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Last updated: October 2, 2011 7:09 pm
Amid generally gloomy data last week from Chinese manufacturers, there was a small ray of sunshine from TCL Corp, the consumer electronics maker. TCL’s Shenzhen-listed flagship said on Friday that its profit for the first nine months would more than quadruple from a year earlier. Good going. But if normal market forces applied, TCL might not be around at all.
In 2003, the Guangdong-based company, 25 per cent-owned by the municipality of Huizhou, displaced Sony as the world’s biggest TV maker when it relieved Thomson, the French conglomerate, of its cathode ray tube TV business. It then bought the mobile handset business of Alcatel. Both deals were disastrous. As noted by Dragonomics, a research firm, losses from the enlarged TV and handset operations exceeded Rmb4bn ($627m) in the first three years after the deals – nearly triple TCL’s combined profits in the three years before them. Those losses should have forced it into a sale to a competitor, or at least a big restructuring. But this is China. TCL had been built by support from the local government, so it was saved by it. Discounted land, tax breaks and cheap loans kept the company ticking over, preventing it and others from achieving optimum margins and economies of scale.
Eight years on from what chairman Li Dongsheng described as a “historic mission” to dominate markets outside the mainland, TCL has less than 4 per cent of the global market for LCD TVs (according to DisplaySearch), 2.4 per cent of handsets (Strategy Analytics) and less than 1 per cent in smartphones (iSuppli). It is also heavily exposed to dying technologies. In the first six months the Hong Kong-listed TV arm sold more CRT TV sets (1.6m) than it did LED-backlit LCD TVs (1.4m). Foreign companies often grumble about China’s barriers to entry. For its domestic manufacturers, barriers to exit can be just as onerous.
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