by postulating the possibility of 'stage skipping' opportunities.
What these models show is that at the advanced stage, firms in
developing countries (e.g. Korea and Taiwan) are increasingly able to
challenge leading firms in the advanced countries. Hobday(1995)
confirms this general reversal process for the case of electronics in four
32
Case Study on Technological Innovation of Korean Firms
countries: Korea, Singapore, Hong Kong and Taiwan, noting that the
process can occur both within locally owned firms and foreign owned
firms. 10)
Industrially
Product
Process
Advanced
Innovation
Innovation
Countries
Rate of
Innovation
Time
Transition
Specific
(emergence)
(consolidation)
(maturity)
Technology
Technology
Technology
Transfer
Transfer
Transfer
Fluid
Generation
Catching-up
Countries
Improvement
Assimilation
Improvement
Technological
Capability
Acquisition
Assimilation
Acquisition
Time
[Figure 2- 8] A Simple Life Cycle Mode l of Catch up Innovation
Kim and Lee(1987) and Kim(1987) explicitly recognise that specific
patterns of catching up are contingent on the nature of the production
10) Shown also for the case of electronics in Malaysia and Thailand (Hobday,
1996).
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
33
technology. Using Woodward's(1958) now classic differentiation between:
(a) unit/small batch; (b) large batch/mass production; and (c) continuous
process technologies, Kim and Lee(1987) and Kim(1997) chart the
innovation progress of firms in Korea, showing that product innovation
is most important for catching up in unit and small batch production
(e.g. large shipbuilding producers and machinery makers), whereas in
large batch and mass production (e.g. electronics and car production) a
mix of process innovation and product development capabilities are
important.
By contrast, continuous process technologies (e.g. cement,
chemicals, pulp and paper and steel) are usually the least differentiated
in terms of product but the most capital and process intensive.
Therefore, the primary emphasis is on production process capability and
acquiring the detailed proprietary knowhow embodied in foreign
production processes.
These 'high level' studies provide a useful and creative approach to
understanding catch up innovation in the developing countries and can
provide the basis for further detailed research on firm level innovation
management. For example, they show that contingency factors such as
the nature of product technology, the impact of government policy, and
the importance of the socio-economic environment are central to
innovation (Kim, 1997). Further 'lower level' intra-firm research on the
lines of Choi(1994) would help elaborate key processes, milestones and
decision making priorities in catching up across different categories of
firm, under different technology transfer conditions and alternative
contingency situations.
Further analysis would also be useful for incorporating fourth and fifth
generation model insights into the catch up process (e.g. the role of
networking and information technology). Future work could be useful to
guide firms in their innovation management strategies and for enabling
34
Case Study on Technological Innovation of Korean Firms
government policy makers to differentiate policies according to the
capabilities of firms. Intra-firm case research could show how the
management of catch up innovation changes as firms approach and reach
the technology frontier in areas such as DRAMs and TFT-LCDs, when
conventional technology transfer opportunities become increasingly difficult
as latecomers become a threat to incumbent leaders and followers in the
IACs (Choi, 1994; Oh, 2002).
However, as Part 4 shows, it is
important to resist overly rational and deterministic interpretations of
catch up innovation.
5 . Pr p b l e m s , Ch a lle n g e s a n d Op p o r t u n it i e s in t h e
In n ov a t i o n F ie l d
1) In novat io n Mo d e ls in t he Lig ht of Em p irica l Ev id e nce
This section identifies generic weaknesses and gaps in the innovation
modelling field, based upon selected evidence of actual innovation
processes, discussing, in turn, problems in the treatment of innovation
variety (Part 5.2, 5.3), the nature of decision making (Part 5.4) and the
lack of underpinning theory (Part 5.5). Based on the difficulties identified,
it is then possible to outline some of the future work needed to improve
innovation models for both developed and catching up countries (Part 5.6,
5.7 and 5.8), bearing in mind the need for relevance and realism.
The argument put forward that existing models tend to lack realism in
the light of existing evidence is not necessarily a criticism of the models
themselves, but more a comment on how models (especially stages
models) should be used. A section on the use and misuse of innovation
models is presented in Part 5.9.
Implications for future research are
covered in Parts 5.10 and 5.11 which also provides a framework for
firm level research.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
35
2 ) Im p o rt a nce o f Va rie ty Ac ro s s Ind us t ria l S e ct o rs
As Mahdi(2002) points out, most of the five generations of innovation
models are deterministic. Usually 'one best way' of innovating is
proposed (across or within an industrial sector) and very rarely are
alternative models and paths offered or explored. This applies especially
to practitioner models frequently used in business (e.g. Cooper, 1987 and
Wheelright and Clark, 1992) which tend to revert to simple stages
models for decision making. Again, this is not necessarily a criticism.
Although the models do not necessarily cover all possibilities, at least
they provide 'a guide to action' and are widely used in business. As
argued below, as long as firms accept their limitations and tailor the
models to suit their own particularly circumstances, resources and
purposes then they can be a valuable input into innovation management
and decision making.
In an excellent recent review of the literature, Mahdi(2002) argues that
the empirical evidence directly contradicts the 'one best way' assumption
in most innovation models. Instead, the evidence demonstrates that: (a)
there are maj or differences in innovation processes across and within
different industrial sectors; (b) there are significant differences among
firms in the same industrial sector; and (c) that these differences persist
over time and are not a 'deviation' from a norm or best practice. Put
another way, the evidence suggests there can be no one single 'model' of
innovation for firms to follow, and the notion of a generalized, 'average'
or best practice approach is highly misleading. On the contrary, there are
many innovation approaches, each with a distinct sets of rules and
activities, advantages and disadvantages, only partly governed by the
technology in question.
36
Case Study on Technological Innovation of Korean Firms
Mahdi(2002) cites three empirical cases to emphasize his point that
innovation practices differ across industrial sectors:
Pharmaceuticals - here, a process of search generates many options
for a new drug; these are later screened against multiple clinical
test criteria;
Software - typically, software development proceeds iteratively;
first a rough specification of the programme's requirements is
made, then a prototype is developed which is then tested and
modified;11)
Passenger aircraft - a new aircraft proj ect typically begins with an
intensive, costly and careful up front planning exercise; only much
later is a prototype built; the prototype is a maj or physical
investment and is designed to resemble, as far as possible, the
final aircraft.
As Mahdi argues, most surveys of innovation in practice confirm this
view of persistent variety (e.g. Jewkes et al. 1969 and Weber and
Perkins, 1992). Cooper(1983) for example identifies seven distinct
industrial innovation patterns with marked differences in paths and
procedures. Innovation differences matter and they persist through time.
Therefore, innovation models which fail to differentiate between
industrial sectors and purport to be best practice' are inherently
misleading both as a tool for understanding and as guidance to firms on
strategy or as an input to government policy. 12)
11) Even within the software field there are a number of competing approaches,
depending on the nature and complexity of the software. Most complex
software projects involve a high degree of iteration from concept to detailed
design, final testing, installation and rework (Hobday and Brady, 1998).
12) As noted in Part 4.8 below, such models can be useful if they are used as
devices for data gathering and benchmarking but not for explanation or
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
37
3 ) Va riety W it h in In d u s t ria l S e ct o rs a nd A m o ng F irm s
Mahdi(2002) goes on to show that there are major persisting
differences in innovation processes within particular industrial sectors and
among firms in the same industrial sector. For example, in a study of
plant breeders in Sweden and Britain in the early 20th Century, RollHansen(1997) reveals two different strategies, one conforming to a
'rational' design and test model, another to a step-by-step incremental
approach.13) More generally, Miller and Blais(1993) show significant and
persistent differences in innovation strategies among firms within six
industrial sectors (pharmaceuticals, finance, software, metallic products,
pulp and paper, and apparel and clothing). This also challenges the
so-called contingency view that the product market, industry or
technology determine innovation processes.
A study of the development of synthetic analogues of naturally
occurring fungicides in agrochemical firms by Den Hond(1998) shows
that despite similarities in research and technological trajectories, maj or
suppliers adopted three different approaches to the same innovation
problem: (a) the classic 'generate many options, screen and test'; (b) the
'rational' approach, emphasising early stage design ; and (c) recursive
search, with prototyping and modifying functional categories, until
promising results emerge (cited in Mahdi, 2002). Similarly, in the electronics
sector, a study of innovation in fax machines in Japan showed that one
prescription. A similar point was made by Gerschenkron in his critique of the
'stages of development model' put forward by Rostow in the 1960s
(Gerschenkron, 1962)
13) Famously in 'The Science of Muddling Through' Lindblom(1959) argues that it
is in fact 'irrational' to proceed 'rationally' in an uncertain situation because there
is, by definition, insufficient knowledge and an iterative, learning approach is
needed. Similar arguments were also by Kline and Meckling(1958) in relation
to new technology projects.
38
Case Study on Technological Innovation of Korean Firms
maj or supplier (Ricoh) approached the development with a 'crash'
programme approach (involving multiple prototypes, multiple errors and
frequent modifications), while another (Matsushita) followed a careful,
rational planning process which structured the project into different
groups, dealing with problems largely at the functional level. Both were
successful.
In short, the evidence suggests that there is no 'one best strategy' and
no single or 'unitarian' model as Mahdi(2002) puts it.
Instead, if the
evidence is correct there can be no possible generalizable approach or
one best 'best practice' model of innovation. Different firms appear to
generate
alternatives paths, based on their resources, size, past
experiences, history and particular capabilities. This criticism applies to
almost all of the five generations of innovation models, especially those
that recommend paths for firms to follow.
4)
Nat u re o f De c is io n Ma kin g a n d ' Rat io na lity '
Most of the five generations of models assume firms are 'hyperrational' in that they are able to hypothesize of a solution to an
innovation problem (e.g. a new product) and then proceed systematically
to resolve the problem via a process such as concept design, prototype
development and finished product.
However, as Mahdi(2002) argues,
this assumption of rationality is highly questionable for many firms. He
cites the case of aircraft airfoil design to illustrate the nature of
rationality in decision making and how this can change over time, as
experience is gained.
Initially, airfoils (which determine the lift and
drag performance of an aircraft) were developed by rudimentary trialand-error experimentation. Later, they tended to be designed from
knowledge gained from gliders. In the 1930s, wind tunnels began to be
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
39
used to test and develop airfoils. By the 1940s, US firms were able to
choose from a catalogue of around 2,000 airfoils, similar to a 'generate
and
screen'
strategy
now
followed
sophisticated computer modelling
in
pharmaceuticals.
is widely
Today,
used to generate
hypothetical design which is then developed and tested.
a
Similarly, in
the case of drug development, in the 1940s 'serendipity' was the primary
method of searching, but today 'rational' planning has been adopted by
many firms, using sophisticated IT systems.
Mahdi(2002) interprets these examples, as evidence of 'bounded
rationality', initially proposed by Simon(1957). Firms can only behave
'rationally' if they have sufficient experience and capability to resolve the
innovation problem confronting them (and the technology exists for a
rational approach to be taken). If not, innovators resort to 'non-rational'
trial-and-error experimentation. Therefore, any general purpose 'rational'
(or prescriptive) model cannot apply to firms which lack the deep
knowledge and experience required.
Instead, most firms behave in a
'boundedly rational' manner, according to their own specific histories and
experiences.
Mahdi(2002) argues the case not only for pluralism (which recognizes
wide diversity of innovation models between and within sectors and
across firms) but also for an approach which recognizes that choices and
paths taken are determined by the innovators own history, experiences
and resources. He shows that product innovation approaches range from:
(1) serendipity (i.e. luck or unexpected events); to (2) generate and
screen; to (3) iterative design; to (4) precision planning. Each of these
approaches are evident in the empirical literature. However, most of the
models, tend to assume a hyper rational, but often unrealistic decision
making capability.
40
Case Study on Technological Innovation of Korean Firms
A key empirical research question for developing countries arising
from Parts 5.2, 5.3 and 5.4 is: are the actual practices of innovation any
more deterministic or rational than models of frontier innovation
processes in IACs? Alternatively, do we witness similar variety across
and within industrial sectors, and among competing firms?
If so, how
do we explain such variety and can models incorporate the factors which
do tend to shape innovation processes in DCs?
To help answer the
question, it is useful to turn to the issue of 'theory' in innovation
models.
5 ) The Need fo r Und e rp inning Theo ry in Innovat io n Mode ls
The lack of a coherent and explicit theoretical base is evident in most
innovation models and may well underpin the problems of (usually
implicit) 'rationalism' and 'determinism' frequently encountered. An
explicit theoretical base is important because it exposes the researchers'
underlying assumptions about how innovation processes occur and the
purpose and orientation of the innovation model itself. Theory can help
guide research and embed innovation within the wider organizational,
business, and strategic contexts in which it probably belongs.
In the five generations of models, innovation is often treated as a
'separate' process or, at best, a process which 'links to' other factors.
However, innovation is more than likely to be embedded within other
maj or business processes and guided by the strategic management of the
firm. Innovation is also likely to be heavily influenced by the culture of
the firm (e.g. outward-looking vs inward-looking; learning organization
vs static organization).
The evidence also suggests that innovation is
also strongly influenced by the resources available to the firm and the
capabilities already developed within the company.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
41
6 ) A Re s o u rce- b a s e d T he o ry o f In n o v at io n ?
Although it is outside of the scope of this paper to integrate
innovation studies within an appropriate 'school' of thought (indeed, there
may be more than one), it is possible to point to some useful
approaches which deal explicitly with the needs of innovation theory. If
we assume that innovation is a dynamic process, embedded within the
firm, and if we wish to develop a realistic model of innovation, then
modern resource-based theories of the firm are probably a good place to
start, as these deliberately deal with the internal dynamics of the firm
and provide frameworks for analysing internal competence and strategic
variety.
Resource-based theories of the firm assume that companies have
access to specific internal resources and competencies which interact
with the environment in which they compete. For example, building on
the original resource-based approach of Penrose(1959), authors such as
Teece et al.(1994) have proposed a dynamic capabilities view of the
firm. The Teece and Pisano(1994) formulation of 'positions, paths and
processes' of individual firms is especially relevant.14)
Positions refer to the actual market relations and resources of a firm
at any point in time, dividing resources (or assets) into two main
categories: technological and complementary, showing how the position
of a firm is shaped by its historical internal learning processes, corporate
history, key strategic decisions and past market successes and failures
(i.e. its paths). Paths refer to the past and future possible business
directions of the firm. Paths include actual patterns of technological
14) These studies draw on dynamic models of innovation (Utterback and Abernathy,
1975; Abernathy et al 1983; Chesbrough and Teece, 1996; Hamel and Prahalad,
1994).
42
Case Study on Technological Innovation of Korean Firms
innovation, organizational learning, product market achievements and
financial investments.
Future paths are 'path dependent' on historical
choices, previous capital investments and the firms' repertoire of routines.
Processes (or business processes) refer to patterns of organizational,
managerial, technological and operational practices - the 'way things are
done' - within the firm. Processes occur within and across the various
functions of the firm (e.g. marketing, production, finance, engineering,
R&D and personnel) and occur both formally and informally, shaping
the efficiency and effectiveness of a firm.
The fact that innovation practices are often specific, 'sticky' and
shaped by history (and therefore frequently very hard to change) is
recognised by modern resource theory (e.g. Teece et al., 1994).
The
resource approach also rejects the somewhat determinist/rationalist view
of strategy (e.g. Porter, 1985) arguing that strategic options are both
constrained and shaped by internal resources (Barney, 1991). Resourcebased theory could therefore be a useful theoretical 'location' for
innovation models.
Other related literatures may also be useful for developing a
resource-based view of innovation. For example, the issue of how
managerial learning relates to technological innovation is dealt with by
learning organisation scholars such as Garvin(1993), Stata(1989) and
Senge(1990).15) If organisational 'learning' can become myopic, confused
and misdirected (Levinthal and March, 1993) and lead to 'competence
traps' (Levitt and March, 1988), then so too can innovation processes.
Misdirected processes can
lead to innovation
'back
alleys'
and
unnecessary re-invention and perhaps result in core 'rigidities' within the
firm (Leonard-Barton, 1992). The important fact of divergences between
15) Also see Kim(1995) for the case of Korea.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
43
a firm's official strategy and its actual behaviour is analysed by Seeley
Brown and Daguid(1996), a pattern which may well apply to innovation
in firms.
The need for organizations to reflect upon, control and reshape
learning processes to prevent core rigidities (e.g. via 'double -loop'
learning) is addressed by Argyris(1977) and Argyris and Schon(1978).
As firms learn to innovate, such reflection may also be equally
important. It is also highly probable that innovation performance is
heavily influenced by the culture of the firm a subj ect covered by
scholars of organizational psychology (e.g. Schein, 1990). These and
other contributions could well help build up a realistic resource-based
view of innovation.
7 ) Re s o u rce- Ba s e d T he o ry a nd De ve lo p ing Co u nt rie s
Usually, resource-based theory assumes a developed country context,
with a modern and sophisticated national system of innovation. In the
IACs, firms draw upon this system and demanding markets guide
decision making and influence firms' visions of the future (Ansoff and
Stewart, 1967; Swann and Gill, 1993).
Resource-based theory may
therefore provide a useful 'home' for mainstream innovation studies.
However, in developing
(or
latecomer) economies, this dynamic
'Schumpeterian' environment rarely exists.
Firms frequently operate
within small, underdeveloped markets and the innovation infrastructure
(including educational institutions and human resources) may well be
lacking. In addition, technology has to be transferred and absorbed from
foreign sources for catch up innovation to take place. Therefore, existing
resource-based theory may not be adequate for dealing with latecomer
innovation positions, paths and processes.
44
Case Study on Technological Innovation of Korean Firms
Indeed, the experience of successful East and South East Asian
countries shows that a latecomer resource-based theory would need to
deal with various categories of firm (local and foreign) which compete
from 'behind' the technology frontier. Most modern theories assume the
firm in question is leader or a follower, rather than a latecomer (and
usually a large firm), both in terms of intra-company resources and the
external environment. These resources and complementary assets cannot
be taken for granted in developing countries.
Therefore, a latecomer innovation theory needs to account for the
maj or disadvantages faced by firms which (at the start at least) are
dislocated from advanced markets and technologies. It should also
account for latecomer advantages, including low cost manual, technical
and engineering labour.
These may enable latecomer firms to conduct
innovative activities, such as the improvement of products and processes
at a fraction of the cost facing firms in developed economies.
The empirical evidence on latecomer innovation contrasts markedly
with traditional 'Western' models of innovation and place advanced R&D
at the centre of innovation. 16) As Kim(1997) shows for the case of
Korea, the path to catching up was one of step-by-step assimilation of
foreign technology, leading to more creative activities. At the national
level, Gerschenkron(1962) provides a theory of latecomer advantages and
disadvantages but, barring a few exceptions, this has yet to be done at
the firm level.
An elaboration of latecomer firm 'positions, paths and
processes' would be useful in understanding why innovation occurs in
some developing countries but not in others, and for understanding the
barriers and enablers of innovation at the company level.
16) Typical IAC models are included in Utterback and Abernathy(1975), Abernathy
and Clark(1985), Clark and Fujimoto(1991), Utterback and Suares(1993), Hamel
and Prahalad(1994), Chesbrough and Teece(1996), Tushman and O'Reilly(1997)
and Swann and Gill(1993).
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
45
8 ) T h e Ne e d f o r ' In n o v at io n ' in In no va t io n Mo d e ls
In addition to resource-based arguments for variety in innovation
patterns, there is a further fundamental reason why one should expect to
see major differences in innovation models and strategies, not identified
in the literature. Put simply, if all firms followed established models or
best practices, then all firms would be 'imitators'. This clearly cannot be
the case. For example, first movers, by definition, establish new
innovation models and strategies which can often change the competitive
'rules of the game' (e.g. IBM with e-commerce, Dell in personal
computers). This is sometimes called 'strategic innovation' which
encompasses not just technology, but marketing, corporate strategy,
distribution and other business processes (see Hamel, Hamel and
Prahalad). However, it is also the case that to be successful 'followers'
must also create new strategies and improve on existing technologies and
develop novel business models to counter the advantages of first movers.
In other words followers do not (and cannot) merely pass through the
stages of the first movers.
Equally, latecomer firms in developing countries must create new
strategies to overcome their sometimes acute technological and market
disadvantages in order to gain entry into international markets. They too
must engage in innovation at the strategic and technological levels in
order to create new market channels and benefits for customers. For
example, Korean electronics producers such as Samsung did not merely
imitate other competitors in the 1960s and 1970s when they began to
compete in electronics. Instead, they created new strategies, shaped by
their latecomer advantages and disadvantages, which involved rapid
technological learning, new
distribution channels and novel sub-
contracting relations with leaders in the advanced countries. The original
46
Case Study on Technological Innovation of Korean Firms
equipment manufacture (OEM) system is a case in point. This system
was brought into existence by East Asian firms and their international
buyers.
It is an example of a new institutional innovation, vital for
technological catching up and the successful export-led growth of Korean
latecomer firms (Hobday, 1995).
To the extent that latecomer firms do not simply follow existing
models or past behaviors when competing, then catching up is essentially
an innovative activity, at the level of strategy, marketing and technology.
In many circumstances latecomer firms cannot merely imitate the leaders.
The advance of leaders often changes the market and technology
circumstances facing latecomers by moving the technology frontier in
new directions. In addition, the latecomer will have its own distinctive
resources, capabilities and 'stage of backwardness'. Therefore, it is highly
likely that instead of following 'prescribed' catch up models or stages, a
latecomer firm will develop its own distinctive strategies based on its
own particular resources. At the early stages of catching up technological
innovation may well be less important than cost advantages. However,
through time as the firm begins to compete with international leaders,
technological innovation is likely to become central to the overall
business model followed by the firm in question.
To the extent that latecomer firm strategies differ from what has gone
before, and stages are not merely 'passed through' then innovation exists
in the process and strategy of innovation, and models of innovation
should accept and reflect this. 17) Empirical studies should attempt to
identify the innovative dimensions of catch up at the levels of strategy,
technology, organisation, management, human resources, marketing and
17) This argument is derived from the work of Gerschenkron(1968) and elaborated
upon in Hobday(2002), which argues the case for innovation at the policy and
national levels for development to occur.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
other key areas.
47
Studies should also analyse how technological
innovation is embedded within the firm and reveal the extent to which
imitation and innovation are combined in processes of catch up.
9 ) Us e a nd Mis us e o f In n o v at io n Mo d e ls
The need for variety and 'innovation in innovation models' implies that
models (especially stages models) cannot be used either as prescriptions
or lessons for contemporary latecomer firms, or for explaining previous
paths of innovation (except perhaps at a very general level). Latecomer
innovation paths are likely to vary according to the distinctive resources
of a particular firm and its particular stage of 'backwardness'. Therefore,
it is likely that empirical research will find that many firms did not
follow particular paths specified in models and that
significant
differences exist and persist among firms, even within the same sector.
However,
innovation
models
can
be
quite
useful
both
understanding and for practical purposes if used appropriately.
for
One
important use of innovation models is to use them to 'benchmark' new
patterns and thereby make sense out of them.
Indeed, without such a
benchmark it would be very difficult to analyse the different patterns of
firms and therefore very difficult to build new, more sophisticated and
accurate models.
To summarise, on the one hand, innovation models should not be used:
(a) to assume a particular historical behaviour on the part of a firm or
group of firms;
(b) to prescribe or recommend any specific form of innovation
behaviour on the part of existing firms;
48
Case Study on Technological Innovation of Korean Firms
(c) to inform policies to support particular forms of innovation, except
perhaps at a very general level (e.g. to support creative
experimentation);
(d) as a decision making tool within firms, unless it is made clear
that each firm will need to tailor and adapt the model to its own
resources and circumstances.
On the other hand, innovation models can be very important as
benchmarking tools for understanding the actual pattern followed by
firms. They can also be useful for practice and strategy, as long as
managers use them as a method for identifying actual practices and
tailor them to suit their own particular market circumstances, resources
and capabilities.
10 ) Im p lica t io ns f o r Em p irica l Re s e a rc h
If correct, the above arguments have interesting implications for
empirical research on innovation. For example, more attention should be
given to the extent of variety in models of innovation within and across
sectors and among firms in the same sector. Empirical research might be
able to show, in practice, how firms arrive at their particular innovation
process or model, showing what a resource-based model 'looks like' in
practice. Evidence could be gathered on contrasting types of innovation
models which firms in different sectors tend to follow and how firms
chose among them. This could help us understand the key factors which
determine the evolution of innovation processes, including variables such
as
management
strategy,
technology/product,
sector
requirements,
leadership and so on. It would be interesting to know how much 'room
for manoeuvre' a firm has in choosing an approach, given the 'lock in'
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
49
affect of history, resources and capabilities. Research could show how
much room for manoeuvre there is in contrasting sectors, distinguishing
between incremental and radical innovations. All this would be useful
for academic understanding, teaching, company strategy formulation and
practitioner training.
Equally, it is important to situate and analyse innovation within the
wider context of business strategy and other aspects of business
behaviour, culture and decision-making. Empirical research could reveal
the extent to which innovation processes are embedded within, and
subject to, wider business processes and sector circumstances. Again, this
would help reveal the space for strategic manoeuvring in innovation
practice. Research could also try and show the sources of creativity in
innovation models: does it arise from company leadership, market
necessity, 'bottom up' employee contributions, or a mixture of these and
other factors? Evidence on a representative selection of firms could show
the extent to which innovation models differ in reality and how they
were arrived at, helping us to understand more deeply the sources and
causes of innovation.
1 1) In n o v at io n Be nc h m a rking in S o ut h Ko re a
For developing countries in general (and Korea in particular) empirical
research could help reveal the scope for innovation variety in different
sector catch up situations.
Is there less, more or the same amount of
variety as appears to be the case among leading firms in the advanced
countries? Research could help show the differences across and within
sectors, and among similar firms in the same sector, explaining the
strategic choices made by particular firms. How important is imitation
vs innovation in strategies followed?
If strategic variety is necessary
50
Case Study on Technological Innovation of Korean Firms
and desirable for promoting innovation and new ways of competing from
behind the frontier, then what are the sources of experimentation and
learning and how can these be stimulated through policy (if at all)?
Part 4.8 suggests that in order to approach these types of questions, it
is useful to identify an approximate high level catch up innovation
model (e.g. Lee et. al, 1988) and compare it with the empirical reality
of what actually occurred, identifying both similarities and differences
(and reasons for them). This form of 'innovation benchmarking' could
produce new, more realistic innovation catch up models relevant to
different sectors, small firms and companies with contrasting sets of
resources and capabilities. This might help identify the key factors which
shape innovation behaviour and lead to success and failure in catch up
innovation. In turn, this would help us build more robust and realistic
models which could then be used for further data gathering and
benchmarking in different developing countries, in the continuous search
for a deeper understanding of the nature of catch up innovation.
<Table 2-3> suggests an innovation benchmarking framework for
future research in Korea. While it is true that no one innovation model
fits all sectors, there are particular patterns according to industry type as
shown by Cooper(1983). Therefore, it would be useful to compare the
innovation paths followed by firms facing different technology and
market contingencies (say across five major industries, from 1 to 5).
The Table suggests differentiating firms according to the extent and
depth of their capabilities (three types are presented, but there may be
more). There will also be significant differences between large, small
and medium sized firms, as well as local and foreign owned companies.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
51
<Ta ble 2- 3> Innovation Be nchma rking Fra mework for Firm Leve l
Resea rch in Korea .
Firm
Industry Innovation Characteristics
LevelCompetencies
Industry 1
Advanced capabilities]
(world leadership)
Industry 2
Industry 3
Industry 4
Industry 5
Firms A, B, C Firms A, B, C Firms A, B, C Firms A, B, C Firms A, B, C
Fast follower capabilities
Firms A, B, C Firms A, B, C Firms A, B, C Firms A, B, C Firms A, B, C
(R&D, plus new product
Latecomer
Firms A, B, C Firms A, B, C Firms A, B, C Firms A, B, C Firms A, B, C
(imitate, adapt and improve)
Benchmarking firms against models and cross industry comparisons
could reveal how and why individual firms arrive at particular innovation
processes within Korea. This would help researchers to understand the
key factors which determine innovation choices and establish how much
'room for manoeuvre' a firm has in adopting an innovation strategy,
given the 'lock in' affect of history and internal capabilities. Research
should distinguish clearly between high level general process models and
more detailed lower level decision making models for understanding and
guiding firm behaviour. It is also important to distinguish between
incremental, significant and radical innovations in future research.
It would be wise to analyse innovation within the wider context of
Korean business strategy and other aspects of business behaviour and
culture, showing the extent to which innovation processes are embedded
within, or independent from, other business processes. Research could try
and show the sources of creativity in innovation in Korea, comparing the
role of leadership with other factors such as market necessity, imitation,
and 'bottom up' employee contributions to innovation. For Korea,
benchmarking research could help reveal the scope for innovation variety
52
Case Study on Technological Innovation of Korean Firms
in different industrial catch up contexts, showing whether there is the
same, more or less variety compared with frontier competitors in the
advanced countries. At Korea's current, advanced stage of development,
how important is creative innovation, compared with the 'imitate and
improve' strategies followed in the past? If innovation variety is desirable
for
promoting
competitiveness,
then
how
can
the
sources
of
experimentation be expanded and what role, if any, does government
policy have in this area?
6 . Co n c lu s io n s
As more Korean firms reach the technology frontier, innovation
models and processes in the IACs will become increasingly relevant and
important for Korea. Even companies which operate behind the
technology frontier may have some leading edge products within their
portfolios. No doubt, as greater numbers of firms begin to compete as
leaders, access to foreign technologies will become
increasingly
constrained and new mechanisms for acquiring and generating technology
will be required. With this in mind, the purpose of this paper was to
provide a review of the strengths and weaknesses of IAC innovation
models and examine their relevance to Korea at its current, advanced
stage of catch up development.
On the positive side, each of the five generations of IAC innovation
model reflects a growing body of academic knowledge and deeper
analytical insights into the innovation process. Generally, the models
build upon each other, correcting earlier simplifications, inaccuracies and
omissions.
Some operate at 'high levels' of aggregation, useful for
general understanding and broad policy making purposes. Others address
'lower level' decision making within the firm. Some of the more recent
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
53
models provide in depth guidance to firms on how best to carry out
innovation activities, by helping them to establish benchmarks and
procedures to follow.
Although first and second generation models tend to exclude vital
elements of the innovation process, the later more sophisticated models
incorporate important feedback loops from later to early stages of
innovation, and from the S&T environment and government policies to
the firm and vice versa. Fourth and fifth generation models also account
for the important pre-innovation 'idea generation' stage, as well as the
post-innovation feedback essential for product re-designs to meet new
user needs.
The fifth generation network model attempts to show the
benefits to be gained from automating the innovation process through the
use of sophisticated information technology systems.
However, the individual models and the way innovation modelling has
proceeded are subj ect to at least three significant criticisms. First, there
is very little evidence to support the idea that actual innovation
processes have evolved in the way suggested. Indeed, the interpretation
of five successive generations appears to have as much to do with
evolving academic perceptions of innovation processes, rather than
empirically observed changes. Second, most innovation models lack an
explicit theoretical basis, the emphasis being on empirical description.
Few, if any, are grounded in coherent body of theory and therefore it is
difficult to identify the underlying assumptions and purposes of the
different models and to distinguish between lower and higher level
models. Third, partly because of the lack of theory, innovation is often
treated as an isolated process rather than as a part of the strategic
management of the firm or as a process embedded in other important
organisational activities.
In addition, the models tend to embody questionable, albeit implicit,
54
Case Study on Technological Innovation of Korean Firms
assumptions. For example, the assumption of, and search for, one 'best'
model to follow is highly dubious. Indeed, the evidence points to a wide
variety of innovation models between sectors, within sectors, and even
among firms in the same industry approaching the same innovation
problem. At very high levels of aggregation these maj or differences are
not always problematic. However, at the firm level, the assumption that
there is one generalizable, best practice model is misleading. The
appropriate model will not only depend on the sector and particular
innovation challenge, but also on the history, experiences and capabilities
of the firm in question. Equally incorrect for many firms, is the implicit
assumption of 'rationality'. In reality, the evidence shows that in many
cases firms lack the prior knowledge needed for rational behaviour and
search for solutions in less rational ways, including trial-and-error and
'muddling through' (Lindblom, 1959). In some cases, serendipity (or
luck) is important to the path of a successful innovation.
The paper argued that innovation models would be more convincing
and useful if they were located within an appropriate body of theory
which could deal with external contingencies, strategic choices and the
distinctive competencies of the firm in question. For firm level
innovation management purposes, modern resource-based theories of the
firm would provide the necessary theory, make explicit the assumptions
and purposes of the models, and help 'embed' innovation within the
broader context of firm activities and decision making. 18)
Because innovation models are seldom embedded within theory it is
often difficult to know 'what the innovation models are for' and what
they seek to do. As well as mixing up models of different levels of
18) Depending on the purpose of the research, alternative theories might also be
appropriate (e.g. political, sociological or strictly economic approaches). Again
there can be no one 'correct' or best approach to understanding or modelling
innovation.
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
55
aggregation, the purposes and uses of the models are often unclear. It
would appear that each model is 'context, content and observer'
dependent. In other words, the 'appropriate' model depends on the
context in which the innovation occurs (e.g. technology, sector and
market), the substance and challenge of the innovation itself (i.e. its
content) and the purpose of the observer.
In the case of firm level
decision making, a resource-based theory would give innovation models
the specific purpose of understanding innovation at the firm level, based
on a dynamic capability view of the firm.
In arguing that there is no one best model and that firms are
rationally bounded by their knowledge and competence, the paper
proposed that there are proper and improper ways of using firm level
innovation models. On the one hand, innovation models should not be
used to assume a particular historical behaviour on the part of firms,
even within an industry, given the degree of variety witnessed. Nor can
they be used normatively to prescribe or recommend best practice
innovation behaviour on the part of firms. Equally, the models should
not be used to inform policies for innovation, except perhaps at a very
high level (e.g. to support creativity and experimentation where it is
lacking). Nor should innovation models be used, on their own, as
decision making tools within firms.
On the other hand, if used creatively, innovation models can be very
important as analytical instruments for 'benchmarking' the actual patterns
of firm level innovation behaviour. Indeed, without an approximate
model to compare with the evidence, it would be very difficult to
understand, measure and analyse real innovation practices, and identify
patterns of difference and similarity among firms.
Firm level models
can also be useful for firm strategy purposes, as long as managers use
them intelligently and tailor them to suit their own particular circumstances,
56
Case Study on Technological Innovation of Korean Firms
resources and experiences. Blindly following or imitating an innovation
model, no matter how comprehensive, would more than likely mislead a
firm, given the wide variety of company capabilities.
Conversely, by
developing and adapting approximate models, firms could help clarify
the necessary decision making and key innovation variables and develop
their own distinctive innovation behaviour.
Put simply, in order to be
'innovative', each firm needs to tailor and adapt existing models to their
own resources, needs and experiences.
Future innovation research should develop new catch up and frontier
models relevant to different Korean sectors and to the small and medium
sized firms which have tended to be neglected in the past. The paper
proposed a framework for carrying out this work in Korea, taking into
account differences between industries, technologies and the firms
themselves. This research could also benefit other developing countries
in their own search for innovation strategies to promote competitiveness,
as long as any models are tailored to their own resources and
capabilities.
An nex 1 : Def in it io ns of Te ch no lo gy , R&D a nd In novat io n
Definition of Technology
Beginning
with
Schmookler's(1966,
p.18)
broad
definition
of
technology as the 'social pool of the industrial arts', technology can be
seen as a resource embodied not only in physical capital but also, more
importantly, in human skills, institutions and social structures. In contrast
with the static concept of production capacity, technology represents the
capability to create and extend the existing pool of technological
knowledge.
In developing countries technology transfer has occurred when some
Chapter 2. A Review of Firm Level Innovation Models In Industrially Advanced Countries
57
or all of the skills and knowledge related to a particular production
process or product have been acquired.
Transfer and acquisition are
therefore two sides of the same coin. Without the capability to acquire
technology, technology cannot be transferred.
Effort, investment and
purpose are required to acquire, assimilate and adapt technology and
build up the stock of technological capabilities.
Definition of R&D
According to authoritative Frascati Manual of the OECD (cited in
Brimble, 2001, p.3) R&D is defined as creative work carried out on a
systematic basis in order to create new or improved products, services or
other applications.
R&D always includes a substantial element of
novelty and the use of science and technology techniques for resolving
problems and uncertainties. There are three main classes of R&D:
1. basic research (i.e. experimental or theoretical work with no
application in mind);
2. applied research (which is original research required to acquire
and/or develop new technology with a possible application in
mind);
3. experimental development (which is directed at producing new
materials, products, processes and services).
Definition of Innovation
As noted in the introduction, innovation is defined in this paper as a
product, process or service new to the firm, as well as one new to the
world or marketplace. Innovation is a process, involving the application
of new knowledge and skills, rather than easily measurable once-and
58
Case Study on Technological Innovation of Korean Firms
-for-all events.
In the Asian newly industrializing economies, as in
many other developing countries, most innovation occurs from 'behind
the technology frontier' defined by the leaders in the advanced countries
(Hobday, 1995).
For developing countries to catch up, rather than merely 'keep up'
with developed countries learning and innovation are required. Building
technological capability through learning is a necessary but insufficient
condition for narrowing the technology gap with developed countries.
This is because the technology frontier itself is a moving target and can
be shifting away from the developing countries fairly rapidly in areas
such as information technology, the internet, new materials, telecommunications
and bio-technology.
Therefore, the pace and pattern of innovation in
developing countries strongly influences their ability to catch up.
59
Chapter 3
Samsung's DRAM Technology Development
Dae-Hee Lee (KIST)
1 . In t r o d u c t i on
DRAM is the success case of technological innovation that represents
Korea's state-of-the-art products. Korea achieved a drastic growth as it
emerged as the world frontier from the latecomer 10 years after it
entered the DRAM industry in early 1980s. In terms of the world
DRAM market share, Korea represented only 5.3% in 1987, sharply rose
to 23.6% in 1993, and accounted for 40% in 1999, thus growing as the
world-largest DRAM production country. Also, Samsung Electronics, a
corporation that represents Korea in the field of semiconductors, jumped
to the world 2nd place in 1989 from the 6th place in 1986, and since
1993, it has firmly retained the world-largest DRAM manufacturer status.
In terms of developing products as well, Samsung was four years behind
advanced countries in 64K DRAM, but it narrowed the gap to six
months in 1M DRAM, and catched up with advanced countries in 16M
DRAM. Likewise, beginning from 64M DRAM, Samsung successfully
developed new products ahead of advanced countries, thus growing into
the stage where the company leads the world technological frontier.
As such, much research has been conducted on the background and
success factors surrounding the rapid growth of Korean DRAM industry.
Existing research to explain the success factors of Korean DRAM
60
Case Study on Technological Innovation of Korean Firms
industry has focused on the international environment change including
the trade dispute between the U.S. and Japan, the initiatives by large
corporations with large-scale resources mobilization capabilities, the
government's financial support, and enterprises' own efforts as the
subjective element to accumulate technological capabilities(Cho & Kim,
1997; S.R. Kim, 1996; K. Lee, 2000). Of these, research focused on the
accumulation of technological capabilities, drew much attention in that
generation exchange between products was frequently made, and relevant
enterprises' securing their own technologies was essential in successfully
surviving and developing in the DRAM industry
<Ta ble 3- 1> Korea 's world DRAM ma rket s ha re tre nds
(Unit: US$ million, %)
World market size
1987
2,902
1990
6,525
1993
14,581
1995
42,233
1999
23,149
Korea's corporate sales
World market share
153
5.3
839
12.9
3,441
23.6
13,042
30.8
9,238
40.0
Source: Korea Semiconductor Industry Association (KSIA)
<Ta ble 3- 2> Top seve n corporations ' historica l tre nds
World rank
1984
1987
1990
1993
1
Hitachi
Toshiba
Toshiba
2
NEC
NEC
Samsung Hitachi
3
Fujitsu
Mitsubishi NEC
4
TI
TI
5
Samsung
1995
1999
Samsung Samsung
NEC
Hynix
Toshiba
Hitachi
Micron
TI
NEC
Hyundai NEC
Mitsubishi Hitachi
Hitachi
IBM
TI
Infineon
6
Mostek
Fujitsu
Fujitsu
TI
Toshiba
Toshiba
7
Motolola
Samsung
Mitsubishi Mitsubishi LG
Source: adapted from Cho & Kim (1997)
Hitachi
61
Chapter 3. Samsung's DRAM Technology Development
<Ta ble 3- 3> Ga p betwee n adva nced countries a nd Korea in DRAM
64K
Pioneer in
advanced 1979
countries
Development Pioneer in
1983
Time
Korea
Sample
Shipment
Time
256K
1M
4M
16M
64M
256M
1982
1985
Late
1987
early
1990
Late
1992
Mid1995
1984
1986
Early
1988
Mid1990
Late
1992
Early
1995
Ahead of
advanced
countries
Gap
4 years 2 years 1 year
Pioneer in
advanced
countries
Pioneer in
Korea
1st
half of
1980
1st half
of 1984
Gap
3.5 years 1.5 years 1 year
2nd
half of
1984
1st half
of 1986
6 months 3 months Same
2nd
half of
1986
2nd half
of 1987
2nd half 2nd half
of 1989 of 1991
2nd half 2nd half 2nd half
of 1989 of 1991 of 1994
First in
None None
the world
Source: Linsu Kim(1997)
However, research to explain the DRAM industry development from
the viewpoint of technological capabilities was mainly based on stage
model involving the import, adaption, and improvement of foreign
technologies. This stage model was made largely based on so-called the
model of developing country, as seen from the viewpoint of reverse
engineering starting from the technology import from advanced countries.
Likewise, technological development in the Korean DRAM industry,
progressed from low-level technologies to high-level technologies, from
simple
technologies
to
gradually
sophisticated
technologies,
and
eventually into stage of creating its own innovation (Cho & Kim, 1997;
Linsu Kim, 1997).
This stage model is useful in abstractly explaining the general trends
of the Korean DRAM industry development and analyzing the general
trace of technological development. However, they have limitations in
62
Case Study on Technological Innovation of Korean Firms
comprehensively handling diverse aspects of technological innovation,
and in particular, they have limitations in explaining the leapfrogging in
the DRAM field achieved by Korea in a shorter period. Thus, this
research takes different approach in order to explain the Korean DRAM
industry development wherein Korea skipped the step-by-step process in
the DRAM experienced by the advanced countries, directly challenged
VLSI, and afterwards caught up with and surpassed the advanced
countries.
With this purpose, this research proposes the dynamic jigsaw puzzle
model as the model designed to explain the technological innovation of
Korean DRAM industry. This model views the real picture of
technological innovation in the field of DRAM as being not necessarily
occurred in the consecutive way, such as
adaptation and improvement
technology import
creation. Rather, the model takes the
view that the innovation involves the dynamic combination of the three
elements - corporations' internally accumulated technologies, external
technologies acquired from outside(overseas), and external technologies
on which they still depend entirely.
Of course, securing all these three elements, no doubt, is essential for
successful technological innovation. However, the abilities to handle all
these elements simultaneously, i.e., the integration abilities to combine all
relevant elements and reach the goal, are not less important.
From this viewpoint, the dynamic jigsaw puzzle model as proposed in
this
research
technological
has
the
following
innovation
activities
characteristics.
First,
include
combination
the
corporate
of
internally-accumulated technologies, externally-acquired technologies, and
external-dependent technologies. Second, the way that technological
innovation activities are conducted, as performing j igsaw puzzles, is a
very complex, flexible and dynamic process wherein innumerable
Chapter 3. Samsung's DRAM Technology Development
63
explorations and trials and errors are made. Third, it is important to
secure the individual element, and also it is not less important to
integrate all these elements and bring them to a successful production.
Also, these integration abilities include both technical and non-technical
elements such as the abilities to mobilize resources. Fourth, the
composition ratio of these three elements changes from initial products
to next-generation products, and this means that technological capabilities
change and improve cumulatively.
From this viewpoint, this research seeks to answer the following
questions. How are changed the relative weight and role of three elements
comprising the dynamic jigsaw puzzle model in the Korean DRAM
industry development? If the composition ratio is changed, what makes
the qualitative leapfrogging? Also, what are the contents of the integration
abilities to combine these three elements and what role do they play?
To give explanations to these tasks, this research conducts the case
study on Samsung Electronics. Samsung is the Korean representative
semiconductor firm, and has achieved a stunning performance in the
field of DRAM. In particular, in the course where in a short span of ten
years, Samsung has emerged as a world-class company, diverse types of
its technological development activities are distinctively different from
other companies, thus making Samsung deserve the symbolic case in
analyzing Korea's semiconductor industry development in firm level.
This research is structured as follows. First, it gives a brief look at
the characteristics of the DRAM industry, and discusses how the three
elements of the jigsaw puzzle model develop according to product
generations, what the integration abilities are to combine these elements,
and what role they play. Lastly, the research summarizes the Samsung's
technology development, focusing on the characteristics of its innovation
strategy, innovation system, and innovation method.
64
Case Study on Technological Innovation of Korean Firms
2 . Ch a r a c t e r is t i c s of t h e DRAM In d u s t r y
Manufacturing semiconductor has been described as one of the most
complex mass-production processes in the industrial history of the world
(Yoffie, 1990). The manufacturing activities of semiconductor are divided
into design
Circuit
fabrication
design
is the
assembly
first
testing.
important
step
toward making
semiconductor. The design process is normally done using
a
CAD
(Computer-Aided Design) equipment, and in this process, electronic
circuit and circuit patterns to be drawn on the wafer are formed. This
design process is the most
skill-intensive, costly phase in the
semiconductor production (Yoffie, 1990). Generally, it is known that this
design field is one of the Korea's weakest sectors, and this phenomenon
is closely related to the historical legacy of Korea's industrial
development
process wherein
Korean
enterprises
concentrated
on
importing components from foreign countries and assembling them (S.
Ran Kim, 1996).
The next step is the wafer fabrication stage, which begins with the
production of wafer. The wafer production process starts from growing
silicon into single crystal ingots, and cuts and grinds them into thin
wafers. The next process imprints circuit patterns formed in the design
process onto the silicon wafer, and fabricates the micro-structure of
semiconductor device, thus completing the wafer fabrication process.
However, in order to transfer the circuit pattern into semiconductor
device in the actual wafer fabrication stage, it requires very complicated
process involving oxidation, etching, and ion implantation. Likewise, this
wafer fabrication process determines the yield that influences the
competitiveness of the DRAM industry, and thus semiconductor makers
place much emphasis on this process.
Chapter 3. Samsung's DRAM Technology Development
The third step is the assembly stage.
65
It cuts wafers and separates
chips, attaches individual chips onto the lead frame, and finally
undergoes a packaging process designed to protect the chip circuit from
outside, thus completing the manufacturing of semiconductor. Normally,
this assembly stage is a labor-intensive process, and is mainly performed
in low-wage countries.
Last step is the testing stage aimed at ensuring the reliability. This
stage conducts the final test on the functions of a finished chip through
computer, and successful products are to be sold to consumers.
A string of these semiconductor processes require many materials and
equipment. The core materials used in manufacturing semiconductor
include silicon wafer, photomask, photoresist, lead frame, and package
material, among other things. Also, it requires diverse sophisticated
equipment such as wafer cutter, clean room-related units, and semiconductor
tester.
The complexity and difficulty in manufacturing DRAM lead to long
lead times for plants to come on-stream, as well as large investment cost
of US$ 200 - 500 million. In particular, it requires hundreds of
equipments to manufacture semiconductor, and a core equipment cost
tops hundreds of million won. Owing to these capital-intensive
characteristics of the DRAM industry, a large firm can be said to be
more favorable.
Also, in the aspect of technology advancement, the DRAM industry
sees frequent production innovation aimed at improving the density per
chip and expanding information storage capacity. Normally, in the
DRAM industry, new generation products are unveiled every three years,
and they have only 2-4 years of dominating the market (Cho & Kim,
1997). Thus, the DRAM industry embraces the characteristics of
continuously developing new products and structuring mass-production
system at an early date in order to succeed in the business.
66
Case Study on Technological Innovation of Korean Firms
Lastly, the DRAM manufacturing processes are technically separable.
In other words, design, wafer fabrication, assembly, and test can be
conducted in different places or countries (Ruttan, 2001). Due to these
characteristics, semiconductor makers are comprised of diverse types of
firms such as design houses which specialize only in chip design and
subcontract the manufacturing to foundries, process specialists which
specialize in a narrow tasks such as preparing masks or testing circuits,
and semi-custom houses which focus exclusively on products such as
ASIC.
This separability of DRAM manufacturing is the starting point of
j igsaw puzzle model designed to analyze the technology development of
Samsung Electronics. If separable are design, wafer fabrication, assembly,
and testing, these elements can be purchased or acquired from outside,
and Samsung Electronics was able to efficiently integrate and combine
all elements necessary for manufacturing semiconductors and thus grow fast.
3 . Th e
Dy n a m ic s
of
Sam s u n g' s
T e c h n o lo g ic a l
Dev
C a p a b ilit y Ac c u m u l a t i on
After Samsung Electronics entering the DRAM in 1983, its development
is divided into three periods. The 1st period is the first generation model
stage during which the company depended on external resources for core
technologies necessary for manufacturing semiconductor, spanning the
entry time to the time of developing 64K DRAM. The 2nd period is the
second
generation
model
stage
during
which
the
portion
of
externally-acquired technologies was high, spanning until the time of
developing 256K DRAM. The 3rd period is the third generation model
stage during which the role of internally-acquired technologies was
crucial, spanning the time of developing 1M DRAM until present.
Chapter 3. Samsung's DRAM Technology Development
67
1) First g e ne rat io n Mo d e l: Exte rna l Te c h no lo g y- d e pe nd e nt
Pe rio d
The first generation model stage is the period during which Samsung
Electronics entered the DRAM industry in 1983 and successfully
structured 64K DRAM mass production system. During this stage, the
company depended on importing most of technological
knowledge and
production know-how essential for manufacturing semiconductor from
advanced
countries.
Likewise,
Samsung
Electronics'
technology
development activities focused on learning externally-acquired technologies
and improving imported technologies to fit to Korea's production
conditions (Choi, 2002).
Samsung Electronics, when entering the DRAM industry, was a
latecomer
and
was
far
behind
overseas
leading
companies
in
technological prowess; thus it had to achieve the development of
products in a short period (Cho, 1995). In particular, Samsung
Electronics was not in a position to gradually undergo the phases of SSI
MSI
LSI
VLSI as experienced by advanced countries, but
rather, chose the leapfrogging strategy of entering VLSI directly, thus
enhancing the necessity of securing technologies earlier.
To secure these technologies earlier, Samsung Electronics focused on
purchasing technologies from overseas if possible. In particular, the
company imported the core and most difficulty technologies, design and
wafer fabrication technologies, from overseas; 64K DRAM design
technology from the U.S. Micron Technology and Zytrex, and wafer
process technology from the Japanese Sharp.
However, Samsung Electronics not only imported technologies from
the advanced countries, but also simultaneously dispatched personnel to
overseas companies from which it imported technologies, hired Korean-
68
Case Study on Technological Innovation of Korean Firms
American scientists, thus striving to internalize external-dependent
technologies. The representative case of these efforts is so called Eleven
Meeting (Choi et al, 2002). This Eleven Meeting was the meeting where
personnel engaged in DRAM development and production activities got
together at eleven every night and reviewed the day's performance and
progress, and also comprehensively discussed and adjusted the next day's
work plans. Intensive technology learning activities like this helped
Samsung Electronics speedily internalize external-dependent technologies
in developing and mass-producing 64K DRAM.
On the other hand, Samsung Electronics depended on the external
sources for design and wafer fabrication technology, while it acquired
and used assembly technology with relative low difficulty. In particular,
Samsung Electronics imported and assembled 3,000 64K DRAM chips
from the U.S. Micron Technology, and could easily secure relevant
assembly technology. Likewise, this easiness was thanks to the
technological base previously laid by Samsung Electronics. The company
continued to accumulate technologies and experiences related to the
manufacturing of semiconductor since its takeover of Korea Semiconductor
Co. in the mid-1970s, and manufactured home appliance-use LSI, albeit
in a small-scale. Also, as Samsung Electronics began to manufacture
home
appliances, it
accumulated mass-production technology
and
know-how for standardized products that constitute the core element of
the DRAM competitiveness. These pre-accumulated technologies and
knowledges served as a crucial base for Samsung to be able to acquire
the DRAM assembly technology without much difficulty.
On the other hand, Samsung Electronics implemented the strategy of
depending on external sources for plant design and construction, and
equipments and materials. In particular, in connection with the external
acquisition of equipments, it is noteworthy that it adopted the method of
Chapter 3. Samsung's DRAM Technology Development
69
securing the state-of-the-art equipment. Likewise, Samsung, which was
lacking in technological prowesses and experiences at the initial stage,
recognized that securing high yield and superior products was the key to
the business success, and technical informations provided by these
equipment suppliers was crucial sources in acquiring the mass-production
technologies.
In summary, during the first-generation model stage, Samsung
Electronics as a latecomer, sought to curtail the technology development
and plant construction period, and thus adopted the strategy of depending
on external sources for DRAM manufacturing core technologies, i.e.,
design and fabrication technology, and production equipments and
materials.
However,
technologies,
Samsung
simultaneously
strove
to
with
absorb
the
import
of
external
and internalize
licensed
technologies, and thus it could not only understand the DRAM
technology in a short period but also speedily establish the production
technology. Likewise, the company could prepare a crucial springboard
to narrow the gap with world frontier in developing next-generation
products.
2 ) S e co n d g e n e rat io n Mo d e l: Ext e rn a l Te c h n o lo g y
Acq u is it io n Pe rio d
The second generation model stage is the period during which
Samsung Electronics succeeded in developing 256K DRAM. During this
stage, the company decreased the portion of the external-dependent
technologies, but still gained ideas and basic knowledges from external
sources in developing new product (Choi, 2002).
Samsung Electronics, in developing 64K DRAM, intensively strove to
internalize external-dependent technologies. As a result, it could decrease
70
Case Study on Technological Innovation of Korean Firms
its dependence on external technologies in developing 256K DRAM, but
increase the role and weight of its external-acquired technologies. For
example, Samsung imported the design technology of 256K DRAM from
the U.S. Micron Technology as in developing 64K DRAM. This external
dependence on design technology implies that the semiconductor design
not only required highly skillful knowledge, but also Samsung deemed it
more efficient to purchase technologies from outside sources in order to
narrow the commercialization gap with leading companies in the
advanced countries.
However, based on the experience in the development of 64K DRAM,
Samsung adopted the method of using and learning externally-acquired
technologies regarding the wafer fabrication and assembly technologies of
256K DRAM. For this purpose, Samsung surveyed and explored all
related literature regarding 256K DRAM production processes and
technological specifications, received technology training from technology
exporters and technological advices from external specialists, thus
absorbing and securing wafer fabrication and assembly technologies.
However, it was not easy to use these externally-acquired technologies
in developing 256K DRAM, and numerous difficulties should be
resolved. Of these, essential for developing 256K DRAM and securing
the relevant mass production technology were the development of
process for 2 micron circuits, 200 angstrom thin oxide fabrication, 1.1
micro meter metal pitch and chemical etching, and ceramic package
assembly (Linsu Kim, 1997). Samsung Electronics made tremendous
efforts as in developing 64K DRAM and thus could successfully secure
these technologies and narrow the gap with advanced countries.
On the other hand, as in developing 64K DRAM, Samsung depended
on the external sources for core equipments and materials. However, in
the earlier stages, the company used standard equipment models provided
Chapter 3. Samsung's DRAM Technology Development
71
by equipment suppliers, while as its technological capabilities increased,
the company called for its own appropriate specifications (Choi et al,
2002). Also, drawing our attention regarding the external acquisition of
equipments is that in order to speedily experiment and test new
equipments, Samsung dispatched large-scale technical teams to equipment
manufacturers in the U.S. and Japan. For instance, an engineer from
Samsung went to a Japanese equipment firm to measure an appropriate
manufacturing parameter for a certain process, afterwards to go to a U.S.
equipment manufacturer to measure
an
appropriate manufacturing
parameter, and finally to go to another Japanese equipment manufacturer
to extract appropriate test results for the next process (Choi et al, 2002).
In short, during the second-generation model stage, based on
technological capabilities accumulated in developing 64K DRAM,
Samsung successfully structure the mass production system of 256K
DRAM using externally-acquired technologies. However, Samsung still
acquired basic knowledges and know-hows from the advanced countries,
but experience and technologies acquired during this stage, served as an
invaluable foundation for Samsung to develop its own technological
capabilities after 1M DRAM.
3 ) T h ird g e n e rat io n Mo d e l: Te c h n o lo g y- c re a t in g Pe rio d
The third generation model stage spans from Samsung's development
of 1M DRAM until present. During this stage, Based its own innovation
capabilities, Samsung began to create its own new products. Although
there was external technology licensing, new ideas and technological
knowledges were largely created through internal efforts (Choi, 2002).
As Samsung Electronics enhanced its technological capabilities to the
world-class level and had no more targets from which it needed to
72
Case Study on Technological Innovation of Korean Firms
import technologies, it had to develop on its own the whole process of
design, wafer fabrication, and assembly after 1M DRAM. However,
although
Samsung
Electronics
secured
considerable
technological
capabilities through the experiences of developing 64K and 256K
DRAM, it still depended on externally-acquired technologies for the
design technology of 1M and 4M DRAM, and developed only wafer
fabrication and assembly technologies on its own.
The external acquisition of design technology was conducted through
technical informations and literatures from pioneering advanced firms
and reverse engineering. In particular, technology acquisition through
reverse engineering was conducted as Samsung analyzed DRAM
designed by advanced firms, studied the circuits, and reenacted the
design as it was (Cho & Kim, 1997). Likewise, Samsung cut the section
of DRAM chips one by one, analyzed its structure through a electron
microscope, used these informations as a basis to reproduce the design
drawings, and thus acquired the design technologies.
On the other hand, Samsung pursued the development of wafer
fabrication
and
assembly
technologies using
internally-accumulated
technologies. However, the company had to address numerous difficult
problems in order to develop new products using its own technologies.
Of these, it was crucial to secure technologies related to C-MOS and
stack methods that emerged as a new technological mainstream. Samsung
Electronics could succeed in developing these technologies, based on its
own technologies accumulated during the previous stages.
Also, to shorten the commercialization timing of new products,
Samsung pursued the construction of mass-production lines simultaneously
with its R&D efforts. Also, in connection with production equipment, a
notable change occurred; Samsung Electronics reached the stage of
developing equipment jointly in consultation with equipment manufacturers,
Chapter 3. Samsung's DRAM Technology Development
73
and of providing the cutting-edge technical information to these suppliers
(Choi et al, 2002).
On the other hand, although Samsung used externally-acquired
technologies in developing 1M and 4M DRAM design technologies, it
used the internally-accumulated technologies after 16M DRAM, and
began to develop and create the whole process of manufacturing
semiconductors on its own (Choi et al, 2002). In particular, Samsung
Electronics accomplished landmark achievements as it developed 64M in
1992, 256M in 1994, and 1G in 1996, for the first time in the world.
Furthermore, to develop 1G DRAM called the semiconductor of dream,
Samsung developed the low electricity consumption technology of 1.8-2.0
volt, adopted redundancy technology involving the process of 0.18
micrometer super-precision micro fabrication, and enabled a super speed
of 30 nanosecond and super-high integration. Furthermore, in 1998,
Samsung developed super-micro fabrication technology of a circuit line
with the width of 0.13 micrometer essential for developing 4G DRAM
semiconductor, marking the first of its kind in the world.
To sum up, Samsung Electronics's technology development, after it
entered the DRAM industry in 1983 until present, shows a great change
in the composition ratio of internally-accumulated technologies, externally
acquired technologies, and external-dependent technologies. As shown in
the following Table, external-dependent technologies played a central role
in the initial stage. However, gradually, the weight of externally-acquired
technologies increased, and eventually, Samsung reached the stage of
using internally-accumulated technologies and developed into creating its
own new technologies.
74
Case Study on Technological Innovation of Korean Firms
<Ta ble 3- 4> Tre nds of Technologies Compos ition by Product Ge ne ration
Division
Design
Fabrication
Assembly
Testing
64K
256K
1M～4M
After 16M
Note)
: External-dependent technologies,
: Internally-accumulated technologies
: Externally-acquired technologies,
On the other hand, although Samsung Electronics made active efforts
to secure individual elements of the j igsaw puzzzle model, its integration
abilities to focus on all these elements, and to combine them efficiently
played a crucial role in advancing Samsung Electronics to the world
frontier in the field of DRAM. Although the DRAM market was
established and the technology path was relatively clear, it entailed
tremendous challenges and risks for Samsung Electronics to make a
success. In particular, since manufacturing DRAM requires hundreds of
processes, and these processes are very complex, it is the key to the
success of the business to secure mass-production systems earlier. Thus,
crucial is the top management's abilities to integrate internal and external
technological resources. Cited as an example of these integration abilities
are recruiting of domestic and overseas superior manpower, parallel
development systems designed to shorten the periods for developing and
commercializing products, securing of the-state-of-art manufacturing
equipments, technologies management focused on production, and linkage
with and integration of relevant divisions.
Chapter 3. Samsung's DRAM Technology Development
75
4 . Co n c lu s io n
This research analyzed the case of Samsung Electronics' DRAM
technological innovation from the viewpoint of dynamic jigsaw puzzle
model. As a result, it could confirm the usefulness of this model as an
alternative for existing stage model designed to analyze the development
of Korean semiconductor industry.
Based on the result of this analysis, summing up the Samsung
Electronics' technological innovations, the following characteristics could
be induced. First, from the aspect of innovation strategies, Samsung
Electronics could jump to the world frontier in the field of DRAM in a
short
period
as
it
focused
on
all
three
elements
including
internally-accumulated technologies, externally-acquired technologies, and
external-dependent technologies, and made efforts to actively secure and
efficiently use them. Furthermore, Samsung exercised the integration
abilities to efficiently combine these elements, sped up the formation of
core technologies, and thus led successful technological innovation.
Second, from the aspect of innovative systems, Samsung Electronics
sought to compete directly with pioneering advanced companies from the
initial stage, and also put management and initiatives over the entire
technology development activities under its control and strove to secure
competitiveness in timing, aimed at compressing product development. In
particular, since the securing of mass-production system earlier in the
DRAM industry are the key to the success of the business, Samsung
Electronics made tremendous efforts to earlier develop products and
technologies under a strict time schedule management, and these efforts
provided the basis to catch up with advanced countries.
Third, from the aspect of the innovation method, Samsung implemented
outsourcing method aimed at efficiently pursuing technological innovation
76
Case Study on Technological Innovation of Korean Firms
activities. In particular, Samsung as a latecomer, in order to catch up
with leading companies, mobilized the best manpowers, equipments and
resources -- at home and overseas. This outsourcing innovation system
played a crucial role in enabling Samsung Electronics to stabilize its
production system and secure world competitiveness in a short period.
However, to use this proposed model widely, various tasks need to be
done additionally. Of these, research is needed to determine details of
internally-accumulated technologies, externally-acquired technologies, and
external-dependent technologies according to respective model stages.
Also, in-depth research needs to be conducted to analyze the integration
abilities to combine these elements and finally link them to successful
production. Also, in order to verify whether the case of Samsung
Electronics' technological innovation using the j igsaw puzzle model is
differentiated from or similar to advanced countries, further research
should be conducted.
77
Chapter 4
Technological Capability Building in Hyundai Motor
Company
Mi-Jung Um (STEPI)
1. Introduction
Technological capability building is an issue that has been widely
discussed in the last 20 years by two different theoretical traditions
based on firm-level empirical research (Figueiredo, 2002; Durenit, 2000).
The first is the tradition of research on technological capability
accumulation of industrial firms in developing countries (Figueiredo,
2001). This tradition has concentrated on the learning processes involved
in building up a minimum base of essential knowledge to engage in
innovative activity. One of the main of these was to illustrate at the
firm level that there had been an 'indigenous technological effort' which
had resulted in the accumulation of technological capabilities. However it
has paid inadequate attention to two issues : 1) the organizational and
managerial aspects of that stage of accumulation; and ii) the later stage
of accumulation as firms approach the international technological frontier
and seek to build the more complex and integrated knowledge bases
needed to make strategic use of that knowledge.
The second tradition is the strategic management literatures about
building core/strategic capabilities or competences of firms at the
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Case Study on Technological Innovation of Korean Firms
international frontier in advanced industrial countries. This literature has
given considerable attention to organizational issues, but with reference
to knowledge management in maintaining and renewing strategic
innovative capabilities that already exist. However this body of literature
has given little attentions to how those strategic capabilities were initially
accumulated.
Only recently the interest on the transition process of these two
traditions are growing (Dutrenit, 2000; Hwang & Choung, 2002),
because some developing countries' firms have shown outstanding growth
of the international competence. 19) Dutrenit(2000) empirically studied
about the Mexican glassy company that have accumulated knowledges
and built the minimum essential knowledge bases, and even more close
to the international technological frontier in some areas but have not yet
built core/strategic capabilities. The study called the phase of the firm as
'transition process', which has a different learning process with both
catching-up
process
of
developing
firm
and
strategic
capability
management of advanced firm. The firm in transition process should
build embryonic strategic capabilities.20)
With similarity in basic concept, Hwang & Choung (2002), focused
on Samsung Electronics in Korea, introduced the notion of dynamic
capability for latecomer and suggested the 'dynamic capability' of the
latecomer implies to sustain competitiveness by achieving knowledges
19 Samsung is a example of such a outstanding growth in competence. Samsung in
Korea became top company in DRAM and cellular phone, even though it was
one of latecomer firms in 1970s and 1980s.
20 Embryonic strategic capability are those advanced innovative technological
capabilities that are still incipient, they are not used to distinguish the firm
competitively. They include a deeper stock of knowledge accumulated more in
some technical-functions, technical areas or knowledge fields the in others, and
which can be the base on which to build strategic capabilities. Embryonic
strategic capabilities are built in the Transition Process area (Dutrenit, 2000).
Chapter 4. Technological Capability Building in Hyundai Motor Company
generating
capabilities
beyond
assimilating
and
using
79
imported
technology. Technology using capability relate to the knowledges and
skills required to use existing technology in order to product certain
products. On the other hand, technology generating capabilities refer to
the knowledges and skills which are needed to manage and generate
technology. It encompasses capability to improve and continuously adapt
its products and processes and moreover, the creation of new technology.
Hyundai Motors Company (HMC) which entered the global automotive
industry as a latecomer in 1968 is continuing its efforts to improve
technological competitiveness and aims for the fifth rank in the world.
Likewise, the company transcended the stage of catching-up and has
grown into the stage of accumulating strategic capabilities. Thus, this
research
seeks to
determine
what
changes
occurred
in
HMC's
technological strategies in process of building its technological capability,
as well as the company's internal learning processes and changes in
organizational structure.
2 . Ou t lin e of HMC ' s D ev e lo p m e n t Pr o c e s s
HMC was founded in December, 1967, becoming a later entrant in the
automobile industry compared to Daewoo, Kia, and Ssangyong Motor.
The company entered the automobile market as a latecomer, and it
became a major maker in the domestic market after 1980s. HMC is also
expanding its presence in the global market. In the late 1990s, in
particular, it endeavored to achieve a qualitative leapfrogging forward
through reevaluation in the North American market. This section outlines
the development processes of HMC.
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Case Study on Technological Innovation of Korean Firms
Source : KAMA
[Figure 4- 1] Korea n ve hicle production a nd Export (1962- 2001)
Source: Hyundai Motor
[Figure 4- 2] Tre nds of HMC's Production a nd Export(1968- 2001)
Chapter 4. Technological Capability Building in Hyundai Motor Company
81
As shown in [Figure 4-1], the Korean automobile industry sharply grew
since the 1980s. Finally in 2002, Korea captured the fifth rank in the
world in terms of production output. Likewise, since HMC started to
manufacture about 1,000 cars in 1978, it has steadily been increasing its
output (see [Figure 4-2]). In particular, from 1986 when HMC advanced
to the American market, the output sharply rose. Afterwards, it grew to
capture a 50% share of the Korean market, and today it has grown as
No. 1 maker in the Korean market and No. 8 maker in the global market.
<Ta ble 4- 1> Product History of HMC
1960s
1970s
1980s
Subcompact
Pony('76)
Pony
Excel
Compact Cortina
New
Cortina
Mark IV
Medium
Large
Ford 20M
Mark V
Steller
first half of
1990s
New Excel
Scoupe
Accent series
second half of
1990s
Click
Verna Series
Elantra
Avante series
Avante series
Sonata series
Marcia
Sonata series
Granada
Grandeur series
New Grandeur*
Grandeur*
Equs*
Note: Normal: foreign models; Highlighted: indigenous models; Underlined and
highlighted: completely indigenous models
* : Joint research with Mitsubishi
HMC also has continued to widen the kinds of cars of its own
production. HMC first started to assemble foreign models, and then fast
moved to produce its own indigenous models and completely indigenous
models. Through the gradual expansion of the kinds of cars of its own
production, in 1992, it could produce its own indigenous cars ranging
from compact to large types. Also, in 1994, HMC produced its first
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Case Study on Technological Innovation of Korean Firms
completely indigenous car, 'Accent', which was followed by 'Avante'
series and 'Sonata' series. Currently, it produces most of its cars with its
own technology. Yet, since generally, the automobile industry requires
complex and advanced technologies, a latecomer will have difficulty
securing its technological power. As such, in its history of over 30
years, HMC has secured remarkable technological capabilities comparable
with those of advanced countries, thus receiving the world's attention.
<Ta ble 4- 2> Technologica l Ca pa bilities Deve lopme nt of HMC
T echnological
Capability Step
Period
Knock
Down
～1974
Criteria of Step
KD
Indigenous Model
Mass Production
Export to USA
Main Product
Cortina
Pony, Excel
Indigenous Model
～1990
Acquired
T echnology
Assembly
T echnology
T echnology
sources
Foreign Car
maker
New product
technology.
T echnology in
response to advanced
nations ' regulation
Internal and external
research centers
T echnological
Focus
Driving and
running
Safety and
comfortableness
Completely Indigenous
Model
after 1990
development of
engine,
Export- area local
factories and local
models
Accent, Avante,
Sonata
New T echnology
Internal and external
research centers
Innovative
low - pollution engine.
Social
requirements- accomm
odated
Source: Kim et al.(1999)
The process of HMC's achieving technological capabilities is divided
into 1) assembly period ( 1974), 2) indigenous model period ( 1990),
and 3) generating period (after
1990) in terms of development
Chapter 4. Technological Capability Building in Hyundai Motor Company
self-independence. HMC, until the early
83
1970s, assembled foreign
models, and focused its capabilities on acquiring assembly technology
(assembly period). In 1974, in line with the announcement of 'Korean
government's Long-term Automobile Industry Promotion Plan', the
company developed its indigenous model Pony, and export-oriented
strategic model 'Excel' as its indigenous model (indigenous model
period). In the early 1990s, HMC developed its own indigenous engines,
suggesting it established the base for competing in the global market,
and then entered the generating period. After the development of
engines, the company continued to develop the follow-up engines and
next-generation cars, and strove to secure global competitiveness.
<Ta ble 4- 3> HMC's Technology De pe nde ncy Tre nds Rega rding its
Indige nous- Mode l Pa sse nge r Ca rs
Car
Year development
completed
Pony Stella X- 1 Y- 2 X- 2 SLC J- 1 SLC L- 2 Y- 3 X- 3 J- 2
1976
1983
1985 1988 1989 1990 1990 1991 1992 1993 1994 1994
Styling
Car body design
Engine, transmission
Chassis layout
◐
◐
◐
◐
◐
◐
◐
◐
◐
Note: X,Y,J, and L are official codes that represent Excel, Sonata, Grandueur, and
Elantra, respectively. SLC stands for Scoupe.
Source: Kim(1994, p.218)
As shown in <table 4-3>, it accumulated design technology and
engine technology sequentially and gradually. With the development of
'Sonata' in the mid-1980s, HMC could employ technological alternatives
by conducting styling on its own. Since 1991, the company could install
'alpha' engine and transmission of its own development in its 'Scoupe'
car for the first time. Likewise, during the indigenous model period, it
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Case Study on Technological Innovation of Korean Firms
secured its own design technology, and it is during the indigenous model
stage that the company secured its own engine and transmission
technology.
In such processes of technological capabilities accumulation, HMC's
unique strategies - unlike those of other domestic companies - played a
crucial role. First, regarding management, HMC continued to pursue its
own management strategies (Kim, 1994). These strategies worked
adversely in HMC's initial negotiations with car makers in advanced
nations, but, from the aspect of technology accumulation, they could
provide discretionary power to HMC enabling it to rapidly achieve
technology accumulation compared to other car makers in Korea and
Central and South America.
Also, HMC embraced its own brand-based export strategies (Kim,
1994; Kim, 1998). To secure global competitiveness, it considered
installing production facilities having the capacity of 300 thousand units
per car type, and to that end, it established its basic strategies focused
on exports. Exports required advanced technologies. In particular, by
advancing to the global market with its own brands, HMC faced much
other pressure differently from other domestic makers, and yet, it could
thus accelerate its technology accumulation.
Lastly, HMC strategies of its decision to develop its own engines
gave another change to building its technological capability. In the
process of a string of such growth, HMC recognized the need for
developing its own Powertrain ahead of any other makers, and repeated
failures and reattempts to develop its own engines for the first time in
Korea, thus consolidating its base for competing with advanced car
makers. These respective strategies created crisis internally by period and
served as a major motivation for learning (Kim, 1998).
Based on the experience of the 'alpha' engine development, HMC, in
Chapter 4. Technological Capability Building in Hyundai Motor Company
85
1995, developed 'beta' engine with high output and low fuel rate on its
own, and installed it to 'Tiburon'. In 1996, it developed on its own engine
electronic control system and automatic transmission electronic control
system - core parts for which it depended on foreign technology. 'EF
Sonata' hitting the market in 1997 could be the product that proved
HMC's automobile levels. 'EF Sonata', which was developed aiming to
compete with Japanese cars on equal footing, employed the company's
own 'delta' engine designed for large cars and suspense technology
acquired from 'Tiburon'.
The process of HMC's technology accumulation is divided into first
strategic period focused on catching up with advanced nations and second
strategic period focused on competition. If technology accumulation details
are divided based on the foundation, the point of the time when HMC
could conduct design and develop basic engines on its own can be said to
be the time when it sought to convert to the competitive position in the
global automotive market. Also, during the period of 1995-1997, the
image change of HMC occurred in markets, and export markets saw
major products change from compact cars to SUV and enhanced cars.
Thus, from the outset to around the middle of 1990s HMC built up the
minimum essential knowledge base to survive in the market, such as
engine and design technology. From 1996-1997 the company started a
transition process from building of the essential knowledge base to
building strategic capabilities. Afterwards, based on accumulated stock, the
company shifted its focus to accumulation of strategic capabilities.
3 . Th e p r o c e s s o f b u il d in g u p t h e E s s e n t ia l Kn ow le d g e
this and next sections deal with technology import for respective
periods, and the processes of its internal technological accumulation.
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Case Study on Technological Innovation of Korean Firms
Regarding the external technology import, reviewed are technology
import sources, technology import details, and technology level of
imported technology. The internal technological accumulation process
describe mainly learning processes and organizational changes.
1) Im p o rt o f Te c h no lo g y
After it concluded a comprehensive agreement with Ford in 1968 to
receive the transfer of technology, HMC, which was then manufacturing
'Cortina' and 'N ew
Cortina', received the transfer of integration
technology designed for automobile production from Ford on assembly,
after-sales service, material management manuals, parts drawings, and
samples, and made efforts to internalize and absorb it.
The technology transfer occurred centering on element technologies
instead of integration technology starting with Pony, and this process
occurred intensively until the development of 'Elantra' in the 1990s.
During this period, HMC boldly decided to advance to overseas markets,
and towards that end, focused on acquiring engine technology and
high-level advanced automobile technologies, thus starting transformation
of it.
In the early 1970s, as HMC pursued the development of its
indigenous models, it gradually shifted its imported technologies into
division technologies and diversified its technology sources according to
its characteristics. As in 1973, beginning to develop its own indigenous
models, HMC made diverse contacts with a number of relevant foreign
companies in
connection with
design, engine
and manufacturing
technology. Finally, in 1973, the company concluded a technology
cooperation
agreement
transmission, rear
axle
with Mitsubishi regarding gasoline engine,
manufacturing
and
castings manufacturing
Chapter 4. Technological Capability Building in Hyundai Motor Company
87
technology. Also, it imported the car body design technology from
Ital-Design, Italy.
Imported technology details are comprised of mainly information data,
services, and guidance. Technology services imported from Ital-Design
included 'Pony' styling design, car body design and prototype car
manufacturing. Through technology import, HMC accumulated internal
learning capabilities. The agreement with Ital-Design included a joint
performance with HMC technological team,
thus enabling
HMC to
observe the entire design course and learn. On the other hand, HMC's
agreement with Mitsubishi regarding the import of power generation and
transmission system, was limited to licenses to manufacture and sell
(including exporting) approved products (engines, transmissions, and rear
axles) in Korea and to production technology (K. Kim, 1995). Regarding
product technology, completed design drawings were provided, and the
design
know-hows
and
design
technologies
were
not
provided.
Technology acquired from such technology import experience was
limited to the know-hows related to installing the imported engines and
transmissions to HMC's indigenous model cars. Thus, at that time, HMC
depended on external sources for car body design, engines, transmissions
and other major technologies, but, it is significant that the company
conducted the entire process under its responsibility of integrating such
technological elements and producing new cars.
As in the late 1970s, the company produced 'Excel' and exported it to
North America, it needed to import technologies related to respective
advanced countries' exhaust regulations and safety regulations. Thus, it
imported more segmented and advanced technology. The company
formed strategic alliances with foreign technology services companies
and parts companies to conduct tests on car body, internal and external
decorations, exhaust control and other areas, and strove to complement
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Case Study on Technological Innovation of Korean Firms
its products performance
and design technology. The company's
technological manpower participated in the development process jointly
with foreign services companies. Also, it received training and education,
thus acquiring american standard for vehicle and exhaust regulations key to entering the U.S. market -- and later technological capabilities on
its own (Kim, 1995).
source: Kim(1994)
[Figure 4- 3] Tre nds of Technology Import by Yea r
On the other hand, the increase of production units provided royalty
burden to HMC, thus necessitating the development of engines on its
own. In the 1980s, as for the process of developing its indigenous
engines, HMC needed more detailed element technologies in its
completely indigenous models, and regarding technology import lines, it
employed specialized technology service companies instead of finished
car makers as maj or technology providers. Its agreements with Ricardo
Co., a contracted technology-specialized service firm of UK, on gasoline
Chapter 4. Technological Capability Building in Hyundai Motor Company
89
engine technology provided opportunities to train and educate HMC's
technological manpower, thus allowing it to focus on accumulating
internal capabilities. Also, at that time, the number of HMC's technology
import increased sharply.
2 ) Acc u m u lat io n o f Int e rn a l Te c h n o lo g ica l Ca p a b ilit ie s
HMC's internal learning process during the assembly period depended
on individual pre-knowledges and its repetition experiences in the not
well-systemized organization. This learning process was conducted in a
gradually refined and expanded organization, as it underwent 'Pony' and
'Excel'. The initial product technology organization in its original
meaning was product technology department under the technology
division reshuffled in January 1975, and its size was a department level
organization. The product technology department consisted of car body,
commercial car chassis, passenger car chassis, and test product sections.
Later, in December 1975, as the company as a whole was converted into
'Pony' production system, the product technology section was expanded
and reshuffled into small work units.
The technology
learning process progressed in line with the
development of the product technology organization in the late 1970s as
follows. First, the company sent its personnel to Ital-Design to acquire
car body design technology. HMC's personnel learned diversified car
body design in Ital-Design. Initially, it modeled its small commercial car
bodies after foreign products, and designed them under its own
responsibility. Afterwards, the company performed 'Pony' car type
diversification (pickups, wagon, 3-door type, etc.) projects mostly on its
own, thus performing partial transformation of car body types using car
body design capabilities.
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Case Study on Technological Innovation of Korean Firms
On the other hand, exports strategies and establishment of mass
production were pursued in line with the development of 'Excel', and
technological requirements to satisfy regulations and consumers' tastes
were greatly expanded, thus highly enhancing the levels of imported
technologies, and expanding the necessity and scope of its own
technology development activities to complement it. In particular, in case
of the area of engines and transmissions technology deemed impossible
to import and learn, the problems were more serious, and this provided
a decisive momentum to establish the 'Mabukri Research Institute' and
pursue its own engine development. Thus, from the early 1980s, HMC
expanded R&D investments, and augmented internal R&D organization.
This includes the comprehensive car running test station, Mabukri
Research Institute and the U.S. local research institute HATCI. This
development process of internal reformative system continued to link the
expansion of the scope and depth of technology learning in the 1980s,
with the acquisition of its own technology development capabilities.
The development process of R&D organization at that time is
characterized by the two factors, i.e., specialization and segmentation of
relevant
areas(Kim,
1994).
Likewise,
when
its
own
technology
accumulation capabilities were low, the company segmented respective
technological areas and focused on relevant R&D, thus striving to
rapidly accumulate and develop technology. The company accumulated
technological capabilities according to technology areas and by small
groups, and then developed them into independent departments. Second,
in the late 1980s, the company rapidly expanded a research organization
focused on leading research. Thus, based on these technological
capabilities, HMC focused more on acquiring technological capabilities
than ever before to respond on its own to the rapidly changing domestic
and overseas environment.
Chapter 4. Technological Capability Building in Hyundai Motor Company
91
The Mabukri Research organization strove to separate its manpower
and organization from existing research centers and simultaneously link
with them, thus successfully accomplished its mission. Regarding the
manpower structure, the Mabukri Research Institute newly recruited staffs
to have master's degree or Ph. D. degree. This was because technology
was accumulated mainly through tests. Also, as for the manpower size,
the company assigned more staff to every equipment compared to its
counterparts in advanced nations, and achieved segmentation and
specialization of technological areas aimed at focusing on learning and
research on assigned areas only, thus speeding up its technology
acquisition. This process was systematically integrated in the level of
organization. Basically, technological capabilities are internalized in
research manpower, and yet, they can be effectively accumulated and
reused in the systematic frame of research organization (Kim, 1994).
While the company spread its technological capabilities accumulated
through segmentation and specialization across the board, it used the
organizational structure. In 1990 when the development of 'alpha' engine
reached
its
final
stage,
the
four
engine
sections
of
Ulsan
passenger/commercial product R&D centers were transferred to the
Mabukri Research Institute. This was because the development of 'alpha'
engine was virtually completed, and with the follow-up projects into full
swing, engines of its own development were replacing imported engines.
Thus, the Ulsan research organization, which was in charge of the
existing works related to engines import, also had to inevitably change
itself. The two organizations were integrated for the purpose of
systematical grafting between them. Also, this knowledge expansion
process, in the process of improving the existing imported engines, was
pursued through the cooperation with the manpower in Mabukri
manpower, and through reassignment.
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Case Study on Technological Innovation of Korean Firms
<Ta ble 4- 4> HMC's Orga nizationa l Res huffle Following Knowledge
Evolution Pe riods
Borrowing period
T ransformation
period
Generating
period
Year
1968- 1974
1975- 1993
1994- 1997
Average No. of
organizational
reshuffling
2.83
3.58
1.25
Source: Lee (1999, p.155)
In the process of HMC's technology accumulation, the important
element was the management's strategy of creating crisis. Learning, when
crisis is created, fundamentally speeds up, so, HMC continued to create
crisis (or strove to explore) thus narrowing the gap between advanced
technology. The HMC's crisis creation continued through its indigenous
model strategies, overseas market exploration, and completely indigenous
engine development, and these processes provided great momentum for
the company to accumulate its technology (Kim, 1998; Lee, 1999). Also,
in all these processes, the top management played a central role.
Whenever HMC developed new car types after the development of
'Pony', it felt a high sense of crisis. The top management's approach to
managing the crisis was to operate ad hoc organization aimed at
breaking through the crisis, among other things. Also, the company
strove to segment the organization into smaller units aimed at coping
with crisis. Essential is the change of organization to continue to
transform technology and to accommodate the transformed technology.
This is shown in the <table 4-4>. As it entered transformation period,
HMC started to have a very flexible and less official organization.
The HMC's exploration efforts through overseas market inroads were
made through its base in the Korean market. The domestic market
Chapter 4. Technological Capability Building in Hyundai Motor Company
93
provided opportunities to reduce the risk related to explorations in
overseas markets, and simultaneously decrease technological instabilities
obtained from explorations. HMC rapidly marketed follow-up models
developed through exploration efforts thus stabilizing technology with
less cost. This includes series products such as 'Pony', 'Exel', 'Sonata',
recent 'Avante' and 'Grandeur'. These follow-up models played a role of
stabilizing and refining their initial models' technological instabilities
(Lee, 1999).
4 . Tow a r d s Bu ild in g u p S t r a t e gi c C a p a b ilit ie s
1) Im p o rt o f Te c h no lo g y
As after the mid-1990s, HMC secured its own technological
capabilities such as engine technology, it was virtually poised to compete
with advanced car makers. Thus, it was nearly impossible to import
product technology from finished car makers such as Mitsubishi, and it
changed
its
strategies
aiming
to
import
technology
from
technology-specialized service firms, and to form alliances with car
makers on equal footing. Technology import details included electric
automobile storage batteries, noise vibration features evaluation, electrical
control systems and other sophisticated technologies. It did not import
technology designed for resolving problems, but technology with the
development not yet completed. Likewise, HMC j oined ongoing proj ects
in the form of subcontracting order, and obtained the copyrights after the
development. This change is significant as a dynamic response to the
industrial environment. Gradually regulated environment, safety and other
regulations in each country, changes in consumers' preference, were
maj or motivations for change, and the company sought to resolve these
94
Case Study on Technological Innovation of Korean Firms
problems not by attaching additional equipment, but by securing the
foundation technology designed for resolving problems evolutionarily.
HMC's technology accumulation including engines brought changes in
its relations with car makers. For example, such changes occurred in the
course of L car series development. In case of Grandeur (L-1) released
in 1986, HMC was supposed to nominally conduct joint development
with Mitsubishi and co-produce it, but, actually, the development was
accomplished entirely by Mitshubishi only with each party producing its
own specialized parts with cost-competitiveness and supplying them to
the other, thus striving to reduce the production cost. However, in case
of New Grandeur (L-2), in the process of product development, HMC
took charge of styling and car body design, with the matching of chassis
developed by Mitsubishi.
This approach also occurred again in the development of its recent
most sophisticated model of 'Equus' engine. The engine was developed
j ointly, styling by HMC, and chassis design by Mitsubishi, and thus
HMC had an equal footing with Mitsubishi. Also, the cost settlement
was arranged to allow Mitsubishi to import 'Equus'. Also, in establishing
passenger car joint ventures with Chrysler and Mitsubishi, HMC took
charge of engine technology, thus showing its engine technology
competitiveness.
2 ) Acc u m u lat io n o f Int e rn a l Ca p a b ilit ie s
HMC signaled a transit to new technology stage by developing
'Accent', and then reinforced its R&D capabilities greatly. The Mabukri
Research Institute alone did not meet HMC's capabilities to compete
with its counterparts in advanced countries. Thus, in April 1995, the
company constructed Namyang Research and Development Institute to be
Chapter 4. Technological Capability Building in Hyundai Motor Company
95
equipped with sophisticated automobile development facilities with the
size of ranking among the world's ten largest facilities. HMC's
organization gradually changed to that of its counterparts in advanced
nations after the mid-1990s with the Namyang Institute taking the
initiative. The stabilized advanced enterprises embrace decentralized
business units as the basis, and a form of hypertext organization to
activate ad hoc organizations to create technology (Nonaka, 1994). Thus,
in 1996, HMC introduced the team-based system seriously, and operated
project teams on ad hoc basis to develop new cars.
5 . Co n c lu s io n
The research have discussed the process of HMC's technology
accumulation. The process, in terms of the indigenousness of its
achievements, is divided into catching-up period including assembly,
indigenous model and completely indigenous periods, as well as the
period of towards strategic capability geared during which it sought to
secure competitive advantage based on basic technological capability.
Although HMC recently entered the period of toward strategic capability,
the company had a distinguished process to build capabilities in terms of
the relations with its external technology sources and in the process of
internal technology accumulation.
Imported
technologies
gradually
changed
from
collection
and
integration technologies to segmented element technologies. As internal
R&D activities shifted their focus from problems solving to basic and
previous research, technology borrowing sources gradually changed from
advanced auto makers to specialized services firms in areas of element
technologies. Also, as for the level of imported technology, HMC
changed the advanced auto makers' already technology during the
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Case Study on Technological Innovation of Korean Firms
consolidation period to encompass future new technology, and thus
formed alliances with them to secure its stake in technology under
development. As for the organizational type, HMC changed the top
management-centered organization sensitive to external changes to
stabilize the organization, allow mid-management to form its core and
establish ad hoc teams by agenda, thus creating technology. In summary,
HMC gradually moved to shifted from the typical operation type of a
latecomer to a organizational type similar to that of advanced auto
makers, thus changing its relations with them.
<Ta ble 4- 5> Cha racte ristics of HMC's Technology Accumulation Process
Aquisition
sources
Introduced
technology
contents
Level of
introduced
technology
T ype of
organization
Catching- up
T oward strategic capability
advanced automaker
Specialized technology
service firms
Collection and
integration technology
Segmented element
technology
T echnology during
the consolidation
period
Flexible organization.
Frequent
organizational change.
T echnology under
development
Hypertext organization.
Ad hoc teams operation
97
Chapter 5
Historical Development of Technological Capabilities in
POSCO
Sungsoo Song (STEPI)
1 . In t r o d u c t i on
The Korean capitalism, from the 1960s to the mid-1990s, continued to
develop through the compressed industrialization. Studies on the Korean
industrialization have focused on the nation, large corporations, and
labor, and gradually handled the themes on technological development.
Studies on technological development have since the mid 1980s focused
on the concept of technological capabilities, and relevant representative
research achievements include Park and Bae(1996), Kim(1997), Lee, et
al.(1997). Based on these achievements, recent research reattempted to
define the development stages and types of Korean technological
capabilities.
For
instance,
Kim(1999)
recomposed
technological
development stages into duplicative imitation, creative imitation, and
innovative model, and Lee and Lim(2001) categorized the types of
technological
catch-up
into path-following
catch-up,
stage-skipping
catch-up and path-creating catch-up.
These research achievements have contributed greatly to understanding
the development course of Korean technological capabilities, but are
deemed to have the following some problems. First, existing studies on
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Case Study on Technological Innovation of Korean Firms
the development of technological capabilities generally focus on the logical
completion of theories, but do not pay sufficient attention to exploring
and reviewing historical facts. Second, previous studies have analyzed
the development of technological capabilities of many industries, but
maj or industries in the course of Korean industrialization have not been
sufficiently explored, and even where research was done,
it did not
cover the whole periods. Third, much research was done to the extent
that it briefly described the course of technological development, and
analyzed its causes, so, with a few exceptions aside, the research still
has left in the black box through what paths technological capabilities
were developed and what features technological activities had according
to periods.
Based on this notion of such problems, this paper sought to review
the development course of technological capabilities of the Korean iron
and steel industry through the case of Pohang Iron & Steel Co.,
Ltd.(POSCO). The iron and steel industry is a maj or success in the
history of the modern Korean industries. The Korean steel production
output increased from 504 thousand tons in 1970 to 41,042 thousand
tons in 1999 (see <tabel 5-1>), and since 1993, Korea has emerged as
the world sixth largest steel producing nation in the world. In this
course, POSCO did play a crucial role, as everyone knows. POSCO,
established in 1968, continued to grow through the Pohang mill
construction in 1970-83, and Kwangyang mill construction in 1985-92,
and its production output ranked the third in 1990-92, the second in
1993-97 and the first in 1998-99, in the world.
Chapter 5. Historical Development of Technological Capabilities in POSCO
99
<Ta ble 5- 1> The Growth of Iron a nd Stee l Industry in Korea (1970- 99)
Unit: 1,000 tons, %
Year
Division
1970
1975
1980
1985
1990
1995
1999
Production output
(POSCO)
504
(-)
2,534 8,558 13,539 23,125 36,772 41,042
(1,234) (5,903) (9,284) (16,223) (23,428) (26,542)
Share of
the world steel
industry
0.1
0.4
1.2
1.9
3.0
4.9
5.2
Share of the GDP
0.5
1.1
1.5
1.9
1.9
2.1
2.0
Source: Bank of Korea; Korea Iron and Steel Association.
Representative studies on POSCO's technological development included
those done by Byun(1980), Park(Enos and Park, 1988, pp.176-216; Park
and Bae, 1996, pp.161-197), Amsden(1989, pp.291-318), D Costa(1994),
and Sung(1999). Studies by Byun, Park and Amsden reviewed several
features evinced in the course of POSCO's technological development,
but limited to the 1970s. D Costa and Sung each used the notion of
structural competitiveness and reverse exploitation strategy and analyzed
technological achievements of POSCO, but did not give sufficient
description on the course of technological development. However, this
paper sought to explain and analyze features of technological activities
considering all periods from the 1970s to the 1990s, and thus contribute
to identifying the whole mechanism in the development of technological
capabilities.
To this end, this paper explored historical facts through POSCO's
company history, official records, newspapers, memoirs and essays, in
addition to existing literature. In particular, the writer had in-depth
interviews with maj or actors who had been deeply involved in POSCO's
technological
activities.
This
paper
reconstructed
the
stages
of
technological development into technological acquisition in the 1970s,
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Case Study on Technological Innovation of Korean Firms
technological catch-up in the 1980s, and technological creation in the
1990s. The writer, while having interviews, confirmed maj or actors had
notions of aquisition, catch-up and creation each period. Hence, these
notions are deemed to be based on
following the actors , as used
widely in sociology of science and technology (Latour, 1987; Bijker,
1992). The following examined features of POSCO's technological
activities in the 1970s, 1980s, and 1990s, through important cases, and
induced implications related to the development of technological
capabilities in Korea.
2 . Te c h n ol o gi c a l Ac q u is it io n a n d J a p a n ' s Ro le in t h e 1
In the 1970s, POSCO's overall business activities focused on importing
performance-proved superior facilities from foreign enterprises, and
operating them well. Likewise, in the 1970s, the company secured
standardized facilities and technologies, mass-produced ordinary steel, and
sold them in the domestic market at low prices, thus seeking growth.
Against such backdrop, technological activities at that time, the company
introduced technologies from advanced nations through in the form of
overseas training, reenacted them in the production line, and improved
them partially. Thus, technological activities in the 1970s depended
greatly on technological manpower in the factory, and no serious
technological
development
through
POSCO's
own
research
and
development efforts was pursed. In around 1980s, POSCO excelled other
nations except Japan in production efficiency index, energy source unit,
and per capita product quantity, but in product technologies, the
company was lacking in technological accumulation necessary and
domestic demands for producing high-quality steel, and thus produced
mainly ordinary steel.
Chapter 5. Historical Development of Technological Capabilities in POSCO
101
1) Ov e rs e a s T ra in ing a nd It s Fe a t u re s
In the 1970s, it was mainly through overseas training that POSCO
acquired technologies necessary for constructing and operating steel mills.
This is well evinced in the record:
The successful construction of
factories and normal operations were made possible thanks to the results
of overseas training
(POSCO, 1975, p.526). Technologies accumulated
at the time in the domestic steel industry were limited to operating
small-scale equipment in certain specific processes, so they had to
depend on foreign nations to acquire technologies necessary for operating
large-scale comprehensive iron mills. POSCO, of course, at its early
stage, continued to recruit engineers from the existing steel industry, and
their knowledge basis could not apply to large-scale comprehensive steel
mills, but they had to undergo additional training and experience to
update their knowledge to make further contribution to the company.
Overseas training was conducted in the cycle of preparation education,
main education, and follow-up management. POSCO selected two-fold
overseas training candidates, gave them preparation education, and finally
chose half of them through strict procedures. Preparation education
content included daily living conversation and steel terminology in
foreign languages, basic knowledge of steel industry, training methods
and attitude in foreign countries, knowledge of history and geography of
foreign countries, and relevant expertise. Overseas training candidates
were selected, were organized into respective relevant teams, were given
specific purposes for overseas training, and provided intensively with
education focused on maj or points (POSCO,
1975, pp.527-531).
Moreover, before relevant staff left for their respective overseas training
institutes, POSCO gave a mindset education designed to instill them with
how important their current j obs were for the society and the nation, and
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Case Study on Technological Innovation of Korean Firms
even instructed them to thoroughly learn technologies on man to man
basis regardless of contracts or schedules with relevant training institutes.
POSCO sent trainees mostly to JG(Japan Group) comprised of
NSC(Nippon Steel Co.) and NKK, and Japan at that time was positively
cooperative in transferring technologies to POSCO. For instance, Kim
Gi-hong, who got training in the Muroran steel mill in 1969, recollected:
Eminent personnel from the Japanese steel industry gave lectures , and
thanks to Japanese peculiar precision and kindness, he could grasp the
concept of steel in three months(Lee, 1998, pp.264-265). Likewise, Hong
Sang-bok, who as supervisor in the steel making department got training
in NKK in 1972, recollected: The company, competing with its elder
brother-like NSC, was more eager to teach trainees, and provide
whatever data trainees requested.
JG personnel told trainees personal
experience on steel making, made them diverse data on norms, standards
and manuals and allowed trainees to participate in actual works and be
trained. When training was finished, POSCO trainees were provided
opportunities to personally make steel in relevant factories.
POSCO overseas trainees positively participated in training and
education with passion. They j otted down lectures in detail, continued to
ask questions to lecturers, and memorized what they could not
understand to believe that it would be of great use someday(Lee, 1998,
pp.159). Also, the trainees collected and copied whatever was deemed to
be helpful for the operation of steel mills, even thought they could not
have full understanding of them. In this regard, JG technological
personnel recollected: they(trainees) appeared to have been ordered by
their company to bring as many data as possible, or they applied a
formula whereby their training performance was evaluated by the
thickness of the data they brought home (Ariga, et al, 1997, p.154 and
p.168). Moreover, POSCCO overseas trainees complemented their skills
Chapter 5. Historical Development of Technological Capabilities in POSCO
103
and knowledge through frontline practice in personal relations with JG
relevant engineers. For instance, Kim Jong-j in, who led the trainees in
hot rolling at the early stage of POSCO, recollected: our technological
team approached Japanese engineers with all means available including
treating them to dinner with drinks … When design drawings were
spotted, we were quick in slipping them into pockets or tried to
memorize them as much as possible. Overseas trainees teams, even after
regular education was finished, sacrificed their personal time, reorganized
education content and materials to record them, and discussed the
education performance daily to explore issues and establish corresponding
countermeasures.
The JG training on iron making, as it was conducted in 1972, showed
another features of POSCO's overseas training. First, Korea at the time
was lacking in furnace work, so POSCO iron making department used all
means to give as many opportunities for its staff to have overseas
training. The engineering and consulting agreement with JG provided that
every foreman will train receive a six-month training. However, the
department reshuffled itself to newly establish the position of vice
foreman as a staff in furnace technology aimed at increasing the quota of
trainees. Second, trainees in POSCO iron making department converted
accidents occurred during the training into opportunities and received
additional training outside the plan. The Kamaishi steel mill in charge of
training at the time, had an accident as it suffered from furnaces
overflowing with melted iron and slags, thus causing the heat of furnaces
to plummet, and to stop fused material in the furnace. The trainees
likewise thought the accident as a precious opportunity to recover the
furnace, persuaded the Japanese and could have teamwork training in real
situations. Staffs who participated in overseas training as they underwent
such experience, upgraded their skills to the extent that they could handle
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Case Study on Technological Innovation of Korean Firms
the two previous persons' work(Lee, 1998, pp.288-291).
POSCO strove to systematically manage and use its overseas trainees
aimed at maximizing the effect of the education. Trainees were required
to report before and after the overseas training, and trainees on over two
months must make intermediate reports twice a month along with the
returning date. Also, staffs after training were assigned to their respective
professional fields, and must work mandatorily for POSCO for two
years. More important, POSCO required trainees to accumulate trainingrelated data and impart education, aimed at maximizing the effect of
overseas training. Diverse materials brought home by overseas trainees
were made into micro films to be used for educating other staffs and
establishing technological plans. Overseas trainees imparted what they
learned, thus endeavoring to deliver their specific experiences and fresh
ideas (POSCO, 1975, p.531; POSCO, 1979a, pp.165-166). Likewise,
POSCO,
through
this
impartation
education
to
newly
recruited
employees, could establish three shifts in a day required for the
operation until the factory was completed.
2 ) C ha ra ct e ris t ics o f Te c h no lo g ica l T ra n s f e r
Most of technologies that POSCO acquired through overseas training
programs concerned factory work, and they were already standardized
and mature in advanced countries. In Japan, the U.S.A, and European
countries, in around 1960, they operated large furnaces, LD(LinzDonawitz) revolving furnaces, and continuous rolling machines. Likewise,
in the mid-1960s, they established sufficient operation techniques in this
regard. As such, POSCO acquired matured technologies through overseas
training, thus being able to accomplish substantial performance in a short
period. However, the steel industry holds the nature of not being able to
Chapter 5. Historical Development of Technological Capabilities in POSCO
105
accumulate operation skills without making actual operation of facilities,
and, in the early 1970s in particular, the production process was not
sufficiently computerized, so in-site training was all the more significant.
Moreover, with no experience in the operation of comprehensive steel
mills at the time, Korea deemed operation skills related to large steel
making facilities to hold the nature of state-of-the-art technology.
In light of this fact, on the basis of Japan targeting the transfer of
mature technologies to POSCO, it is not appropriate to reduce the
significance of technological cooperation. In this regard, Byun indicated
that POSCO's introduction of technology was limited to equipment
operation and operation skills and other low technologies, and insisted
that if real secrets on technologies were not tapped in addition to
facilities, a true technological transfer could not be achieved, leaving it
at levels lower than production (Byun, 1980, pp.125-129). However, this
argument is not appropriate, as POSCO, in the 1970s, made the features
of technologies attained through overseas training distinct, but facilities
technologies can be attained gradually in the course of actually operating
steel mills. The types of Technological transfer are divided into
technological transfer being requested and actually done, technological
transfer requested but being avoided, and technological transfer not
requested; operation skills fall under the first case, and facilities
technologies under the third case.
The problem surrounding the Japan's technological transfer falls under
the above second case, wherein the country avoided transferring
advanced technologies in computerization and product quality. JG, in
concluding the engineering and consulting agreement, specified the
exclusion of cooperation in computerization and did not mention product
quality at all (Lee, 1998, p.221; Amsden, 1989, p.309). As such, JG
officially refused to cooperate in computerization and product quality, but
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Case Study on Technological Innovation of Korean Firms
accepted overseas training partially, gave technological guidance on the
POSCO
frontline,
thus
indirectly
supporting
the
acquisition
of
technologies regarding computerization and quality. For instance, in 1971,
JG training was given to staffs in production management, although it
was limited to manual operation process management. Likewise, in 1972,
as part of JG training efforts, three staffs in quality management were
dispatched, and materials acquired through this served as the starting
point for POSCO to organize the systems of production management and
quality management. It was in the mid-1970s that JG officially started to
cooperate in technological transfer in computerization and quality. NSC
conducted
technological
guidance
regarding
hot
rolling
process
computerization in 1975-77, and JG conducted technological guidance
regarding production and quality management in 1976-79.
Also, Japan not always did cooperate positively in technological
transfer through all periods. Japan initially strove to transfer technologies,
but from the latter part of the 1970s, the country was passive in
transferring technologies. Japan was mindful of POSCO catching up
much behind, and as with its size and productivity gradually improving,
POSCO emerged as a potential competitor, Japan began to hold it in
check. As such, Arika, general manager in technological corporation of
NSC, said in 1976, There is no other case than in the case of POSCO
where a true cooperation between the two countries has ever been made
(Chosun Ilbo, 11/23/1976). On the other hand, in 1978, NSC president
Saito, said, "POSCO is excellent in acquiring technologies, so, some
people are worried that Korea will compete with Japan in steel making,
thus confirming their passive attitude (Chosun Ilbo, 12/13/1978). Japan's
holding POSCO in check was furthered as POSCO started to export its
products from the latter part of the 1970s. Likewise, in the early 1980s
when the Kwangyang steel mill was being built, Japan officially refused
to cooperate in transferring technologies.
Chapter 5. Historical Development of Technological Capabilities in POSCO
107
3 ) Te c h n o lo g ica l Acq u is it io n t h ro u g h P re- t ra in ing a nd
Fa ct o ry O p e rat io n
POSCO acquired expertise necessary for operation through overseas
training, and strove to achieve an early normal operation by systematically
preparing for the operation of factories. To this end,
POSCO initially
chose to organize operation employees and maintenance employees over
organizing operation and maintenance teams after the completion of
construction works, thus allowing operation employees to lead the
construction works and maintenance people to oversee the construction
works. As a result, employees in operation and maintenance could
acquire the knowledge of relevant equipments at the time when factories
were constructed, and this served as the basis to smoothly perform
factories operations and manage facilities (POSCO, 1975, p.341). Also,
POSCO test-operated factories before they were completed, aimed at
removing problems arising from faults in equipments in advance of the
actual operation. Likewise, POSCO performed positively training for
operations before the steel mill began operations. For instance, its iron
making factory provided operation employees with professional education,
practice and tamwork training, and comprehensive training in three stages
in February-May, 1973, in preparation for operations (POSCO, 1975,
pp.608-613).
After relevant equipments were operated, college-graduated engineers
in each process who completed overseas training were assigned to be
responsible for operations with other engineers and technicians supporting
them, and technological advice was given from Japanese engineers.
However, after relevant equipments operations, it was not easy to enter
the normal operation. For instance, iron making furnace factories experienced
cold water inflow from water leakage thus stopping operations in June
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Case Study on Technological Innovation of Korean Firms
11-14, 1973. POSCO staffs judged no problems existed with iron
notches, instantly stopped water supply, and inj ected colors-mixed water
aimed at conducting color test, only to fail to find the leakage point. In
overcoming this situation, the retired Japanese advisor in steel making
Hattori from New Japanese Steel Maker played a great role. Many
employees at the time thought water leaked from tap holes, but Hattori
checked the water drain point with a manometer, and confirmed the fault
existed not with tap holes but with blowholes. Also, to lower the
temperature of the blast furnace, some suggested to use seawater, but
Hottori suggested it would be O.K. to use freshwater. Based on this
advice, POSCO employees could smoothly overcome the accident
involving the flux of cold water, and could foster capabilities to trouble
shoot in-site problems in this course.
Something no less important than this cooperation by such Japanese
engineer can be found in POSCO staffs' attitude. They did not leave
work even after ending their shifts, but stayed at work at the frontline
for over 16 hours a day, and endeavored to give a smooth operation to
factories. Likewise, POSCO staffs studied problems in operations and
their countermeasures voluntarily, and shared the results with their
colleagues. Also, they, even in the operation frontline, positively
endeavored to receive technological transfer from Japanese engineers as
when put on overseas training. Aiming to acquire more knowledge, they
recorded thoroughly what Japanese engineers mentioned, and even after
work, they contacted Japanese engineers to exchange much information
(Ariga, et al, 1997, p.67). In particular, at the operation frontline at the
time, formed was a partnership between Japanese engineers and POSCO
staffs, so unofficial learning was promoted based on personal relations.
As accidents at initial stage of factory operation were overcome, and
staffs became familar with factory operations, POSCO operation
Chapter 5. Historical Development of Technological Capabilities in POSCO
109
technology improved swiftly. For the iron making factory, JG considered
the operations of Japanese steel mills with furnaces similar in size to the
first furnace of POSCO, and advised as a twelve months the time for
daily production to reach the design capacity after the design completion.
However, POSCO aimed at accomplishing normal operation within six
months, and actually shortened the period to 107 days (POSCO, 1975,
pp.603-604). Also, the tapping rate five months after the converter
operation recorded 1.5-2.0 tons per ㎥ a day, outperforming JG's
suggested quantity of 1.0 ton. Planned was the yield of the hot rolling
factory one month after operations at 50%, and 90% five months
thereafter, respectively. However, actually, the yield recorded 92.6% in
one month of operations (POSCO, 1975, pp.659-660 and pp.696-701).
With the factory into normal operation, the dependence on foreign
technology was remarkably reduced, and at the point of four to five
months of operation experience, POSCO could acquire sufficient frontline
know-how. This reduced dependence was evidenced as POSCO, from its
second stage business, did not include operations guidance in its
technological agreement with JG, and hiring a retired Japanese advisor
was made once and for all.
POSCO could fast acquire operations technologies mainly because of
good policies on managing technological manpower. First, superior
college-graduated engineers were assigned as foremen on the steel mill
frontline to be put in charge of factory operations. At the time, superior
college-graduated engineers were assigned as foremen on the production
site instead of in the administrative field, and this was deemed to be
unique. They acquired knowledge through education and training, and
applied it efficiently to the frontline. Likewise, they made creative
proposals to contribute greatly to improving technologies (Byun, 1980,
p.131). Also, POSCO implemented Saint Technician System under which
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Case Study on Technological Innovation of Korean Firms
special treatment was given to those whose skills reached a sacred stage.
The foreman special treatment system pursed by the Korean government
in the mid-1970s failed due to corporations' lackluster response, but
POSCO established a system whereby technicians could develop their
careers, and the company gave extremely special treatment to saint
technicians group thus spurring the development of technicians' abilities
(POSCO, 1989, pp.668-669).
POSCO not only has secured operation skills, but also endeavored
hard to improve equipments and technologies. In the course of using
imported equipments on the frontline, many problems arose for which no
solutions could not be given by the manufacturers. While POSCO were
addressing the problems, it changed or improved equipments to fit to the
frontline conditions. In the 1970s, for technological improvement, aimed
at reducing costs, POSCO simplified relevant equipments, changed their
operation methods partially, and additionally installed a few units (Park
and Bae, 1996, pp.175-189). This technological improvement alone could
operate factories efficiently, and improved the productivity, but efforts
were scarcely attempted to understand equipment technologies and
improve equipments.
As discussed thus far, POSCO's technological activities done in the
1970s focused on acquisition of technologies already standardized in
advanced countries. Likewise, technological abilities development course
at the stage of acquiring technologies had the features of accommodating
advanced countries' technical systems, their components as they were,
and applying them to a different space of the POSCO steel mill. The
company swiftly applied the existing technological systems and improved
components of technical systems partially, but these efforts could not
lead to developing new components and technical systems. In this sense,
technological activities in the 1970s is deemed to have focused on an
effective reenactment of the existing technical systems.
Chapter 5. Historical Development of Technological Capabilities in POSCO
111
3 . F e a t u r e s a n d C a s e s o f T e c h n o lo g ic a l Ca t c h - u p in
t h e 1980s
In the 1980s, pursued were equipment rationalization of POSCO steel
mills and construction of Kwanyang steel mill. This paved the way for
circumstances where experimentally developed new equipments at the
time were actually applied. In the 1980s, POSCO positively advanced to
the domestic market and overseas market alike, and, backed by high
demands in the domestic market, it made systematic efforts to enhance
the productivity and increase the added-value of products. Based on
these business strategies, in the 1980s, company-wide plans were
established aimed at strengthening the corporate competitiveness and
developing technologies geared to technological capabilities development,
and also a cooperative system was established linking POSCO,
POSTECH(Pohang Institute of Science and Technology), and RIST
(Research Institute of Industrial Science and Technology). In early 1990s,
POSCO, backed by operations technologies superior to those of Japanese,
emerged as the world-first steel maker in price competitiveness, and
manufactured world-top hot-rolled products, while its cold-rolled products
technologies and high-class steel production rate
stood only
at
three-quarters of those of Japan.
1) P ro ce s s o f Te c h n o lo g ica l Cat c h- u p a n d it s Fe a t u re s
POSCO assumed the imitator type of acquiring widely-adopted
technologies in the 1970s, while from the 1980s, it responded swiftly
and adroitly to advanced technological innovations thus assuming the fast
follower type (cf. Zahra, et al., 1994). In the 1980s, large numbers of
state-of-the-art equipments were introduced, and with high-class iron
112
Case Study on Technological Innovation of Korean Firms
seriously developed, the securing of relevant technologies surfaced as a
maj or task. These technologies, which advanced countries avoided
transferring, were in the stage of being applied even at those countries.
Due to this technological environment change, it was very difficult for
POSCO to be provided with these advanced technologies as in the past,
and thus POSCO strove to develop them on their own to catch up at an
early date. Thus, since the 1980s, POSCO could introduce those
technologies partially, reestablish them to fit to it, or increasingly
developed them on its own.
In this course, POSCO aimed to catch up or excel Japan who was
then the world-top steel maker. Tremendous efforts were made to catch
up with technological achievements known through official and unofficial
contacts. In this regard, Baek Deok-hyun, who through the 1980s served
as POSCO division head in equipment and technology and executive
vice president in technology, indicated, We were much stimulated by
the steel super powerhouse Japan adj acent to us, and to overcome it was
the ultimate goal. In particular, since Japan's technological achievements
and productivity indexes were known only as end results, we had to
make tremendous efforts to achieve corresponding technologies. This
method of competing with Japan served as the driving force for POSCO
in its technological efforts.
Thus, Japan, from the 1980s, avoided
transferring technologies, thus not contributing directly to enhancing
POSCO's technological
achievements,
however,
levels. Likewise, information on
indirectly
spurred
POSCO
into
Japanese
putting
tremendous efforts in technological activities.
POSCO, into the 1980s, seriously conducted surveys and analysis on
diverse literature and materials aimed at acquiring information on
advanced technologies essential for technological catch-up. These tasks
were pursued jointly by technology development division newly established
Chapter 5. Historical Development of Technological Capabilities in POSCO
113
in 1981 and the pursuits were more systematic as RIST was established
in 1987. POSCO and RIST, based on collection and analysis on
technological information, continued to publish reference materials
necessary for all fields including steel making, iron making, control,
energy, steel materials, special iron, welding, and surface treatment. This
was further complemented by overseas training and technological
exchanges. Overseas training in the 1980s, with POSCO's technological
levels increasingly improving, gradually lessened its significance, and
instead, focused on identifying technological trends and management
status of advanced enterprises. Overseas trainees, after returning home,
drafted and submitted their education completion reports focused on
technological trends, and these were used to review technological levels
and performance of advanced enterprises. Also, from 1979, POSCO
concluded work agreements with foreign steel makers aimed at
establishing official systems designed for technological exchanges. These
efforts paved the way for exchanging engineers in respective fields and
for opening technological sessions, as well as for acquiring information
on new technologies (POSCO, 1993b, pp.242-243).
In the 1980s, advanced steel makers strove to hold POSCO in check,
and was stingy in providing technological information to POSCO.
Therefore, the company mobilized a sort of not lawful methods in the
course of acquiring technological information. For instance, POSCO
overseas trainees, where an training institute was not positively
cooperative, copied classified materials, and photographed materials and
equipments, in secret. Likewise, they collected materials or observed
equipments through personal relations. These efforts contributed greatly
to POSCO's planning and development of technologies. In this regard,
Shim Jang-seop, who served as general manager in equipment planning
in the second Pohang cold rolling factory and as the staff in charge of
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Case Study on Technological Innovation of Korean Firms
technological planning in the third Kwangyang cold rolling factory from
1983, indicated that his observation trip in 1982 to the cold rolling
factory of the Hirohada steel mill through personal relations contributed
greatly to designing the current factory (Lee, 1998, pp.149-152).
Likewise, Shin Yeong-gil, who worked in R&D personnel in POSCO
and RIST from 1981, could secured materials on continuous casting
methods and relevant specifications, through unofficial contacts. This
served to enhance POSCO's continuous casting technologies, he
evaluated. These efforts could be of great help to POSCO since it
already secured considerable knowledge basis.
POSCO made many trials and errors in developing technologies based
on technological information acquired through these methods. First
attempts seldom produced successes, and repeated trials could produce
desired results through failure analysis. Also, certain element technologies
development was delayed, causing bottleneck phenomena, and this
prompted POSCO to make attempts again by securing additional
information. These trials and errors made POSCO engineers understand
the features of relevant technologies and provide opportunities to secure
know-how on technological development, thus diminishing the occurrence
of problems and defining the causes systematically.
Aimed at effectively pursuing technological development, POSCO
formed task force teams in core technological tasks, and managed them
intensively. Task force teams concurrently pursued R&D, pilot products
development, and mass-production development, aimed at shortening the
period for technological development and market entry. Also, task force
teams, in many cases, included POSCO, RIST, POSTECH, and
demands-required
businesses,
and
thus
could
address
problems
comprehensively. This paved the way for joint R&D efforts circumstances.
While POSCO operated task force teams, it awarded stunning prizes to
Chapter 5. Historical Development of Technological Capabilities in POSCO
115
teams that achieved relevant goals in a shorter period, and positively
publicized relevant achievements, thus spurring competition among teams
and eventually accelerating technological development speed. Accordingly,
team members' labor intensity was very high, and this made a great
contribution to POSCO's catching up with advanced technologies in a
short period of time.
In particular, in the case of technological tasks involving numerous
fields, all relevant divisions were made to participate in the project, thus
achieving balanced development in relevant technologies. For instance, in
1985-87, element technologies essential for producing car-use extra deep
drawing steel, whose transfer was avoided by advanced countries, was
concurrently
developed
by
involving
divisions
continuous casting, hot rolling and cold rolling.
in
steel
making,
To manufacture extra
deep drawing steel plate required the content of carbon and phosphorous
to be below 25ppm. Likewise, steel making and ccontinuous casting
divisions complemented degassing facilities and established blowing and
decarburization
patterns,
thus
securing
technologies
designed
to
manufacturing extra deep drawing steel plate material IF steel(interstitial
element free steel). Also, the hot rolling division increased the motor
power of a rolling mill, adjusted the path and speed aimed at preventing
rolling temperatures from falling. In addition, the cold rolling division
adopted continuous annealing lines and induced corresponding appropriate
heat-treatment patterns, thus reducing materials deviation and fault
occurrence rate. Therefore, towards the end of 1987, inter-process
element technologies were fully secured thus paving the way for
manufacturing extra deep drawing steel plate. Likewise, POSCO formed
a steel development committee together with the automotive industry
aimed at seriously developing extra deep drawing steel plates. As a
result, in a year, the company could process products with the quality
comparable to foreign countries (POSCO, 1993b, pp.76-77 and pp.168-169).
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Case Study on Technological Innovation of Korean Firms
2 ) Ty p e s o f Te c h n o lo g ica l Act iv it ie s in t he 19 8 0 s
Specific types of technological activities launched in the 1980s by
POSCO are divided into furthering technologies introduced from foreign
countries, POSCO's own-developed technologies due to advanced countries'
avoidance of their transfer, and self-development of technologies fitting
to POSCO.
The cases of furthering technologies introduced from abroad include
pulverized coal inj ection technology, and slab quality enhancement
technology. As POSCO experienced the second oil shocks in 1979,
aimed at reducing fuel costs, POSCO converted in 1983 heavy oil
injection operations into all coke operations, and simultaneously and
began to develop pulverized coal injection technologies designed to
directly use low-priced ordinary coals in the blast furnace. To this end,
in April-August 1983, the company installed experimental equipments
j ointly with IHI, and succeeded in inj ecting up to 9kg of pulverized coal
for every one cast iron. Likewise, in August 1984, POSCO concluded a
technological service agreement with the U.S. Armco aimed at
introducing patents exercising rights and technological materials. POSCO
used basic technologies from IHI and technologies from Armco,
developed pulverized coal inj ection technology in two years, and applied
the method to the first Kwangyang blast furnace in June 1987.
Afterwards, the company continued to complement facilities and improve
technologies. As a result, it improved pulverized coal ratio from 36kg in
1987 to 105kg in 1992 at Kwangyang steel mill, achieved an injection
of pulverized coal of 123.3kg at the third Kwangyang blast furnace in
November 1991, thus surpassing then Japans' record (POSCO, 1993b,
pp.46-48).
Thermo
mechanical
control
process(TMCP),
together
with
the
Chapter 5. Historical Development of Technological Capabilities in POSCO
117
aforementioned extra deep drawing steel plate technology, was initiated
by POSCO since its technology transfer was avoided by advanced
countries. Advanced steel powerhouses developed thermo mechanical
control process in the early 1980s, started to manufacture vessel-use high
tension steel and thermo mechanical control steel materials. Likewise,
they, however, avoided relevant technologies aimed at protecting their
national industry, as well as halted the supply of relevant products to the
Korean shipbuilding industry. Thus, POSCO launched a special team in
1986, and formed a steel development committee together with the
shipping industry, aimed at conducting precision investigation on quality
trends and pre-research using experiment equipments. Based on this
result, POSCO, in November 1988, installed thermo mechanical control
process facilities, established optimum manufacturing criteria, and thus
succeeded in developing thermo mechanical control process steel
materials. Likewise, in May 1989, six months after operations, POSCO
obtained approvals by nine countries's bureaus of shipping on methods to
manufacture thermo mechanical control process steel materials with the
tensile strength of 50kg/mm2 . In addition, in 1990-91, POSCO expanded
such steel types with thermo mechanical control process applied as oil
pipelines, low-temperature pressure vessels and construction structure-use
steel with high tensile strength, as well as unveiled technologies
designed to prevent the transformation of steel plate due to temperature
deviation when it cools (POSCO, 1993b, pp.112-113 and pp.170-171;
RIST, 1997, pp.401-402).
The case about self-development of technologies fitting to POSCO can
be found in the computerization of blast furnace operations. Operations
in the iron making division were computerized starting with the third
Pohang furnace in 1978, although limited to data collection, operation
indexes calculation and other operation-related information securing at
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Case Study on Technological Innovation of Korean Firms
the initial stage. As in 1983-84, the third Pohang furnace suffered from
water overflow and cooling three times, the existing formula model was
found not to be able to identify the situations inside the furnace
accurately. Thus, POSCO, in 1984-86, developed a furnace situation
judgement model designed to analyze diverse sensors information,
measure the situations inside the furnace, give comprehensive judgement
and advise workers of abnormality. However, with the furnace use years
increasing, it was getting difficult to forecast the changes inside the
furnace, and workers had to systemize their experience thus addressing
the gap in skills. To this end, POSCO, RIST, and POSTECH began to
develop artificial intelligence systems aimed at implementing human
empirical knowledge. Likewise, in 1989-91, they developed expert a
system
of
forecasting
windpressure
changes
inside
the
furnace,
professional system of diagnosing furnace abnormality, and professional
system of controling furnace heat (POSCO, 1993b, pp.48-50 and
pp.59-60; RIST, 1997, pp.385-386).
As such, technological activities in the 1980s, compared to the 1970s,
was very diverse, but the scope of technological innovation covered
nearly all fields. This can be evinced by the comparison of technological
achievements shown in materials officially published in 1981 and 1993
by POSCO. As shown <Table 5-2>, the 1981 materials described a few
technological improvement cases sporadically, while the 1993 materials
discussed relevant technologies systematically and comprehensively.
Chapter 5. Historical Development of Technological Capabilities in POSCO
119
<Ta ble 5- 2> Compa rison of Major Technologica l Enha nce me nts betwee n
the 1970s a nd the 1980s
Division
Iron making
- Instrumentation and control
technologies
- Operations indexes
1970s
Steel making
- High carbon steel blowing pattern
establishment
- Slag inflow prevention after tapping
management
Hot rolling
- Heating furnace high- pressure
pipe installation
- Rough rolling cylinder Retainer
detachment prevention
- Large- scale sloping restraint
- Life lengthening measures
- Residuals stabilization
- Cooling water line improvement
- Hot metal preliminary treatment
- Heating furnace combustion
control technology
- Size precision improvement
- Heavy oil injection amount
reduction
- Supplementary fuel injection
technology
- Burden particles distribution
control technology
1980s
- Blast furnace computerization
- Furnace wall renovation
technology
- Furnace rebuilding technology
technology
- Steel converter operation technology
- Furnace outside refinement
technology
technology
- Form control technology
- Online roll grinding technology
- Material forecasting technology
- Powder injection technology
- Melted iron temperature increasing
technology
Source: POSCO(1981); POSCO(1993b).
As discussed thus far, POSCO's technological activities done in the
1980s focused on catching up with advanced technologies applied in
advanced countries. Likewise, technological capabilities development
course in the technological catch-up stage focused on modelling after
technological systems of advanced nations, and using introduced
technologies or developing technologies aimed at securing necessary
components elements and integrating them. This pattern was similar to
the 1970s in that POSCO did not create technical systems, but was
different from the 1970s in that it furthered or developed element
technology comprised of technologies. In this sense, technological
activities done in the 1980s carried the features of reforming component
elements within the existing technical system (cf. Henderson and Clark,
1990).
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Case Study on Technological Innovation of Korean Firms
4.
T e c h n o lo g y
Cr e a t io n
in
th e
1990s
:
Ca s e
of
Nex t - g e n e r a t i on S t e e l Te c h n ol o gy
In the 1990s, priority agenda was how to effectively respond to new
environment involving completion of steel mill construction, consecutive
top management reshuffling, and next-generation innovations appearance.
POSCO, before and after the 1990s, began to establish long-term
business strategies and corresponding technological strategies, and this
scheme was future-oriented as it focused not only on resolving pending
issues but on responding effectively to future tasks. Technological
strategies in the 1990 focused on developing low-cost technologies,
maintaining price competitiveness, and upgrading products composition,
as well as on developing next-generation steel innovations and expanding
the innovation scope. Towards the end of the 1990s, POSCO maintained
world-top operation technologies and price competitiveness surpassing
Japan, secured products competitiveness comparable to Japan, and
consecutively unveiled world-first developed technologies and its own
technologies.
1) R &D o n Ne xt- g e n e rat io n S t e e l In no va t io ns
The field that underwent the most visible change among technological
activities in the 1990s can be cited as next-generation steel innovations.
Next-generation
steel
innovations
are
divided
into
iron
making
innovations and casting innovations. The former includes direct reduction,
and smelting reduction, while the latter includes thin slab casting and
strip casting. The direct reduction method is designed to manufacture
alternatives replacing scrap iron with the scrap iron supply shortages
deepening, the smelting reduction method is designed to reduce smelted
Chapter 5. Historical Development of Technological Capabilities in POSCO
121
iron ores aimed at directly manufacturing cast iron or hot metal, the thin
slab casting method is designed to integrate part of continuous casting
process and hot rolling process, and the strip casting method is designed
to integrate the whole process of continuous casting and hot rolling.
Until the 1980s, steel industry innovations focused on making facilities
large, and process automation, while next-generation steel technology
cuts or directly links processes that are separated, thus drastically
reducing energy costs and manufacturing costs (See <Table 5-3>).
<Ta ble 5- 3> Next- ge ne ration Stee l Innovation Technology a nd
Curta ilme nt of Process
Division
Cokes Sintering
Continu
Hot rolling
Blast Steel
Cold
ous Heating Rough Finishing
furnace making
rolling
casting furnace rolling mill
Smelting reduction
Thin slab casting
Strip casting
Note: Shadowy part indicates omitted or integrable processes.
POSCO, in the course of pursuing next-generation steel innovations
R&D efforts, put much more investments than in the past. For instance,
the company spent 81.7 billion won in strip casting projects in 19892000, and 60 billion won in smelting reduction proj ects in 1990-2000. In
the 1980s, several billions won were spent on large-scale technology
development projects, while in the 1990s, tens of billions won was spent
on next-generation steel innovation technology proj ects. Tens of billions
amounted to POSCO's yearly total of R&D costs throughout the 1980s.
Thus, raising huge amounts of R&D funds
was crucial. Likewise,
POSCO received financial support of 22.2 billion won in smelting
reduction proj ect from the government, while the strip casting project,
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Case Study on Technological Innovation of Korean Firms
pursued by POSCO alone, could obtain approval from the top
management after undergoing pros and cons.
Regarding the organization and manpower, a proj ect team-like
organization was formed, recruiting superior R&D manpower. Project
teams assumed the form of task force teams in the 1980s improved; task
force teams were based on short terms, while project teams were based
on over ten years. RIST, through its iron making research division and
steel making division, conducted basic research on smelting reduction
and new casting methods starting from 1987. Likewise, it launched strip
casting project team and smelting reduction project team, in March 1990
and February 1991, respectively. These project teams had the same level
position as their parent organization research division, and the strip
casting proj ect team was led by Dr. Shin Yeong-gil, and the smelting
reduction proj ect team by Dr. Lee Il-ok from 1992. Researchers in
project teams had ample experience in research or were superior doctors
in their fields.
Next-generation steel innovations development began with collection of
relevant technology information as part of basic research pursued since
1987.
Since next-generation
steel
innovations had no
successful
commercialized precedents, this posed much difficulty to establishing
R&D direction. For smelting reduction and innovative casting methods,
their commercialization was attempted for some methods at the time, and
likewise, in 1989, sure achievements were not attained. For the smelting
reduction method, in early 1985, Vöest in Austria developed COREX
(coal ore reduction) method, and this led to construct an annual capacity
of 300,000 ton factory in Pretoria steel mill in South Africa in
November
1987. This factory went into normal operation from
November 1989. For the thin slab casting method, after Schloemann
Siemag in Germany developed CSP(compact strip production) method in
Chapter 5. Historical Development of Technological Capabilities in POSCO
123
December 1986, a factory with the annual capacity of 600,000 tons was
constructed in the Crawfordsville steel mill in Nucor, the U.S.A., in July
1989, aimed at securing operation skills.
RIST researchers contacted personally relevant personnels in advanced
countries who were conducting research on next-generation steel
innovations to collect materials and information on the status and
problems of technology development. Information that could be obtained
from advanced countries at the time was partial and not sufficiently
reliable, as well as needed to continued to be revised and complemented
through tests at laboratories. Unlike innovation research activities in the
past, foreign technological achievements were not distinctive, and
separate work was needed to establish specific objects of technology
development. Moreover, since for next-generation steel innovations,
element
technologies
necessary
for
process
design,
facilities
manufacturing, and factory operations should be established at home,
even one fault in one area mandated the revision of R&D direction. Past
innovation research progressed according to stages, while next-generation
steel innovations development was pursued as each stage was repeated
and gradually progressed like moving in a spiral.
In particular, next-generation steel innovations saw the appearance of a
variety of methods, creating the era of steel technology renaissance
unlike in the past. The smelting reduction method included not only
COREX but also DIOS(direct iron ore smelting reduction) method,
HISMELT(high intensity smelting) method and CCF(cyclone converter
furnace). Likewise, the thin slab casting method included not only CSP
method but ISP(in-line strip production) method, FTSC(flexible thin slab
casting) method, and QSP(quality strip production) method. Also, the
strip casting method included twin roll method, single roll method, and
single belt method. Out of these diverse methods, POSCO selected
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Case Study on Technological Innovation of Korean Firms
COREX, ISP and twin roll methods, which were deemed to be the most
favorable technologically and economically. For the smelting reduction
method, Iscor was operating a 300,000 ton capacity factory based on
COREX method, while POSCO planned to operate a 600,000 ton
capacity aimed at economy of scale. For the thin slab casting method,
Nucor was already operating a 600,000 ton capacity factory based on the
CSP method and planned to expand it to 1.8 million ton capacity in
1994. while POSCO planned to construct a 1.8 million ton-capacity
factory based on the ISP method which cut production process and costs
in installation compared to the CSP method. For the detailed method of
the strip casting, POSCO selected the twin roll method on which
research was actively being conducted at the time, and this method had
the advantage of making it easy to adjust the thickness of castings and
achieving speedy production.
In around 1990, POSCO manufactured pilot plants aimed at securing
commercial technologies. Foreign and domestic technological teams
j ointly designed and manufactured pilot plants, with the design led by
the foreign team and the manufacturing by the domestic team. For the
smelting reduction, Vöest j oined in the j oint R&D, and for the strip
casting, the British Davy Distington joined. The smelting reduction pilot
plant proj ect was relatively easy as Vöest had already much experience,
while the strip casting pilot plant proj ect had considerable difficulty
since Davy was less capable and frequently changed the design. After
pilot plants were manufactured, they were given tens of test operations,
production scale expansion, quality improvement and plant improvement
were examined, and efforts were made to work out plant specifications
and operation conditions applicable to actual factories. Through these
efforts, before factory construction was commenced, high commercial
value technology systems were established. For the smelting reduction
Chapter 5. Historical Development of Technological Capabilities in POSCO
125
method, the daily production output increased from 10 tons to 150 tons,
while the thin slab casting secured technology designed to mass-produce
cast strips with the thickness of 14㎜ (RIST, 1997, pp.473-484).
2 ) Co m m e rc ia lizat io n o f Ne xt- g e ne rat io n Ste e l In no vat io ns
Based on preparation work thus far made, POSCO formed COREX
project and strip casting project teams in October 1992 aimed at pursing
the proj ect of constructing the factory. The 600,000 ton-capacity new
iron making factory with the COREX method applied commenced in the
Pohang Steel Mill in November 1993, and was completed in November
1995. After the new iron making factory began operations, problems
arose as iron ore injection systems stopped and the smelting furnace
entrance became corrosive sharply. These problems were resolves as
POSCO's --- frontline technological teams improved work environment
including temperatures inside the furnace, and developed technology
designed to control the corrosion of fire-resistance bricks. After POSCO
gave normal operation to the new iron making factory starting December
1996, the company even exported COREX operation technology to
Saldanha in South Africa and JVSL in India in January-February 1998.
The construction of one mini mill with the annual capacity of 1.8
million tons was conducted in th Kwangyang Steel Mill from December
1994 to October 1996. The ISP method adopted by POSCO was not
stable compared to the CSP method, causing smelted steel leakage and
faults in products. So, one mini mill underwent three years of trial and
error, and entered into operation in July 1999. Likewise, in October in
that year, it could produce slabs with the thickness one-fifth as thin as
before thus securing manufacturing technology to ensure quality.
POSCO's thin slab manufacturing technology was recognized by the
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Case Study on Technological Innovation of Korean Firms
plant supply line Mannesman Demag, and thus in October 1999, it could
be sold to Hoogovens in Netherlands. Thus, areas to which POSCO
exported its technologies were diversified to include Asia, Africa and
Europe.
As such, POSCO secured manufacturing technologies regarding the
smelting reduction and thin slab casting methods, and exported them to
foreign countries, thus paving the way for the company to grow as the
world-top steel maker even in new steel technology paradigms. This
process shows how POSCO has change the pattern of its cooperation
with advanced foreign steel makers. Likewise, in the past, POSCO
received the transfer of technologies from advanced nations directly and
indirectly. On the other hand, recently, the company, backed by its own
has started to pursue technological cooperation with advanced enterprises
as it has its own complementary assets. With Vöest's and Mannesman
Demag's plant manufacturing technologies combined with POSCO's
operation technologies, technologies of smelting reduction and thin slab
casting are now being exported in the form of combination. In particular,
Mannesman Demag, which initially refused to cooperate with POSCO
regarding thin slab casting, later pursued technological cooperation with
it. This achievement was made possible as POSCO has secured
complementary assets.
In the course of commercializing next-generation steel innovations,
relevant technologies were furthered. The COREX method has the
shortcoming of having to use pallets with the size of 8-35mm as
material aimed to let reactant gas pass well in the vessel. To correct this
shortcoming, a new method was pursued to use powdered ores with the
size of below 8mm, and this method was dubbed FINEX(fine iron ore
reduction). POSCO successfully test operated a 150 ton capacity a day
in August 1999, and concluded a j oint agreement with Vöest to develop
Chapter 5. Historical Development of Technological Capabilities in POSCO
127
a FINEX plant with the annual capacity of 600,000 tons in November in
that year. For the thin casting method, the thickness of cast strip was
reduced from 1.4mm to 1.0mm, and the width was increased from
350mm to 1,300mm, thus paving the way to enter the commercialization
stage.
In
this
course,
technological
leapfrogging,
skipping
the
intermediate stages, was undertaken, thus resolving the technological gap
with advanced countries in a short period. Japan steadily improved the
width of cast strip from 100mm, to 200mm, 350mm, 600mm, 800mm,
and 1,300mm. On the other hand, POSCO underwent 100mm, 200mm,
and 350mm stages, and immediately challenged the 1,300mm.
In addition, POSCO constructed five blast furnaces and two mini mills
in the Kwangyang steel mill, and endeavored to build a mini mill within
an integrated mill(MMIM). This was aimed to use smelted iron created
in the blast furnace as material and produce the end product hot-rolled
steel plate in the mini mill, thus resolving both shortcomings of the
convertor process that makes it difficult to flexibly respond to demand
and supply, and of the mini mill that makes it difficult to secure
superior quality(Hong, 1996). This scheme faced difficult phase as the
second mini mill construction was halted in May 1998, but this attempt
was evaluated as POSCO selectively integrating diverse technological
possibilities and structuring its own technological systems. While, in the
1980s, diverse plants and technologies were integrated to excercise the
capabilities under the existing technological system, in the latter part of
the 1990s, individual plants and technologies were integrated into a steel
mill, thus positively progressing.
As discussed thus far, in the 1990s, POSCO maintained the position
of the first-to-the market, and simultaneously undertook to create
flexible-stage technologies for which no clear cut achievements were
attained or little precedents existed even in advanced countries. Likewise,
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Case Study on Technological Innovation of Korean Firms
for the technological capabilities development course at the technology
creation stage, POSCO used component elements partially appeared in
advanced countries and complemented them, and established new
technical systems. In this respect, technological activities done in the
1990s, unlike in the past, transcended the level of component elements
and developed into the stage of developing technical systems. This has
yet been limited to a few cases, and commercialization effects have yet
to be fully realized. Nevertheless, this move implies that POSCO has
started to lead the world steel industry.
5 . S u m m a r y a n d Im p lic a t io n s
Technological capabilities of POSCO have been developed through
acquisition, catch-up, and generation stage.
In the 1970s, POSCO acquired standardized technologies necessary for
factory operations mainly through technological cooperation with Japan.
POSCO technological people formed partnerships with Japanese engineers
in overseas training and factory operations to learn and acquire
technologies. Also, POSCO made it mandatory for overseas trainingcompleted staffs to impart their training to other staffs, conducted
equipment test and preparatory training for ensuring smooth operation,
and
effectively
utilized
college-graduated
engineers
and
superior
technicians. After factories began operations, actual operations were led
by POSCO's own technological people, abilities for trouble-shooting were
cultivated and partial technological improvement was conducted.
In the 1980s, based on the analysis of technological information,
POSCO conducted its own R&D activities, to catch up advanced
technologies. POSCO aimed to catch up with or surpass Japanese steel
makers which were world-top class at the time, and used unofficial
Chapter 5. Historical Development of Technological Capabilities in POSCO
129
methods in the course of acquiring actual technological information on
many occasions. POSCO formed task force teams on core technological
projects, and intensively managed them. Especially, in case of several
technological tasks, all relevant divisions all participated in projects to
balance the development of relevant technologies. Technological activities
done in the 1980s, took diverse forms, but the scope covered nearly all
fields of steel technologies.
In the 1990s, POSCO focused on creating technologies nearly
unprecedented in advanced nations, increased remarkably investments in
several technological tasks, and formed a proj ect team-like organization.
POSCO obtained partial information on new technologies, continued to
endeavor to build upon it, selected processes seen with the most
effective out of diverse technological paths, and progressively developed
technologies like moving in a spiral. These efforts led to test operations
and factory construction, and as operation technologies were secured
earlier, they were even exported to foreign countries. In this course,
POSCO made its own attempts to establish new technological concepts
and independent technical systems.
The development of POSCO's technological capabilities thus far
discussed can be explained that the sources of innovations have
gradually been internalized. If theh sources of innovations divided into
in-house accumulated technologies, external acquired technologies, and
external-dependent technologies, POSCO's external-dependent technologies
gradually decreased their portion, while in-house accumulated technologies
gradually increased their portion. Simultaneously, this paper showed that
enterprises with continuous process systems like POSCO, can speedily
develop technological capabilities compared to other type enterprises, and
that late-come enterprises can achieve radical innovations designed to
change production processes..
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Case Study on Technological Innovation of Korean Firms
This
paper
presents
the
following
implications
regarding
the
development of technological capabilities in Korea.
First, activities of acquiring technological information, i.e., the starting
point of innovations, show different features according to periods. In the
stage of technological acquisition with nearly no knowledge basis,
technological information focuses on its quantity rather than its quality,
and is collected not systematically. In the stage of technological
catch-up, technological information began to be gathered systematically,
and with knowledge basis somewhat structured, unofficial methods are
effective to acquire actual information. In the stage of technological
creation, technological information collected is partial and incomplete, so
additional activities to revise and reconstruct it is necessary.
Second, characteristics of technological cooperation vary according to
periods. In the stage of technological acquisition, advanced countries are
positive in technological cooperation, and particularly, the transfer of
mature technologies is feasible. In the stage of technological catch-up,
advanced nations tend to avoid technologies transfer, and contribute
indirectly to the development of technological capabilities as they serve
as the models of technological catch-up. In the stage of technological
creation, the importance of technological cooperation is not necessarily
lessened, and is effective only when the relevant entity is equipped with
complementary assets.
Third, to effectively pursue innovations, it is necessary to appropriately
form the relevant organization. In case of POSCO, they deployed
college-graduated engineers in the factory and gave special treatment to
superior technicians in the stage of technological acquisition, thus
spurring innovations on the production site. In the stage of technological
catch-up, R&D organization was constructed and task force teams on
maj or technological tasks were formed and intensively managed. In the
Chapter 5. Historical Development of Technological Capabilities in POSCO
131
stage of technological creation, investments were remarkably increased,
long-term project teams were formed, and high-class research manpower
equipped with new knowledge was recruited.
Fourth, some enterprises of Korea have shed innovations under
existing technical systems, and are entering into the stage of making
new technical systems. POSCO has begun the stage of developing new
technical systems, leaving behind the stage of representing its existing
technical systems and component elements, and of reforming component
elements under the existing technical systems. In the past, it was
important to acquire and catch up with advanced technologies through
already known technological paths. On the other hand, currently, the
business environment requires the abilities to explore and navigate
uncertain technological paths. To reveal this point, additional research
has to be done about the development of technological capabilities in
Korean enterprises after the 1990s. This will lead to find out mechanism
in the development of Korea's technological capabilities still left in the
black box.
132
Chapter 6
Shipbuilding Technology Development in Hyundai
Heavy Industries Co., Ltd.(HHI)
Yong-Ho Bae (STEPI)
1 . In t r o d u c t i on
The
Korea's
shipbuilding
industry
has
developed
its
modern
shipbuilding facilities over nearly 30 years. Korea shipbuilding and
Engineering, the former company of Hanj in Heavy Industry, exported 20
units of 250GT-class tuna fishing vessels to Taiwan in 1969, and then
constructed a 18,000DWT-class oil tanker, a large vessel in terms of the
then standard, on the order of the Unites States' Gulf. If this fact
considered, the industry has a even longer history (FKI, 1995, p.257).
However, the substantial development of the Korea's shipbuilding
industry was made from 1973 when large corporations including Hyundai
Heavy Industries (HHI) joined it. Likewise, in
1973, with the
establishment of HHI, the Korea's shipbuilding industry prepared a
substantial momentum to develop.2 1) Afterwards, the industry repeated a
rapid growth, and at one point in the mid 1980s, it registered the
2 1) Towards the end of the 1960s when Hyundai formulated shipbuilding business,
the Korea's shipbuilding industry was nothing but barren. In 1969, the nation's
shipbuilding capability encompassed only 157,000G/T(largest vessel construction
ability, 12,000G/T) in 139 shipbuilding yards, and even with that, the
shipbuilding achievement was very poor at the capacity operating rate of 20%
(HHI, 1992, p.127).
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 133
world's top orders of shipbuilding. Although the shipbuilding industry
experienced severe recessions depending on the circumstances, underwent
a serious compulsory restructuring engineered by the Korean government,
it continued to grow, and has recently been competing harshly with
Japan equipped with the world's top technology to catch the first place.
Despite this rapid growth, there has not been much research aimed to
determine the structure, characteristics and development factors of the
Korea's shipbuilding industry. Most of research focus on the analysis of
the status of the shipbuilding industry, measures designed for bolstering
the industry's global competitiveness, the relations between the nation
and corporations, labor-management relations in the shipbuilding industry,
and shipbuilding companies' relations with their parent companies. This
absence
of
research
papers
on
technology
development
in
the
shipbuilding industry is attributable to the existing research trends on the
Korea's industrial
development. After
the nation's first
economy
development plan was established in 1962, Korea achieved a rapid
economic growth, and most of relevant research focused on the nation's
role in its industrial development.22) On the other hand, this trend is
attributable to the lack of concern about the technology development and
technology accumulation in shipbuilding industry. Although many case
studies have been conducted on technology development process of
Korea to date23), there is no study done on the shipbuilding industry.
Thus, this research aimed to target the case of HHI, review the
technology development process of the country's shipbuilding industry,
and determine the mechanism of technology accumulation. Likewise, how
was HHI's technology capability (technology accumulation) attained?
How are the structure and characteristics of the Korea's shipbuilding
22) The representative research can be said to A. Amsden's Asia's Next Giant".
23) The representative researches are Lee, Keun et al.(1997), Park & Bae(1997), etc.
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Case Study on Technological Innovation of Korean Firms
industry represented by HHI? And, what form does the mechanism of
technology accumulation take? The following sought the answers to these
questions.
The research is outlined as follows. Section 2 reviews the economic
and technological characteristics of the shipbuilding industry. Section 3
reviews the technology development and growth process of HHI. Section
4 reviews the mechanism of the technology development capability with
HHI. And, Section 5, in conclusion, summarizes the technology
capability accumulation process of HHI.
2 . Ch a r a c t e r is t i c s of S h ip b u ild in g In d u s t r y 2 4 )
The shipbuilding industry is one of heavy and chemical industries
designed to perform the work of constructing diverse vessels to be used
in marine transportation, fisheries and military industry, among others,
and belongs to transportation-use machinery
industry.
Since
the
shipbuilding industry is linked to about 50-plus kinds of industries such
as machinery, metal,
electricity,
construction
and
chemistry,
its
development calls for the balanced development of these relevant
industries. Of these linked industries, since a huge quantity of steel is
required in order to produce vessel-related parts and vessel engines, and
assemble ships, it is crucial to the shipbuilding industry to stabilize the
supply and prices of steel materials. Due to its close linkage with other
industries, the shipbuilding industry has a great effect of linkage
industries, and plays a leading role as the comprehensive industry of the
heavy industries.
To build a ship, 200-plus kinds of parts, materials and equipment and
24) Characteristics of the shipbuilding industry are based on HHI(1992) and
Kyongsoo Lee(2001).
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 135
machines are required, and these are supplied in the form of finished or
semi-finished products from nearly all manufacturing industries including
machinery, steel, chemistry, electricity and electronics. Since it is
impossible to fully automate the process of shipbuilding given its
technological nature, it is characterized by labor intensive industry.
Simultaneously, the shipbuilding industry is a technology intensive
industry that requires highly advanced production technology in design,
construction and processing. In particular, since the wage cost of the
shipbuilding industry represents the second highest ratio of a vessel price
next to materials cost, to secure cheap and ample labor is essential for
constructing price-competitive vessels. In case of advanced nations, since
the labor cost is high, they seek to restrain the lowering of their
competitiveness due to labor cost by enhancing the productivity and
developing technology.
The shipbuilding features diverse types of vessels according to sea
routes, cargoes, and vessel owners' tastes, thus making it difficult to
standardize them. Given the nature of its comprehensive assembly
industry, the shipbuilding industry cannot accommodate the mass
production system in manufacturing and selling vessels and thus takes
the production form of receiving individual orders from vessel owners
and manufacturing them. Thus, it requires comprehensive management
abilities to meet diverse requirements. On the other hand, the work
process of shipbuilding includes design, materials procurement, and
diverse function tests, among others, thus making it a very complicated
process. Thus, to perform this work, a shipbuilding company needs to
professionalize its business administration including marketing, purchase
planning, production management, and general management. Also, since
the price per trade is very high, vessel exports are generally based on
long-term deferred payment terms, and vessel sales are determined
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Case Study on Technological Innovation of Korean Firms
largely by financial terms.
The shipbuilding industry has the characteristics of equipment industry
for which large equipment and facilities are essential such as docks,
cranes, and diverse heavy equipments, among others, thus necessitating
huge-scale capital. Thus, extensive facilities funds are required and huge
amounts of operational funds are also required in constructing vessels.
Give this nature, in most of countries, a few large corporations, which
are capable of putting large-scale investments, form a monopolistic
market structure. Also, the shipbuilding industry is very sensitive to the
economic change in the marine transportation industry, thereby lowering
its stability. Thus, the shipbuilding industry needs to diversify its
business administration to overcome the instability. Simultaneously,
distinct is the vertical and horizontal affiliation ranging from marine
transportation industry to financial industry, shipbuilding-related industries
and service industries.
On the other hand, shipbuilding technology is generally classified into
four
categories
technology
such
as general
(production
professional design
technology),
design
technology,
management
construction
technology,
and
technology (core technology). The general design
technology is related to technology designed for preparing drawings and
calculations required for
production, instead of highly
advanced
professional knowledge, and includes basic calculation, structure design,
diverse device design, purchase specifications, pilot operation and
performance evaluation, among others. The construction technology
includes production planning; cutting, processing, assembly, erection,
decoration, and painting methods; and diverse technology designed for
enhancing the productivity, and production management is included
depending on the situation. The management technology includes cost
management, materials and equipment management, manpower management,
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 137
quality management, technology management, and production management,
among others. The professional design technology includes highly
advanced expertise in relevant areas, requires the advance conducting of
theoretical and experimental research, and applies knowledge in analyzing
the performance of target obj ects and designing them, and it is called
element (core) technology. The research target areas include lines
development, resistance and propulsion, propellers, steering, seaworthiness,
model tests, ocean wave, wave load, ship body structure, noise,
vibrations, welding technology, automation and CAD/CAM, among
others.
As mentioned, the shipbuilding is a comprehensive assembly industry.
Also, the industry puts together and assembles diverse materials and
equipment according to ship owners' individual orders. Therefore it is
difficult to automate shipbuilding processing. However, since demands
are diverse according to the changes in transportation demands, the
industry is required to continue its construction technology development
through professionalism and energy saving technnology development.
However, the development speed of shipbuilding technology is very
slow. Innovative development or new product development are not fast
likely as seen in electronics technology, and the development is made
slowly based on experience accumulation.
3 . HHI' s T e c h n o lo g y Dev e lo p m e n t a n d Gr ow t h Pr o c e s s
1) Es t a b lis h m e nt a nd G row t h o f HHI
Regarding its shipbuilding business, HHI, from the beginning, sought
to construct a very large shipbuilding yard aimed at the global market.
First, it planned to join the industry through a j oint venture with
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Case Study on Technological Innovation of Korean Firms
Mitsubishi Heavy Industries in Japan in January 1969.25) However, the
Mitsubishi, the representative of the Japanese shipbuilding industry, had
no reason to construct a shipyard other than one of their subcontracting
factories in Korea, that could become their future competitor. The
Japanese company likewise had no reason to agree to Hyundai's proposal
that they should not intervene in the management of Hyundai. Moreover,
the Japanese Ministry of Trade and Industry issued a report that the
j oint venture had no feasibility, and the Japanese
Shipbuilding
Association concluded that it would not cooperate in the construction of
the very large shipbuilding yard. Thus, the joint venture fizzled out.
However, this, instead, provided an occasion for the Korea's shipbuilding
industry to develop on its own.
Thus, Hyundai, in October 1969, contacted Pan Maritime in Israel and
Aker Group in Norway to pursue a joint venture, only to fail. In 1969,
Hyundai gave up on constructing a shipyard through a j oint venture, and
decided to construct a shipyard through loans and operate it on its own.
Thus, the company made a siting plan, and in September 1971, agreed
to import technology from the British A&P Appledore and Scott
Lithgow shipyards. The agreement terms allowed Hyundai to receive the
supply of the layout of the shipyard, blueprints of 250,000-ton very large
tankers, and other technology until it commences sales, and the company
received approvals from the Ministry of Commerce and Industry on
December 20, 1971.26) In addition, Hyundai, in March 1970, launched
25) At that time, the Japanese shipbuilding industry was at the end of the 3rd
booming period of vessel exports (1965-1971), and captured nearly a half share
of the global shipbuilding market (orders, shipbuilding and backlog).
Furthermore, Japan dominated super-large oil tankers nearly exclusively. In this
course, many firms moved overseas to serve as subcontracting factories for the
Japanese shipbuilding companies.
26) The agreement with them on technology and sales cooperation is outlined as
follows. First, all technology in shipbuilding, design layouts, vessel design
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 139
its Shipbuilding Division, and set out for siting the factory along with
the conclusion of a loan agreement in April 1971.(HHI, 1992, p.949).
Meanwhile, Hyundai, in consultation with the Korean government,
completely amended its original plan and decided to construct a very
large shipyard capable of building over 500,000-ton VLCC instead of up
to 150,000-200,000-ton vessels per unit. Then Korea's representative
shipyard Korea Shipbuilding Corporation could only have an annual
construction capacity of 100,300 ton despite its facilities expansion
efforts begun since 1966. Amid this situation, apparently superb at that
time was the plan to build a shipyard that was capable of constructing
150,000-200,000-ton vessels per unit. Yet, Hyundai collected information
on political and economic moves and shipbuilding market trends amid
marked global changes as its personnel traveled to the United States,
Canada, Europe, and Middle East, among others, and jumped several
notches in shipbuilding at a time. However, Hyundai amended the plan
several times and could expand to one million-ton size in 1973.
In March, 1972, Hyundai held its historical ground-breaking ceremony
of constructing a shipyard, and on April 10, agreed with the Greek
Livanos to build 260,000-ton crude oil carriers Nos. 1 and 2. While HHI
drawings, etc., was provided at cost of US$1.7 million. Second, Appledore
would arrange for sales and loans until Hyundai constructed its 12th vessel, and
Hyundai were required to use the trademark of either Appledore or Scotlithgow
for those vessels, with the sales commission of 0.5% of the cost per vessel to
be paid. Third, Hyundai, in accordance with training agreements with Appledore
and Scotlithgow, would dispatch its 60 engineers and administrative staff to
learn shipbuilding technology and management abilities. Fourth, Appledore
would provide advice on production plans, cost calculation and other shipyard
operation matters. Fifth, Appledore would provide administrative staff,
professional managers and engineers for a certain period of time. These terms
were unprecedented for international practice at that time. Furthermore,
Appledore allowed Hyundai to pay the technology royalties of US$1.7 million
in installments until it constructed and sold the twelve vessels (HHI, 1992,
pp.326-327).
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Case Study on Technological Innovation of Korean Firms
constructed those vessels, it built its shipyard, aimed at cutting short the
construction period remarkably. This bold approach was possible since
the shipbuilding construction technology was highly advanced at the time.
<Ta ble 6- 1> Tre nds of HHI's Shipya rd Construction Pla ns
Item
Original
plan(1971)
Facility size
・Site
175,000 pyeong
・Building
37,611pyeong
・Dock No.1
500*80*12m
No.2
No.3
・Decorative 900m
exterior wall
Pr odu ct i on
capacity
5 vessels of
・Total
260,000-300,000
shipbuilding
DWT/year
capacity
Amended plan
(1972)
600,000 pyeong
42,818pyeong
400*80*12.7m
500*80*12.7m
1,050m
5vessels of
260,000-300,000
DWT/year
First determined
Amended plan
plan
(1974)
(1973)
Final (1975)
600,000 pyeong 600,000 pyeong
47,409 pyeong 47,409 pyeong
400*80*12.7m 400*80*12.7m
500*80*12.7m 500*80*12.7m
400*92*13.2m 500*92*13.2m
450m
1.5mil. pyeong
858,317 pyeong
400*80*12.7m
500*80*12.7m
560*92*13.2m
900m
10vessels of
260,000
DWT /year
6vessels of
260,000
DWT/year
4vessels of
550,000
DWT/year
6vessels of
260,000
DWT/year
4vessels of
550,000
DWT/year
・Maximum
500,000 DWT 700,000 DWT One mil. DWT One mil. DWT One mil. DWT
shipbuilding
capacity per
vessel
・Steel treatment
capacity
192,000 ton/year 252,000 ton/year 337,600 ton/year 384,000 ton/year 529,600 ton/year
Source: FKI(1997)
When HHI began to enter the shipbuilding industry, the global
industry was experiencing a great change in its landscape. The
shipbuilding industry, basically, is a labor-intense industry. The wage
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 141
cost accounts for 20-30% of the total shipbuilding cost. Thus, at the
time, the shipbuilding industry was recessing in advanced countries such
as the United Kingdom and Germany where labor was lacking and
wages were high. On the other hand, Spain, Yugoslavia and Norway,
among others, were emerging as new shipbuilding-strong countries,
where labor was ample with low labor costs. In the Orient, in 1956,
Japan emerged as the world-first shipbuilding country. It continued to
grow and occupied nearly 50% of the global shipbuilding market. Korea,
likewise, was in a position to rank shortly among the new shipbuilding
countries with its ample labor, as it would complement its technology
and experience through alliances with companies in advanced countries.
HHI, in 1973, completed the construction of its shipyard, and
constructed 260,000 DWT VLCCs and seriously marketed them on the
global market. However, towards the end of 1973, as the world
experienced the first oil shocks, recessing the economy of the global
marine transportation and shipbuilding. Hyundai, as a later-comer in the
shipbuilding, had no other technology accumulation than the experience
of constructing VLCCs. From the latter part of the 1974 when the oil
shocks seriously impacted the economy, ship owners rushed to the
cancellation of their orders. Hyundai, likewise, had three cases of VLCC
orders cancelled and faced rej ections of vessel take-over. After the
mid-1974 when orders on VLCC stopped globally, Hyundai departed
from large vessel-focused policy and diversified its vessel orders to
include medium and small vessels such as multi-purpose cargo vessels,
bulk vessels, and lumber carriers. On the other hand, HHI established a
plant business headquarters within the shipyard and Hyundai Mipo
Shipyard, thus expanding its business area.
HHI inaugurated its Welding Research Institute in November 1983,
and completed the construction of Tank Experiment Station in February
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Case Study on Technological Innovation of Korean Firms
1984 and Hyundai Maritime Research Institute (HMRI) in October,
aiming at innovating its shipbuilding technology. Also, the company
sought high value added shipbuilding, and strengthened or newly
established non-shipbuilding divisions of marine development, plants,
engines, robots, and heavy machinery, among other things, thus
overcoming the economic recession experienced in the mid 1980s. On
the other hand, the company strove to enhance its shipbuilding capabilities
by boosting the productivity and replacing part of facilities aimed at
automation. Also, HHI constructed a factory of constructing LNG
carriers in September 1991, and became the first in Korea to deliver a
LNG carrier in June 1994. In 1995, it completed the construction of
VLCC-exclusive docks Nos. 8 and 9 and installed two units of 900-ton
Goliath cranes.
As such, HHI overcame the slow-down in the economy
of
shipbuilding, while it reshaped its production and R&D systems, thus
continuing to grow and becoming the world-top shipyard. In 2000, HHI
owned the world's largest capacity of 1,512,000 CGT. This is 2.5 times
bigger than the capacity of the Japan's largest shipbuilding company,
Mitsubishi Heavy Industries. In particular, the company boasts of its
world's top level in terms of manufacturing competitiveness in labor,
facilities, product design, and development abilities, among others. It
uses three-dimensional computer-aided design aimed at designing diverse
lines, thus surpassing its Japanese counterparts in this regard.
2 ) Te c h n o lo g y De v e lo p m e nt o f HHI
When HHI entered the shipbuilding industry, it had neither element
(core) technology, nor design and production technology, and had to
import these technologies from the United Kingdom and Japan, among
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 143
others. Moreover, it had to import all relevant materials and equipment
from foreign countries. Also, aiming to secure technology at an early
date, it hired engineers from advanced countries, and sent its personnel
to foreign companies from which it importd technology to receive
training, as well as offered domestic training.
However, despite these efforts, it was not easy to secure and to
acquire production technology during the initial stage. According to an
official of HHI, HHI experienced 104 cases of trials and errors until it
constructed vessels Nos. 1 and 2 (HHI, 1992, p.358). Initially, the
company could not perform systematically and efficiently the work of
ordering, piling and processing materials, among others. This was natural
as the company started without experience. For instance, the company
brought a basic design from the U.K., and blundered in drawing its
detailed design, thus abolishing one block. Also, during the initial stage,
the company, in designing, did not know how to use newly purchased
state-of-the-art cutters for drawing lines, and had more difficulty in
drawing saw-tooth type lines. Likewise, regarding its steel storage work,
the company failed to match actual inventories with records in books of
materials management and production departments, thus making mistakes
in balancing the supply and demands
Through these ups and downs, HHI enhanced its technological
capabilities. For instance, its productivity increased from 1973 to 1975.
The vessel production capacity per person registered 0.33 ton on average
in 1973, and increased to 1.4 ton in 1975. With the 1973 index put at
1, the productivity registered 4.24 in 1975, increasing four-fold over two
years. The level of skill refinement likewise increased. The skill
refinement criteria is the success rate in vessel inspection, and it
registered 38.1% in 1973 when shipbuilding started, requiring two-thirds
of the work to be reworked. This figure registered 52.6% in 1974,
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Case Study on Technological Innovation of Korean Firms
69.7% in 1975, and 84.1% in 1976, allowing HHI to reach the level of
its counterparts in advanced countries. As such, in such short span of
time, HHI enhanced its productivity and technological levels remarkably.
Based on such achievements, HHI could accumulate diverse kinds of
shipbuilding technology. It accumulated production technology of VLCC,
RoRo ships, crude oil tankers, multi-purpose cargo vessels, bulk carriers,
container carriers and etc. The company did so as it accumulated its
initial vessel technology. Likewise, it not only imported technology from
foreign nations, but also sent its personnel overseas to be trained, thus
acquiring technology. Also, as HHI continued to experience trials and
errors, it improved its own technological capabilities. As a result, in
1983, ten years after the establishment of the shipyard, HHI received
orders from world-authoritative Lloyd's Register of Shipping (LR) and
Det Norske Veritas (DNV), thus winning recognition for its fine quality
in the hull division. As a result, HHI benefited from the exemption of
quality inspection by the association, thus further cutting short the
construction period.27)
However, despite such production technology
accumulation, the
company could not acquire design technology easily. For over five years
after the establishment of the shipyard, the company could not perform
ship designs on its own, and all design drawings were imported from
foreign shipyards and consulting companies. This situation continued
until the end of 1977. However, amid the situation, in 1974, the
company strove to adopt the Japanese-style production design and
perform the design on its own. Through continued efforts, it could
likewise accomplished production design and production management
27) There were at the time only four shipyards approved by Lloyd's Register of
Shipping such as IHI, NKK, and Mitsui Shipping in Japan, and Odense in
Denmark. There were two shipyards approved by Norske Veritas such as NKK
and Mitsui Shipyard in Japan (HHI, 1992, pp.552-553).
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 145
drawings on its own. Based on accumulated technological capability, it
gathered and analyzed data, and then accumulated certain basic design
abilities and established basic designs in 1978. Through this occasion,
HHI could begin to foster its design abilities, established the concept of
lines design and could thus start to perform detailed design of the ship
structure.
From 1979, the company made further efforts to perform lines design
on its own. To that end, it continued to import ship design technology
from its counterparts in advanced countries.28) Apart from this design
technology,
the
shipbuilding
business
division
imported
diverse
technologies on process management and lines development, among
others, from its counterparts in advanced countries. The company
likewise invited technology advisors from Lloyd's Register of Shipping
and Norske Veritas, and sent its personnel on overseas training, thus
accumulating its design abilities. As a result, it performed its own basic
design of the 25,000DWT bulk carrier which order it received from
Hyundai Merchant Marine in 1979, marking the first of its kind.
Afterwards, it could expand the area of basic design and develop
Hyundai standard lines.
HHI could start its own design of lines in 1984 when it established
Hyundai
Maritime
Research
Institute
(HMRI).
Simultaneously, in
cooperation with the design department, the design technology developed
remarkably. Also, in 1984, it constructed a towing tank and two small
28) It imported 80,000 DWT tanker design technology from Naiereorm in Germany
in February 1979, for the price of DM281,000. In March 1982, it imported
from the Danish B&W, 40,000DWT bulk carrier and 130,8000DWT bulk
carrier design technology for the price of US$ 11,110,000. In October 1982, it
imported from the Danish B&W, 4 5,000DWT OBO design technology for the
price of US$51,000. In November 1983, it imported from BWS 170,000DWT
bulk carrier and 80,000DWT bulk carrier design technology for US$100,000,
and multipurpose cargo carrier design technology from Canadian NVLaskey, for
the price of US$60,0000 (HHI, 1992, pp.549-550).
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Case Study on Technological Innovation of Korean Firms
tanks. To make the optimum lines, one needs to conduct diverse
experiments on a model vessel (reduced with a certain scale) in a tank
with conditions similar to those of the actual maritime, by towing it
with a planar motion carriage. This model experiment based on
simulation technique was inevitable before manufacturing an actual
vessel. In the past, HHI requested this experiment to foreign research
institutes, thus wasting money and time and exposing its know-how.
However, with the construction of the research institute, the company
could save diverse experiment costs, reflect experiment results in design
timely, and accumulate diverse relevant data. This was of great help for
developing similar lines and new lines, thus giving the company
enhanced external confidence. With the establishment of the research
institute, HHI could conduct diverse studies on structures necessary for
lines and maritime development on its own. And, HHI further enhanced
its technological levels, thus paving the way for bolstering its global
competitiveness in the market of shipbuilding.
Since the 1990, HHI was faced with a new economic environment.
Vessel owners demand low-priced, high-performance, and high-quality
vessels. And large passenger ships, maritime exploration vessels, LNG
carriers and other high value-added vessels, are ever increasing their
significance. These are the area that Korea has not been so much
successful in entering. In addition, with China rapidly rising as a country
of shipbuilding, Korea's export markets will likely be eroded. On the
other hand, the technological environment surrounding the shipbuilding
industry has changed. With the rapid development of information and
communication technology, the shipbuilding industry sees an acceleration
of IT application and digitalization. Likewise, the industry is moving to
increase the vessel speed, manufacture bigger vessels, lighten engines
using new materials, and develop alternative engines.
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 147
In response to this change, HHI has formed a value chain aimed at
diversifying its businesses, and is striving to depart from the mere mass
production. Likewise, the company seeks to organize diversified quality
production-based systems, conduct specialized and professional production
by dock, and strength its R&D efforts to support that. The company thus
strives to cooperate technology development efforts with shipyards and
partner firms, manufacture more parts and equipment using Korean
technology, and automate the production processes. Thus, HHI is ever
increasing its R&D investments.
<Ta ble 6- 2> R&D Investme nt of HHI
Division
1992
Sales
(billion Won, A)
R&D
(million won, B)
B/A(%)
1993
1994
1995
1996
1997
1998
1999
2,001 2,144 2,138 2,104 2,839 3,586 4,710 4,193
12,340 22,051 30,351 71,755 40,874 49,195 16,506 31,692
0.62
1.03
1.42
3.41
1.44
1.37
0.35
0.76
Source: KOSHIPA
Thanks to these efforts to acquire technology, HHI reached a high
level of technology. In terms of merchant ship, HHI is behind its
counterparts in Japan only in basic design of design technology, but
surpasses them in detailed designs and production designs. This holds
true for production technology. It gets behind its counterparts in Japan
only
in
management
technology
in
cost
management,
materials
management, production management, and manpower management,
among others. However in terms of ship forms, the level of Korea's
technology matches only that of Japan of the 1980s and 1990s.
Likewise, in the 1980s and 1990s, Japan constructed luxury passenger
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Case Study on Technological Innovation of Korean Firms
ships and maritime exploration vessels, while Korea, as of 2000, was
striving to construct them.
<Ta ble 6- 3> Leve l of Shipbuilding Technology of Korea (me rcha nt s hip)
Technology area
Design
technology
Production
technology
Management
technology
Basic design
Detailed design
Production design
Cutting
Welding
Assembly and process
Painting
Erection
Decoration
Cost management
Materials management
Production management
Manpower management
Technological level
(merchant ship)
95
105
105
95
90
105
110
95
90
85
85
90
85
Source: Cho (October 25, 2002).
4 . Pr o c e s s o f H HI' s T e c h n o lo gi c a l Ca p a b ilit i e s Ac c u m u l
HHI accumulated technological capabilities along three paths such as
through the import of technology and hiring foreign engineers, through
overseas technology training and education, and through the structuring
of its own R&D systems. Likewise, these methods did not necessarily
occur independently of each other. In parallel with the import of
technology, the company hired foreign engineers and sent its personnel
on overseas technology training. Within the country, it offered newly
recruited employees technology education, thus transferring technology to
them. Also, hired foreign engineers offered formal and informal
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 149
technology education while working together on the frontline, thus taking
charge of technology transfer. On the other hand, with the necessity for
R&D increasing, HHI was equipped with R&D systems as it established
Hyunai Maritime Research Institute, Welding Research Institute, and
Tank Experiment Station, thus achieving a remarkable technology
development.
1) impo rt of Tech no lo gy a nd Us e of Fo re ig n Eng inee rs
In case of developing nations and corporations with outdated
technology compared to advanced nations and corporations, technology
development, as indicated in many researches, starts with the import of
advanced technology. This held true for HHI. To construct a 210,000ton VLCC whose order HHI received upon inauguration, it employed all
its internal technological capabilities only to have to depend on external
assistance. There were no engineers at the time that could even read
foreign design drawings except for welding and other basic shipbuilding
technology areas. Thus, nearly all shipbuilding-related technologies
should be imported. Hyundai imported all its shipbuilding-related design
drawings from foreign shipyards and consulting firms, and depended
foreign technology for lines. Apart from this design technology, HHI had
to import diverse shipbuilding technology such as process management
and lines development.
Thus, HHI concluded technology import agreements with leading
shipyards in the U.K. and Japan, among others, while it endeavored to
invite able foreign engineers. As mentioned above, the company likewise
had much difficulty constructing large vessels with its own manpower
alone. Following technology import agreements with its counterparts in
advanced countries, HHI could hire and scout foreign engineers. As
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Case Study on Technological Innovation of Korean Firms
these hired engineers offered formal and informal technology education
while working together, they successfully transferred their technology to
HHI.29)
2) Ove rs e a s Te c h no lo gy Tra in ing a nd Do me st ic Te c h no lo gy
Even if a developing country has imported technology from an
advanced country, this does not mean that it has achieved technology
development. Likewise, technology import is not the mere transfer of it
from one place to another. For the effective technology import, the
know-how to operate the technology efficiently should be simultaneously
acquired. However, advanced countries would not easily transfer the
know-hows to developing countries. Also, there is a considerable
difference between advanced and developing countries in endowed
resources, work environment, and the level of workers' acquisition of
technology, so the technology used efficiently in advanced countries is
not necessarily applied efficiently in developing countries. Thus, for a
29) Pursuant to technology agreements with the British Appledore, and Japanese
Kawasaki, among others, the company hired or scouted foreign engineers. For
instance, in October 1972, The Danish Kurt J. Schou was hired to become the
first president of Ulsan Shipyard, and he had been technology vice president for
Odense Shipyard. He had been responsible for technology for 30 years for the
shipyard since its inception, and in particular, had been winning a global
reputation in constructing VLCCs. As Schou took office, he brought along many
engineers. They include engineers responsible for process planning, hull,
production, decoration, and overall length. They had good relations with Korean
engineers. Playing a great role in the growth of HHI's shipbuilding were also the
British Kinraid responsible for decoration design, Appledore's Wilson, Semery
from the French engine production firm CDA, and Smith responsible for
automatic instrumentation system from Lloyd's Register of Shipping. Likewise,
assisting HHI in importing technology were 30-plus Japanese engineers from
Kawasaki Heavy Industries including Sakurama from Kashima Construction (HHI,
1992, p.344)
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 151
developing country to achieve technology development through the
import of advanced technology, it must strive to efficiently absorb the
advanced technology.
One of useful methods to absorb the technology of advanced countries
is to receive technology training in the company in the advanced country
that provides the technology. Thus, along with the hiring of foreign
engineers, HHI carried out overseas technology training. As at the time,
on the Scotlithgow yard, they was building the ship with the same type
and same class as the vessel whose order HHI received, the training was
of great help for acquiring the concept of shipbuilding in a short period
of time. Besides, it received a great assistance in the area of design and
assembly. On the other hand, there was technology training done in
Japan. Pursuant to technology cooperation agreements with Kawasaki
Heavy
Industries, HHI received training
on
overall
shipbuilding
technology from Kawasaki. Also, HHI received technology training on
design and others in Sakaiide Shipyard, and on shipyard construction
technology in Kashima Construction. Japan boasted of having the
world-top shipbuilding technology at that time as now, and had the same
type state-of-the-art equipment as the equipment installed in HHI, thus
greatly assisting HHI in boosting its technological level to the global
level in a short period of time.
However, it was difficult to reenact the knowledge acquired through
technology training on the frontline. To acquire the general technology
through the import of technology and through technology training was
one thing, and to reenact it in the course of manufacturing was another.
Therefore, the work was repeated, thus enabling the acquisition of the
know-how necessary for production.
As HHI set out on shipbuilding business, the most difficult part was
to secure skilled technicians and train them in the shortest possible
152
Case Study on Technological Innovation of Korean Firms
period of time, in addition to financial problems. The company, likewise,
could not fill out the large number of engineers with skilled Korean
manpower alone.30) Thus, to supply the manpower on its own, HHI
opened a training center in September 1972 and invited Robert L.
Wilson from Appledore to be the director of the center, thereby making
all-out efforts to foster its own technical manpower. The company
targeted the annual goal of 1,200 people, and upon the opening, trained
324 people in eleven six-month courses in cutting, plumbing, sheet
metal, electricity, machinery work, drawing, management, etc. The
company trained 2,172 regular trainees and 1,464 voluntary trainees and
short-term-based trainees by the end of 1975, totaling 3,636 people. By
1990, the company trained a total of 35,234 trainees, and of this, the
regular trainees stood at 15,258. Through this technology education, HHI
accumulated construction experience in the shipbuilding industry, and
thus could reduce many trials and errors in the process of manufacturing.
3 ) R &D S y s t e m s o f HHI
In the designing of core parts, apart from the existing organization
focused on the production division, a company needs to structure its
internal professional R&D organization. Mostly, the ability to design the
core parts cannot be acquired through the accumulation of technology
and experiences learned in the production process. This calls for the
accumulation of fundamental understanding and knowledge of principles.
Due to this nature of technology development, a separate in-house R&D
30) Besides this manpower, to tide over the initial manpower shortage, HHI
accommodated a large number of career employees in similar divisions in
Hyundai E&C and Hyundai Motors, and transferred them to Ulsan Shipyard,
and recovered shipbuilding-experienced workers in other divisions to the
shipbuilding area.
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 153
organization is required to exclusively take charge of the matter. This
held true for HHI. For over five years after it established its shipyard,
HHI had no experience in vessel design, and, instead, imported all
design drawings from foreign shipyards and consultants. This situation
continued until the end of 1977. Likewise, with the experience in
production alone, HHI could not design vessels on its own.
However, without its own ability to design vessels, it was impossible
for HHI to rise to the world-class status. Most of advanced firms were
equipped with their own design abilities, and backed by this, outwitted
the late-comers. To secure design technology capability meant to
structure the basis for technological independence and rise as a leading
enterprise.
Thus, HHI newly established Basic Design Department in its
Shipbuilding Division in 1978. The company could thus establish the
concept of lines design and begin to conduct detailed design of ship
body structure based on established foreign vessels. From 1979, HHI
made more positive efforts to design lines on it own. Through these
efforts, HHI began to foster its design capability. Afterwards, the
company constructed Hyundai Maritime Research Institute (HMRI) in
October 1984, started to seriously operate it, and could thus design lines
on its own. Also, as in November 1983, HHI constructed Welding
Research Institute, it could seriously begin to research and develop
element (core) technology along with HMRI. In 1984, it constructed
Tank
Experiment
Station,
and thus
innovated vessel
production
technology. As a result, in September 1986, HHI j oined the International
Towing Tank Conference, and in 1987, it could export tanker design
drawings to the Danish B&W and conduct oil drilling rig model
experiment at the request from Canada.
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Case Study on Technological Innovation of Korean Firms
5 . Co n c lu s io n
The research thus far discussed HHI's technology development process
as well as its structure and characteristics. Likewise, as HHI underwent
the initial stage and technology-dependent
stage until the
1970,
technology-independent stage after the 1980s, and a stage transiting to
technology creation in line with the new environment changes after the
1990, it continued to develop its technology capabilities. These stages
can be summarized as in <Table 6-4> focused on diverse variables.
<Ta ble 6- 4> Major Technology- re lated Activities of HHI by
Deve lopme nt Sta ge
Technology-independent
Stage transiting to
stage
technology creation
Target ・Production technology ・Design technology
・High value-added vessels
development technology
Technology
technology ・Technology import and ・Technology
import, ・Technology import and
transfer
Transfer
overseas training, and technology consulting, and R&D activities of the
type
hiring foreign engineers
securing R&Dsystem
company's own
Developing high value-added
Major technology
Absorbing production
Absorbing design technology vessels and special vessels
activities
technology
technology
Major technological
Technicians and skilled
Engineers
Engineers
manpower
workers
Transiting from imitation to
Characteristics of R&D Mere dependent type
Imitative dependent type
creation type
Division
Technology-dependent stage
During the technology-dependent stage until the 1970s, to successfully
enter and survive the shipbuilding industry, HHI depended on external
sources for nearly all technologies necessary for ship building. Also,
together with the positive import of technology, the company hired
foreign engineers and sent its personnel on overseas technology training,
Chapter 6. Shipbuilding Technology Development in Hyundai Heavy Industries Co., Ltd.(HHI) 155
thus absorbing technology mainly on production. As during this period,
Korea was accumulating the shipbuilding technology, the company did
not make R&D efforts.
During technology-independent stage in the 1980s, HHI positively
imported technology, received overseas technology training, formed
technology alliances with its counterparts in advanced countries and
received technology consultations from them, and established its own
R&D systems, thus achieving a remarkable development in design
technology. Likewise, as the company achieved design technology
development and manufactured high value-added vessels unlike the
vessels in the previous stage, it saw the growing importance of the role
of engineers, gradually shed the mere exclusively foreign-dependent type
in its R&D type and moved towards the imitative dependent type. With
such remarkable technology development, it could reduce its dependence
on external technology, and increase the portion of its internally
accumulated technology.
The 1990s and the subsequent period can be said to be a stage
transiting to technology creation. During this period, the Korean
shipbuilding industry including HHI faced the problems of its harsh
competition against Japan for the first place, China's rapid rise, the
strengthening of IT and digitalization of vessels, and the importance of
environment
issues.
Thus,
surfacing
as
important
agenda
were
development of high value-added vessels, enhancement of technological
competitiveness and the expanded necessity of technology development
in line with the changing technology environment. Therefore, HHI is
now pursuing diverse R&D activities, and thus is transiting from the
imitation type to the creation type.
156
Chapter 7
Conclusion
Yong-Ho Bae, Sungsoo Song, Mi-Jung Um and Dae-Hee Lee
1 . T e c h n o lo g y Ac c u m u la t i o n Pr o c e s s o f Maj or Ko r e a n
F ir m s
The case-study firms did not grow by totally depending on imported
foreign technology. Instead, while their R&D capabilities developed
actively and dynamically, they could achieve a fast growth. The history
of these firms' rapid development process of technological capabilities
and subsequent high growth was not simply the result of their repeated
acts of advanced technology import and production enhancement based
on that. The case-study firms' high growth progressed as they enhanced
their own R&D capabilities to replace the technology import, and
accumulated a considerable portion of technological capabilities necessary
for growth internally. In this process of technology accumulation, the
technology import not necessarily replaced the corporations' R&D efforts.
R&D efforts were essential to absorb the imported technology.
On the other hand, in the stage where efficient use of technology
necessary for production is very important, R&D efforts is not certainly
necessary. Likewise, with the understanding of technology principles
acquired in advance, the production efficiency will be enhanced, and yet,
only the efficient production allows the know-how alone acquired
Chapter 7. Conclusion
157
through repeated experience to be viable. However, at the stage where
design technology and new products creation are required, the know-how
alone would not resolve problems which meet
in the product
development process. Without the understanding of technology principles,
such problems could not be resolved. At this stage, the in-house R&D
system and the expansion of R&D investments are essential for enabling
the understanding of technology principles. Thus, in-house R&D system
and the expansion of R&D investments have close relations with the
qualitative
leapfrogging
in
technology
development
activities
of
developing countries' firms. The R&D capabilities enhancement of the
case-study firms has proved this.
As shown in this research, some Korean firms, through this
technology accumulation process, transcended the reform within their
existing technology system and entered the stage of forming a new
technology system. Samsung Electronics and POSCO transcended the
stage of re-implementing the existing technology system and reforming
the components in the existing technology system, and moved towards
the stage of developing a new technology system. Unlike in the past
when they followed or were modelled after foreign technology systems,
they conducted the work of establishing the technology system with
Korea taking the initiative. Outlined as follows is the technology
accumulation process of major Korean firms handled in this research.
Semiconductor Industry of Samsung Electronics
After Samsung Electronics seriously entered the DRAM area in 1983,
its technology development process is divided into three categories. The
first period was the first generation model period during which the
company was dependent on external sources for major core technology
158
Case Study on Technological Innovation of Korean Firms
necessary for the manufacturing of semiconductors, spanning from the
entry until the development of 64K DRAM. During this stage, aiming to
shorten the period of developing and commercializing technology,
Samsung Electronics, as a late-comer, depended on external sources for
most technology necessary for the manufacturing of semiconductors, i.e.,
design and wafer processing technology, and equipment and materials. Its
own technology activities were comprised mainly of learning on
imported technology.
The second period was the second generation model period during
which the portion of externally acquired technology was enhanced,
spanning until the development of 256K DRAM. During this stage, the
company purchased only design technology, thus reducing its dependence
on external technology. Yet, it still depended on external technology for
wafer processing and assembly. Nonetheless, the experiences and
technologies acquired during this period provided a valuable basis for
Samsung to develop its own technological capabilities after the 1M
DRAM.
The third period was the third generation model period during which
internally accumulated technology played a key role in the product
development, spanning from the commencement of developing 1M
DRAM until present. During this stage, the company started to create
new products based on its own technological capabilities, and, albeit
partial
import
of
external
technology,
achieve
new
ideas
and
technological knowledge through its internal R&D efforts.
What made Samsung jump to the world's leader in the area of DRAM
was that the company focused on all three categories of internally
accumulated technology, externally accumulated technology, and external
dependent technology, and strove to secure them positively and
use
them efficiently. In particular, the company exercised its comprehensive
Chapter 7. Conclusion
159
capabilities to integrate these factors, thus sharply shortening the time
span of internalizing advanced technology, accelerating the formation of
core technology, and leading successful innovations.
Automobile Industry of Hyundai Motors
HMC, which entered the global automobile market as a latecomer in
1968, continued to improve its technological competitiveness, thus
rapidly growing to aim for the fifth place in the global automobile
industry. The company thus transcended the catching-up stage as its
basic corporate strategies, and shifted to the stage of accumulating
strategic capability. Therefore, this research sought to determine changes
in HMC's technology import strategies in line with changes in its
technological capability, as well as changes in its internal learning
process and organizational structure. There may still be a big technology
gap between HMC and advanced automobile makers, and nevertheless, it
is gradually shifting to a strategic enterprise from a latecomer, and
accordingly
changing
its organization
and methods of importing
technology.
imported technology gradually changed from collection and integration
technology to segmented element technology. As internal R&D activities
shifted their focus from problems solving to basic and previous research,
technology
borrowing
sources
gradually
changed
from
advanced
automobile makers to specialized services firms in areas of element
technologies. Also, as for the level of imported technology, HMC
changed the advanced automobile makers' already technology during the
consolidation period to encompass future new technology, and thus
formed alliances with them to secure its stake in technology under
development. As for the organizational type, HMC changed the top
160
Case Study on Technological Innovation of Korean Firms
management-centered organization sensitive to external changes to
stabilize the organization, allow mid-management to form its core and
establish ad hoc teams by agenda, thus creating technology. In summary,
HMC gradually moved to shifted from the typical operation type of a
latecomer to a organizational type similar to that of advanced automobile
makers, thus changing its relations with them.
Steel Industry of POSCO
Technological capabilities of POSCO have been developed through
acquisition, catch-up, and generation stage.
In the 1970s, POSCO acquired standardized technologies necessary for
factory operations mainly through technological cooperation with Japan.
POSCO technological people formed partnerships with Japanese engineers
in overseas training and factory operations to learn and acquire
technologies. Also, POSCO made it mandatory for overseas trainingcompleted staffs to impart their training to other staffs, conducted
equipment test and preparatory training for ensuring smooth operation,
and
effectively
utilized
college-graduated
engineers
and
superior
technicians. After factories began operations, actual operations were led
by POSCO's own technological people, abilities for trouble-shooting were
cultivated and partial technological improvement was conducted.
In the 1980s, based on the analysis of technological information,
POSCO conducted its own R&D activities, to catch up advanced
technologies. POSCO aimed to catch up with or surpass Japanese steel
makers which were world-top class at the time, and used unofficial
methods in the course of acquiring actual technological information on
many occasions. POSCO formed task force teams on core technological
projects, and intensively managed them. Especially, in case of several
Chapter 7. Conclusion
161
technological tasks, all relevant divisions all participated in projects to
balance the development of relevant technologies. Technological activities
done in the 1980s, took diverse forms, but the scope covered nearly all
fields of steel technologies.
In the 1990s, POSCO focused on creating technologies nearly
unprecedented in advanced nations, increased remarkably investments in
several technological tasks, and formed a proj ect team-like organization.
POSCO obtained partial information on new technologies, continued to
endeavor to build upon it, selected processes seen with the most
effective out of diverse technological paths, and progressively developed
technologies like moving in a spiral. These efforts led to test operations
and factory construction, and as operation technologies were secured
earlier, they were even exported to foreign countries. In this course,
POSCO made its own attempts to establish new technological concepts
and independent technical systems.
The development of POSCO's technological capabilities thus far
discussed can be explained that the sources of innovations have
gradually been internalized. If the sources of innovations divided into
in-house accumulated technologies, external acquired technologies, and
external
dependent
technologies
accumulated
gradually
technologies,
decreased
technologies
POSCO's
their
gradually
external
dependent
portion,
while
in-house
increased
their
portion.
Simultaneously, this paper showed that firms with continuous process
systems like POSCO, can speedily develop technological capabilities
compared to other type firms, and that late-comer firms can achieve
radical innovations designed to change production processes.
Shipbuilding Industry of Hyundai Heavy Industries
The technology development process of HHI comprises the basic stage
162
Case Study on Technological Innovation of Korean Firms
and technology-dependent stage until the 1970s, technology-independent
stage after the 1980s, and technology creation stage in line with new
environment changes after the 1990s.
During the technology-dependent stage until the 1970s, HHI depended
on external sources for nearly all technology necessary for entering and
surviving the shipbuilding industry. And, along with this positive import
of technology, the company absorbed technology regarding production
technology by hiring foreign engineers and taking overseas technology
training. During this period, HHI was accumulating
shipbuilding
technology, especially production technology, but R&D activities were
little launched.
During the technology-independent stage in the 1980s, HHI positively
imported technology, sent its employees on overseas training, formed
technology alliances with advanced countries, and received technology
advices. And HHI established its own R&D systems, thus achieving a
remarkable development in design technology. Likewise, with the
development of design technology, and the manufacturing of more
value-added vessels, the role of engineers grew increasingly important,
and R&D efforts moved towards the imitative dependent type departing
from advanced countries-entirely-dependent type. With such remarkable
development
of
technology,
the
company
gradually
reduced
its
dependence on external technology, and expanded the importance of
internally accumulated technology.
The period after the 1990s was a transit to creating technologies.
During this period, the Korean shipbuilding industry including HHI were
harshly competing for the first place against Japan, China emerged
rapidly, vessels accommodated more and more IT, and environment
issues were highlighted. Thus, raised were crucial agenda
such as the
development high value-added vessels, enhancement of competitive edge
Chapter 7. Conclusion
163
and expanded necessity of technology development in line with the
changing technology environment. To resolve these agenda, the company
pursued diverse R&D efforts, and thus is now transiting to the creation
type model from the imitation type model.
2 . Im p li c a t i o n s o f In n ov a t io n Th e o r i e s
Significant common implications of innovation research in Korea can
be found from the aforesaid analysis of major Korean firms' technology
accumulation process.
First, Korean firms jumped to the status of global leaders in a short
span of time, in the areas of DRAM, automobiles, steel, shipbuilding
and other technology intensive products and major products; this was
made possible, because they focused on all three elements, namely,
internally accumulated technology, externally acquired technology, and
external dependent technology, and exerted strenuous efforts to positively
secure them, and effectively use them. Notably, they exercised
integration capabilities to combine all these elements, thus sharply
shortening the period of internalizing the advanced technology and
accelerating the formation of core technology and achieving successful
innovations.
Second, the Korean firms, from the early stage, aimed to compete
directly with global leaders, and made tremendous efforts to sharpen
time management
aimed at
compressing technology
and product
development time. In particular, in case of DRAM, since the early
establishment
of
mass
production
system
and
speedy
product
manufacturing are the key to the success, the Korean firm, as
late-comer, exerted strenuous efforts to develop products and technology
at an early time as it strictly managed the timeline. This provided the
important basis for the company to catch up with advanced countries.
164
Case Study on Technological Innovation of Korean Firms
Third, the Korean firms all adopted the outsourcing method in order
to pursue product innovation activities. In particular, for them as
late-comers to catch up with leading companies, they mobilized the best
manpower, equipment
and resources at home and abroad. This
outsourcing-type innovation system played a crucial role in enabling the
Korean firms to equip themselves with stable production systems in a
short span of time, and secure the global competitiveness. Likewise,
these products, commonly, depend highly
on foreign equipment,
materials, and core parts, and this has yet to be resolved. However, this
dependence was inevitable and effective for them to make an early entry
with the weak domestic base.
In light of these results, this research support dynamic j igsaw puzzle
model which Choi & Lee(2001) proposed. And also this model is a
analytic tool of Chapter 3. This model is designed to explain the
innovation process in terms of corporate and individual products. The
start point of this model is based on the following: The actual
innovations recently done in Korean corporate and individual products
overall follow the steps of technology import
improvement
absorption and
creation in this order, but, at separate stage, comprise
the combination of three elements, namely, prior internally accumulated
technology of firms, externally acquired
Korea)
and
applied
technology,
and
(from overseas and within
entirely
external
dependent
technology. Likewise, indisputably, the securing of all these three
elements is essential for the successful innovations. However, the ability
to simultaneously handle these elements in parallel, namely, the ability to
integrate all very complex relevant elements and reach the goal, is no
less important.
Chapter 7. Conclusion
165
source: Choi & Lee (2001)
[Figure 7- 1] Dyna mic J igsaw Puzzle Mode l
The concept of dynamic j igsaw puzzle model is shown in the
following [Figure 7-1]. First, as shown in the figure, the corporate
innovation activities handle three elements, namely, internally accumulated
technology, externally acquired technology, and external dependent
technology, together and simultaneously. Second, the innovation activities,
like playing a jigsaw puzzle, undergo innumerable explorations and trials
and errors, and move towards perfecting the final and complete picture,
thus experiencing a very complex, flexible and dynamic process. Third,
it is important to secure the respective technology, and no less important
is the capability to integrate these elements and lead them into a
successful production. Also, this integration capability includes both
166
Case Study on Technological Innovation of Korean Firms
technical
and
non-technical
elements,
and
resources
mobilization
capability is cited as one of non-technical elements. Fourth, the
composition ratio of these three elements changes as the early products
transit to the next-step products, and this change indicates a conversion
into technology accumulation and improvement.
The aforementioned model, for reference, is a very simplified
conceptual model designed to clarify the basic structure of new
innovation model. However, the positive model designed to analyze
innovation activities will be a complexity model that consists of diverse
elements and complicated structure. On the other hand, this dynamic
j igsaw puzzle model is divided into two types. The one is the more
formalized type wherein one fully surveys the whole picture beforehand
and then departs. Most of Korean innovation cases fall under this
category. The other is the type wherein one grasps part or a
considerable part of the picture without grasp the full picture, and then
departs. This type's ratio will increase with Korea as it approaches an
advanced country.
3 . Co n c lu d in g Re m a r k s
This research sought to conduct analysis on innovation activities with
maj or Korean firms aiming to appropriately analyze the types of
innovations recently occurring in Korea. Viewed macroscopically through
this analysis, the Korean corporations' innovation process followed the
linear steps of import
absorption
improvement
creation, but,
during each stage, it is noted that internally accumulated technology,
externally acquired technology, and external-dependent technology, are
simultaneously integrated with efficiency. Likewise, the Korean firms,
based on prior internally accumulated technology, efficiently integrated
Chapter 7. Conclusion
167
externally accumulated technology and external dependent technology
simultaneously, thus compressing and accelerating the innovation process.
As a result, they could secure world-class technological capabilities in a
short span of time. Also, as suggested implicitly in the existing model, a
series of stages from technology import to their own creation of
innovation capabilities, are not automatically accomplished, but, rather,
the actual innovation process is a series of evolution process to handle
complex elements under flexible and unstable circumstances, thus
implying that crucial is the evolution capability to effectively mange the
aforementioned three elements.
However, to enable this dynamic jigsaw puzzle model to be widely
used, many tasks have to be done to complement it. Above all, the case
study should be expanded. Beside cases mentioned here, maj or Korean
industries with the importance ever growing such as IT industry
products, chemistry, machinery, and fabrics, could be good cases for
analysis. Also, with the cases handled in this research, a more in-depth
research has to be done on the dynamic change process of import to
technology creation. In particular, detailed research should also be
conducted to determine how the relative portion and role of internally
accumulated technology, externally acquired technology, and external
dependent technology, change, according to the passage of time, and
what helps with qualitative leapfrogging. Also, comparative research
between Korea and advanced nations should be carried out to determine
whether the characteristics of Korean innovation cases are differentiated
from or are similar to those of cases of advanced countries.
168
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