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TCL Devoted to Further Global Expansion
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China's leading television manufacturer TCL has vowed to continue the company's global expansion despite the failure of its first major international foray into two major European companies.

"I hope corporate China's global aspirations will not be dampened by a couple of failures," TCL chairman Li Dongsheng was quoted as saying by the Caijing magazine.

TCL's move into Europe in 2004 helped win Li that year's China Businessperson of the Year Award, when he won acclaim for leading one of the first companies to go global.

TCL took on the television and DVD manufacturing branch of France's Thomson group as a joint venture, followed by Alcatel's mobile phone arm within six months.

However, it has been forced to wind down its Thomson venture after losing 260 million U.S dollars, selling a factory in Poland and closing five of its seven European offices.

TAMP, its joint-venture with Alcatel, also fell apart in May last year due to snowballing losses.

"We underestimated the cost of rescuing Thomson," Li said. "We could no longer afford the escalating losses".

TCL's troubles exemplify the difficulties facing Chinese companies in making international acquisitions as a shortcut into the global market.

As Boston Consulting Group's (BCG) 2006 report on China's global challengers pointed out, the main obstacle for Chinese buyers is their lack of world-class mergers and acquisitions expertise and their relative inexperience in managing a portfolio of businesses across different cultures.

When TCL was considering the acquisition three years ago, BCG warned the aspiring firm that the risks may be bigger than gains without a proper understanding of the European market

Li said he was aware of the challenges ahead. "Chinese enterprises are not rich enough to acquire overseas brands, like a little pony pulling a big cart," he admitted.

The 47-year-old boss faced the challenges head on. "We have been offered a rare chance to become the global industry leader and we will not miss the boat," he told his employees.

But determination and passion were not enough to digest the troubled Thomson joint venture TTE Europe.

Until this year, TTE remained focused on traditional cathode-ray-tube (CRT) TVs, a lethargic response to demand for flat-panel screens, which was "our big mistake", Li admitted.

"The market share of traditional CRT sets in Europe shrank from 80 to 20 percent, a sudden change that no one could foresee," he claimed.

TCL's market approach was also slow in grasping the necessity for more efficient research and development and inventory management to deal with swift price fluctuations.

That echoed the BCG report saying Chinese firms lacked a deep understanding of customers, competitors, distribution structures, and the regulatory environment across diverse markets.

"Our product, technology and management lagged behind the changing European market," Li said.

However, while products and technology can transcend national boundaries, distinct cultures can not easily be integrated or merged, a problem for a burgeoning multinational.

The BCG report noted that a post-merger integration must navigate often subtle differences in the merged entities, but the differences between how Western and Chinese companies operate are extensive.

Former chairman of Lenovo Liu Chuanzhi once revealed his confusion when his computing giant expanded beyond China: Chinese-style incentives, such as bonuses, failed to work for European employees, who cared more for paid leave.

Li said he felt uneasy in France when planning a weekend meeting, a regular occurrence in China, only to find his French staff had turned off their cell phones.

Managerial ideas clashed in TAMP, where Alcatel staff preferred drawing up detailed plans, while TCL managers favored immediate action without much analysis.

They also differed in selecting staff, with the French valuing educated, professional managers, while the Chinese stressed entrepreneurship and pragmatism.

But controversy exploded when the company cut the wages of its Chinese employees to make up for lackluster sales, while their French counterparts were spared the punitive losses.

Many French staff quit in frustration at the Chinese company's demand for a greater say in the management style.

Despite the setbacks, Li insists that global expansion is a necessity and that the European restructuring has taught a valuable lesson, he said.

His confidence in the European market was restored when the TCL-designed flat-panel set racked up three awards in Europe, and its market share doubled and began to profit in September.

U.S. market losses show signs of abating, down from US$120 million in 2004 to 45 million last year. This year's deficit could be within US$10 million, Li predicted.

A report by Synovate, a global market research company, said RCA, a TTE Europe company, has acquired nine percent of the American market, ranking third from May to July.

But analysts remain conservative. Chinese TV makers will gradually lose their price edge as the core technology of the LCD screen, which accounts for 80 percent of the price, is still in the hands of rival Japanese and the Republic of Korean companies, said He Weiji, of the Daiwa Institute of Research Ltd.

Figures with iSuppli, a market research institute, show flat-panel TVs had 17 percent of the global market in the first quarter. No Chinese company has broken into the top six, who took 60 percent of sales.

Li likened Chinese outbound acquisitions to a "Long March", when extraordinary patience, sensitivity, and flexibility must prevail over the sense of urgency to go global.

"We have to learn lessons to become a real global power."

(Xinhua News Agency November 29, 2006)

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