RISK ASSESSMENT OF PRODUCTION CAPACITY INVESTMENT IN GROWING COMPONENT MARKET

Abstract

Supply and demand increase rapidly in a Hi-Tech component market which is in its growing stage, due to the demand increase of finished products with components performance improvement. Intense price competition among the component manufacturers occurs due to less difference in component performance within same generation. In this type of market, large errors often occur between the predicted market price and the actual price, as a result, high amount capacity investment is very susceptible to price prediction errors. If a mistake is made in the decision-making of capacity investment, the component manufacturer may face huge loss. In the worst case, the component manufacturer may have to make the decision on whether to withdraw from the market. In the past, Japanese component manufacturers led the world with low-margin high-turnover strategy in such uncertain market with their high technological innovation in production. But in recent years, they have lost in the price competition with Korea and Taiwan companies. The reason is thought to be the change of market environment, such as the market expansion with globalization. In this study, we will focus on the decision-making of capacity investment. Characteristics of manufacturers are defined the as different estimation of the demand sensitivity with price decrease and experience curve of investment amount which are the required information for decision-making. In this study, after the modeling of decision-making of capacity investment, the deficit risk of production capacity investment with different characteristics of manufacturers is to be evaluated. To avoid the deficit risk, how to correct the estimation of the information of the demand sensitivity with price decrease and experience curve of investment amount while doing the decision-making of capacity investment under a growing market is shown in the result.