Manufacturing

By Yuxin He

Yuxin He is a corporate analyst for Dragonomics Advisory and is a guest contributor to Dragonbeat blog this week.

Five years ago, a little-known electronics firm in Guangdong province – TCL – briefly became the world’s biggest television maker.

Countless consultants announced the coming of age of China’s global consumer-electronics champions, following Japanese firms like Sony and Panasonic in the 1970s, and Korean contenders like Samsung and LG in the 1990s.

Whatever happened to it?

TCL exploded onto the global stage when it took over the TV-making operations of French conglomerate Thomson. Shortly afterwards, it bought the mobile phone handset business of French telecommunications equipment maker Alcatel.

But the two high-profile acquisitions proved disastrous: losses from the enlarged TV and handset operations exceeded Rmb4bn in the first three years after the Thomson and Alcatel acquisitions – nearly triple TCL’s combined profit in the three years immediately before the acquisitions.

TCL’s European TV operations are now in liquidation; its North American business still strives to break even; and its handset gambit has shrivelled, leaving the firm as a contract manufacturer for low-end Alcatel phones sold in emerging markets.

Not only did the acquisitions destroy the firm’s global ambitions – they eroded its position in its home market as well.

TCL’s tale of disaster helps us to understand both China’s crazy-quilt corporate landscape, and the challenges Chinese companies face as they try to internationalise. Three broad lessons emerge.

By Michael Komesaroff

Michael Komesaroff is principal of Urandaline Investments , a consultancy specialising in China’s capital intensive industries, and a guest contributor to Dragonbeat blog this week.

China’s metals industry has an unenviable reputation for being technologically backward and highly polluting. In particular, the perception remains that China’s steel industry is dominated by thousands of small, antiquated mills producing low-quality construction steel at a high environmental cost.

Yet, while this description remains true of parts of the industry, it does not hold for the growing number of modern steel mills that operate at efficiencies close to their best international competitors.

By Tom Miller

When the global financial crisis began to batter China’s exports, some Chinese officials saw it as a useful opportunity to dispense a large dose of bitter, but necessary, medicine.

Wang Yang, the Communist Party boss of Guangdong province and a confidant of China’s president Hu Jintao, clearly relished the chance to fulfill the province’s long-held ambition to replace low-end manufacturing with something bigger, more advanced and more “modern”.

“Without the current serious economic situation, it would be much more difficult for Guangdong to accomplish economic restructuring,” Mr Wang informed the local press.

Mr Wang called the plan to dump labour-intensive manufacturers and replace them with higher-value heavy industry and services “emptying the bird cage for new birds to settle down”. It sounded like a fine idea – so long as the new birds were ready.

At Galanz’s main factory in Shunde, an industrial town an hour’s drive south of Guangzhou, hundreds of blue-shirted young men bend over 200m-long trestle tables, drilling screws into a line of shiny new microwaves.

Galanz, a household name in China but still unknown in much of the world, makes one of every two microwaves found in households across the globe.

This scene, repeated in thousands of factories lining the Pearl River Delta in Guangdong province, is an example of what the “factory of the world” does best: marshalling millions of migrant workers to produce cheap consumer products in dizzying quantities. Galanz’s 47,000 workers have the capacity to produce 28m microwaves per year.

But if countless media reports are to be believed, Galanz – along with thousands of other export processors in the PRD – should be in its death throes. With export markets collapsing across the developed world, thousands of manufacturers are teetering on the verge of collapse.

And with government statistics indicating that more than 60,000 factories shut their gates last year alone, armies of unemployed migrants are preparing to rampage across southern China, leaving destruction in their wake.

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