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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies 5 Lighting SUSAN WALSH SANDERSON Rensselaer Polytechnic Institute KENNETH L. SIMONS Rensselaer Polytechnic Institute JUDITH L. WALLS University of Michigan YIN-YI LAI Rensselaer Polytechnic Institute INTRODUCTION Once a symbol of Edison’s creative genius and the prowess of American innovation, the incandescent light bulb represents a mature technology, now mastered by new competitors and imported at pennies apiece from China. Lamp (the industry name for a light bulb) manufacturing was dominated for decades by a few firms, notably Philips, OSRAM, and General Electric (GE). Related industry segments have typically been more fragmented, with thousands of firms producing fixtures ranging from simple sconces to elaborate chandeliers. Increasingly both lamp and fixture manufacturing have been shifting to offshore locations, primarily in Asia. Not only are North American and European lamp and fixture companies under the threat from low-cost imports, but solid-state lighting, a semiconductor- instead of bulb-based technology with greater potential energy efficiency and new capabilities, is poised to revolutionize the industry and change how we understand and use lighting—a change that will affect both traditional lamp and fixture producers. Solid-state lighting is challenging incumbents and throwing leadership in the future industry up for grabs. As innovative products composed of light emitting diodes (LEDs) are developed, new features like colors that change on command are expanding architectural possibilities. Other opportunities come from the convergence of lighting, information, and display technologies. In fiber optics light is data, and ordinary flat panel indoor lighting can serve as data transfer hubs, sending information to computers and appliances. Edison’s lamp, and its successors, may soon be replaced with glowing ceiling panels or even lighting-enhanced wallpaper that changes patterns on command.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies Which firms will successfully ride this new wave of innovation and what impact these changes will have on incumbents are not yet determined. Although the first wave of lighting innovation in the early 20th century spawned the development of global companies like GE, OSRAM, and Philips, these 21st-century innovations will create challenges for incumbents. New firms are emerging at all levels of the value chain to address the opportunity presented by solid-state lighting technologies. In this chapter we contrast traditional lighting technologies with LED technologies. Traditional lighting technologies we define as incandescent, gas-discharge, and electric arc lighting (which includes fluorescent, high-intensity discharge, mercury and sodium vapor, metal halide, and neon lamps). We exclude lighting technologies such as chemiluminescence that yield insufficient light for illumination (such lights can be seen but not seen by). LED technologies (including organic and polymer LEDs) are the only nontraditional technology considered because LEDs are the only alternative lighting approach that has reached sufficient maturity to be considered commercially viable in the trade, technology, and technical literatures. This chapter analyzes changes in lighting technology over the past two decades and its implications for U.S. industry competitiveness. We explore whether the rise of global competition is limited to low-cost manufacturing or whether strategic centers of decision making and research are moving away from the regions and firms that once dominated the industry. We examine the causes of these changes and what aspects of innovation in lighting, particularly in the arena of research and development (R&D), have changed since the 1990s. We speculate about the implications of these changes for firm strategy in the new era of intense global competition, we analyze how national policies have affected the development and diffusion of traditional and new lighting technologies, and we explore how public policy can best address the challenges and opportunities offered by solid-state lighting to aid countries in their struggles to conserve energy and reduce global warming. We are entering an era of faster-paced competition as the lighting industry, which has been dominated by a few firms (at least in the lamp sector), faces competition from new technologies, firms, and regions. Asian firms, as well as firms headquartered in the United States and Europe, have performed strongly in patent invention for solid-state lighting and are making key contributions to these new technologies. Both new firms and incumbents are investing heavily in solid-state lighting technologies, and it remains to be seen which firms will predominate. Public policy will likely play an important role in future developments by stimulating demand for energy-saving lighting, providing funding for R&D, and incubating startup companies as they seek to commercialize these new technologies. But retail firms like Wal-Mart are increasingly playing a role in the diffusion of energy-saving lighting technologies. We compare the policies of countries
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies supporting development and diffusion of new lighting technologies and speculate about how these efforts may affect the location of R&D, manufacturing, and headquarters of surviving lighting producers. EVOLUTION OF THE LIGHTING INDUSTRY Globalization of Lighting Production The global lighting market in 2004 was worth some $40 billion to $100 billion, about one-third of which represented lamps.1 U.S. apparent consumption of lamps, fixtures, and other equipment totaled about $14.8 billion in 2004.2 U.S. production of lamps grew steadily until the early 1970s, then fluctuated over the next 20 years, stabilized during the 1990s at about 1970 levels, and finally fell somewhat at the start of the 21st century, as shown in Figure 1. The eventual leveling off and downturn in U.S. lamp production in the 1990s can be explained, in part, by a steady increase in imports over the past two decades. Total imports, as a percentage of U.S. apparent consumption, increased from less than 20 percent in 1989 to around 50 percent in 2004, as shown in Figure 2.3 About half of the imports come from China, Mexico, and Japan, with China representing the largest share as of 2004. In 1989, less than 3 percent of lamps were imported from China. By 2004, Chinese lamp imports represented 26 percent of all lamp imports, having grown more rapidly than imports from any other supplier nation, and 10 percent of apparent lamp consumption in the United States. Once concentrated in the hands of three large manufacturers, the incandescent bulb industry has new competitors, primarily low-cost manufacturers in Asia. In the fixtures industry, broken down in Figure 2, these trends are more intense, with 86 percent of all fixtures imports in the United States arriving from China by 2004. Increased fixture imports are the result of both incursion of lower-cost Chinese manufacturers and shifting production abroad by U.S. firms that seek lower-cost manufacturing sites. An exception to this trend is Genlyte 1 Hadley et al. (2004) cite the figure of $40 billion, one-third of which represents lamps, but publicly available estimates of the size of the global lighting industry vary greatly, and the firm Color Kinetics in a communication with us cites the figure of $100 billion based on data from Fredonia Marketing Research. 2 Apparent consumption equals U.S. production plus imports less exports, where U.S. production is measured as value of shipments from Bureau of Economic Analysis data, and import and export data are from the U.S. International Trade Commission. 3 Not shown in Figure 2 is an additional trade category “Other Lighting Equipment,” for which imports increased from 38 percent in 1989 to 57 percent in 2004, with China’s share of imports growing from 24 percent in 1996 to 32 percent in 2004.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies FIGURE 1 U.S. shipments of lighting products (real 2004 values). SOURCES: Shipment values: National Bureau of Economic Research (1958-1996), U.S. Department of Commerce, U.S. Census Bureau (1997-2001), Bureau of Economic Analysis (2002-2004). Producer Price Index from the Bureau of Labor Statistics. Thomas, the largest lighting fixture and control company in North America, which manufactures 70 percent of its products in the North American region in order to keep close to its design centers and customers (Genlyte Thomas, 2005). Genlyte Thomas is introducing new energy-efficient light fixtures using compact fluorescent (CFL), high-intensity discharge (HID), and LED lamps and is conducting research on solid-state lighting to remain the premier fixtures company while the industry transitions to new lighting technologies. The remaining area of growth for U.S. lighting production in the 1990s was in specialty lighting applications, such as Christmas decorations, underwater lighting, and infrared and ultraviolet (UV) lamps. This sector grew steadily throughout the second half of the 20th century and, as Figure 1 reveals, has surpassed the production value of lamps and of residential fixtures.4 4 Figures 1 and 2 use the definition of traditional lighting, as defined in the beginning of this article, for “lamps” based on SIC (3641, 3648) and NAICS (33511, 335129), which includes all traditional lamp types including (regular and compact) fluorescent and HID lamps, but excludes LED lamps.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies FIGURE 2 U.S. imports and exports of lamps and fixtures, total and imports from China, as percentages of U.S. consumption. SOURCE: U.S. International Trade Commission. Big Three Lamp Producers While there are hundreds of small lamp producers, which usually specialize in one type of lamp, the global lamp market is dominated by three big players: Koninklijke Philips Electronics (Philips), OSRAM-Sylvania (OSRAM), and GE.5 All three firms produce a wide spectrum of lamps based on distinct technologies for most major commercial and residential markets. Philips has the largest global market share in lamps, and GE has the largest U.S. market share (Mintel, 2003).6 In the United States, GE has been a dominant player in lighting since the industry’s inception (Leonard, 1992). As early as the mid-1890s, GE and Westinghouse controlled a 75 percent market share. GE eventually gained even greater market dominance, so that by 1927 GE and its licensees held 97 percent of the U.S. lamp market. Hygrade-Sylvania, whose lighting operations would much 5 That most lamp producers specialize on a single type of lamp is apparent from industry directories such as www.lightsearch.com. 6 Philips Lighting employs about 45,500 people and has 70 manufacturing facilities worldwide (Philips, 2006, p. 38).
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies later be bought by a German producer to form OSRAM-Sylvania, was GE’s largest lamp licensee. Although GE’s market dominance fell in the latter half of the 20th century, it remained the largest U.S. lamp producer. In Europe, the lamp market also became concentrated early (Leonard, 1992). The leading firm was OSRAM, formed in a 1919 merger of the three leading German lamp producers, and now wholly owned by Siemens. Second in the European market was the Dutch company Philips. In part through cooperation with a European cartel set up in the 1930s under Swiss corporation Phoebus S.A., GE made substantial inroads in Europe and became the dominant worldwide producer.7 The big three lighting firms all maintained leading positions in traditional lighting technology. Traditional electric lighting patent applications during the period 1990-1993 were identified using data for the United States and Western Europe.8 As noted earlier, we define traditional lighting to include incandescent, gas-discharge, and electric arc lighting (which includes fluorescent, HID, mercury and sodium vapor, metal halide, and neon lamps). All of the big three were leaders in these traditional electric lighting technologies, with 257.8 patent applications by Philips (credit is split equally in the case of multiple assignees); 232.1 applications by GE and by Thorn, whose lighting business GE acquired in 1991; and 219.4 applications by OSRAM, Sylvania, and OSRAM’s parent firm Siemens. The big three each had more patent applications than any other firm.9 7 GE’s dominance varied substantially across nations. For example, in the United Kingdom in 1965-1967, the leading producer was British Lighting Industries, followed by Philips and OSRAM (Monopolies Commission, 1968, p. 8). 8 Patents are included for international patent classifications H01J61-65, “Discharge lamps”; H01K, “Electric incandescent lamps”; and H5B31 and H5B35-43, which cover “Electric lighting … not otherwise provided for” excluding electroluminescent light sources (which provide sufficient light to see an object but not to see by). Patents are included for applications at patent offices of the United States (1,589 applications), Europe (976), Austria (190), Belgium (20), Denmark (49), Spain (976), Finland (79), France (121), Germany (1,798), Ireland (3), Italy (31), Netherlands (51), Norway (22), Portugal (5), Spain (194), Sweden (20), Switzerland (22), and the United Kingdom (218). Data are drawn from the European Patent Office’s Worldwide Patent Statistics Database, version April 2006 (with the coverage of the Espacenet online database). Equivalent applications in multiple nations, detected by the fact that they share an identical set of priorities (as in Espacenet), were treated as a single application by weighting each application in inverse proportion to its number of equivalents (including itself). 9 A German patent trust, Patra Patent Treuhand (possibly associated with OSRAM or Siemens), had 185.7 applications. The next three firms in number of patent applications were Toshiba with 70.2 applications, Motorola with 36 applications, and Matsushita with 33 applications. As in most areas of patenting, there were patent applications by many other individuals and companies (the total number of relevant patent applications was 3,236 during the period 1990-1993), and meaningful analyses are based on relative numbers, not on percentages of total applications. When figures are measured in terms of the number of patents actually granted from these applications (by the time of data collection), the conclusions are similar: Philips received 213.6 patents; OSRAM, Sylvania, and Siemens, 205; GE including Thorn, 181.5; Patra Patent Treuhand, 76.9; Toshiba, 52.6; Motorola, 35; and Matsushita, 31.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies Evolving Technology The lighting industry has developed several types of lamps. The incandescent lamp, little changed in form since the Edison era, is an evacuated glass tube (usually refilled with a gas) in which an electric current passes through a thin filament, heating it and causing it to emit light. Mercury vapor lamps, first patented in 1901 by Peter Cooper Hewitt, are high-pressure gas arc lamps and a forerunner to fluorescent lamps. Neon lamps were invented by Georges Claude 10 years later. Fluorescent lamps, first patented by Meyer, Spanner, and Germer in 1927, use a glowing phosphor coating instead of glowing wires to increase efficiency. Special types of incandescent lamps, such as bulbs filled with halogen gas to increase lifetime and efficiency, have also been developed. Incandescent lamps account for a majority of household sales in the United States, but a smaller portion of total sales. In households, incandescent lamps represent 66.5 percent of sales revenues, whereas fluorescent and other lamps remain uncommon (Mintel, 2003). Residential sales, however, make up less than 10 percent of lighting demand measured in lumen-hours. Combining all economic sectors (residential, commercial, industrial, and outdoor), incandescent lamps represent 11.0 percent of lumen-hours of light output, as compared to about 57.5 percent for fluorescent, 31.0 percent for HID, and 0.01 percent for solid-state lighting (Navigant Consulting, 2003a, p. 7). Each of these lamp types has experienced a steady march of small improvements in materials, design, light quality, energy efficiency, and manufacturing efficiency throughout the past century. While early improvements were made by independent inventors in the United Kingdom, more than three-quarters of these improvements originated in countries where the big three were headquartered—the United States, the Netherlands, and Germany.10 In materials, for example, thorium oxide added to wires increased shock resistance, nonsag wire formulations made possible new configurations for brighter and more easily mounted incandescent filaments, and safer phosphors replaced the highly toxic beryllium coating in fluorescent lights. Examples of design changes include filling incandescent lamps with large-molecule gases to prolong filament lifetimes, new layouts of filament mounts to facilitate assembly and automated manufacture, and a proliferation of lamp varieties, shapes, and sizes. Light-quality changes were achieved by choosing appropriate filament and phosphor materials and sometimes by blocking part of the emitted light to attain, for instance, a look similar to sunlight. Energy-saving lamps also progressed steadily but slowly. GE, for example, commercially introduced its first energy-saving incandescent lamp in 1913, but 10 We catalogued 134 improvements in lamp technologies between 1905 and 2005. Sources: company websites of General Electric (2006), OSRAM (2006), Siemens (2006), Philips (2006), and Toshiba (2006); websites of Bellis (2006a,b,c), Williams (2005), and Arthur (2006), and Bowers (1982).
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies not until 1974 was the first energy-saving fluorescent lamp introduced. Manufacturing became increasingly efficient with machines and methods that allowed faster, higher-quality production with less manual labor. Automatic insertion and mounting of components, sealing, exhausting, basing, and flashing were key process technologies. Many of these and other improvements took place during the first half of the last century and are documented by Bright (1958, pp. 22-30). In the latter half of the century, improvements focused largely on improved efficiency and longer lamp lives. The discovery of substances such as narrowband phosphors led to the development of CFLs, gases such as xenon yielded brighter lamps such as those used in automobiles, and similar improvements had medical uses including UV lamps. Whereas lowering manufacturing costs and streamlining production were the key lighting challenges of the late 20th century, saving energy is the new driving force for 21st-century development. Lighting accounted for about 22 percent of total energy used in residential and commercial sectors in the mid-1990s, as shown in Figures 3 and 4 (DOE, 1995, 1997). In 2001, 51 percent of the national energy consumption for lighting occurred in the commercial sector, 27 percent in residences, and 14 percent in industry; the remaining 8 percent was used in outdoor stationary lighting (Hong et al., 2005, p. 2). Almost half of the electricity used in commercial buildings is used in lighting, as Figure 5 indicates. In the United States, residential homes largely use incandescent lamps (90 percent), whereas commercial and industrial sectors use mostly fluorescents (Hong et al., 2005). If residential homes in the United States replaced all incan- FIGURE 3 Energy consumption in U.S. commercial sector, 1995. SOURCE: DOE (1995).
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies FIGURE 4 Energy consumption in U.S. residential sector, 1997. SOURCE: DOE (1997). descent lamps with CFLs, they would save an estimated 35 percent of electricity used for all lighting applications (DOE, 1993). Although advances in energy-saving lighting technologies such as CFL have been an important part of the strategies of the big three lamp producers, the big three have had some difficulty getting residential customers to give up incandescent bulbs and replace them with the more energy-efficient but initially more expensive bulbs. The rate of adoption of CFLs in U.S. residential households has been low, particularly compared to that of Europe and Asia. Researchers attribute those differences to a variety of factors, including national coordination of promotional efforts, different cultural attitudes about resource consumption, and higher electricity prices (Calwell et al., 1999). U.S. residential consumers lack awareness of and knowledge about CFLs. Consumer buying habits, negative perceptions, and skepticism about fluorescent lighting and relatively low electricity prices have meant that the United States is behind the rest of the world in adoption of energy-saving lighting technologies (Sandahl et al., 2006). This may soon change; for example, Wal-Mart CEO H. Lee Scott, Jr., is committed to sell 100 million CFLs a year by 2008 and the firm is making a concerted effort to change consumer behavior (Barbaro, 2007).11 11 Wal-Mart sold about 40 million CFLs compared to 350 million incandescent light bulbs in 2005.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies FIGURE 5 Electricity consumption in U.S. commercial sector, 1995. SOURCE: DOE (1995). Since lamp efficacy is central to which lamp types dominate the market, it is important to understand efficacy and its role in purchasing decisions. Efficacy in lighting can be measured in terms of lumens produced per watt of electricity (lm/W). A standard 100-watt incandescent lamp, for example, lasts about 1,000 hours and produces 15 lm/W. By comparison, a standard 30-watt fluorescent lamp lasts 20,000 hours and produces 80 lm/W. A longer-lasting and more energy-efficient bulb is less costly over the long term but higher initial upfront costs and misconceptions about the efficacy of fluorescent lights (early fluorescents had poor color rendering and were noisy) have led to low adoption in residences. Optimal lamp choice involves not only energy efficiency but also replacement costs for burned-out lamps and labor costs to install lighting systems. In commercial and industrial settings, where life-cycle costs are important and companies can make upfront investments, fluorescents are usually chosen. RADICAL INNOVATION IN LIGHTING: LEDS Nature and Advantages of LEDs An LED is a semiconductor diode. It is electroluminescent, emitting color that depends on the chemical composition of the semiconductor material or compound used and ranges along the spectrum from UV to infrared, as documented in Table 1.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies TABLE 1 LED Color Spectrum Available from Alternative Materials Semiconductor Material Color AlGaAs (aluminum gallium arsenide) Red Infrared AlGaP (aluminum gallium phosphide) Green AlGaInP (aluminum gallium indium phosphide) Orange-red (bright) Orange Yellow Green GaAsP (gallium arsenide phosphide) Red Orange-red Orange Yellow GaP (gallium phosphide) Red Yellow Green GaN (gallium nitride) Green Pure green (emerald) Blue InGaN (indium gallium nitride) Bluish green Blue Near UV SiC (silicon carbide) as substrate Si (silicon) as substrate, under development Al2O3 (sapphire) as substrate ZnSe (zinc selenide) Blue C (diamond) UV AlN (aluminum nitride) AlGaN (aluminum gallium nitride) Far UV SOURCE: Wikipedia (2006). The first practical visible-spectrum LED was developed in 1962 by Nick Holonyak (Inquirer, 2004), and a variety of single-color LEDs followed. White LEDs have been a long-standing goal for researchers since they are most likely to replace traditional bulbs. White LEDs have been created by coating blue LEDs with a yellow phosphor, yielding a blue and yellow glow that appears white to the human eye. Another approach, taken by GE, uses UV LEDs driving phosphors, and a third approach is to use multiple colors of LEDs and combine them to create white light. Current white LEDs are cost-effective only for certain applications, such as backlighting and flashlights, and color LEDs remain more widely used. Although incandescent and fluorescent lamps remain the predominant light
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies Country, Fundsa Program Phase & Objectives Funding Organizations Chinad estimated $248.8 mil/year (2005-2010); only includes initial investment for five parks and the 5-year plan; not directly comparable to other nations’ figures as this includes manufacturing site investments Semiconductor Lighting Project Five parks established in Shanghai, Xiamen, Dalian, Nanchang, Shenzhen: establish industrial parks with up-, mid-, and down-stream products; first phase likely to be 2005-2010: collaboration with Taiwan and specialists from Taiwan and U.S.; anticipate $19 bil LED industry by 2010 Total investment: Yuan 10 bil ($1.2 bil), allocated as follows: Xiamen: $1.9 mil (with focus on optoelectronics), Dalian: $150 mil, Shenzhen: initial investment 3 bil Yuan ($375 mil) ; total 20 bil Yuan ($2.5 bil) over 3-5 years (2005-2010) Xiamen: three companies and government & cooperation with Taiwan; Dalian: JV between companies and science & technology group; Shenzen: university, local city government support & 200 companies National Solid State Lighting project as part of 11th 5-Year Plan 2015 goals: savings from large-scale conversion to LED; 100 bil kW/h annually by 2015 150 lm/W LED and capture 40% of incandescent market Reduce environmental pollution Develop strong industrial base International cooperation if necessary 2006-2010: $44 mil 15 research institutions & 2,500 companies E. U. estimated $16.3-32.5 mil/year (2002-2006) est. assuming 5-10% dedicated toward LED Sixth Framework program Strengthen science & technology base for international competitiveness $1.3 bil earmarked for nanotechnology (with IST section) aThe yearly fund flow was estimated as an annual mean of all funding programs over the entire time range of the programs. All figures in US$ bPresidential budget for fiscal year 2006 includes request of $11 mil for SSL. cKorea also has a national program for LCD and displays, from 2004-2008. Key players are LG and Samsung. No funding information. dChina’s “863 Program,” or National High Technology Research & Development Program, includes development of OLEDs as a focus. SOURCES (in order of table): DOE (2005, 2006), Japan Research and Development Center of Metals’ National Project (2000), Stevenson (2005), Compound Semiconductor (2004), Chiu (2004), Yahoo! News Australia & NZ (2004), Tang (2006), Ledsmagazine.com (2005c, 2005a), Steele (2006), European Commission Community Research (2002).
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies (DOE, 2006). Some 65 percent of the DOE grants were awarded to firms, with the remainder split about equally between research laboratories and universities. Similarly, Japan has an LED association that promotes R&D and standardization in the LED industry. As well as aiming for energy-efficient lamps, the association has established a medical innovation center that conducts R&D on LED use in medical equipment and therapeutics. A 1979 Energy Conservation Law in Japan, updated in 1999, has been a key driver of energy conservation in factories, buildings, machinery, and equipment. Japan is the second-largest government supporter of R&D in general, after the United States, investing $90.3 billion in 1997. Of this budget, $6.8 billion was allocated toward national energy-related R&D—64 percent public sector and 36 percent private sector (Dooley, 1999). South Korea’s lighting program is supported by a government-backed organization, Korea Photonics Technology Institute, which aims to produce 80 lm/W white LEDs by 2008 and invests $20 million per year. Funding stems mainly from the government (73.1 percent), but also from industry (10.4 percent) and the “City of Light,” Gwanju (16.5 percent). Gwanju is the center of the LED Valley project in Korea, aimed at penetrating LEDs into television backlighting by 2006, car lighting by 2008, and domestic lighting by 2010. Investment is significant at $100 million for the development of HB LEDs (plus $430 million partly for fiber-to-the-home) from 2005 through 2008. In addition, the Korean private sector, namely Samsung and LG, are investing in LCDs and OLEDs, using Korea’s LED infrastructure as a platform. Chaebols such as Samsung and LG are doing so through their business units and research labs, as well as a partial spin-off in the case of LG, in which it still has a 60 percent equity stake. But there have also been new startups for epiwafer foundries, substrates/GaAs ICs, and fiber optic components—many set up by researchers from Samsung and LG or by university professors (Whitaker and Adams, 2002). Taiwan has had support from the National Science Council for LED research. Together with a consortium of 11 companies, Taiwan invested $11.5 million in LED research and development during the period 2003-2005. The second phase, to produce high-efficiency LEDs, is expected to receive $0.4 million in funding. The goal is to produce 100 lm/W output efficiency of LED bulbs in laboratories. In addition, Taiwan has a 6-year national initiative on nanotechnology worth $700 million, some of which is dedicated toward LEDs (Liu, 2003). China has budgeted $44 million to address solid-state lighting R&D needs as part of its 11th Five Year plan. The program will include 15 research institutions and university labs, and more than 2,500 companies involved in LED wafers, chips, packaging, and applications (Steele, 2006). The country expects to be the largest market for LEDs in the world, although it acknowledges a 6- to 20-year lag behind Japan, Europe, and the United States in LED device technology (Steele, 2006). The key driver behind the lighting project is energy savings. The goal is to penetrate 40 percent of the Chinese incandescent lighting market with 150 lm/W LEDs. The program was responsible for the establishment of five in-
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies dustrial parks in China during 2004 and 2005, backed by government, company, and university investment. The objective of the program is to save 30 percent of energy spent on lighting, the same as generated by the Three Gorges Project, in the next 15-20 years. An underlying national solid-state lighting project by the Ministry of Science and Technology aims to reduce environmental pollution and improve technology to develop a strong industrial base. Apart from its dedicated semiconductor lighting project, China is investing heavily in the semiconductor and advanced material industries in general. China is also focused on collaborating internationally to develop its semiconductor industry, recruiting talent particularly from Taiwan and the United States. One aspect that stands out among national LED programs is that Europe appears to be lagging behind the United States and Asian countries. The European Union’s Fifth Framework Program funds five research areas: nanotechnology, genomics and biotechnology, information technology, aeronautics and space, and food safety and health risk. The funding for the period 2002-2006 is $17.5 billion. Of this, $3.4 billion is assigned to the Information Society Technologies program, which includes research into semiconductor technologies and LEDs. The program funds research institutions, universities, and other organizations. The lack of specific initiatives for LED innovation may explain European countries’ minor share of LED patents. Some European countries have more specific programs dedicated toward LEDs. In September 2006, for example, the German Ministry of Education and BASF inaugurated a new research lab, the Joint Innovation Lab (JIL) (BASF, 2006). The JIL is a cooperative effort between 20 BASF experts and industrial and academic partners researching new materials in organic electronics, concentrated particularly on OLEDs for organic photovoltaics and appliances in the lighting market (OPAL). The German Ministry of Education and Research intends to invest around $800 million in the OPAL project. In addition, BASF spends over $1 billion on R&D each year. It is hoped that the projects will strengthen Germany’s position in the emerging market of organic electronics and create the scientific and technological basis for initiating the production of OLED-based lighting (A to Z of Materials, 2006). In the newer technology of OLEDs, much of the work is concentrated in research institutions and academia, both domestically and abroad. To be commercially viable, OLED research requires substantial infusion of capital. Foreign industry, heavily funded by their governments, could develop an insurmountable lead in the technology, making it very difficult for U.S. manufacturers to compete, if the U.S. government does not provide comparable support. With appropriate support from government and industry, commercialization could occur in as little as 5 to 8 years (Tsao, 2002). A push is also being made to pursue good white LEDs, the “holy grail” of LED lighting. Analysis of PIDA data compiled by DigiTimes shows that each of the aforementioned countries is investing in white LEDs. The United States
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies is investing $50 million over 10 years, Korea $23.4 million over 5 years, Japan $10.7 million over 5 years, Taiwan $4.6 million over 3 years, China $3.3 million over 3 years, and Europe $1.0 million over 4 years (Wang and Shen, 2005). Demand Drivers To spur innovation indirectly, regulations and incentives for energy-saving technologies can enhance demand for new lighting technologies. In a study comparing U.S. and Japanese lighting industry conservation measures, Akashi et al. (2003) found that conservation can be encouraged by regulation, incentives, and awareness campaigns. The U.S. Energy Policy Act of 1992 prohibited manufacturing and import of lamps that do not meet efficiency standards and mandated that lamp lumen output, efficiency, and life be printed on packaging, making it easier for consumers to compare and select more energy-efficient products. Nevertheless, consumers still experience considerable confusion in choosing lighting, particularly for residential settings. In new construction, builders have generally installed basic lighting packages that lack energy efficiency and other quality improvements in favor of lower capital costs (rather than lower operating costs). Bridging the gap between available lighting technology and consumer knowledge is a significant challenge and one that in Japan is met jointly by government and industry initiatives. Future diffusion of LED lighting may reflect patterns now apparent for CFLs, which, although more efficient than incandescent and halogen lamps, have achieved low penetration in the U.S. market. Only about 2 percent of sockets nationwide, and 4 percent in California, now use CFLs. Flicker, color, upfront cost, and other drawbacks have contributed to their slow adoption, so that greater energy efficiency alone seems insufficient to penetrate much of the market, although the efforts of Wal-Mart to promote CFLs may result in a significant change in consumer behavior. IMPLICATIONS AND POLICY RECOMMENDATIONS This chapter has documented a shift taking place in the lighting industry. Traditional lamps are being replaced with CFLs. While the early traditional lighting industry was dominated by three big companies—GE, Philips, and OSRAM—as production of lamps became commoditized competitive pressures in lighting increased. Lower prices and margins shifted production of traditional lamps to Asia, especially China, the largest source of lamp imports in the United States. Improvements in lamp efficiency led to the development of fluorescents and other types of lamps, which successfully penetrated commercial and industrial markets and are poised to enter U.S. residential markets after years of delay among consumers who lacked awareness and were unwilling to spend money up front for savings later on.
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies A new lighting technology, LEDs, is leading to a shift in how we view lighting. LEDs have already penetrated end-use markets for automobile brake lights, signs and displays, backlighting, and traffic signals. Investments in the development of white LEDs are setting the stage for the use of LEDs as general illumination and threaten the traditional lighting industry and its three big players. LEDs are a disruptive technology that has allowed many new players to enter the lighting market. While Japan and the United States dominate the LED market in terms of R&D and revenue, their market share is being eroded by fast-growing entrants, especially from Taiwan. Taiwan leads global production of blue (GaN) LEDs (Wang and Shen, 2005), had the second- or third-largest amount of LED patents by our counts in 2000-2003, and has two firms high on our LED patent ranking tables. Philips, OSRAM, and GE were not involved in the early stages of LED technology development. It was only in 1999 that the big three decided to enter the LED market through a series of joint ventures that the companies later acquired. These firms may further build their strengths in this technology through acquisition. In mid-June 2007, Philips acquired Color Kinetics for approximately $791 million.39 These big three firms appear to have established dominant positions in LED technology, judging from our patent analyses. However, it remains to be seen whether the big three will replicate the tight oligopoly they held in the traditional lighting industry in most of the 20th century. Partly this is because the semiconductor supply chain is fragmented as firms in this sector are typically not vertically integrated; by specializing, companies are able to keep costs down. Our analysis indicates that LED producers likewise operate at various stages of the supply chain and do not integrate vertically. This means that the LED market has witnessed many new entrants and has also created opportunities for new ventures in areas such as system controls and integration. Although LEDs have some clear advantages over traditional lamps, such as added flexibility, integration with digital systems, and higher energy savings, they are also still costly to produce. The question remains when (indeed whether) white LEDs will successfully displace traditional general illumination technologies, especially among residential buyers. Evidence from CFL, HID, and other efficient traditional technologies shows low penetration rates among consumers. To aid success of LED lighting, therefore, governments might not only fund basic R&D but also promote awareness among consumers so that LED lighting products diffuse in the residential market. Governments worldwide are making significant investments into LED R&D and promotion of the technology. Government programs, such as the one in the United States, have allowed small startups 39 At the time of the announcement Color Kinetics had 71 patents granted and over 15,000 installations. The merged entity will operate under the name Philips Solid-State Lighting Solutions, with intelligent and premium LED product lines ultimately co-branded Philips/Color Kinetics (Color Kinetics, 2007).
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Innovation in Global Industries: U.S. Firms Competing in a New World - Collected Studies and university research labs to make progress on LED R&D and gain a foothold in this new market. U.S. and Asian government programs, in particular, have made the largest investments. China, which is still at the early stages of ramping up capacity and technology to produce LEDs and therefore lagging behind other countries, is addressing R&D in solid-state lighting as part of its 11th Five Year Plan and is setting up five business parks dedicated to these new lighting technologies. China has a strong interest to meet its own energy-efficiency needs. Already, there is a trade imbalance between China and the United States for semiconductors generally. In 2002, the United States imported $6.4 billion worth of semiconductor products from China, while exporting only $2.2 billion worth (Holtz-Eakin, 2005). Given its investments in R&D, China might become an important player in the global LED market. Analysis of these trends indicates that Asian countries such as Japan and Taiwan, and possibly China and Korea, are poised to take an increased role in R&D, production, and diffusion of LED technology. Evidence provided by the patent analysis suggests a potential shift toward these Asian nations. Extensive public and private investment will help if the United States is to keep up with the opportunities presented by these new technologies. Moreover, efforts to encourage consumers to use solid-state lighting as it becomes efficacious in new applications may help domestic markets to grow and support the commercialization of these important energy-saving technologies. ACKNOWLEDGMENTS Partial funding is gratefully acknowledged from the Alfred P. Sloan Foundation and from the Center for Future Energy Systems at Rensselaer Polytechnic Institute. Insightful comments on an earlier draft were kindly provided by Kevin Dowling, Jeffrey Macher, Bill McNeill, Klaus Minich, David Mowery, and David Simons. We also thank our discussants and anonymous referees at each stage of development of this work. REFERENCES Akashi, Y., L. Russell, M. Novello, and Y. Nakamura. (2003). Comparing Lighting Energy Conservation Measures in the United States and Japan. Working Paper, Lighting Research Center, Rensselaer Polytechnic Institute. Arensman, R. (2005). LED market lights up. Electronic Business 31(4):24. Arthur, A. (2006). A unique history of the light bulb. Available at http://www.contentmart.com/ContentMart/content.asp?LinkID=19298&CatID=328&content=1. Accessed December 2006. Ashdown, B. J., D. J. Bjornstad, G. Boudreau, M. V. Lapsa, B. Shumpert, and F. Southworth. (2004). Assessing Consumer Values and Supply-Chain Relationships for Solid-State Lighting Technologies. Report ORNL/TM-2004/80, Oak Ridge National Laboratory, Oak Ridge, Tenn.
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