5.4.1 Development of High-Quality Steel Sheet in Japan
Another innovation embraced by Japanese steel companies was the devel- opment of high-grade steel sheet; this innovation began to accelerate after the mid-1970s. 2
Whereas the fi rst wave of innovation was a radical process innova- tion centered on large-scale equipment investment, the second wave was product innovation through the accumulation of incremental research and development (R&D). Of course, the fi rst and second waves were not independent processes: the high-grade steel was based on the low-carbon steel that became producible with the advent of the BOF. Th e steel that
2 Kawabata called the mass production system developed by Japanese companies after World War II
‘a second-generation integrated production system’. Th e system of development and production of high-quality steel was based on the same major facilities as those of the second generation, but real- ized fl exible production. So Kawabata called this new system ‘generation 2.5’ (Kawabata 2012 ).
made the greatest impact on the market was automobile sheet, especially galvanized steel sheet and high-tensile steel.
Th e corrosion of car bodies as a result of the antifreezing agents used on the roads in winter became problematic in North America and Europe in the 1970s. Steel makers around the world developed hot-dip gal- vanized steel sheet (GI) in order to adopt the anticorrosion standards introduced in North America in the late 1970s, which was called the
‘Canadian Code’ (surface corrosion 1 year, corrosion hole 3 years). In the mid-1980s, Japanese steel makers took the leading role in developing new galvanized steel sheet corresponding to new standards in northern Europe, that is, the ‘Nordic Code’ (surface corrosion 3 years, corrosion hole 10 years). In the latter half of the 1980s, US automobile makers set the new goal of a warranty term (surface corrosion 5 years, corrosion hole 10 years). For these goals, Japanese steel makers developed alloyed hot-dip galvanized steel sheets (GA), which were widely used by US and Japanese automobile makers (Nippon Steel ed. 2004; Kawabata 2006).
High-tensile steel was also developed to address the social demand for the improvement of car bodies in the 1970s. Th is demand included enhancing the strength of car bodies in order to protect passengers from traffi c accidents, which had been increasing drastically in North America since the late 1960s, and decreasing the weight in order to reduce fuel consumption, which had been a growing burden for consumers since the oil crisis. Japanese steel makers developed multifunctional steel by remov- ing carbon and impurities during the secondary smelting, by adjusting additives during the steelmaking process, and by controlling the tem- perature during the annealing process. Major products were dual- phase (DP) steel and transformation-induced plasticity (TRIP) steel. As a result, the use of high-tensile steel for Japanese passenger cars advanced rapidly: around 30 % of all Japanese passenger cars used such steel in the 1990s, increasing to nearly 50 % in the 2000s (Nippon Steel ed. 2004).
Th e close cooperation between Japanese steelmakers and automobile mak- ers spurred the development of high-quality steel. In the USA, in the develop- ment of automobile parts, automobile makers or auto parts makers supplied the specifi cations for making steel sheet, including the depth, chemical com- ponent, and mechanical characteristics. Steel makers then manufactured the sheet in accordance with these specifi cations. In Japan, however, automo-
bile makers and auto parts makers only supplied information about the processing conditions and the problems occurring during the process, and steelmakers converted that information into technical conditions for steel sheet, including component and mechanical characteristics. To facilitate information exchange and identify the problems facing automobile makers, steelmakers regularly dispatched their engineers to automobile makers. Th e requirements of automobile makers varied with each maker and car model, so steel makers were forced to develop various grades of steel sheet (Sei 1990 ).
5.4.2 Second Wave of Innovation Entering the Specifi c Phase
In the 1990s, the second wave of innovation entered the specifi c phase as cat- egorized by Abertnathy and Utterback. Th e properties of high-quality steel, especially galvanized sheet, had reached a technological level suffi cient for use in ordinary passenger cars. Furthermore, the pressure of cost reduction in the recession after the collapse of the 1980s bubble in Japan accelerated the overhaul of steel sheet development. On the one hand, Japanese steel- makers became aware that they had not earned a profi t from high-quality steel in spite of heavy investment in its development. Th is meant that they had failed to pass on the cost to automobile makers (Kawabata 1995). On the other hand, the automobile makers were forced to cut material costs to cope with weak sales. Both sides agreed on the reduction of the grade of steel sheet, leading to the setting of a new industry standard in 1996, the Japanese Iron and Steel Federation Standard, which reduced the grade of steel sheet for automobiles from about 600 to 100 (Nakaoka and Usuda 2002 ).
Steelmakers and automobile makers also gave up on the development of ‘over quality’ steel sheet, which did not justify its own cost. Toyota Motors changed the steel sheet used for the outer panels of passenger cars from dual-layer GA sheet to single-layer GA sheet. To improve the pressing process, NSC developed ‘L Processing’, which coats the surface of single-layer GA sheet with a lubrication fi lm. On the other hand, Toyota simplifi ed the production of steel sheet for car bodies by adopting the ‘servo press’, which makes it possible to press single-layer GA sheet without coating it with a lubrication fi lm. Nissan Motors, which had
used galvanized sheet (i.e., ‘Dula sheet’) diff erent from the sheet used by Toyota until around 2000, changed to the same GA sheet as Toyota, which reduced procurement costs.
5.4.3 Korea’s Catch-Up: Hyundai Motor Group
Entering the specifi c phase of the second wave of innovation enables latecomers to catch up more easily, because latecomers can concentrate their development resources on a few specifi ed technologies. It is for this reason that the Korean steel industry succeeded in rapidly catching up with the Japanese steel industry during the second wave of innovation, especially in terms of the technology used to produce galvanized steel sheet for automobiles.
Th e transformation of the Korean steel market from the monopoly of a state-owned company into competition between two large private companies fostered the speed of the catch-up. In 1999 Hyundai Steel Pipe, which is part of the Hyundai Group, started to manufacture cold rolled sheet. In 2001, the automobile and steel subsidiaries of the Hyundai Group, including Hyundai Hysco (as Hyundai Steel Pipe was renamed in 2001), established the spin-off Hyundai Motor Group. Th e cold strip mill of Hyundai Hysco was aimed at the production of materi- als for both steel pipe and automobiles. To accomplish this aim, the mill used a continuous galvanizing line (CGL) with a high-frequency wave induction heating furnace that could manufacture GA sheet (Hyundai Hysco 2005, p. 212). Furthermore, Hyundai Steel, the electric furnace steel manufacturer of the Hyundai Motor Group, started to construct an integrated steel mill from BF to a hot strip mill of 4 million tons per year at Dangjin in Chungcheong-Namdo in 2004; this was fi nished in 2010. Th e Hyundai Motor Group thus established an integrated produc- tion system from iron pig to passenger cars within the group. Hyundai Motors could procure within the group more than 70 % of steel sheet, including some high-quality steel, for its production of cars in 2011. 3
3 However, for some grades of steel sheet, the amount required by automobile affi liate companies of the Hyundai Motor Group is too small for the steel affi liates to manufacture profi tably. So the group does not plan to develop and manufacture all the grades of steel sheet which its automobile affi liate companies need (Interview at Hyundai Motor Group on 25 November 2010).
Why was the Hyundai Motor Group able to establish an integrated production system so rapidly? First, it received technological assistance from Japanese steelmakers. Hyundai Hysco agreed with Kawasaki Steel to engage in comprehensive cooperation in November 2000 and also signed a technology introduction contract with Kawasaki regarding the mass production of GA sheet for the bodies of passenger cars in January 2002. Hyundai Hysco received on-the-job training for operators and dispatching engineers as well as constant technological guidance from Kawasaki Steel. As a result, Hyundai Hysco succeeded in starting the mass production of GA sheet within about 1 year of signing the contract with Kawasaki (Hyundai Hysco 2005, p. 212).
In the 1980s and the fi rst half of the 1990s, Japanese steelmakers were reluctant to transfer technology to other countries for fear of the leak of advanced technology. As I stated before, however, the technology of galvanized steel entered the specifi c phase in the 1990s, so some Japanese steelmakers tried to sell the technology to other countries rather than continuing to protect the technology as before. Furthermore, Hyundai Motor Group did not have the ability to produce the materials needed for galvanized steel sheet when it started business in the late 1990s.
On the other hand, Japanese steelmakers, including Kawasaki Steel, were facing an overcapacity in production of the materials at that time.
Th erefore, Kawasaki Steel provided the technology to Hyundai Hysco instead of selling the materials.
Second, Hyundai Motor Group established an integrated develop- ment system between the automobile maker and the steelmaker within the group. Th is system had already begun in 2001 when Hyundai Hysco, Hyundai Motors, and Kia Motors (which is also an automobile maker in the Hyundai Motor Group) started the joint development of GA sheet.
Furthermore, Hyundai Steel established the institute at Dangjin steel- works where 350 engineers from the automobile and steel subsidiaries codeveloped car steel sheet.
Th ird, Hyundai Motor Group had signifi cant fund-raising capabil- ity as one of the Korean conglomerates that are known as chaebol . As Hyundai Motors and Kia Motors grew rapidly in the 2000s, the group extended the scope of its business to include specialty steel, automobile parts, construction, fi nance, and distribution. As a result, it grew into Korea’s second-largest group (after Samsung) in terms of assets. Based on
its huge assets, Hyundai Motor Group entered the business of auto- mobile steel sheet production and integrated steelworks. Th e completion of three BF-based production systems in 2013 put the company on the map as one of the top 10 global steelmakers, with a production capacity of 24 million tons.
5.4.4 Korea’s Catch-Up: POSCO
POSCO also aggressively expanded its automobile steel sheet business to counter the entry of Hyundai Motor Group. POSCO had already started the development of GA sheet at the beginning of the 1980s, but it did not progress until the 1990s for two reasons. First, as I stated before, Japanese steelmakers had been reluctant to transfer their technologies to POSCO. Second, POSCO had not chosen a strategy focused on high- quality steel sheet but instead focused on the mass production of com- modity sheet. POSCO started the production of GA sheet in the 1990s, but the volume of production was only 100 tons in 2000 ( Cheolgang Shinmun , 2 May 2000).
Hyundai Motor Group’s move into the production of automobile steel led POSCO to change its strategy. Th e entry of Hyundai meant that POSCO could lose one of its largest domestic sales markets. In addition, POSCO had completed the process of privatization in 2000. Th at forced POSCO to seek to strengthen its earnings structure. In consequence, POSCO began the process for development and full-scale production of high-quality steel sheet.
POSCO started the production of GA sheet for the outer panels of automobiles in February 2003 at almost exactly the same time as Hyundai Hysco. In July 2006, POSCO presented a new vision for Gwangyang Works to become the world’s top steelworks specialized in steel sheet for automobiles. Gwangyang launched two CGLs for the production of GA sheet in 2005 and 2006, and changed the specifi cation for the three existing CGLs to GA sheet for automobiles in 2007. Th at increased the capacity for producing GA sheet to 200 tons per year.
Besides these facilities, POSCO revisited the whole system of sales, production, and development. POSCO especially tried to strengthen
their relationships with customers. When it was still a state-owned company, POSCO was a monopolistic supplier that was reluctant to exchange information in an intimate manner with customers. Around 2000, POSCO introduced Internet technology, which was called Process Innovation, to reform its internal business process. POSCO succeeded in facilitating e-commerce by connecting this internal network with cus- tomers; this shortened the span of the sales plan from 60 days to 15 days and the lead time for the supply of hot rolled coil from 30 days to 14 days (POSCO 2004 , pp. 429–40).
Furthermore, POSCO established the Automotive Steel Application Center at Gwangyang Works in January 2003. Th e purpose of the center was to improve the company’s automotive steel application technologies, enable the company to acquire new information regarding automotive steel applications, and implement a global R&D network necessary for devel- oping unique technologies. Th e research section focused on Early Vendor Involvement, a joint eff ort in which POSCO works together with its cus- tomers in the auto industry from the initial development of new vehicles all the way through to their mass production. 4 Th e center also included workspace for researchers from local auto-making companies who had been given access to the center. Th e center’s main laboratory is equipped with cutting-edge facilities that allow for the simulation of new applica- tion technologies. For example, the hydroforming facility uses state-of-the- art mold equipment that allows automotive steel to be shaped in various ways by applying pressure inside a steel tube/sheet, while the Tailer Welded Blanking facility uses a laser to weld together steel plates of diff erent thick- nesses and tensile strength into the required size and shape.
POSCO also improved the development and production system within the company. Some analysts claimed that POSCO lacked the coordina- tion among processes and sections within its steelworks required for the development and production of high-quality steel sheet (Fujimoto et al.
2006 ). Th erefore, POSCO integrated the facilities service sector with the maintenance sector and built an intersectoral quality improvement system (Ho and POSCO Staff 2009, pp. 226–7).
4 POSCO has organized Early Vendor Involvement activity with over 10 automakers, including the Hyundai Motor Group.
As a result of this improvement, POSCO succeeded in increasing its sales of automobile steel sheet to foreign automakers, including Japanese automakers, in the late 2000s. For example, Nissan Motors started the procurement of steel sheet from POSCO in 2000, and steadily raised the adoption rate by continuing negotiations with POSCO. In 2009, Nissan procured one-third of its steel sheet for one model of compact car from POSCO. 5 In 2010, Nissan renewed the model and moved the factory from Japan to Th ailand. At the same time, Nissan appointed POSCO as the main supplier of steel sheet for the model. Now POSCO supplies automobile steel sheet, including GA sheet for automobiles’ outer panels, to several Japanese automakers.
As I discussed above, the Korean steel industry succeeded in catching up with the Japanese steel industry by seizing the opportunity of the second wave of innovation, especially the production of galvanized steel sheet for automobiles, to enter the specifi c phase in the 2000s. Th e entry of Hyundai Motor Group into the market, along with fi erce competition with the fully privatized POSCO, accelerated this catch-up. In the fi eld of high-tensile steel, Japanese steelmakers are still technological leaders.
However, Korean steelmakers are closing the gap rapidly. 6 POSCO has developed a new type of high-tensile steel called ‘TWIP steel’ (twinning- induced plasticity) and has begun supplying it to overseas automobile makers. Hyundai Motor Group has also started to produce high-tensile steel for use within the group.