TCL-Thomson Electronics Corporation: A Failed Joint Venture?

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Case Details:

Case Code : BSTR198
Case Length : 14 Pages
Pages Period : 1999-2005
Organization : TCL-Thomson Electronics Corporation, TCL Multimedia Technology Holdings Limited and Thomson SA
Pub Date : 2006
Teaching Note :Not Available
Countries : China, France
Industry : Consumer Electronics

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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EXCERPTS

Rationale for the Joint Venture

In 1999, Li announced TCL's aim: "Our goal is to create a world-class Chinese enterprise." TCL's first step in this direction was to enter the US and the EU, two of the world's premier markets.

However, the EU followed protectionist measures and levied heavy anti-dumping duties on Chinese television manufacturers since the 1990s.

TCL had to rely on acquiring companies operating in the EU to avoid the heavy import tariffs. The company felt that it was easy to expand using an already existing brand rather than introducing and establishing a new brand, especially in markets like the US and the EU.

Explaining this strategy, Vincent Yan (Yan), CFO of TTE, said, "It's not just realistic to build a new brand in a mature market like North America. You just don't have the kind of profit margin for that..."

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TTE's Plans

After mutual consultations, TCL and Thomson established TTE directorate and appointed Li and Dehelly as Chairman and Vice-chairman respectively. Zhao Zhongyao was appointed as the CEO of TTE. The headquarters was located in Shenzhen, China. On July 28, 2004, production started under TTE. TTE planned to turn around its North American and European operations by the end of 2005 and increase the worldwide sales to 30 million units by 2006.

TCL aimed to be among the world's 500 largest companies by 2010 with annual revenues of around US$ 18 billion. However, some industry experts commented that TCL would have to increase its sales significantly, if the company was to reach its goal; and this would be difficult as there were many competitors with larger market shares.

After conducting a study regarding its RCA brand, TCL observed that the brand was doing reasonably well in the high-end television segment but needed some low-end televisions to compete with its close competitor Apex, which had introduced low-priced televisions in 2003...

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