We divided this paper into five parts. First, we will be introducing the company by chronological order. Secondly, we are going to present the current situation in semiconductor industry, especially in Japan. After that, we will utilize the Porter’s Five Forces of Competition Framework as an analytical tool to describe management strategies within this company. Please be advised that Five Forces will be presented in a slightly different point of view: Management of Technology (MOT). Then, we will have a conclusion as the final part.
ROHM Co., Ltd. is a market-driven, completely independent semiconductor company specializing in semiconductor components. Currently, they produce ICs, transistors, diodes, LEDs, laser diodes, LCDs, printheads, resistors, and capacitors. In the following paragraphs, we will discuss the history of ROHM and some details about current organizational structure and mission as well.
I.1. 1960s – 1980s
ROHM established in Kyoto in 1958 as initially a manufacturer of small electronic components and registered as Toyo Electronics Industry. In 1967, the production expanded to transistors and diodes. Within two years, ICs and other semiconductor products were added to the lineup. In the year of 1971, ROHM was going against conventional Japanese business culture by entering the US market to establish a sales office and IC designed center in Silicon Valley. Through the hard work and passionate dedication of its young work force, business flourished, causing the industry to take notice.
Their expansion soon became a template for other companies and eventually accepted as a common business practice. By 1972, ROHM Korea Corporation established. Due to some management changes, in 1979, ROHM changed its corporate trademark from R.ohm to ROHM. By the same reason, three years later, the registered company name was changed to ROHM Co., Ltd. Since that, they began the development of MOS ICs.
I.2. 1980s – 2000s
ROHM began activities in laser diodes in 1982, when the company invested MBE (molecular beam epitaxy) technology to grow epitaxial material for laser diodes. The application targeted for these laser diodes was compact disk players. At that time, there were a number of dominant players in the CD laser business, including giants such as Sony and Sharp; however, all of these companies were growing their material by LPE. ROHM believed MBE technology would provide them with a superior advantage, and it invested in the growth and manufacturing technology necessary to mass produce laser diodes emitting at 780 nm (GaAs/AlGaAs technology).
In 1984, this company became the first in the world to succeed in the practical industrial use of laser diodes with MBE methodology. In 1988, they obtained basic patent of flash memory in the USA. One year later, they listed on the first section of the Tokyo Stock Exchange and received a PM Award (TPM). They also opened LSI Research Center, established liquid crystal process technology and began to marketing LCD products as well. Then, a manufacturing plant established in Philippines, Malaysia and the UK. ROHM entered the CD player market in 1987, delivering their first shipment of laser diodes. Haruo Tanaka is the pioneer behind the ROHM laser diode success, not only convincing the owner of ROHM to invest in CD laser technology supported by MBE, but also convincing customers to buy his product, guaranteeing improved performance and reliability at reduced cost.
By 1994, ROHM was the world's largest manufacturer of compact disk laser diodes, with a 50% market share. At that time, they were supplying 60 million laser diodes/year, at an approximate cost of $2/piece. In this sense, 18.3% of ROHM's net sales were attributed to the category defined as "printheads and other products," which includes sensors, LCDs, capacitors, and laser diodes, accounting for total net sales of $365 million, a 9.9% increase from 1993 levels. Revenues from discrete semiconductor devices (including transistors, diodes, and LEDs) were $712 million, an 11.8% increase from 1993 levels; sales in ICs (both monolithic and hybrid ICs) accounted for $650 million, also a 2.7% increase over 1993 levels. The company's sales of resistors brought $272 million in revenue, an increase of 4.2% since 1993. Figure 1 shows the trend of net sales for the last five years. The number of employee to support these activities is approximately 2,600, of whom 900 are engaged in research and development. Each division within the company has its own dedicated R&D specialists.
Figure 1. Trend of net sales (source: ROHM website)
In the same year, they obtained ISO9001certificate and succeeded to develop a single-chip LSI for use in spread spectrum communications, the next generation of wireless transfer. On the other hand, in 1998 they obtained ISO14001 Environmental Management System Certification. They also opened VLSI Research Center and developed ROHM's unique Dual-Cell system EEPROM. In the same year, ROHM developed highly first time it opened optical Device Research Center. By 2006, they opened Shenzhen Technology Center. This company succeeded to develop the world's highest performance silicon carbide (SiC) FET with a high voltage of 900V and low on resistance of 3.1.Ω/cm. Within this period, ROHM established technology centers both inside and outside the country and invented more new products.
I.3. Organizational Structure and Mission
The current organization of ROHM is headed by president and Chief executive officer is consists of five technical division, four Sales Divisions, one Administrative Division, one Accounting and Finance division, One Quality Assurance Division and one Audit Division. This organization has one Managing Director and seven Directors. The directors are head of individual division. It has separate audit division for internal audit (Figure 2).
Figure 2. Organizational Structure (source: ROHM website)
ROHM mission is declared as:
“Quality is our top priority at all times. Our objective is to contribute to the advancement and progress of our culture through a consistent supply, under all circumstances, of high quality products in large volume to the global market”.
In this part, we will discuss the current situation in semiconductor industry and then our attention will be focused on ROHM market. After that, we try to describe the competitive power within this company.
II.1. Current Situation in Semiconductor Industry
Since the birth of the semiconductor industry with the invention of the transistor at Bell Laboratories in 1947, U.S. companies have achieved the most significant product and technical advances in microelectronics. Besides the transistor, U.S. companies pioneered the integrated circuit, the dynamic memory, the microprocessor, and other critical products and processes. American companies continue to hold an innovative edge in a number of product areas.
Yet today, the Japanese semiconductor industry is the world’s market share leader. In 1991, Japanese companies held 46 percent of the $60 billion world market for semiconductors, and U.S. companies held 39 percent. Of the top ten merchant semiconductor companies in the world, six of them are based in Japan and three in the United States. The current situation contrasts with that of 1970, when Japanese companies held 20 percent of the world market and American companies held 60 percent.
Figure 3. % operating income to sales (source: Takasu, 2006)
However, during the last 20 years, Japanese semiconductor industry shows structural changes in sales, manufacturing, investment and the competitive power as well. According to the World Semiconductor Trade Statistics (WSTS), sales ratio within Japanese companies decreases by 20%. On the other hand, manufacturing and investment ratio remain stable. The Nikkei Business Publication shows that the percentage of operating profit on sales within major Japanese companies was 15 points less than overseas ones (Figure 3). Similarly, the Boston Consultation Group predicts only maximum 10% of operating income to sales will be captured by most Japanese companies, but here the controversy begins: ROHM Company got about 30%. Moreover, for most areas, ROHM could get 30% market share or even more as shown in Figure 4.
Figure 4. Market Share for some products (source: ROHM website)
How ROHM can achieve, sustain and safeguard competitive advantage is a fundamental question in the field of strategic management.
II.2. ROHM Market
In the fiscal year ended March 31, 2006, the world economy stayed firm by and large, principally because consumer spending was buoyant year-round in major countries including the U.S., though soaring crude-oil prices and natural disasters had a negative impact. The Japanese economy showed continued recovery, owing mainly to brisk plant and equipment spending and firm consumer spending pulled up by improvement in employment and family income conditions.
Excluding a part of digital audio/visual equipment, the electronic component market as a whole was sluggish from spring to summer in contrast to the market in the previous year, when it was favorably influenced by the Athens Olympic Games. From summer onwards, market demand was more favorable compared with the recent years, due chiefly to production expansion in the mobile-phone market and personal-computer market and to the brisk expansion of digital audio/visual equipment market including thin TVs.
In Japan, production relocation to other countries continued and intense price competition occurred. However, the thin-TV market stayed brisk and third-generation mobile phones became more common, increasing demand In other Asian countries, the markets of conventional audio/visual equipment, such as portable CD players, was extremely slow, but the production of personal computers, mobile phones and digital audio/visual equipment expanded, so that the electronic component market as a whole remained favorable.
Concerning North America and Europe, the markets related to telecommunication equipment were weak and a part of automakers experienced slow sales, which adversely influenced the electronic component market. In Europe, the market remained stagnated, influenced by production shift to other countries, though the mobile-phone market was relatively firm. Under these circumstances, the ROHM Group made proactive efforts to streamline manufacturing process lines, to invest capital more efficiently, to research for and develop new products, as well as to reinforce customer relations systems including sales and technical support.
If we look at the manufacturing process lines, they pressed ahead with the establishment of an integrated production system and made efforts to expand the 300 mm wafer process. They proceeded with the transfer of the production of module-related products to a new plant in Dalian. They also continued to shift production from Japan to their Thailand and Philippines plants and to streamline production systems in the plants in these countries. Furthermore, to be prepared for demand expansion in the future, they started to construct a new plant in each of their production bases in Tianjin, Thailand, and Philippines.
In the area of development of new products, ROHM proceeded with the development of various system LSI devices to satisfy customer needs for use in mobile phones and digital audio/visual equipment, whose markets are expected to grow further. The other efforts they made include the reinforcement of the product lines of compact-, thin-package power MOSFET products
For customer relations including sales and technical support, they opened new sales bases in and outside Japan, and established a design center outside Japan, to reinforce a customer-centered sales system and technical support system. They also opened a QA center near Detroit, U.S., reinforcing their corporate quality assurance network. Because of these efforts, ROHM’s net sales for the fiscal year ended March 31, 2006, increased 5.1% to ¥387.79 billion over previous year, operating income decreased 10.2% to ¥68.318 billion, and net income increased 7.0% to ¥48.304 billion (The ROHM current sale statistic is in the Exhibit).
II.3. Competitive Power
To analyze the competitive power of ROHM Company, the Porter’s five forces were applied. The five forces include industry competitors, customer, supplier, substitutes and potential entrants. However, substitutes and potential entrants in the semiconductor industry would not consider in this analysis because in the field of technology there is no other devices which can use instead of semiconductor. Furthermore, the market of semiconductor depends on the quality of product and the newcomer companies do not create a big problem for ROHM company in the market place.
The very basic questions come up: Who are ROHM competitors? Whom should ROHM consider as competitors? Who are the main competitors in this industry?
At the beginning, ROHM had the strategy not to follow and not to compete against the giant companies such as NEC Corp., Toshiba Corp., and other giant Japanese semiconductor makers who have committed huge amounts of capital and technology to the high-stakes game of making memory chips. Instead, ROHM has focused on custom chips and discrete devices such as the semiconductor lasers used to read CDs, one of several components in which ROHM has the world's top share. However, ROHM recently cannot prevent the competition because the size of the company is bigger and have variety kinds of production. Therefore, nowadays, ROHM’s competitors are primarily in the semiconductors industries. ROHM also competes in the electrical products and electronic components sectors.
In 2003, ROHM is the nineteenth ranking in the charge of the companies which sold their semiconductor products and its competitors that share the value of semiconductor market included Intel (USA), Samsung (Korea), Renesas (Japan), and Toshiba (Japan) as shown in Figure 5. However, the main competitors of ROHM are Maxim Integrated (USA) and Analog Device (USA) if considering the types of product because they have similar products and similar business. Furthermore, their products can use instead each other. These companies try to take over ROHM as showing in the charge of operating income.
Rohm was the nineteenth ranking in net sales. On the other hand, they can create their income more than many companies, and takes the seventh ranking in the operating income charge. The main reason is the companies like Toshiba, Sony, NEC, etc have to share a lot of their money after selling to other suppliers. That is why Rohm’s income is higher than other companies like Sony, NEC, etc.
ROHM can carry out its production from materials to finished products, so the suppliers are mainly the material supplier company such as iron, aluminum, plastic, etc and the pure chemical supplier such as Helium, Nitrogen, etc. ROHM also produces materials internally, such as wafers, lead frames and photo masks. This allows ROHM to carry out quality control in all processes from materials to finished products, giving the company overwhelming superiority over competitors in terms of reliability. The Company’s manufacturing equipment, developed by incorporating its manufacturing expertise for top-quality products, is used at all the plants of the group including those overseas, enabling ROHM to manufacture and supply high-quality products worldwide.
Figure 5. Net sales and operating income for major companies (source: Takasu)
II.3.3. Customer and partnership
ROHM is a leading supplier electronics component with its product lineup of Integrated Circuits, Discrete Semiconductors Devices, Passive Components and Displays. Its main customers are the end-product companies such as Cannon, Sony, NEC, Toshiba, Renesas, Furutaka electronics co ltd, KD Electronics Co Ltd and others. These companies are not only its customer but also competitor due to sometimes they also have the same capacity of semiconductor, so if they have they will not buy from ROHM. Furthermore, they also tried to find the customers in the same market as ROHM. Therefore, ROHM’s customers are both partnership and competitor.
To reinforce its technical support and quality assurance systems for customers worldwide and enable the Company to respond quickly and precisely to all customer needs, ROHM has established and expanded its networks of sales offices, design centers, and quality assurance centers in and outside Japan.
ROHM anticipates new trends and bases the development of system LSI designs on customer demands by using a flexible approach in development and production activities (outlined below).
Improved digital processors Central processor units (CPUs): ARM7TDM1TM and V20HL/V30HL
Digital signal processors (DSPs): Pine, Oak and image processors
Augmented digital and analog interface cores coder/decoders (CODECs) and analog-to-digital (A/D) and digital-to-analog (D/A) converters, NTSC encoders and MOS amplifiers
Improved digital interface cores (LVDs and USB) and multimedia cores (JPEG and MPEG)
As the North American branch of ROHM, ROHM Electronics has helped develop the supplier-customer partnership approach to business throughout the world. The company is committed to meeting customers' needs and specifications on time to help ensure the customers' success in the market. This includes the analysis of design and packaging as well as materials, quality control and SPC methods to achieve solutions that will provide high volume components with parts-per-billion reliability. This partnership approach allows ROHM Electronics to work closely with customers and to participate in the design process. In return, the customer receives the benefits of ROHM's support while enjoying the security of ROHM's experience in custom development. From customer design sessions and market trend research, ROHM Electronics develops and submits recommendations to ROHM Co. Ltd. regarding the modification and addition of products and packaging that will best satisfy customers' needs.
III. Management of Technology
Management of technological innovations and that of technology based new business development is a key element in explaining why some companies successfully implement growth strategies. According to Takasu, the technological innovativeness of a company is significantly influenced by the way in which research and development activities are managed; and how the interaction between central lab and business groups / divisions is structured. To ensure stable growth and a strong and well-balanced financial position under these circumstances, a range of measures should be taken. These measures include development of creative, high-value added products utilizing world leading advanced technologies, enhancement of cost competitiveness, establishment of a global production and distribution network that enables high customer satisfaction in both domestic and overseas markets, and strengthening of service and technical support systems for customers.
ROHM has identified the causes for the slowing down of Japanese major semiconductor manufacturers. These include (1) self-working principle, (2) no strong domain, (3) low profit ratio due to pursuing the volume only, and (4) low investment efficiency in manufacturing and R&D. To overcome these situations, board of directors in ROHM firstly deconstructed the typical Japanese enterprise model and then built the so-called “Layer Master Model”. Later on, they changed the company structure, from vertical integral type to lateral and divided type in order to pursuing highly specialized field. The only available option for them is by increasing the speed of technical innovation through product differentiation and by responding the customer requirement quickly. The key elements here are value-added and customized products, utilizing the fusion of different technology fields. We will further discuss about the strategic and managerial issues of technology and innovation in the viewpoint of the so-called management of technology.
III.1. Technological Expansion and Product Innovation
ROHM intends to attach overriding importance to the integrated development-production system, development of custom-designed products, and quality, as well as to make persistent efforts to formulate and implement measures in these respects. Specifically, ROHM intends to increase R&D personnel continuously while reinforcing the corporate operations handling digital technologies and digital-analog integration technologies. ROHM also intends to satisfy various needs from customers, especially from those in the digital home appliance market and information and communications equipment market, with larger-scale LSI devices, more sophisticated LSI devices, and lead-time reduction (Figure 6).
Regarding the organization of its corporate production system, ROHM is aggressively committed to improving cost competitiveness and reinforcing the corporate supply system for sales to the worldwide market. Specifically, concerning the front-end process of semiconductor production, the Company is pressing ahead with the adoption of larger-diameter wafer process, such as 300 mm wafer process, and micro fabrication process. For the back-end process, ROHM shifted production to overseas plants, including those in Thailand, the Philippines and China, while upgrading them. The production technologies established by those mother plants will then be introduced to the overseas plants, to enable the manufacture and supply of ROHM’s high-quality products worldwide.
Figure 6. ROHM’s product innovation (source: ROHM website)
In response to product quality, ROHM enhanced the reliability of its products, implementing quality-improving actions in its manufacturing divisions as well as thoroughly instilling the quality-first policy in technological divisions. To expand market shares in the growing global markets, this company reinforced its corporate customer relations systems including sales and technical support in various locations worldwide, by newly establishing networked quality assurance centers along with sales bases and design centers. At the same time, the company intends to make continued efforts to achieve more efficient corporate management and swifter decision-making by proceeding with the restructure and integration of corporate organizations in and outside Japan. To contribute to environmental conservation, the ROHM Group is making across-the-board efforts to establish an environmental management system based on ISO 14001 standards and develop new low-power-consumption, energy-saving products. All the production bases of ROHM in and outside Japan intend to commit themselves continuously to realizing zero emissions through the promotion of waste recycling and to pressing ahead with green procurement and supply. In addition, ROHM proceeded with its tree-planting project as part of the fight against global warming.
With some key innovations, ROHM developed from scratch a high-quality laser technology as well as a large-scale manufacturing capability. Indeed, the company built what is probably the only production-oriented, automated MBE growth facility in the world. In addition, ROHM developed procedures for automated packaging and testing of large numbers of devices, and it installed a very costly (but ultimately cost-effective) custom infrastructure for laser manufacturing.
In spite of their success story, ROHM had been overconfidence in the application of RF-ID Card. Although this product has many benefits, it has to be stopped due to some political reasons. In this case, ROHM lose a huge amount of investment for nothing. Finally, they had to sell this technology to a France company.
III.2. Collaborative Research and Development
To overcome the self-working principle, ROHM is actively involved in a wide range of joint R&D projects, including comprehensive industrial-academic collaboration alliances with universities and other major institutions. Moreover, ROHM established joint efforts with the Semiconductor Industry Research Institute Japan, which is a think-tank for the Japanese semiconductor industry; and participation in leading edge R&D projects, which integrate the wisdom of academic, industrial, and governmental circles. Furthermore, ROHM promotes partnerships with other companies wherever necessary to complement our technologies, thus improving the efficiency of its R&D activities. Some examples of these collaborative alliances include:
ROHM and EMagin to develop OLED (organic light emitting diode) micro display for camera and camcorder viewfinders. EMagin is a leading developer of OLED,
Research collaboration with Kyoto University, Ritsumeikan University and Doshisya University,
The involvement in national projects:
ASCA (Advanced Semiconductors through Collaborative Achievement),
MIRAI (Millennium Research for Advanced Information Technology), and
HALCA (High-performance & Agilent Clean-room Association).
At present, ROHM consistently invest one of the highest percentages of net sales revenue in research. In their 2006 Annual Report, this ”will ensure the future needs of our customers are fulfilled, and that current requirements are met appropriately and in a timely fashion”.
III.3. Competitive People is Everything
The competitiveness of people, whether part of a nation, of a firm, or as individuals is the most fundamental competitiveness factor for creating wealth. The eagerness to succeed and the willingness to work hard are irreplaceable qualities to attain higher levels of competitiveness.
With this thinking, ROHM introduced a merit-based wage system in 1999, where they actively recruit well-qualified human resources regardless of age or gender. The program has been a success. Employees who contribute to performance are presented with an award of up to 10 million yen, according to the degree of their contribution. Such incentives motivate personnel and appropriately reward results. They are also working to create an environment that better utilizes employee individuality by introducing a discretionary work system for development, technical and planning positions.
Considering their Human Resources to be the company's foundation for lasting prosperity and has prepared a variety of educational opportunities for employees to improve their intellect and character. Educational opportunities include hierarchical education, which is the training of new employees after they have joined the company, departmental training, participation in internal and external seminars, support for obtaining a variety of qualifications, and elective study groups that respect the employees' ambitions. These are available throughout all company divisions. They have prepared a system where employees can freely choose from these according to their own objectives. Those in leadership positions will exemplify model behavior at all times. Each head of all management levels will appraise staff fairly and conduct effective training programs periodically and consistently. Appraisals for each head of all management levels are based on the success of staff education and training.
Accordingly, the company developed personnel at all levels to constantly strive to obtain new knowledge and to acquire empirical reasoning ability from a broad perspective. They train staff to be dedicated as leaders in their field by utilizing their knowledge and experience, and develop personnel who can overcome any adversity and strive towards achieving targets. Moreover, ROHM train staff to place the highest value on teamwork, resulting from the combined efforts of all individuals Finally, ROHM also provide the employees tax-free property forming, employee stock options, home loans with preferential interest rates, home purchase discounts and others.
III.4. Cultural Component of Technological Success
Japanese leadership in optoelectronic consumer products appears to have been generated by an industrial culture dedicated to high-volume, low-cost, quality manufacturing; based on intensively constructed long-range plans; backed by financial commitment to leading edge technologies applicable to mass markets; and built by consensus and teamwork.
In terms of planning, Japanese companies try to foresee which aspects of their expertise in device manufacture can be employed in a consumer system that is "on the horizon." Having identified the potential market at the systems level, they then work to improve their device technology to meet the projected demands for volume, quality, and price. This theme of projecting needs was expressed explicitly on ROHM. Once the need is identified and the technology is brought to a suitable stage of development, the Japanese companies invest the resources and infrastructure needed to bring cost and capacity within their projected requirements. This level of forward planning appears to be well developed in the Japanese photonics industry and to be largely absent in the U.S. photonics industry. The reasons for this disparity are not readily apparent, although the different economic foundations and means of doing business in the two countries undoubtedly play decisive roles.
Japanese commitment to investing long-term in risky technologies with the potential for large-scale returns is best illustrated by the development of CD laser technology by ROHM. Although ROHM’s entry into the market would be late, its managers nevertheless appealed to the company president for support to pursue CD laser manufacture, and the president gave permission to proceed.
The success of ROHM, which appears to be more entrepreneurial in nature than most large corporations in Japan, is primarily due to its commitment at a very early stage to high-volume manufacture of a product that mid-level managers anticipated would be important in the years ahead. This commitment led to investment in the necessary manufacturing infrastructure, the operation of which relies only on the availability of technical support, not on a highly educated work force.
The rapid decision-making capability of ROHM stems from its modest size as compared to the electronic giants such as Sony, yet the company was large enough to be able to fund the necessary product and manufacturing development.
Finally, ROHM has been able to find a profitable niche between the giants by following a policy of not competing with its customers. Because ROHM has traditionally been a manufacturer of silicon (Si) devices and passive electronic devices, it has resisted moving into more value-added subsystems and systems that are the domains of its customers.
On the other hand, ROHM should be more careful in evaluating their product innovation. The business failure of RF-ID Card application is the best lesson learned.
1. ROHM website, http://www.rohm.com
2. 2006 ROHM Annual Report
3. World Technology Evaluation Center, http://www.wtec.org
4. World Semiconductor Trade Statistics, http://www.wsts.org
5. Nikkei Business Publication, http://techon.nikkeibp.co.jp/english
6. The National Academies Press, http://orsted.nap.edu
8. Analyzing the Industry Environment, lecture notes
9. Hidemi Takasu, Course Note on International Technology and Management - 1
*) International Technology and Management 3E (ITM) – 70674
Professor HIBARA Nobuhiko
Wednesday, January 17, 2007