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TCL Corporation Essay Sample

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TCL Corporation Essay Sample

 Introduction

1     TCL’s Global Industry

  • The Global Business Environment
  • Background Information on TCL Corporation
  • The Television Market and the Development of Asian Manufacturing Centers
  • Challenges that TCL is Presently Facing

 2        TCL’s Competition

  • The Nature of the Competition in the Television Industry
  • TCL’s Major Competitors

 3        TCL’s Strategy for Penetrating International Markets

  • Expansion to Asian Markets
  • Expansion to International Markets
  • Present Situation and Future Planning

 Key Points and Conclusions

Introduction

TCL Corporation is among the world’s biggest eletronics company. Based in China, it produces mobile phones, personal computers, home appliances, electric lighting, and digital media. Initially serving only domestic markets,  it has recently penetrated international markets as well. This has been a bold, but necessary business move, in a changing business environment. This paper analyzes firstly the global industry in which the corporation operates. Secondly, it evaluates the nature of the competition in that industry, indentifying the major players. Finally, the essay assesses TCL’s entry strategy for penetrating international markets. To round up the paper, the last section will present a summary of the key points and conclusions.

  1. TCL Global Industry

1.1 The Global Business Environment

The global business revolution is a phenomenon of the present. The last period’s trend towards oligopoly and concentration is more and more obvious. In an oligopoly, a market is dominated by a small number of sellers, each of them being aware of the actions of the others. Good examples of oligopoly markets are the domestic appliance industry, of the electronics industry. In this form of economy, the decisions of each player influence, and are influenced by, the decisions of the others. One of the major characteristics of an oligopoly is that barriers to entry are very strong. The globalization has lead to pronounced competition in all fields and at all levels, also fueled by the oligopoly situations, resulting in relatively low prices and high production (close to the model of perfect competition). This could be considered an efficient outcome of the present economic state. However, the companies are now forces to struggle hard just to maintain position.

To describe an oligopoly quantitatively, oftenly the four-firm concentration ratio is utilized, a measure expressing the market share of the four largest firms in an industry as a percentage. From this perspective, a market is considered to be an oligopoly when the four-firm concentration ratio exceeds 40% (Wikipedia Online Enciclopedia, 2006). The electronic market represent such a situation in many countries: for example, TCL Corporation owns almost 50% of the Chinese market and large portions of other markets.

            1.2 Background Information on TCL Corporation

The present analysis focuses on TLC Corporation, one of the world’s four largest producers of a whole range of products. The TCL Corporation is a Chinese electronics manufacturer headquartered in Huizhou of Guangdong Province, southern China. Its products include mobile phones, personal computers, home appliances, electric lighting, and digital media sold to domestic and oversees markets. The company has grown to dominate most of the markets in which it operates. Presently, after the association with a Europen company, it it the largest TV manufacturer in the world. Its success is mostly based on a favourable context of a steady consumer electronics manufacturing’s migration to China through the 1990s, but also to other socio-cultural factors. TCL Corporation is listed on the Shenzhen Stock Exchange and Hong Kong Exchange as TCL Corporation and TCL International Holdings Limited.

            TLC was founded in 1981 and rapidly became the fastest growing company in China, with a an average growth rate of 42.65% for the past 12 years (Wikipedia Online Encyclopedia). A survey conducted by Beijing Brand Equity Evaluation Co Ltd., on the most valuable brands in 2003, indicated that TCL is one of the most valuable Chinese brands with an equity of $3.3 billion. 2004 marked a new beginning for TCL, as it set up a joint venture with the French company Thomson Group, giving birth to the TTE Corporation. The new alliance was a good strategic move, as it propulsed TLC to the world’s number one position in television manufacturing.

1.3 The Television Market and the Development of Asian Manufacturing Centers

In the beginnings of television, important U.S. companies such as CBS, RCA or Zenith dominated the production of TV sets. This was happening throughout the 1960s and 1970s, when the development of color television lead to a market explosion, making use of the same technology (CRT) as black and white models. At this time, important Japanese companies Sony and Matsushita entered the game, marking the beginning of a trend of production efficiency that shifted manufacture in many fields from the U.S. to Asia. The big players always pursued the lowest possible labor costs, further relocating to South Korea and Taiwan and, after 1979, to China.

There is a set of socio-cultural, political and historical factors that contributed to Asian countries economic development. The cultural values are probably the most important enhacers of success: the high respect for education and family, considering work one of the highest virtues, believing in saving as a way of life and national teamspirit have propulsated the Asian economies into the highest growth rates tops.

            With the start of the open-door policy in 1979, China has began to develop into one of the world’s fastest growing economies. Even if all industries were positively affected by the economical liberalization, electronics and information technology have manifested spectacular growth rates, especially in export. Topics of analysis should include the role of government, research organizations, educational institutions, various associations, and major electronics companies in the economical development of the country. The government has not only simplified the licensing and foreign investment policies, but it has taken special interest, throughout major development programs, in technologies such as electronics. In order to modernize industry structure and to further support the development, the government is encouraging foreign investment in the electronics industry. These aid measures have led to what represents the Chinese electronics technology revolution. All these aspects render China as a valuable business partner.

            Other Asian countries have followed similar development curves. They will be looked into individually. The South Korean electronic industry has also boomed in the last half of century, leading to significant global market shares of the Korean companies. The country excels in manufacturing efficiency, but also in research and development projects. The government invests substantially in producing the country’s future engineers, scientists, and technical leaders, supporting universities and research institutes. The government is authoritarian, nurturing a close relation with business. Korea is contemplated by more and more western companies as an alternative for outsourcing manufacturing, mostly due to cheap work force. The economic force is export driven, like all Asian countries. For all these reasons, South Korea has become a magnet for foreign ventures.

            Taiwan success in the electronics’ field is also due to intensive governmental efforts. This dynamic field was targeted as a strategic technology in the 1970s, and it was promoted though various measures. The great development rate is what attracts foreign investors. Singapore and the Malaysian Confederation have underwent political unrest, but they have stabilized and developed into potentially interesting partners.

            A totally different model is that of the Japanese electronics industry. The electronics field is presently a crucial ingredient of the Japanese industry. No analysis can be made of the Japanese industry or companies, without a careful study of the electronics branch. From an academic point of view, the subject rose attention from researchers in various fields: economists, technology watchers, market researchers, historians, journalists from all over the world, as well as government-sponsored study teams. Numerous social and cultural studies have focused on this industry, as it is deeply related to the Japanese society. However, Japan did not follow the same development path as the previously mentioned countries. It has had a different time-frame of growth, having the advantage of an early start. A major difference is that Japan is much more advanced technologically, but the labor force is almost as expensive as the European or American ones.

            Asia, generally speaking, and China in particular, is viewed by some analysts as a threat to western companies. For the people who share this vision, an important signal was the last year’s announcement that IBM, the world’s leader in its field, is selling the PC division to Lenovo, China’s number one PC manufacturer, partially owned by the government.

            Getting into more specifics regarding the television world market, the first important thing to be mentioned is that initially the companies that manufactured TV sets produced a whole range of products, alternating consecrated, low-margin items with potentially successful, high-margin products. This was the development trend throughout the 1970s and 1980s. However, with the development of the field the products life cycles have shortened and product penetrations have quickened. The market has developed into a jungle where the only law is the survival of the fittest: consolidate or die. There is no option for stagnation. The companies that don’t look foreword don’t stand a chance.

            1990s represented a crucial moment in the evolution of the television market: the revolution of digital technologies. The demand previously focused on radio cassette players, portable audio devices, VCRs and CRT TV sets. The new millennium brought a new perspective and new preferences. Flat panel display technology became the thing everybody craved for. The new liquid crystal displays (LCD) and plasma display panels (PDP) technologies made it all possible. CRT television sets and computer monitors started their descendent trend. They are viewed as a thing of the past in a highly fluctuant industry. Only the rural market is still interested in this almost obsolete technology.

            1.4 Challenges that TCL is Presently Facing

TLC is now faced with the challenge to find new ways to develop, as it is not traditionally oriented towards research and development. Its conservative growth rate cannot keep up with the industry’s advances. Analysts have considered that the company’s willingness to cooperate with competitors represents a great asset. Present investors in the corporation are some of the former competitors: Toshiba, Sumimoto, Kingsoft, Nanda, Pentel and Schneider. Another alliance is the one made a mobile phone competitor – Alcatel, formed to engage in development and production, as well as in sales and services.

2 TCL Competition

2.1 The Nature of the Competition in the Television Industry

            However, competition has also affected TCL. The stock listed in the Hong Kong Stock Market dropped by 30% in 2004. Traditional classifications state that there are three levels of competition: direct, substitute and budget. Direct competition, also called category competition or brand competition, represents the contfruntation between products that perform the same function. In the electronics field, TLC competes with America’s Dell and Hewlett-Packard, or Japan’s Sony or Asian Samsung and LG. Substitute competition gathers together products that are close substitutes for one another. From this perspective, TLC competes also with, for example, computer games manufacturers or even cinemas or theaters. Budget competition is even broader, including anything that the consumer could want to spend their available money on. This is an aspect that is not usually taken into consideration in economical or marketing analysys.

            Within an oligopoly, competition can lead to different situations. At times, the leading players on a market can join forces to cotrol the market, to stabilise it so as to reduce the risks inherent in these markets for investment and product development (Wikipedia Online Encycopedy). This is called a cartel, and there are a number or legal restristions on the phenomenon. A lighter form is price leadership. The acknowledged market leader has the prerogative of setting the market prices. The other players follow the lead. In 2001, a fierce price competition broke out among TV makers. TLC management had the intuition to forecast this trend, which gave them time to adjust their prices as well and to get read of the old inventory. This prevented them from loosing money like some of the competitors, giving the company an edge up.

2.2 TCL’s Major Competitors

TCL’s strongest competitors are LG and Samsung. Also, the Korean firms pose threats, as they have the similar efficiency and low-cost advantages of TLC, as well as speed. However, TCL management is confident in the company’s strengths. From their perspective, Japan lacks efficiency and aggressiveness, despite its advanced technology. Taiwanese companies are efficient only in supply chain work. Chinese companies, however, although are still behind in technology, have the great advantage of flexibility. This quality has helped TCL to better adapt to market conditions, being able to take the lead.

3 TCL’s Strategy for Penetrating International Markets

            3.1 Expansion to Asian Markets

            As an emerging market, China has followed the Asian path focusing on exports as a driving force for growth. By importing capital and intermediate goods, and adding cheap labor force, the outcome is ready for export at a good profit. However, this has not been a success model, as the other Asian markets divertisified and further developed. The penetration of International markets became a must – the pathway towards becoming a developing country MNE.

            The management realised that being number one in China was not enough, although they were the dominant player. International competition was around the corner. Globalization has set a course of development that cannot be ignored, and TCL had to prove once again that their strenght is addaptation to market demands. Having domestic strength to rely on, and taking advantage of a contextual situation of reduced exports through Hong Kong, gave TCL the opportunity to go for international expansion.

            The first step was taken in 1998, when TCL took over a Luk’s factory in Vietnam. After a thorough analysis, the management has identified a market opportunity and took it. On the Vietnamese market the competition from foreign firms was high, but the distribution system was still weak. This lead TLC to develop its own marketing and sales channels. The strategy was a market success, as six years later the company held 18% of Vietnam’s television market. Vietnam represented a launching point and an important experience for penetration of other Asian markets: the Philippines, Indonesia, and Thailand. TCL also purchased 40% shares of the Pakistan, South Africa, and Sri Lanka TV markets.

            TLC’s model for expansion was the following: carefull market analysis, interpreted though the filter of experience and intuition, represented the first step. The development plan was slow, not taking a lot of chances. Focused trials were extensively used to see what worked and what didn’t. For international sales, TLC chose products with the most homogenous consumer purchasing characteristics across countries: mobile phones, televisions and white goods. The focus was on low-margin products. This was a preventive measure. Each new market was approached with caution, representing a valuable experience for the future enterprises. As results, in 2002 TCL sold almost 200,000 TV sets to emerging markets outside China, a figure that accounted for 15% of the company’s total sales.

            3.2 Expansion to International Markets   

Another strategic approach was the hiring of retired managers from Toshiba, Matsushi, and LG for counseling. They represented an important asset as far as plans for globalization were concerned. In 2001 TLC began investigating the Korean, U.S. and Japanese markets. The company began searching for the best option to penetrate western markets. Toshiba, Matushi and LG had already had that experience with a rate of success. Konka, on the other hand, had failed. TLC now had to learn from their mistakes and successes in order to develop a viable plan. The market in the United States and Europe is different from the one in Asia. One main difference is that distribution channels are more sophisticated. Furthermore, margin pressures are high, and expectations about product preparation and delivery date are incredibly demanding.

            Also a decision that grew to its potential was selling as an original equipment manufacturer (OEM). In this way, TLC was able to test their products on the U.S. market and receive valuable feedback. One of the most important assets in the era of globalization is information. In the business environment this can be translated into know-how. This is why each signal from the market has to be properly received and interpreted. The senses sharpened throughout economical development and the skills required to be able to pick up each piece of information are proficient.

            In the European market, TLC faced a number of challenges. The most important one referred to the anti-dumping policies. The only viable option was to sell through agents, but brand name or price advantage were required. In order to go around these barriers TLC contemplated a series of  mergers and acquisitions.

            The first concrete move was made in 2002 with the acquisition of Schneider, Germany’s seventh-largest TV producer, for €8.2 million. The association was looked at with hope from both sides. TCL managers had foreseen that the European TV sector is going to go through some changes of perspective, looking for opportunities to outsource as much as possible in a hunt for the lowest costs. Partnerships with Chinese manufacturers looked attractive for old European manufacturers. From TCL’s point of view this was a good move in the lines of careful expansion and no competing direct sales presence in the EU. The choice proved to be a good one. Although the price paid was relatively high compared to Schneider’s assets, there were other criteria taken into consideration. The association provided the means for a win-win situation. It preserved the jobs of the 650 employees jobs and it has given TLC a European brand, while avoiding anti-tariff laws.

            After having previously partnered with Go Video, having a sales relationship in a OEM system, in 2003 TLC penetrated the U.S. market by purchasing the 100-person, $200 million company that sold audio and portable audio equipment to retailers. This move represented a milestone for TLC expansion, as it represents a bold move into a highly competitive market (different from the previous pattern).

            TLC management realized that the previously successful emerging market strategy was not appropriate for the western markets, where distribution networks are consumer behavior well established. A new approach is needed. This is the main reason why TCL decided to associate with a European company. In this way the weaknesses of both sides would be eliminated. TCL’s lack of experience with the U.S. and European markets would be leveraged by the other company, giving TCL an infusion of know-how that is extremely valuable for future plans. On the other hand, the low production costs on the Chinese market would give the European company the advantage it needs to carve into the market by focusing financial efforts on marketing initiatives.

            The chosen company was Thomson. It had a series of advantages over other options: good R&D branch and knowledge of the North American market. The agreement was signed in 2004, giving birth to TTE Corporation. It specializes in the R&D, manufacturing, and sales and marketing of television products. The new company combines the advantages of Western management and expertise and Chinese efficiency and manufacturing capabilities in order to create a global scale TV company. By putting emphasis on the strengths of both TCL and Thomson, while minimizing the weaknesses, TTE has become the world’s largest TV company in terms of volume.

          3.3 Present Situation and Future Planning

Future objectives have been formulated in the form of  “The Dragon Tiger Plan” – a set of guidelines for future development. This represents a measure aimed also at consolidating corporate culture. The plan stipulated that, by 2010, TCL would be among the world’s top three TV and handset makers and, within China, among the top three producers of IT (PCs and laptops), white goods (washers and dryers, refrigerators, and air conditioners), light switches and fixtures, electronic components, and the distribution of CD and DVD disks (Khanna, Oberholzer-Gee and Lane, 2005).

TTE currently has five profit centers, four R&D centers and ten factories, employing over 31,000 people. It operates in the fields of CRT, digital TV, LCD and PDP. TTE’s focus is on promoting the TCL brand in Asia and emerging markets, the RCA brand in North American markets, and THOMSON brand in the European market. The company generates 34% of its revenue from China (TCL sales),  another 34% from the Americas (RCA sales) and 28% from Europe (THOMPSON sales).

          There are similarities between TCL’s agreement with Thomson and Lenovo’s association with IBM. Some regard both moves as a Chinese threat to western companies’ success. The strong and constant development of the Asian manufacturing force has raised many questions on the future economical developments and power shifts, as well as the need for further theoretical investigations. Globalization has rendered the world market free from most previous constraints, weakening boundaries between countries and increasing competition between geopolitical areas.

          Overall, the main TLC strategy is to cut down all possible costs, increase aggressiveness and pragmatism, and improve supply chain efficiency. What the company lacks is strength in makes up for in volume. The conclusion, as far a TCL is concerned, is that further consolidations are necessary.

          Key Points and Conclusions

Globalization and liberalizations of markets have led companies in all fields to search for cheaper manufacturing options. The Asian markets were perfect candidates, as labor was cheap and the government developed programs to sustain foreign investments. As a consequence, many countries in the region developed rapidly. China, among them, has one of the fastest growing economy. TCL is one corporation born and developed in this context. As new markets developed and competition began posing a threat, the need for expansion aroused. The markets that TCL chose were Europe and the U.S. Through a series of affiliations, mergers and purchases, the corporation found its way into the highly competitive markets, now struggling to succeed.

The first chapter of this paper has analyzed TLC from a macro economical point of view. The second part has brought focus on the competition and its nature, revealing the major players in the industry. Lastly, the analysis has turned on the company’s strategies for penetrating international markets: what went well, what went wrong and conclusions.

The main conclusion is that each geopolitical area has its own set of rules, economical and cultural alike. The penetration of international markets is a challenge for all MNEs. Success is never guaranteed by size or financial strength. The only real opportunity is an efficient expansion strategy. TCL has shown flexibility and wisdom so far, learning from previous experiences and proving to be a serious competitor on the global market.

References

Khanna, T., Oberholzer-Gee, F. & Lane, D. (2005), TCL Multimedia, Boston: Harvard Business School Publishing

Wikipedia Online Enciclopedia (2006), Rpt on http://en.wikipedia.org/wiki/Main_Page

TCL Corporation Site (2006), Rpt on http://www.tcl.com/

Porter, M. (1998), Competitive Advantage: Creating and Sustaining Superior Performance

Porter, M. (1982), Cases in Competitive Strategy, New York: The Free Press

Economic Observer, Rpt on www.eobserver.com

Business Week, Rpt on www.businessweek.com

Reuters (2006), Rpt on www.reuters.com

Trout J., Rivkin S. (2000), Differentiate or Die: Survival in Our Era, John Wiley & Sons,

New York

Kotler Ph. (2002), Marketing Management, 11th edn, Prentice Hall, London

Slaughter, R. A. (1995). The Foresight Principle: Cultural Recovery in the 21st Century. London: Adamantine Press

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