TCL MULTIMEDIA

The Case Study

Prelude
This Case Study is about an Electronic Enterprise
TCL Multimedia
A Chinese distributor who from a Audiotape
manufacturer gain prominence in the World by their
Cultural Hierarchy and Aggressive approach. TCL
became most dominated Electronics and White
Goods brand in the World. With their aggressive
Strategy they not only limited them till South-East
Asia but also expanded to Europe, Americas and all
of Asia.
In this process they not only overcame several
problem but also rise top of all. TCL partnered with
Thomson Enterprise an French Enterprise to form TCL
Thomson Enterprise (TTE) in a Joint Venture owning
67% market share of the company. The deal
strengthen TCLs technical and competitive position
in the world market.
TCL, and similarly prominent companies in
China, are in the forefront of China's emergence as
one of the world's preeminent economic powers.

FACTS

World Television Production

In the 1960, U.S. Companies CBS, RCA and Zenith

dominated world production of Television sets.
In 1970 colour Television where founded everywhere
which used similar Cathode-Ray-Tube technology as to
Black and White model, several years after Japanese
companies Sony and Matsushita enter the Markets.
IN 1980 Japanese production permanently shifted its
manufacturing from U.S. to Asia.
High labour cost in Japan and Europe led Japanese T.V.
Manufacturer to source their components in South Korea
and Taiwan and soon their firms were producing
complete sets on Original Equipment Manufacturer
(OEM) basis for marketing in Japan as well as U.S.
All manufacturers took advantage of China lower labour
costs and were quick to relocate Television assembly
and manufacturing in China.
During 1990 there were only few highly competitive
electronics manufacturer in China such as Changhong,
Hisene, Konka and TCL.
Companies manufacturing television typically produced
a portfolio of consumer electronics, balancing older , low

Along with radio cassette players, portable audio devices and

VCRs, of CRT television were the mainstay of consumer
electronics firms into the 1990s, when digital technologies
began to emerge.
In 21st Century LCD and Plasma Display panels had started to
replace CRT television sets and computer monitor in U.S.,
Europe and Japan
In the 1990s, the availability of standardized flat-panel and
Video-Integrated Circuit (ICs) opened the market beyond he
vertically integrated firms that previously dominated Video
processing technology.
Many new manufacturers relied on the Original Design
Manufacturing (ODM) orders to other, this shift from heavy
CRTs to Flat-Panels also lowered shipping cots.
Japanese manufacturers stopped producing CRT, while
Chinese manufacturers produced both CRT and LCD for export
and to supply the growing domestic market.
Prior to the Thomson acquisition TCL ranked Third in the World
by numbers of sets sold at 10.7 million units.
Among Domestic manufacturers, TCL competed intensely with
Chanhong, Konka and Skyworth for Chinese sale. None had a
significant market share advantage.

TCL ORIGIN AND GROWTH

TCL was founded in 1982 as an audiotape manufacturer.

One of the founder Li Dongsheng had led the firm into
series of consumer electronics product lines remained
Chairman in 2005.
TCLs production of handsets for fixed-line telephones
gave the company a reputation for quality.
TCL also sold under the Tongli brand audio equipment
made in a Joint Venture with Hong Kong firm.
An audio research and development (R&D), department
was launched in 1992, focusing on product
development and product efficiencies.
TCL began to develop a national distribution system
after attempts to sell its audio equipment foundered
when large distributors, state owned, proved unwilling
or unable to support the company products.

The distributors primary interest was in turnover and cash in

hand and they did little if any product promotion.
Distributors lost interest in the product as soon as retailers
purchased the inventory.
TCL also launched its first advertising and marketing efforts in
1993-1994.
In1992 under the Wanpai (King), brand. TCL began to sell
colour Television that were produced by Hong Kong based Joint
Venture partner Changcheng. TCL continued to purchased TVs'
from Changcheng on a OEM basis for domestic sale through
1996.
TCLs T.V. Sale were not due to any strategic foresight and the
business went into a slump.
TCL chairman Li had a good relationship with the head of
Changcheng.
Changheng lacked a license to produce T.V. In China , so Mr. Li
secured one and started to get an order from Changcheng to
sell them.

In 1996, the head of Changcheng died and his wife decided

to sell the business, at the time TCL did not had resources to
buy so TCL OEM relationship with Changcheng ended and
had to build their own production facilities.
In 1996 TCL paid HK $ 150 million to form a Joint Venture
with Hong Kong manufacturer LUKs Industrial to produce
T.V. In Shenzen.
TCL maintain a controlling interest in the Venture,
eventually building a new Shenzen factory and moving its R
& D operations into the old one. The deal also included
LUKs television factory in Vietnam.
TCL was among the few major Chinese firms to establish
distribution before manufacturing.
TCL chose two promising distributors in every county whose
culture and mission were close to TCL and worked closely
with them to craft a marketing and sales plan.
Unlike foreign multinational who targeted customers in
Chinas wealthier coastal provinces , TCL built national;
coverage.
From 1999, TCL began to integrate what had previously
been isolated capabilities in production R & D and

In 2000, TCL ranked Third in China, but were way behind

leaders Changhong.
In 2003, TCL came atop partly through integration, partly
by increased R &D spending and partly improved
production efficiencies.
According to Zhao, TCLs success factors were, First Li
Dongsheng had anticipated major changes in the
industry , as illustrated by his decision in 2000 to move
TCL into big screen T.V. Production, Second, TCL
structure allowed and promoted innovative learning :
From T.V.s TCL went into P.C.s, Mobile Phones, White
Goods and Electronics Components. TCL was the most
comprehensive Chinese manufacturer. Third was a
strong sales network, TCLs biggest advantage.
TCL has an immigrant culture which differed from most
Chinese enterprise, who tended to be either family
owned or run as a strict,
Militaristic Hierarchy .
TCL managers listed the company limited scale and
technological capabilities relative to global competitors,
a higher liabilities-to-assets ratio than its peers, and a
relative dearth of employees with international expertise.

ORGANIZATION AND
OWNERSHIP

TCLs corporate structure was complex.

TCL operated eight business units: Multimedia, Overseas
Business, Telecommunications, Home Appliances, Personal
Computers, Consumer Electronics, Electronic Components
and CD/DVD distribution.
TCL organized broadly as Six functions- manufacturing, R &D,
Sourcing, Supply, Product Planning and Finance and Four
operating platforms- Information Technology, Human
Resources, strategic planning and six sigma.
The Huizhen government was TCLs largest single owners,
with 25.22%., Managers and staff cumulatively held another
25.01%., Strategic partners held 11.32% and the public held
38.45%.
TCL was unusual for government invested local firm.
TCL had been more concerned about survival than growth.
TCL reorganized into two stock companies.
TCLs government relations amounted to lobbying for
favourable tax policies and for policy exceptions such as
access to electricity in times of forced outages.

OPREATIONS
I. Financial Management

TCLs centralized financial management was

Conservative and Stable.
Centralized borrowing gave TCL access to better
rates.
All revenues were forwarded to the centre, though a
negotiated percentage of local sales was retained to
finance local sales operations.
TCL reached agreement with Bank of China and the
Commercial and Industrial Bank of China to provide
real-time settlement and transmission of funds from
local offices to headquarters.
Speed was also of the essence for receivable.
TCL maximized profits through high sales volume
and tight receivable management.

TCL outstanding receivables amounted to RMB 10

millions on RMB 10 Billions of sales. This was the best
in China even topping Sony and Samsung. It was
TCLs two primary benchmarks.
In 2004, Multimedia paid RMB 60,000 in financial fees
on RMB 4.6 billion in revenues.

II. Supply-Chain and Production

Management

In 2003, Multimedia employed some 80 people in

sourcing including 34 incoming quality control in
manages in Huizhou.
Because Supply-Chain Management TCL made RMB
500 million while others lost their money.
TCL inventory turns exceeded those at its Chinese
peers reaching 4.5 times in 2002 and 5.4 times in
2003.

Better forecasting also allowed TCL to carry proportionately

less inventory than Changhong.
TCL were fastest in the business at 15 days between
purchasing and production.
Losses from materials were less and were caused by
changing product specifications and features after parts
were already bought.

III R&D and Product Innovation

TCL prided itself on rapid product and process

innovation.
TCL cost structure was lower than those of its benchmark,
Sony and Samsung.
TCL made profitable use of older technology they dont do
collaborative research.

TCL excelled at making cabinets and Non-flat-panel

displays, and R&D goals included increasing
production throughput and matching designs to
consumer taste.
TCL valued speed did feasibility, sourcing, design, R&D
and production all in one month.

IV

Marketing

TCL came late to marketing , the distinction between

sales and marketing was not clear.
TCL marketers had developed strong database on
consumer purchasing behaviour.

TCL divided China into four categories 1) The large

affluent cities- Beijing, Shanghai, Guangzhou,
Shenzhen. 2) Cities such as Chengdu, Nanijing and
Xian. 3)The less developed cities. 4) counties.
Most product marketing initiatives were local,
appealing to local taste.
TCL managers devoted little time to the
development and of a corporate brand. Instead
they acted opportunistically to capitalize on
market trends.

INTERNATIONAL EXPANSION

TCLs international experience began in 1998, when it

took over the LUKs factory in Vietnam.
Then production in the Philippines, Indonesia and
Thailand.
TCL also had 40% share of the Pakistan, South Africa
and Sri Lanka T.V. Markets.
Success in Vietnam gave TCL confidence to go on to
South East Asia. They were so busy they did not worry
about entering U.S. & Europe.
The run up to China WTO entry meant that TCL had to
be ready for international competition.
First TCL were a Guangdong company and aware of
International opportunity second domestic and TCL
were top five, but that was not already had a certain
domestic foundation to build upon.

The July 1998, Foreign exchange crisis in South East

Asia reduced TCL exports through Hong Kong. That
led TCL to go direct to understand local demand and
reduce volatility.
TCL chose for International sales products with the
most homogenous consumer purchasing
characteristics across countries: Mobile Phone and
Television, White Goods and consumer electronics
sales, segments in which international taste were
more varied were left for sale within China only.
Usually TCL took majority stake in local Joint
Ventures . TCL also preferred niche and local markets
to national coverage.
TCL took its time to understand the local culture
before entering the market. It also moved more
deliberately.
TCL initially worked with partners in Moscow and the
Russian far East to be sure that TCL product features
would suit local tastes.
Half of TCLs Russian sales were made under its own
brand and Half were sold on OEM basis.

Beyond South-East Asia

In 2001, TCLs managers began talking to potential

partners in Korea, the United States and Japan about
ways to mount a major push into western markets.
TCL hired some retired managers from Toshiba,
Matsushita and LG to advise us, to help plan our
globalization.
TCL produced and sold 195,000 colour T.Vs to
emerging markets outside China accounting for 15% of
the groups total sales.
In U.S. Distribution channels were more sophisticated.
In Europe low-cost manufacturers such as TCL ram up
against antidumping laws.
TCL tried to enter the European market in 1989, but
antidumping policies basically kept TCL out.

In North America also, TCL sales through distributors were

disappointing. TCL chose to go around these barriers through
mergers and acquisitions.
In 2002, TCL acquired Schneider, Germanys seventh largest
T.V. Producer for Euros 8.2 million.
TCL managers had correctly perceived that the EU T.V. Sector
would consolidate: older manufacturers were looking to
escape the constraints of high operating costs and
partnering with Chinese manufacturers looked attractive.
TCL underline its uniqueness, customer focus, careful
expansion and no competing direct sales presence in the EU.
TCL planned to rehire 100 Scheider employees to operate
two of the firms three production lines.

End of September sales within Europe reached Euros

20 million but at the time Li was still hoping for Euros
100 million for 2003, on the basis of upcoming
contracts despite Scheinders declining share.
TCL had not yet turned around Scheinders loss
making operations.
In late September 2004, TCL did not renew the lease
on Scheinders production facilities.
In 2003, TCL spent $ 5 million to buy GO Video in the
U.S., a 100- person ,$ 200 million company that sold
audio and portable audio equipment to retailers such
as RadioShack.
TCL sold CD players to GO Video on an OEM basis,
Mainly they have a good Knowledge of sales
channels.

THE DRAGON TIGER PLAN

Television became TCLs biggest business in 1999 and

from 2000 TCL executives targeted annual growth of 5%
to 2010.
TCL in 2003, embarked on a conscious policy of
internationalization encapsulated by the Dragon Tiger
Plan. The plan stipulated that by 2010, TCL would be
among the worlds top Three TV and handset makers
and within China, among the Top three producers of
Information Technology, White Goods and Dryers, Light
Switches and Fixtures, Electronic Components, and the
distribution of CD and DVD disks.
In2003 TCL was already Chinas largest distributor of
CDs and DVDs, including Sony and Warner Music
products.

I Thomson Venture

In January 2004, TCL and Thomson signed an

agreement creating TTE a Joint Venture (J.V.) that
combined television assets of each.
TTE would sell Thomson brand sets in Europe, RCA
sets in North America, and TCL and Thomson TVs
everywhereelse.
TTE officially started operations in August 2004, and
Li Dongsheng was an officer De La Legion
DHonneur in september, the highest honour
France had yet bestowed upon a Chinese
entrepreneur.
TCL owned 67% of TTE through TCL International,
The Hong Kong listed subsidiary of TCL Group.
The TCL brand dominated, another 34% from
Thomson s12% from market share for its RCA brand
in the Americas, and 28% from Thomsons 8%
market share in Europe.
TCL would also pay Thomson royalties for its use of
Thomson-patented technology.

In 1991-1992 TCL were procuring a lot of parts and

technology from Thomson so Thomson understood TCLs
and the growth of TCL.
There was some divisiveness between TCL and Thomson
because Thomson wanted 51% of TCLs of a new JV that
would include TCL sales channels.
After suspending talks with Thomson, TCLs CEO devoted his
attention to finding another Global Partner.
Philips at one point offered RMB 2 billion for TCL sales
network. Though TCL rejected the offer. But still Philips
wanted to ODM for them because their manufacturing cost
in China were too high.
Philips ODM requirements were very stringent.
TCL learned a lot from Philips about Planning,
Communication, Production, Quality Management, and
Operations.
While TCL was working with Philips, Thomson managers held
with Changhong and Konka that gave them a more realistic
view of their own bargaining position with respect to the
Chinese firms.
Thomson was privatized in 1998 and in 2003 its consumer
electronics division lost Euros 124 million on revenue of

TCL therefore returned to TCL and agreed to its terms.

TCLs deal with Thomson in some ways resemble Lenovos
$ 1.25 billion purchase of IBMs PC division in December
2004.
Lenovo PCs would be marketed through IBMs worldwide
distribution and sales network.
Lenovo also received the right to use the IBM name on its
PCs for five years.
The deal made Lenovo the worlds third largest PC maker
behind DELL and HP, with revenues of about $ 13 billion
on 14 million units. This amounted to about a third of the
China PC market and 7% of the global PC market.
The goal was to double profits in three years and displace
Dell and HP as number two by 2010.
Just as Lenovo anticipated with IBM PCs, for the short term
at least TTE would focus on sales of the predominant
product, the CRT set.
TCL want to create value in consumer products, sell high
margin products at the high end, reduce costs by
increasing unit sales volume, and run an efficient supply
chain.

II

Looking Forward

TCL managers distinguished both competitive and

integration challenges ahead of them. They perceived their
strongest competitors as LG and Samsung not firms from
Taiwan or Japan.
Chinese companies are still behind in technology, but their
biggest advantage is flexibility and Finesse.
Problems in India, Russia, Singapore, Mexico and Latin
America, where TCL operations overlapped with Thomsons.
TCL aimed to eliminate unnecessary costs, become more
aggressive and pragmatic and improve supply chain
efficiency.
TCL hired K.S. Cho, a South Korean executive, to head up the
integration effort. Cho had previously overseen the
integration of Samsungs purchase of the assets of AST
computer, a US firm.
TCLs cost advantage were clear. TCL are large but not
strong.
To support TCLs overseas operation, Chinas Export-Import
bank made the company two loans, including one RMB 6

SWOT
ANALYSIS

I Strengths

Prior to the Thomson acquisition , TCL ranked 3rd in the

World by number of sets sold at 10.7 million units.
TCL was Chinas leading producer of LCD displays
TCLs production of handsets for fixed-line telephones
gave them a reputation for quality.
TCL was among the few major Chinese firms to
etablishbefore manufacturing.
TCLs TV sales exceeded RMB 100 million in 1995 and
grew quickly in 1996 to RMB 13 billion once TCL did its
own manufacturing.
TCL grew through acquisition and also functioned as
logistics and distribution centres .
TCL built national coverage.

TCLs success factors were First anticipating major changes in

TV production. Second innovative learning and Third was a
strong sales network.
TCL organized sales into 27provincial level companies that
oversaw 167 sales offices in leading cities.
TCL has an immigrant culture.
TCL chairman LI revealed TCL managers as Tigers .
TCL managers listed the company limited scale and
technological capabilities relative to global competitors, a
higher liabilities-to assets ratio than its peers, and a relative
dearth of employees with international expertise.
TCL corporate structure was complex.
TCL operated eight business units: Multimedia, Overseas
Business, Telecommunications, Home Appliances Personal
Computers, Consumer Electronics Components and CD/DVD
distribution.
TCL organized broadly as six functions as manufacturing,
R&D, sourcing, Supply, Product Planning and finance and four
operating platforms Information Technology, Human
Resources, Strategic Planning, and six Sigma.

TCL Centralised Financial management was Conservative

and Stable.
Speed was essential for TCL for receivable.
Due to Supply-chain management TCL made RMB 500
million were their competitors lost their money.
TCL pride itself on rapid product and process innovation.
TCL cost structure was lower than those of its benchmarks,
Sony and Samsung.
TCL valued Speed.
TCL were First to produce Web TV, surge-protected TV, and
energy-saving TVs.
TCL did feasibility, sourcing, design, R&D, and production
all in one month. It was profitable.
TCL managers devoted little time to the development and
use of a corporate brand. Instead, they acted
opportunistically to capitalize on market trends.

TCL also preferred Niche and Local markets to National

coverage.
TCL managers were clear that they were learning from
the failed internationalization strategies of other
Chinese firms, which in their view had been too
aggressive.
TCL hired some retired managers from Toshiba,
Matsushita, and LG to advise TCL to help them
globalization.
TCL produced and sold 195000 colour TVs to emerging
markets outside China, accounting for 15% of the
groups total sales.
In September 2002, TCL acquired Schneider, Germanys
seventh largest TV producer, for Euro s 8.2 million.
TCL underlined its uniqueness, costumer focus, careful
expansion, and no competing direct-sales presence in
the EU.
TCL spent $ 5 million to buy Go Video in the United
States.
Television became TCLs biggest business, TCL
executives targeted annual growth of 5%.
TCL strategy was to create value in consumer
products, sell high margin products at high end, reduce