The North American Display Business Environment
This article, the first in an occasional series that looks at business environments around the world, describes the historical, economic, and other conditions that affect display companies doing business in North America.
by Jenny Donelan
THE North American display industry is in many ways a paradox. A huge amount of display research and innovation takes place in this region, and a huge number of displays are purchased by its consumers. At the same time, a relatively small amount of display manufacturing is conducted in North America. Both these extremes are subject to exceptions, of course, and the strengths and weaknesses of the display industry in North America warrant a closer look.
Display research and development are known fortes in North America. For decades, display discoveries have emerged from its universities and private companies, as well as from a smaller number of government-funded initiatives. Although this region does not have a monopoly on display discoveries, consider the recent inventions that have come out of North America. They range from fundamental scientific discoveries such as flexible backplanes, MEMs devices, quantum dots, and E Ink to practical applications of technologies that include 3M’s quantum-dot films, many companies’ optical bonding, multi-touch user interfaces from Microsoft and other firms, LED backlights, and more.
In ways both symbolic and actual, North America is also a kind of standard bearer for technology. It is home to many of the largest such companies in the world: Apple, Dell, Google, IBM, Intel, and Microsoft. These companies may not do the bulk of their manufacturing (if they do any manufacturing at all) in the U.S., but they are flagships that drive the computer and display industry rather than respond to it, and, in so doing, help shape worldwide trends.
North America is also home to a huge consumer market, despite the fact that the standard of living in North America is not as high as that of some European and Middle Eastern nations. Consumers in North America are well-known voracious buyers of electronics. But they can be selective and ruthless in product choices – whether those be automobiles or mobile phones. And just because you sell popular products does not make you an automatic success – witness the demise of the Circuit City retail chain a few years ago. The Internet makes price shopping extremely accessible, and it’s easy for consumers to compare products in ways that would not have been possible just a few years ago.
In addition, though they do buy eagerly, North American consumers are, in general, fairly saturated with “toys” and need compelling value or service in order make an electronics purchase. Consumers have grown a little cynical about new offerings (think of the tepid response to 3-D TVs), and unless you are a very clever innovator and marketer, like Apple or Samsung, it can be tough to entice consumers to continue upgrading through new product cycles. Consumers can also say one thing and do another: In the U.S., the idea of buying American-made products is popular, but when it comes to opening their wallets, consumers are driven more by prices and the latest trends than by country of origin.
Consumer confidence is another variable to be considered. Though the effects of recent legislation such as sequestration and the Affordable Health Care Act have yet to be seen in entirety, uncertainty about them can still have consequences. Parents waiting to hear if college loan rates will go up are less likely to invest in a new large-screen TV, and companies wondering how or if to revamp employee health insurance may hold off for a while on the purchase of new computer systems.
If your company is looking to break into the consumer market, whether as a retailer or a consumer-device developer, there are rewards to be reaped in North America, but you will not come by them easily. According to NPD DisplaySearch’s Paul Semenza, “The end of the cycle – with retailers such as Best Buy or Amazon – is a tough business to enter but great once you get to it.” In 2012, U.S. consumer-electronics sales totaled a hefty $143 billion, according
to a report from NPD Group.1 (By comparison, China’s 2012 consumer-electronics sales were even higher – slightly over $200 billion in the same time period).2 In the U.S., according to NPD, the top five consumer-electronics categories (all containing isplays) were notebooks, flat-panel TVs, smartphones, tablets, and desktop computers. Best Buy, Walmart, Apple, Amazon, and Staples were the top retailers.
Manufacturing Ups and Downs
For the most part, the manufacture of display panels takes place outside North America, with the lion’s share of fabs in Asia. But there is display manufacturing of a different kind in North America – display integration. Says Semenza, “These are opportunities where some kind of customization is required – in the medical, military, and automotive markets, for example.” Such customization includes optical bonding, rugged packaging, light-enhancement films, enhanced backlights, and so forth for a wide variety of applications. Examples of these are adding displays to autos and building units and
integrating displays for the medical, military, and industrial markets, with the latter including digital signage, public-access kiosks, ATMs, checkout systems, machine control, and oil and gas exploration as well as mining applications.
On the down side of display integration, the military and government market, one of the previous “rocks” of this region, is no longer a sure thing. Although the work still exists – as long as there are soldiers they will need ruggedized displays, for example – government programs are being cut or at least re-assessed. Many programs are being delayed by years, development money is hard to come by, and project volumes have been greatly reduced. The cross-the-board U.S. government budget cuts that went into place last March have affected some parts of the private sector profoundly. Companies ranging from janitorial services to aerospace and science researchers (including companies who make integrated displays) have been forced to reduce spending as a result of military and government cuts.3 In the case of military display integrators, who have been busy updating mobile
devices, in many instances replacing laptop models with tablet and smartphone configurations, money has already been spent on projects that are not going to be paid for any time soon.
South of Canada and the U.S., there is some new manufacturing action. In 2012, Mexico became the world’s largest exporter of flat-screen TVs.4 The work involved is actually final assembly, using parts from Asia. It is what is called a “box-build” business, which does not require a high level of technical expertise, but certainly represents a much-needed boost to the Mexican economy. The country became a prime assembly spot for U.S.-bound big-screen TVs after the North American Free Trade Agreement (NAFTA) passed almost 20 years ago, allowing goods produced in Mexico to enter the U.S. duty free. The cost of shipping big TVs from Mexico to the U.S. market is certainly less than it would be to ship them from Asia.
There is general consensus in the U.S. and Canada that plentiful manufacturing opportunities represent a sort of bygone Golden Age. In fact, manufacturing remains relatively strong in the U.S., but has changed in makeup. Much more of the factory floor work is done by robotic equipment, and the workers who maintain it often require specialized training beyond what they would receive on the factory floor.5 The manufacturing jobs requiring large numbers of workers currently remain overseas. It is possible that some will return to North America because of tragedies like the factory collapse in Bangladesh last April, but that depends on the degree to which new concerns about working conditions translate to higher costs
Both display integration and final product assembly are the most likely manufacturing candidates to return to the region. Big screens are expensive to ship (hence the growth of the TV assembly business in Mexico). The need for specialized assembly and high degrees of customization argues for display integration done near the customer – the aforementioned market for displays in cars fits nicely into this model. Lastly, North American companies with unique intellectual property may find it easier to protect and implement their know-how closer to the source.
Display fabs, however, are unlikely to return to North America. Now that they, along with the requisite expertise (and highly needed capital) involved in starting and operating them, are in Asia, it makes sense to keep them there. “And the reason is the supply chain as much as anything else,” says Semenza.
Starting Up, Setting Out
For companies with new display technology to roll out, it can be difficult to find investors in North America. “It’s still tough to get funding here because venture-capital companies (VGs) are nervous about hardware,” says Semenza, adding that software investments are more popular. Still, funding exists, especially from companies such as Microsoft and Amazon (which recently purchased Liquavista), and start-ups do happen. Sometimes companies even manufacture in North America. One example is E Ink, which began as a spin-off from MIT in 1997. E Ink has headquarters in Cambridge, Massachusetts, and is currently planning to relocate them to nearby Billerica, Massachusetts. In 2009, E Ink added a manufacturing plant in South Hadley, Massachusetts. (All ink and laminations are done in Massachusetts; cutting and final assembly are done in China.)
Companies that would make or sell products in the U.S. should know that regulations, taxes, and environmental requirements there vary greatly. “The rules are different from state to state, and even from town to town,” says Sri Peruvemba, Chief Marketing Officer at Cambrios Technologies Corp. (and formerly of E Ink). “But it’s a democracy – you express yourself!” Many companies have found that the safest way to be sure of complying with environmental and energy guidelines is to follow those of California, which has traditionally been the strictest (or most forward-thinking, depending on your point of view) state in terms of those kinds of regulations.
For display companies looking to deepen their involvement in North America, it’s best to bear in mind that it’s a region long on intellectual capital and consumer enthusiasm, but short on easy paths to success. Barriers abound, from monetary, regulatory, and even legacy considerations that make it difficult to raise capital for local manufacturing, to a somewhat fickle buying population that has become accustomed to receiving high-quality goods at margin-threatening prices. But if you can gain market share and consumer mindshare in North America, the visibility gained might well take your enterprise global, as companies such as Microsoft and Apple have demonstrated.