Examine Why Government-Led Reorganization Efforts have Failed

The restructuring of the electronics industry through the Economy, Trade and Industry Ministry-promoted “hinomaru coalition” system, which unifies public and private sector efforts, continues to fail. The reasons for this must be examined and the results must be applied to future industrial policy.

JOLED Inc., a Japanese manufacturer of organic light-emitting diode (OLED) displays, has gone bankrupt. The company’s total liabilities amounted to about ¥34 billion. The firm said it will close its production bases, and Japan Display Inc., a major liquid crystal display (LCD) maker, will take over JOLED’s research and development division.

JOLED was established in 2015 through the merger of the OLED operations of Sony Corp. and Panasonic Corp. at the time. A public-private fund, INCJ Ltd., which was the former Innovation Network Corporation of Japan, had supported JOLED with an investment and loan of about ¥140 billion.

It is regrettable that JOLED’s business has stalled, since OLED displays, which are thinner and offer clearer picture quality than LCDs, are used for such devices as TVs and smartphones and are becoming a major player in the display industry.

JOLED had advanced technology for producing high-quality displays and began operating a production line in 2019. However, it took time to establish a stable production system, and the start of mass production was delayed until March 2021.

The company said that its inability to obtain sufficient funds for capital investment in the production line was one of the reasons it struggled with mass production. Unable to lower costs, it could not win the price competition with foreign companies.

Originally, Japanese companies were ahead in the development of OLED technology, but fell behind their South Korean counterparts when it came to investment, as the latter received generous state support. Furthermore, the Japanese government, which took the initiative in the project, cannot be exempted from responsibility, as the restructuring effort to turn the situation around ended in failure.

The ministry has so far been using the hinomaru coalition system to pursue a strategy of reorganizing the operations of electronics manufacturers that have lost international competitiveness as they attempt to survive.

However, Elpida Memory Inc., which merged the semiconductor memory divisions of Hitachi Ltd. and NEC Corp., went bankrupt in 2012. JDI, which consolidated the small and midsize LCD businesses of Sony, Hitachi and Toshiba Corp., is also expected to post net losses for nine consecutive fiscal years through the fiscal year ending March 2023.

Why are business reorganizations involving the government unsuccessful? Unless the reasons for such failures are examined, the same mistakes could be repeated. Industrial policy should be reconsidered based on this examination.

In the area of semiconductors, a new company called Rapidus Corp., which aims to manufacture next-generation semiconductors, has been launched with the full support of the government. This is an attempt to revive “hinomaru semiconductors” with investments from companies including Toyota Motor Corp. and NTT Corp.

Semiconductors have become an important material for the nation’s economic security, and another failure cannot be allowed. It is necessary to learn lessons from the past and invest funds effectively.

(From The Yomiuri Shimbun, April 20, 2023)