TCL & The Overseas (Mis)Adventure

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China’s go global policy (which already suffered recently with China Mobile) has taken another hit – in the form of a profits-driven withdrawal from Europe by TCL, the world’s biggest television owner, which bought into the Thomson brand three years ago. The FT reports:

    “TCL, which was among the first Chinese companies to have bought an international brand in a bid to go global, has struggled to turn round the troubled US and European businesses acquired from Thomson in 2003, mainly due to a technology mismatch. Thomson focused on traditional cathode ray TVs, rather than the flat-panel models now enjoying strong demand.”

The company will apparently move most of its production to…China (no surprise there – unless it is because it did not happen earlier). It will also shorten its 30-year licensing agreement with Thomson to between 2 and 7 years, according to the FT, cut back its subcontracting agreement with them, and close 5 of its 7 European sales offices together with 6 sales and marketing subsidiaries. Thomson will also be released from a share lock-in under which it was to hold 29.32 percent of TCL Multimedia for 5 years.

The challenges faced by Chinese companies abroad, even when piggy-backing on a foreign brand, are obviously bigger than expected. The FT notes:

    “…some of the [“go global”] purchases have turned into cautionary tales about expanding beyond China. Lenovo, the Chinese computer maker, reported a 85 per cent drop in net profit in the year to March after buying IBM’s PC unit in 2005. TCL last year also wound up a nine-month-old mobile handset joint venture with France’s Alcatel due to mounting losses”.

    “Li Dongsheng, TCL chairman, admitted that he had underestimated the challenges involved in rescuing Thomson’s business. The operation until this year remained focused on traditional cathode-ray-tube TVs despite consumer demand for flat-panel screens.”

    “TCL’s problem is that it does not have the experience or competence in managing acquisitions. It was too ambitious and is now paying the price,” said Randy Zhou, an analyst at Bank of China International in Shanghai”.

Despite the problems reported here I suspect that, just as foreign companies had failures in China during the early days of “reform and opening up”, so Chinese companies will learn from these setbacks and will find ways to adapt their businesses to new and challenging environments. Some of the key success factors, such as corporate governance and execution, (as well as companies in the frame for success) are noted here.

It is not impossible with the right strategy – as other companies, such as Huawei and Haier, are starting to show.

See news sources:

    TCL frees up Thomson to sell stake
    TCL has agreed to allow France’s Thomson to sell its nearly 30 per cent stake in a Hong Kong-listed subsidiary as part of the Chinese company’s plans to downsize its troubled European operation.
    FT (subscription)

    TCL to close most European operations
    TCL, the Chinese company that is the world’s largest television maker, will shut most of its operations in Europe as it struggles to turn round the troubled business it acquired from France’s Thomson three years ago.
    FT (Subscription)

2 Responses to “TCL & The Overseas (Mis)Adventure”

  1. Jeremy Gordon Says:

    While TCL is obvioulsy having a hard time, their compatriots at Huawei seem to be gearing up for a big Christmas. I hear that (in the UK) they are doing very nicely and are ahead of expectations.

  2. Archive » The Huawei Way: Grow Up or Die!| China Business Blog Says:

    […] Related entries: General, Strategy, Corporate News I recently reported about the woes of TCL and their European adventure with Thompson , as well as the latest losses from […]

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