HKU899

ALI FARHOOMAND
MARCUS SCHÜTZ

TCL: SEEKING THE ROAD TO PRODUCT

INNOVATION
Similar to eagle transformation, in order to fly again, an eagle has to hit the
rocks to get rid of the old beak and pulls out its ageing fingernails and
feathers. This is a very painstaking transformation process! Without
experiencing this painstaking transformation, it will face life threat. Our
company is the same.1
- Li Dongsheng, chairman of TCL Group2

TCL Corporation (“TCL”) was a Chinese manufacturer specialising in producing consumer

electronics, mobile communications and home appliances. Starting as a small company in
1981, TCL had grown into a TV manufacturer that was recognised throughout China. After
its success in the Chinese domestic market, TCL had decided to expand overseas to become a
global player in the consumer electronics industry. However, international expansion had
turned TCL from profit-making to financial loss.

Li Dongsheng, chairman of TCL Group, was determined to reform TCL, just as an eagle
undergoes transformation. By early 2009, TCL had already completed a series of internal
control reform measures such as internal reorganisation, structural optimisation and cost
control, and these measures were beginning to bear fruit. However, Li understood that the key
to success in the international market lay in the products TCL produced. Li wondered what
had hindered TCL products from succeeding internationally. What lessons could TCL learn
from its competitors in the international market? How could TCL build up core competencies
and further build its brand?

1
TCL ႃ䨚 (2008) “ᇀࠃ叿Ε䭇ဪΕCEO ‫ޕ‬䢕‫”س‬, TCL ᡩ䌘㗙݇㋏ѦࡼᑇৄDŽ[TCL (2008) “TCL Group, Director,
President, CEO: Li Dongsheng”, TCL’s Investor Relations], http://irm.p5w.net/000100/TZZJDR/dsz.html#4 (accessed 12
August 2008).
2
ਈ࢛↙˄˅ᡁѣৢ 7&/ 㛑৺⍈☿䞡⫳ˈㅵ⧚Ϣ䋶ᆠˈDŽ[Wu, Y. (2008) “Can TCL Survive After Getting Back
to Profits?”, Management and Fortune, pp. 42–43.

Dr Minyi Huang prepared this case under the supervision of Professor Ali Farhoomand and Dr Marcus Schütz for class
discussion. This case is not intended to show effective or ineffective handling of decision or business processes.
© 2010 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the
internet)—without the permission of The University of Hong Kong.
Ref. 10/465C

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 10/465C TCL: Seeking the Road to Product Innovation

International Consumer Electronics Market

The international consumer electronics market was shaped by different forces, including
widespread adoption of personal computers, mobile phones, the internet, and other new
technologies such as digital TVs and DVD players.3

The demand in the international consumer electronics market was growing, but profit margins
were shrinking. Compared to the 1990s, the number of consumer electronics items owned per
household had increased significantly. For example, a household might own more than one
TV, more than one computer and more than one mobile phone. However, the increase in
average household spending on consumer electronics was modest due to the falling prices for
most consumer electronics products. According to a research report published in 2008,4 prices
for most consumer electronics had fallen over a 10-year period since 1998 and the rate of
price decline was accelerating. For instance, the price for a TV declined by an average of less
than 2% per year between 1967 and 1999, but by an average of almost 14% between 2000
and 2008.5

In the light of the global financial crisis starting in 2008, the consumer electronics market
proved to be quite different from those of other industries. The industry’s worldwide revenue
grew 10% in 2008 and reached US$700 billion in 2009. 6 In fact, a study of consumer
spending on consumer technology between 1960 and 2007 demonstrated that consumers had
allocated a growing portion of their total spending to consumer electronics, regardless of
conditions in the economic cycle. 7 With tighter budgets and sluggish consumer spending,
some people predicted that consumers would increase their spending on improving their home
entertainment experience rather than going out. Flat-screen TV sales (LCD and plasma)
accounted for 20% of total consumer electronics sales in 2008, with more than 100 million
LCD TVs sold in 2009. DVD players and video game consoles sold 127 million units and 89
million units, respectively, in 2008.8

People have been investing in bringing these screens into their homes for
years, but very few of them are fully gamed up. So I think there will be a lot of
spending by people to get extra entertainment mileage out of those screens at
very low cost.9
- Mark Anderson, chief executive of Strategic News Service

In the consumer electronics industry, the largest product segment worldwide in terms of unit
sales and revenue was portable products, including portable navigation devices (up 20% in

3
PricewaterhouseCoopers (2008) “Innovation: US Economic Contribution of Consumer Electronics”,
http://www.ce.org/PDF/CEA_Final_Report_20080401_Lo-Res.pdf (accessed 10 August 2009).
4
Ibid.
5
Ibid.
6
Consumer Electronics Association and Gfk Group (2008) “Global Consumer Electronics Industry Will Grow to $700 Billion by
2009, CEA/GfK Study Finds”, http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=11535 (accessed 11 August
2009).
7
DuBravac, S.G. (2009) “How Stable Is Consumer Spending on Consumer Technologies”,
http://www.ce.org/PDF/How_Stable_is_Consumer_Spending.pdf (accessed 11 August 2009).
8
Consumer Electronics Association and GfK Group (2008) “Global Consumer Electronics Industry Will Grow to $700 Billion
by 2009, CEA/GfK Study Finds”, http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=11535 (accessed 11
August 2009).
9
Hesseldahl, A. (12 December 2008) “Tech Trends to Expect in 2009”, BusinessWeek,
http://www.businessweek.com/technology/content/dec2008/tc20081211_906153.htm (accessed 20 May 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

2008), laptop computers (up 15% in 2008), and mobile phones and smartphones (up 14% in
2008).10

No matter where consumers are, whether it’s on the coast of Turkey or the
mountains of Peru, they crave access to information, entertainment and two-
way communication … Many regions of the world face high population
densities or underdeveloped infrastructures. Mobile products help consumers
overcome these hurdles.11
- Tim Herbert, senior director of market research, Consumer Electronics Association

In terms of innovation and investment and purchase, phone applications are

it for 2009. Apple has already made it clear, and it’s going to move out to
other smartphones, and it’s going to be a huge market.12
- Mark Anderson, chief executive of Strategic News Service

As for geographical market segments, according to estimates by the Consumer Electronics

Association and GfK Group,13 revenue growth would come from rapidly growing economies
with large emerging middle classes, such as Brazil, Russia, India and China. They estimated
that in 2009, the Chinese consumer electronics market would top US$100 billion, accounting
for nearly 15% of the industry’s worldwide revenue, just behind North America (22%) and
western Europe (16%). According to Quixel Research, the American LCD TV market was
worth US$22.7 billion in 2008, an increase of 14% from US$19.9 billion in 2007. The
strongest growth in 2008 was in the large-screen LCD TV segments: the 40-inch and 42-inch
screen segment experienced the strongest quarterly growth, with a 40% increase in units for
the final quarter of 2008, and the 52-inch and 55-plus-inch segments experienced annual unit
growth of 160% and 302%, respectively, from 2007 to 2008.14

The LCD TV category saw another fantastic year of growth in 2008, with
double digital increases in both dollars and units … However, rapid ASP15
declines in all screen sizes pushed year-to-year values down 12%,
foreshadowing a tough future as far as LCD TV revenues are concerned.
- Tamaryn Pratt, principal of Quixel Research16

The consumer electronics industry had also become more research- and development-
intensive than other manufacturing industries. Companies had to employ an increasing
number of engineers and scientists, and their average wages were generally higher than in
other manufacturing industries.17

10
Consumer Electronics Association and GfK Group (2008) “Global Consumer Electronics Industry Will Grow to $700 Billion
by 2009, CEA/GfK Study Finds”, http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=11535 (accessed 11
August 2009).
11
Ibid.
12
Hesseldahl, A. (12 December 2008) “Tech Trends to Expect in 2009”, BusinessWeek,
http://www.businessweek.com/technology/content/dec2008/tc20081211_906153.htm (accessed 20 May 2009).
13
Consumer Electronics Association and GfK Group (2008) “Global Consumer Electronics Industry Will Grow to $700 Billion
by 2009, CEA/GfK Study Finds”, http://www.ce.org/Press/CurrentNews/press_release_detail.asp?id=11535 (accessed 11
August 2009).
14
Quixel Research (11 February 2009) “The LCDTV Freight Train Rolls Ahead in a Faltering Economy”.
15
ASP stood for “average selling price”.
16
Quixel Research (11 February 2009) “The LCDTV Freight Train Rolls Ahead in a Faltering Economy”.
17
Consumer Electronics Association (2005) “Role of China in Competitiveness of U.S. CE Industry”,
http://www.ce.org/PDF/ChinaCompetitivenessCEIndustry.pdf (accessed 11 August 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

TCL Company Background

Company History
Founded at the beginning of China’s reform and opening up, TCL is a self-
starter. As one of the first globalised Chinese enterprises, TCL has been
exploring a road not taken before by Chinese brands, without maps or
references.
- Li Dongsheng, chairman of TCL Group18

TCL Corporation was founded in 1981 as TTK Households Electronics Limited, a small
manufacturer of audio recording tapes in Huizhou, Guangdong province. At the time, its
registered capital was less than US$800,000 and it had fewer than 300 employees. But it was
one of the first 12 joint ventures in China. In 1985, it saw the potential of the
telecommunications industry in China and formed TCL Telecommunications Equipment
Limited. By 1988, its telephone sales in units were the highest-ranked in China, and it
continued to maintain its leading position in this area. In 1986, TCL was registered as a
trademark in China.

In the early 1990s, despite intense competition in the Chinese domestic market, TCL saw the
opportunities of manufacturing big-screen colour TVs in China and developed its own TCL-
branded colour TV, which it began producing in 1992. Within three years, TCL was among
the top three TV manufacturers in China and had begun expanding its manufacturing base.
This was considered a successful example of occupying the market first then developing the
factories.

TCL Mobile Telecommunication Limited was established in March 1999. In 2001, its sales
reached 1.3 million units, bringing in nearly US$400 million in revenue. In 2002, sales
reached 6 million, securing revenue of US$1.2 billion and making TCL the forerunner in
domestically manufactured mobile phones. TCL also engaged in other business areas such as
computers, air conditioners, refrigerators, lighting and other household electronics, and
rapidly progressed to the leading position in these areas.

TCL was also one of the first Chinese companies to use the capital market for financial
purposes. The group had three listed companies: TCL Multimedia Technology (HK.1070) and
TCL Communications Technology (HK.2618) were listed on the main board of Hong Kong
Stock Exchange in 1999, and TCL Corporation (S.Z000100) was listed on the Shenzhen
Stock Exchange in 2004.

TCL’s international expansion started in 1999, and the company was a pioneer among
Chinese non-state-run enterprises in making such a move. It developed proprietary brands in
emerging markets while buying widely recognised brands in the European and American
markets. By 2008, TCL employed more than 50,000 people in over 80 operations around the
world [see Exhibit 1]. TCL had developed 18 research and development (“R&D”) centres for
its major industries in a number of countries, including China, the US, France and Singapore.
Outside China, TCL had developed 20 manufacturing facilities in Poland, Mexico, Thailand
and Vietnam. The company also had 40,000 sales locations and centrally managed supply
chains for such areas as product design and manufacturing, logistics, quality assurance, and
product innovation and support.19
18
TCL (2009) “Vision: Making the Leap through Constant Innovation”,
http://www.tcl.com/main_en/About%20TCL/Vision/index.shtml?catalogId=13047 (accessed 13 July 2009).
19
Ibid.

This document is authorized for use only in Prof. Ashutosh Khanna, Prof. Akriti Jain, and Prof. Vinita Krishna 's PGDM-I/ Entrepreneurship and Innovation at International Management Institute
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 10/465C TCL: Seeking the Road to Product Innovation

TCL Corporation had become one of China’s largest consumer electronics corporations,
operating on a global scale and focusing on such products as flat-panel TVs, DVD players, air
conditioners, and GSM and CDMA mobile phones. TCL was made up of four main industrial
divisions: multimedia, communications, appliances and components. In 2007, TCL’s global
sales reached US$5.8 billion. Sales of colour TVs and mobile handsets accounted for
US$15.01 million and US$11.90 million, respectively. At that time, income from overseas
operations overtook that of the Chinese domestic market, signifying TCL’s true emergence as
a multinational company.20

The Chinese market had been very competitive, with local brands competing with
international brands. The domestic market was characterised by high supply and low
demand,21 and thus exportation was an important sales channel. In the first half of 2008, total
production of colour TVs in China was 39.81 million units, of which 23.26 million were
exported.22 In the first quarter of 2008, TCL Multimedia’s LCD TV sales grew 41%.

According to Displaysearch, TCL’s market share in China was 15.4% in the first quarter of
2009, a significant improvement over the same period in 2008.23 The improvement of LCD
TV sales in the Chinese domestic market was attributed to the accumulation of product
technologies over the years, as well as functional innovation and insight into customers’
needs. In the first quarter of 2009 alone, TCL developed 14 new products using techniques
such as brilliant colour module, advanced video compression and E9/M9 machine core
transfer. In April 2009, TCL developed the P10 series of LCD TVs, applying leading
technologies in the industry, including a three-in-one technology combining internet, blue
light and digital technologies and a “double colour without traces” injection moulding
technique. In May 2009, TCL introduced a new series of high-quality, environmentally
friendly LED TVs by using the company’s newly developed technologies. These LED TVs
had many advantages such as extra-wide colour coverage, extra-sharp colour contrast, low
power consumption and zero radiation.24

R&D
In 1998, TCL began investing in its brand name and emphasising innovativeness. By 2007,
TCL’s brand value had reached US$5.4 billion, placing it among the top five most-valued
Chinese brands and first in China’s TV manufacturing industry [see Exhibit 2].

20
Ibid.
21
The demand increased after the Chinese government introduced subsidy schemes for buying home electronics in rural areas in
late 2008. However, these schemes would end by the end of 2011.
22
䢕ֱ兓ࠦ (2008) ୮䶣۩䢓 7 ִִ㦅[Dongfang Securities (13 August 2008) “July Monthly Report on Consumer Electronics”,
http://news.stockstar.com/info/darticle.aspx?id=SS,20080813,30132982&columnid=3489 (accessed 13 August 2008).
23
TCL (10 June 2009) TCL 䲚ಶ 1-5 ᳜⎆᱊⬉㾚䫔䞣䘒 230 ϛৄˈৠ↨๲䭓㗏⬾ [“TCL Group LCD TVs Sold Over 2.3
Million between January and May, Double from Last Year],
http://www.tcl.com/main/NEWS/groupNews/2009061044121.shtml (accessed 13 July 2009).
24
Ibid.

This document is authorized for use only in Prof. Ashutosh Khanna, Prof. Akriti Jain, and Prof. Vinita Krishna 's PGDM-I/ Entrepreneurship and Innovation at International Management Institute
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 10/465C TCL: Seeking the Road to Product Innovation

We firmly believe, only innovation can give a company constant energy,

create more development opportunities in the future and help us overcome
the potential crisis. Having the initiative to look for one’s shortcomings and
problems is a sign of bravery and confidence, which should push us to move
forward. The only way to improve our competitiveness and outperform our
competitors is to have the courage to take risks as well as responsibilities and
through continuous reforms and innovation.25
- Li Dongsheng, chairman of TCL Group

In July 2007, TCL gave a new meaning to its brand: “The Creative Life”, signifying “a life
driven by creativity”.26 TCL wanted to develop innovative digital products and services to
satisfy its customers worldwide, and eventually to develop into a global player in the home
electronics industry. According to its mission statement, TCL wanted to “build up its design
capacity, quality assurance and marketing capabilities as well as a Consumer Intelligent
System to ensure that TCL becomes one of the more innovative and respected global
enterprises”. 27 Its corporate spirit emphasised “devotion, integrity, teamwork and
innovation”.28

Indeed, innovation had played a key role at TCL for over 20 years. The company had
undergone three waves of company-wide innovation, starting in 1998, when chairman Li
aimed to prepare for the company’s internationalisation. The second wave took place in 2002,
focusing on the company’s management structure. In 2006, TCL formulated an innovation
strategy around the theme of the transformation of eagles.

TCL had developed four main R&D centres around the world. One of them, TCL-Thompson
R&D Centre, was located in Singapore and specialised in high-end TVs and flat screens. This
R&D centre developed a new product scheme for flat-screen TV every 48 hours.29

The reason behind TCL’s Singapore Speed is its unique product concept
development. Product R&D and planning have emphasised on prompt timing
to the market. There is a compromise between speed and perfection; what we
can call addition or abstraction mindset. In the past, Thompson used
abstraction, that is, it presented the perfect model with all the functions to the
market first, then got rid of those functions not suitable for the market. Now,
TCL is doing addition. TCL introduces the most basic model to the market
then puts in additional functions according to the market needs. By doing this,
we are able to speed up our R&D process, shorten the R&D period and
lower the risk of introducing a new product to the market. 30
- Jean Claude, chief information officer of TCL Group

Overall, TCL’s investment in R&D had been at a high level even in 2005 and 2006, when the
company was experiencing financial difficulties. In 2005, its investment in R&D was US$306
million, 4% of its annual operational income. In 2006, despite absorbing advanced colour TV

25
TCL ႃ䨚 (2008) “ᇀࠃ叿Ε䭇ဪΕCEO ‫ޕ‬䢕‫”س‬, TCL ᡩ䌘㗙݇㋏ѦࡼᑇৄDŽ[TCL (2008) “TCL Group, Director,
President, CEO: Li Dongsheng”, TCL’s Investor Relations], http://irm.p5w.net/000100/TZZJDR/dsz.html#4 (accessed 12
August 2008).
26
TCL (2008) “About TCL”, http://www.tcl.com/main_en/About%20TCL/About%20TCL/ (accessed 10 July 2008).
27
Li, D. (2008) “Vision”, TCL Website, http://www.tcl.com/main_en/About%20TCL/Vision/index.shtml?catalogId=13047
(accessed 12 August 2008).
28
Ibid.
29
ᴅձ ĀTCL ᑇᵓ⬉㾚ⷨথ߯þᮄࡴവ䗳ᑺÿāˈ‫ܝ‬ᯢ㔥DŽ[Zhu, Y. (15 August 2005) “TCL Flat TV R&D Achieves
‘Singapore Speed’”], http://www.gmw.cn/content/2005-06/15/content_251126.htm (accessed 13 July 2009).
30
Ibid.

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 10/465C TCL: Seeking the Road to Product Innovation

technologies from its foreign partners, the company’s R&D investment still reached US$277
million.

TCL’s investment in R&D quickly bore fruit. In 2007, its innovative screen menu methods, a
core technology in colour TVs, won the prestigious Emmy Award at the 58th Technology and
Engineering Emmy Awards. Indeed, since 2001, the number of patents owned by TCL had
increased by 50%, exceeding 1,000 by the end of 2006. Income from new products comprised
more than 60% of the group’s total income, and on average two new products came to the
market every three days.31

Challenges Facing TCL in the International Market

With China’s entry into the WTO in 2003, Chinese companies had to face competition from
foreign multinational companies, restricting the scope of their development in the domestic
market. With well known multinational companies such as Samsung and Sony having access
to the Chinese market, the only way for Chinese companies to survive would be to increase
their sales in the international market.

TCL was a pioneer in exploring the opportunities of international expansion. Li believed that
financial liberalisation and economic globalisation were the two driving forces behind
Chinese enterprises’ move into the international market. In 1998, TCL Group set up an
overseas business department, and later developed subsidiaries in Vietnam, India, Indonesia
and the Philippines, signifying the start of its international development strategy.

For TCL, the most important move was in the European market. In September 2002, TCL
signed an assets acquisition agreement with the insolvency manager of Schneider Electric in
Germany, with a price tap of US$122 million.32

European Union has imposed anti-dumping measures on China, which has

little chance to disappear within the next three to five years. Through the
acquisition of Schneider, we can manufacture the products locally, which
helps to speed up our entry into the European market.33
- Li Dongsheng, chairman of TCL Group

TCL acquired the colour TV business of Thompson, a French company, in January 2004.
Only three months later, TCL acquired a mobile phone businesses operating under the Alcatel
brand. In August 2004, TCL and Alcatel formed TCL Alcatel Mobile Phone Limited. These
moves raised unprecedented overseas interest in Chinese firms’ international mergers and
acquisitions.

Challenges of Expansion
TCL’s path of international expansion was not smooth. Though the acquisition of Schneider
Electronic provided TCL access to the European market, the company was not prepared for
the low profit margin and high labour costs of TV production in Germany. After acquiring
Schneider Electronic, for example, TCL found that the laws in Germany made it very

31
᪾٠ؓ (2008) TCLΚլᖎ䥋ᄅ伬丫࣠[Zhuang, G. (16 January 2008) “TCL: Continuous Innovations Bear Fruit”],
http://www.google.com.hk/search?hl=zh-TW&q=bear+fruit&btnG=Google+%E6%90%9C%E5%B0%8B&meta=&aq=f
(accessed 12 August 2008).
32
€1 = US$1.49 on 13 August 2008.
33
फᮍ㔥˄2003˅Ā⍋໪ᑊ䌁ೈජ:TCLǃҀϰᮍᑊ䌁ⳳⳌ㾷䇏ā [Guangdong News (18 March 2003) “Overseas
Acquisition Besieged City: Understand the Reasons behind the Acquisitions of TCL and BOE”],
http://stock1.jrj.com.cn/news/2003-03-18/000000522829.html (accessed 13 August 2008).

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 10/465C TCL: Seeking the Road to Product Innovation

complicated to dismiss employees. However, with high hopes for the European market, TCL
had already employed a large workforce in Germany and paid a high price when it discovered
the difficulties and high costs associated with dismissing them.34

Following its rapid expansion in 2004, TCL suffered losses for two consecutive years, 2005
and 2006. On 30 April 2007, TCL Group announced its performance for the financial year
2006, during which its sales income was US$6.3 billion, a decline of 9.33% from the previous
year. As a result, TCL suffered a loss of US$260 million, the bulk of which was a result of its
colour TV business in Europe, its business in emerging markets and its air conditioning
business.

TCL was in crisis in 2005 and 2006. This difficult period not only raised concerns about the
future of TCL among its investors and outside partners, but also shook the confidence of its
staff in the company’s future.

Li realised that the main problem for TCL was in its organisational culture. In 2006, TCL
introduced “three reforms, two introductions, and one transformation” 35 . “Three reforms”
referred to changes in operational processes, learning and organisational structure, with the
purpose of developing a learning organisation. The “two introductions” were the
implementation of the essentials of TCL’s values into human resources recruitment and
evaluation systems. Finally, the “one transformation” was the integration of the company’s
future with individual developments as a source of staff motivation.

In 2006, TCL implemented a three-step overall strategy of “profitability, healthy business and
growth” 36 . In 2007, TCL carried out this programme of streamlining and reforming the
company’s global supply chain, business structure and processes. In early 2008, TCL
restructured its subsidiary businesses into a new “4 + 2” framework, placing high priority on
improving operational efficiency and the efficient deployment of resources.

In 2009, TCL started its Complete Unit Integration Programme, which allowed the company
to implement a complete production process for a model of colour TV, saving on logistics and
packaging costs, increasing turnover, and enhancing operational efficiency by reducing
intermediate steps. The programme improved the firm’s capabilities in key component design,
management and control, introduction of domestic components and parts, and improvement
of comprehensive cost control, and helped the company establish core competitive advantages
in the emerging flat-screen TV market and implement an industrial upgrade.37

TCL also formulated new human resource (“HR”) management policies. Previously, TCL had
emphasised internal promotion, and external recruitment was only complementary. However,
the internationalisation path of TCL was through acquisition rather than step-by-step
development, so this HR policy did not fit with the company’s expansion strategy. Therefore,
TCL developed a talent development plan targeting different potential recruits. Its “young
eagle” plan was for fresh university graduates, its “flying eagle” plan was for expatriates, its
“selected eagle” plan was for middle management and its “strong eagle” plan was for top
management.

34
∳ች˄2004˅Ё೑ӕϮ೼ᖋ೑᳔᳝ᕅડⱘಯϾᡩ䌘Ḝ՟ˈ⦃⧗䋶㒣 [Jiang, Y. (27 September 2004) “Four Influential
Case Studies of Chinese Enterprises in Germany”, Global Finance], http://biz.163.com/40927/6/11A5QD1300020QBO.html
(accessed 13 August 2008).
35
Li, Dongsheng (2008) “Solid Foundation, Continued Innovation, Renewed Outreach”,
http://www.tcl.com.cn/main_en/About%20TCL/Chairman%27s%20Speech/index.shtml (accessed 13 August 2009).
36
Ibid.
37
TCL (31 March 2009) “TCL Multimedia Achieves Profit Gain in 2008 with Sales Volume of 14 Million Units”,
http://www.tcl.com/main_en/News%20Center/Corporation%20News/2009033143453.shtml (accessed 13 July 2009).

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- New Delhi (IMI) from Jan 2023 to Apr 2023.
 10/465C TCL: Seeking the Road to Product Innovation

As a result of these efforts, TCL’s financial performance began to improve, starting in the last
quarter of 2007 and continuing through 2008 and 2009 [see Exhibit 3]:38
• In the first quarter of 2008, TCL Multimedia’s LCD TV sales increased 194% over the
same period in 2007.
• In the first quarter of 2008, TCL’s operations in the European market achieved
profitability for the second consecutive quarter.
• In the North American market, sales volume grew significantly and sales income
increased 31% over the same period in 2007.
• The business of TCL Communications experienced healthy growth, with overall mobile
phone sales in overseas markets reaching 3.1 million units in the first quarter of 2008, a
60% increase over the same period in 2007.
• TCL’s home appliance manufacturing business achieved a total sales income of about
US$141 million for the first quarter of 2008, an increase of 22.81% over the same period
in 2007. TCL Corporation indicated that growth in sales income from the appliance
business was mainly due to growth in product sales and increases in retail prices. TCL
strengthened the cost control system, leading to a 2.27% increase in gross profit margins
to 17.81%.39

International Competitors
Despite the progress, Li remained unsatisfied with TCL’s performance in the global market.
Li was convinced that the future of Chinese business enterprises would be to pursue
internationalisation. In the consumer electronics industry, product innovativeness would be
the key to success on a global scale. He realised that TCL was far behind the global leaders in
the home electronics industry. Global players such as Philips and Sony were famous for being
innovative in the products they offered. To enhance the innovativeness of TCL’s products, Li
wondered whether the company could learn from the experiences of such global leaders in
managing product innovation.

Samsung
Samsung Group had overtaken Hyundai Group to become the foremost business group in
South Korea. The group’s flagship unit, Samsung Electronics Co., Ltd, was the top
electronics company in South Korea and one of the world’s leading semiconductor
manufacturers. It specialised in manufacturing a wide range of consumer devices, including
DVD players, big-screen TVs, digital cameras, computers, colour monitors and LCD panels,
as well as semiconductors such as flash memory and communications devices ranging from
wireless phones to networking switches [see Exhibit 4 for financial details].

Samsung’s was the world’s second-largest semiconductor business, matched only by Intel.
Samsung dominated the global market for three major memory products: DRAM, SRAM and
NAND Flash. Commanding the full range of semiconductor components, Samsung was able
to develop unique products in such areas as mobile telephony and digital consumer

38
Company performance in the fiscal year 2007 and the first quarter of 2008 suggested the development potential of TCL.
However, some industry analysts argued that the income from selling its businesses at the end of 2007 had contributed to its
annual financial performance. In other words, the net profit also included some one-off profits rather than just operational
income. Therefore, based on analysis by industry observers, 2008 was a critical year for TCL. See: TCL ႃ䨚 (2008) “ᇀࠃ
叿Ε䭇ဪΕCEO ‫ޕ‬䢕‫”س‬, TCL ᡩ䌘㗙݇㋏ѦࡼᑇৄDŽ [TCL (2008) “TCL Group, Director, President, CEO: Li
Dongsheng”, TCL’s Investor Relations], http://irm.p5w.net/000100/TZZJDR/dsz.html#4 (accessed 12 August 2008).
39
PR Newswire Asia (24 April 2009) “TCL Multimedia Reports Net Profit of HK$25 Million in 1st Quarter 2009”,
http://www.prnasia.com/pr/09/04/09241311-1.html (accessed 10 August 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

applications, and had become very competitive in the global digital entertainment and mobile
markets.40

Samsung’s management philosophy was: “We will devote our human resources and
technology to create superior products and services, thereby contributing to a better global
society.” 41 In 1993, Samsung developed a new corporate identity programme in order to
convey “an overall image of dynamic enterprise”. The logo’s elliptical shape signified “the
world moving through space”, conveying “a distinctive image of innovation and change”.42

People talk about risk management these days, but I think risk taking is more
important … Even if one goal is accomplished, we never stop. The continued
setting of new goals keeps competitors primarily focused on catching up with
the existing market—Samsung’s core values lay in our ability to push the
boundaries in new thinking and innovation.43
- Chang-Gyu Hwang, chief executive of Samsung’s semiconductor business

This risk-taking approach was reflected in the company’s nomadic mindset—“to constantly
develop the newest and most innovative semiconductor technologies”—as reflected in its
continued market leadership in DRAM, NAND Flash and MCP/Mobile/Fusion. Samsung
employed 32,000 technology professionals in its 17 R&D centres and six design centres
worldwide, 10% of whom had earned their doctorates from the world’s leading universities.
No less than 15% of the R&D team carried out studies purely on human needs and lifestyles.44

The Value Innovation Programme (“VIP”) Centre was considered a key to Samsung’s
success.45 In order to allow great ideas to flow without interruption, Samsung set up the VIP
Centre to accommodate its development teams. All the members had to work there until a
given project was completed. The VIP Centre had 50 “value innovation specialists” who not
only studied the products of rivals and the data on suppliers, components and costs, but also
debated designs and technologies. Moreover, these specialists provided guidance throughout
the course of a project by helping the development team to concentrate on problems, develop
different solutions and agree on the best possible solutions. To develop new products, the
development team was made up of engineers, designers and planners from different
departments in the company, facilitating successful brainstorming that represented various
viewpoints. The timetable and deadline for project completion were given to each team to
avoid their spending too much time picking apart any particular issue. Additionally, “value
curves” were used to rank attributes such as a product’s sound or picture quality on a scale of
one to five, which helped the team understand the unique features of their products and
differentiate them from the products of their competitors.

Philips
Established in 1891, Royal Philips Electronics had become the largest electronics company in
Europe and a global leader in the provision of healthcare-, lifestyle- and technology-based
product and service solutions. It produced consumer electronics, including TVs, VCRs, DVD
40
Ferret (2006) “Secrets of Samsung’s Innovation Success”, http://www.ferret.com.au/c/Samsung-Electronics-Australia/Secrets-
of-Samsung-s-innovation-success-n687251 (accessed 12 May 2009).
41
Samsung (2008) “Values & Philosophy”,
http://www.samsung.com/hk_en/aboutsamsung/samsunggroup/valuesphilosophy/SAMSUNGGroup_ValuesPhilosophy.html
(accessed 12 August 2008).
42
Kotler, P. and Pfoertsch, W. (2006) B2B Brand Management, Berlin, Heidelberg, Springer..
43
Ferret (2006) “Secrets of Samsung’s Innovation Success”, http://www.ferret.com.au/c/Samsung-Electronics-Australia/Secrets-
of-Samsung-s-innovation-success-n687251 (accessed 12 May 2009).
44
Ibid.
45
Ihlwan, M. (3 July 2006) “Camp Samsung: To Develop Winning Products, the Korean Giant Isolates Artists and Techies for
Months on End”, BusinessWeek, pp. 46–48.

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 10/465C TCL: Seeking the Road to Product Innovation

players and fax machines, and consumer electronics comprised the largest portion of the
company’s sales. It was also the largest light bulb and electric shaver producer worldwide.
Philips’s mergers and acquisition activities concentrated on its primary lines of business,
including medical equipment financing, thin-file LCD panels and digital rights management,
while dumping non-core businesses such as PolyGram, mobile phone operations and its
erstwhile chip unit [see Exhibit 5 for Philips’s financial performance over the years].

Philips emphasised innovation. Its mission was to “improve the quality of people’s lives
through timely introduction of meaningful innovations” 46 . Innovation and enabling
technologies were the driving forces behind the development of healthcare, wellbeing and
lifestyle products at Philips.

Philips believes that enabling technologies should be designed around people

and that the route to innovation should be about simplicity, not complexity.
We believe that technology—however advanced it may be—should be
unobtrusive, easy to experience and as simple to use as the box it comes in.47
- Philips’s website

Philips’s R&D strategy was market-focused, with the goals of managing research risks,
knowledge-sharing through technology partnership, and making good use of Philips’s
research campuses. Philips first analysed global trends in consumer behaviour, then
conducted research in-house and finally assessed their impacts on the company’s market
competitiveness. Philips also ensured that new products would fit with its target market and
be compatible with its brand.48

Sony
Sony Corporation started out as Tokyo Telecommunications Engineering in 1946 and
produced the first Japanese tape recorder in 1950. The brand name Sony was adopted in 1958.

Sony had five operating segments: electronics, games, entertainment, financial services and
the rest. Sales of electronics accounted for about 75% of Sony’s 2008 sales [see Exhibit 6 for
its financial performance]. Most of the sales revenue within the electronics segment—about
23%—came from TVs. To get its hands on LCDs, Sony bought them from Samsung and also
partnered with Sharp in 2008 to help to fund Sharp’s LCD production facilities. The games
segment was the company’s second-largest revenue-generating business, with sales
accounting for 14% of 2008 revenue. Sony also made digital and video cameras, Walkman
stereos, and semiconductors, and was involved in music, motion pictures, DVDs and TV
programming.49

Sony had a long history of being innovative. Its original management policies focused on
product innovation by emphasising compactibility and portability when developing new
products. Sony typically started with a target price point for new ideas and figured out ways
to produce a product for that price, but did little in the way of market studies. Sony’s
innovativeness also applied to its production. The company allowed its production team to set
its own targets and develop its own working environment, with production dilemmas being

46
Philips (2010) “Ambitions”, http://www.philips.com/about/careers/working_at_philips/philips_today/ambitions.page (accessed
18 February 2010).
47
Philips (2008) “Innovation”, http://www.philips.co.uk/about/company/philipsintheunitedkingdom/article-14535.page
(accessed 14 August 2008).
48
European Communities (11 October 2007) “R&D Spending Strategy: The View from Europe’s Largest and Smallest
Companies”, http://www.eubusiness.com/Rd/rd-spending.03/ (accessed 17 August 2009).
49
Sony (2009) “Annual Report”.

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 10/465C TCL: Seeking the Road to Product Innovation

resolved by managers. Sony’s HR policies were also different from other Japanese companies,
granting authority to employees to make decisions independently.50

BenQ
BenQ Corporation, established in 1984 and headquartered in Taipei, was an emerging
competitor in the consumer electronics market. The brand name was adopted only in
December 2001, even though its precedent company started business in 1984. Despite its
short history, BenQ’s revenue already exceeded US$1.8 billion in 2007. BenQ’s products
covered three main categories: computing (Joybook, LCD monitors and storage devices),
consumer electronics (LCD displays, digital projectors and digital cameras) and
communications (mobile phones). The company employed more than 2,000 employees. It had
five regional operations covering Europe, North America, Latin America, China, and the
combined regions of Asia-Pacific, the Middle East and Africa. It owned 390 global patents
and another 694 patents pending.

BenQ’s products were famous for their innovative design. BenQ developed its Lifestyle
Design Centre in early 2003 to facilitate design innovation. Between 2003 and 2008, BenQ
products had garnered 198 international design awards, including CES, G-Mark, IDEA, red
dot and the prestigious IF awards. In terms of technologies, BenQ had invested heavily in
advanced display technologies. Using these display technologies, its computing,
communications and consumer electronics products had become increasingly competitive in
the global market.51

BenQ’s LCD screens had achieved success in both Hong Kong and mainland China. BenQ
started exploring the Hong Kong market in 2003 and had achieved a leading market share of
15.2% by the end of 2008. BenQ had also become one of the top three market leaders in LCD
screens in the mainland China market, with a market share of 12.7%. BenQ attributed this
success to its possession of core technologies (nine of its 12 subsidiaries were engaged in
LCD-related R&D activities), production capacities, and flexible and efficient sales teams.
Globally, BenQ’s LCD screens controlled 3.2% market share.

Sharp Electronics
Sharp Electronics, headquartered in Osaka, Japan, was founded in Tokyo in 1912 by Tokuji
Hayakawa. Sharp employed 32,200 people in Japan and 27,600 overseas as of May 2009.52

Sharp was devoted to two ideals: sincerity and creativity. In pursuing creativity, Sharp
recognised the need to constantly innovate and improve. In 2004, it became the first
electronics company to be recognised by Frost & Sullivan’s Product Innovation Award for its
excellence in new products and technologies within its industry.53

One of Sharp’s key management strategies was its intellectual property strategy. Sharp
promoted patent rights obtainment to gain the competitive edge of having one-of-a-kind

50
Vilà, J. and Mitchell, J. (21 March 2007) “Sony: The Elixir of Eternal Innovation”, IESE Insight,
http://globaltechforum.eiu.com/index.asp?layout=rich_story&channelid=3&categoryid=9&title=Sony%3A+The+elixir+of+ete
rnal+innovation&doc_id=10355 (accessed 12 August 2007).
51
BenQ (2009) “BENQ GLOBAL”, http://www.benq.com (accessed 13 July 2009).
52
Sharp (2009) “Corporate Information”, http://www.sharp-world.com/corporate/info/ci/index.html (accessed 13 July 2009).
53
Sharp (2 June 2004) “Sharp Microelectronics Honoured with Frost & Sullivan 2004 Product Innovation Award for Its
BlueStreak Line of Microcontrollers and System-on-Chip”, http://www.sharpmeg.com/Page.aspx/americas/en/6fcfda11-50b0-
474c-b495-3a3f08f61107 (accessed 13 July 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

products and one-of-a-kind business strategies. By the end of March 2009, Sharp already had
18,000 patents in Japan and 22,000 in the rest of the world.54

Sharp had three R&D approaches. First, it created unique products by vertically integrating its
core technologies. Second, it facilitated the sharing of its core technologies within the
company. Finally, Sharp worked with partners and used open innovation to develop expertise
in new and unfamiliar areas.55

Sharp was a key driver in LCD TV innovation. Sharp had invented the LCD TV and was
therefore called the “father of the LCD”. However, Sharp announced a loss of about US$1.3
billion for the financial year ending 31 March 2009, its first year of net loss since the 1950s,56
despite the fact that LCD monitors had become the mainstream in computer displays. Much
of the blame for this was placed on the global financial crisis. The decline in consumer
spending had badly affected sales figures and increased the company’s stock. Historically,
Sharp’s pricing strategy had been to develop high-end, unique products and to have distinctly
high profit margins. However, Sharp had recently changed its strategy, focusing on serving
the 40- to 42-inch-screen mainstream market rather than the high-end 50-plus-inch market.

Grundig
Grundig AG, established in 1945 by Max Grundig, was a consumer electronics manufacturer
in Germany. Before developing the company, Grundig had opened a store with his colleagues
to sell radios. When he saw the need for radios, he developed a factory and administration
centre to produce them. Grundig was one of the first companies to manufacture frequency-
modulated radios delivering clear reception by cutting out static interference. In the 1950s,
Grundig was the largest manufacturer of radios in Europe, with subsidiaries set up in
Nuremburg, Frankfurt and Karlsruhe.57

The company grew very quickly in the 1950s. In 1952, Grundig began producing TV sets and
was among the first in Europe to do so. Grundig’s innovations also included the first
miniature television cameras for pipeline and borehole inspection, the first mass-production
of VHF receivers in Europe, and the first system monitoring TV camera in Germany. In the
1960s, Grundig, with a mere 30,000 employees, had already become a market leader in
producing hi-fis for consumers and in developing image-processing technologies for
professional applications. Grundig had transformed into both a market leader in producing
consumer electronics for home entertainment and “a symbol of West Germany’s
Wirtschaftswunder (economic miracle)”. 58 In the late 1970s, however, facing competition
from lower-priced Japanese products, Grundig began to lose its market share.59 The company
suffered the first loss in its history in 1980. Since then, Grundig had changed hands several
times. In 2007, Koc Holding Group bought the Grundig brand and announced its decision to
merge Grundig with Acelik AS in February 2009.

Grundig, known for innovation and high quality, was the second-largest TV manufacturer in
Europe, producing about 7 million units per year. It had significant market share in Europe’s
home entertainment market with products such as TVs, video recorders, and satellite, digital

54
Sharp (2009) “R&D and Intellectual Property”, http://www.sharp-world.com/corporate/ir/intellectual/index.html (accessed 17
August 2009).
55
Ibid.
56
఻‫ٽ‬౱ (16.04.2009) 49 ‫ڣ‬佪ѣ୙ཏߪະϘ߯ᄅृܺቼ”, ᯊҷ਼᡹DŽ[Qin, H. (16 April 2009) “First Loss in 49 Years:
Sharp is Trapped in Innovator Dilemma”, Time-Weekly], http://big5.ce.cn/gate/big5/blog.ce.cn/html/23/100923-256354.html.
(accessed on 10 August 2009)
57
Wikipedia (2010) “Grundig”, http://en.wikipedia.org/wiki/Grundig. (accessed on 10 January 2010)
58
Wikipedia (2010) “Max Grundig”, http://en.wikipedia.org/wiki/Max_Grundig. (accessed on 10 January 2010)
59
Ibid.

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 10/465C TCL: Seeking the Road to Product Innovation

audio and television reception equipment. In 2008, Grundig reached an agreement with Sony
to produce two Sony Bravia models of LCD TVs.

LG
LG Group was established in 1947 in South Korea and had grown over the years into a global
conglomerate with 31 subsidiaries in three major fields: electronics, chemicals and
telecommunications.

LG Electronics placed a lot of emphasis on innovation, creating products with simple user
interfaces, creative designs and state-of-the-art technology.60

LG Electronics’ vision is to become a Global Top 3 company in the

electronics and mobile communications industry by 2010. We’ll achieve this
goal by developing smart technologies based on customer insights and
exploring new markets. We plan to research and develop technologies that
ultimately enrich the lives of our customers and bring them comfort and joy.61
- Woo Hyun Paik, chief technology officer, LG Electronics

LG’s R&D efforts focused on creating value added through technology differentiation,
creating an open and innovative R&D culture, and nurturing top-notch R&D talents.62 The
company aimed to create and develop “globally unrivalled products” that were easy to use
and aesthetically pleasing through emphasis on design:63
• Designers were able to create new ideas by working in a team with engineers,
product planners and marketers.
• Designers were involved in the entire product-planning process, including product
displays and promotions, so they had a better idea of how to meet consumer needs.
• Designers were given the title “Super Designer” as a special recognition for their
new role in product development.

Loewe AG
Loewe was established in Berlin, Germany in 1923 as a manufacturer of consumer electronics
by two brothers, Siegmund and David Loewe. TV manufacturing was its main businesses,
comprising about 80% of the company’s annual profit in 2005. It also produced DVD players
and recorders, Blu-ray players, hi-fi equipment, and a range of peripheral video and stereo
products such as home cinema systems and digital recording equipment. Loewe also
manufactured LCD TVs for Sharp, which held a 29% stake in the company.64

Loewe, which was famous for doing things differently from its competitors, targeted the high-
end luxury market. In July 2009, for example, Loewe developed its unique range of LCD TVs,
which could be customised according to customer specifications. Customers were able to
choose the look of their TV using nine different colours. They also had the option of adding a
BluTech Vision Blu-ray player for high-definition movie playback or a ViewVision DR+

60
LG (2009) “Innovation”, http://www.lge.com/us/about-lg/innovation/index.jsp (accessed 17 August 2009).
61
Paik, W.H. (2009) “Message from the CTO”, http://www.lge.com/us/about-lg/innovation/message-from-the-cto.jsp (accessed
17 August 2009).
62
Ibid.
63
LG (2009) “R&D Innovations”, http://www.in.lge.com/Experience%20LG/exp-rndInnovations.aspx (accessed 17 August
2009).
64
Wikipedia (2009) “Loewe AG”, http://en.wikipedia.org/wiki/Loewe_AG (accessed 17 August 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

hard-disk recorder to pause, rewind and record live TV. However, these privileges came with
a price tap nearly 10 times more expensive than other high-street LCD TVs.65

Next Step
Facing global competition and with emerging opportunities in the Chinese market, TCL’s
strategy had focused on lowering costs, ramping up operations and launching more innovative
products to the market.

TCL wanted to boost LCD TV production. In 2008, it announced that it planned to increase
LCD TV production by almost 300% in one year’s time. Meanwhile, TCL wanted to increase
its LCD market share to 11% and maintain its CRT market share in China [see Exhibit 3].66
In January 2009, Li announced that TCL would double its LCD TV production capacity to 10
million units by the end of 2009 in order to meet the rising demand in the Chinese domestic
market.67 The sales volume of LCD TVs accounted for 29% of annual sales of all TCL TV
products in 2008 and 2009, having increased from 8% in 2007. According to the company
website: “During the critical transition period of the whole colour TV industry, the change of
TCL in colour TV product portfolio indicates that TCL has accelerated in the upgrading and
transitioning of its major businesses, which is crucial for the brand to improve its core
competitiveness.”68

On 5 August 2009, TCL announced its plan to invest nearly US$450,000—which had been
raised originally to fund its pure LCD module manufacturing—in enhancing its integrated
LCD module TV production. TCL aimed to complete the development of its combined
module-TV factory by the end of 2009. This project aimed to cut costs in transportation and
packaging, to accelerate responsiveness to consumer needs, and to improve operating
efficiency. Upon its completion, TCL would have eight LCD production lines with a
combined production capacity of 8 million units a year.69

65
Switched On Set (29 July 2009) “Loewe Individual Selection LCD TVs—Change with Your Home Décor”,
http://www.switchedonset.com/2009/07/loewe-individual-selection-lcd-tvs-change-with-your-home-decor.html (accessed 17
August 2009).
66
Emsnow (22 January 2008) “TCL Multimedia to Boost LCD TV Production by 300%”,
http://www.emsnow.com/newsarchives/archivedetails.cfm?ID=21513 (accessed 18 August 2009).
67
Reuters (22 January 2009) “China’s TCL to Double LCD TV Capacity”, http://www.reuters.com/article/technology-media-
telco-SP/idUSHKG4517120090122 (accessed 19 August 2009).
68
TCL (20 January 2009) “LCD TV Sales at TCL Skyrocket 233.2% in 2008”, http://www.tcl-
image.com/en/xwzxny.asp?Sendid=164 (accessed 19 August 2009).
69
SinoCast Daily Business Beat (05 August 2009) “TCL to Further Finance Combined LCD Module-TV Production”,
http://www.tradingmarkets.com/.site/news/Stock%20News/2461217/ (accessed 18 August 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

TCL Multimedia’s LCD TV shipments have grown 245% year-on-year in the

PRC market from January to May 2009. Benefiting from policies including
‘Household appliance subsidy scheme’, ‘Home Appliance Replacements
Program’ and ‘Energy Efficient Appliances Promotion’ in China, the
Company’s TV business will maintain its growth momentum. In response, we
are planning to use the proceeds to further develop our LCD business. Our
new LCD TV production plant in Huizhou is scheduled to commence full
operation in September this year. This production plant is adjacent to TCL
Corporation’s LCD TV module plant which will help us reduce costs such as
transportation and packaging cost, further improve our inventory turnover
and strengthen the overall competitiveness. This close proximity will enable
higher module-TV set design integration which will create larger value for
the Company.70
- Leong Yue Wing, chief executive of TCL Multimedia

TCL’s mobile phone sales relied primarily on the global market, and thus growth had slowed
in 2009 as a result of the global financial crisis. Considering the business opportunities arising
from the restructuring of the Chinese telecommunications industry and the promotion of 3G
mobile phone business, TCL’s plan in 2009 was to develop its market share in the domestic
market while steadily expanding its overseas market. It also sought to leverage its R&D
capacities to improve new-generation 3G products and increase its presence in the Chinese
domestic market.71

In terms of regional markets, TCL was interested in taking advantage of favourable

government policies in the Chinese domestic market and reduce costs in order to become
more competitive in the international market. The Chinese government had announced its
Household Appliance Subsidy Scheme, a provision of subsidies to rural areas for buying
home appliances, including TV sets. To encourage the replacement of old appliances with
energy-efficient new appliances, the government also introduced the Home Appliance
Replacement Programme and the Energy Efficient Appliance Promotion Scheme. All these
favourable government policies had the potential to boost consumer sentiment. In 2009, the
government also increased the capped unit selling price 72 by nearly US$200, 73 which was
good news for TCL.

In April 2009, the Chinese government also introduced several favourable tax policies and
foreign exchange strategies to facilitate export business. However, it was still a challenge for
TCL to compete in the international market. As a result of the financial crisis, the business
environment was still challenging, with consumer sentiment remaining weak in several key
markets. TCL was therefore following a prudent strategy of reducing costs and adding value
to improve its competitiveness in the global market. For example, in the North American
markets, TCL had successfully decreased operating losses by reducing transportation costs
and lowering fixed costs. With different R&D centres across the globe, TCL wanted to use
these facilities to introduce products tailored to local market needs.74

70
PR Newswire Asia (29 June 2009) “TCL Multimedia Records Extraordinary Profits of HK$38.47 Million in the Disposal of
Properties in Wuxi”, http://www.prnasia.com/pr/09/06/09079412-1.html (accessed 18 August 2009).
71
TCL (20 January 2009) “LCD TV Sales at TCL Skyrocket 233.2% in 2008”, http://www.tcl-
image.com/en/xwzxny.asp?Sendid=164 (accessed 19 August 2009).
72
This price was the highest price per unit which manufacturers participating in the Household Appliance Subsidy Scheme was
allowed to set. This was regulated by the Government.
73
In Chinese currency, the capped price was increased from Rmb 2,000 to Rmb 3,500. Rmb1 = US$0.146 on 18 February 2010.
74
PR Newswire Asia (18 August 2009) “TCL Multimedia Turnarounds to Net Profit of HK$143 Million in the First Half of
2009”, http://www.prnasia.com/pr/09/08/09559511-1.html (accessed 19 August 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

Li believed that the overall success of TCL depended on its performance on a global scale,
and therefore TCL’s innovation strategies should focus on achieving this success.

The purpose of the series of organisational culture innovation activities is to

change all the perceptions and behavioural habits unsuitable for the future
business development and to train a team capable of managing a world-class
enterprise. Through innovation, we want to not only improve our
competitiveness in every operational segment but also improve the quality of
our employees. All our employees, especially managers at all levels, should
be enthusiastic about facilitating innovation activities. By studying, reflecting,
comprehending, and improving, by carrying out all sorts of effective
innovative activities, we need to develop our concepts, management
capabilities and confidence to meet the needs to compete in the international
arena, as well as to develop new organisational culture to support the
company’s sustainable growth.75
- Li Dongsheng, chairman of TCL Group

So far, TCL had not been very successful in the international market and saw a need to
develop its core competency. There were several product innovation strategies TCL could
consider adopting. TCL might learn from the experiences and strategies of other global
players in the consumer electronics industry. For example, instead of reducing costs, the
company could provide an innovative product that was unique to the market and demand a
premium price, as Loewe had done. Instead of adopting a proactive strategy to respond to
market changes by changing product features, the company could be innovative in organising
its R&D activities to introduce new products to the market, as Samsung had done.

Conclusion
The overall strategy for the next two to three years is double fold—
strengthening out foundation and continuously innovating in order to make
the leap. “Strengthening our foundation” refers to managing the basics
better to improve organisational efficiency and capacity. “Continuously
innovating” means upgrading our technological processes and operation
management to a new level which meets the requirements of globalisation.
- Li Dongsheng, chairman of TCL Group76

TCL’s performance in the Chinese domestic market was much better than its performance in
overseas markets. Indeed, the Chinese consumer electronics market had outperformed other
markets thanks to the favourable government policies. However, these policies were
temporary strategies to tackle the financial crisis, which was expected to end by the end of
2012.

After four years of ups and downs in exploring the internationalisation path, Li firmly
believed that pursuing internationalisation would be the way ahead for TCL, just as it had
been for many outstanding Chinese companies. He believed that adjusting to environmental

75
TCL ႃ䨚 (2008) “ᇀࠃ叿Ε䭇ဪΕCEO ‫ޕ‬䢕‫”س‬, TCL ᡩ䌘㗙݇㋏ѦࡼᑇৄDŽ[TCL Corporation (2008) “TCL Group,
Director, President, CEO: Li Dongsheng”, TCL’s Investor Relations], http://irm.p5w.net/000100/TZZJDR/dsz.html#4
(accessed 12 August 2008).
76
TCL (2009) “Vision: Making the Leap through Constant Innovation”,
http://www.tcl.com/main_en/About%20TCL/Vision/index.shtml?catalogId=13047 (accessed 13 July 2009).

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 10/465C TCL: Seeking the Road to Product Innovation

conditions, involvement with local regulators and strengthening business capabilities would
be critical to Chinese businesses’ road to internationalisation.77

However, the international home electronics industry was highly competitive. TCL had to
face many global players, such as Samsung, Sony and Philips, who were well known as the
market leaders in product innovation. To succeed in the international market, TCL would
have to build up its core competency, become more creative and present more innovative
products to its customers.

Li used the story of an eagle’s transformation [see Exhibit 7] to describe the overhaul
required for TCL. Though TCL had taken several steps toward developing a more innovative
organisational culture, the company still had a long way to go to catch up with the leading
companies in the home electronics industry. In wondering what had hindered TCL products
from succeeding in the international market, Li saw a need to develop a core competency and
further build TCL as a brand known for being innovative and creative. However, which
strategies should TCL adopt? Should it follow the innovation strategies of leading companies
such as Samsung? If so, what were the limitations TCL should be aware of? If not, what were
alternative strategies the company could pursue?

77
TCL (1 July 2008) “TCL Overseas Business Growth Surpasses Domestic Trends”,
http://www.tcl.com/main_en/News%20Center/Corporation%20News/2008070142030.shtml (accessed 12 August 2008).

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 10/465C TCL: Seeking the Road to Product Innovation

EXHIBIT 1: TCL’S CORPORATE STRUCTURE

Logistics and Techne

Service Network Electronic
Business Unit

TCL TCL
Communication TCL Corporation Multimedia
Business Unit Business Unit

TCL Business Flat Panel Project

Centre Real Estate & TCL Home
Investment Appliances CRT Division
Alcatel Business Network Business Unit
Division
China Business
Centre
Authorised Brand
Division
EM Business Centre
Main Board
Division
NA Business Centre
New Business
Division
Europe Business
Global Operation Centre
Centre
Home Network
Global Business Division
Centres
(Marketing and
Sales) Rowa Division

China, EMEA, Global R&D Centre

America, Asia-
Pacific and India
Global R&D Centre
Global Supporting
Department Global
Manufacturing
Centre
Communication
Equipment Co.
Strategic Purchasing
& Supply Chain
Management Centre

Source: TCL (2008) “Corporate Structure”,

http://www.tcl.com/main_en/About%20TCL/Corporate%20Structure/index.shtml?catalogId=13
958 (accessed 12 August 2008).

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 10/465C TCL: Seeking the Road to Product Innovation

EXHIBIT 2: BRAND VALUE

unit˖RMB(100 million yuan)

Source: Adopted from the Figure titled “Research on the Most Valuable Brands in China from
R&F Global Ranking Information Group Ltd, from TCL (2008) “Company Profile”,
http://www.tcl.com/main_en/About%20TCL/Company%20Profile/index.shtml?catalogId=13046
(accessed 12 August 2008).

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 10/465C TCL: Seeking the Road to Product Innovation

EXHIBIT 3: SALES PERFORMANCE OF TCL MULTIMEDIA

2009 2008 Change

(First (First Quarter)
Quarter)
LCD TVs 1,199,000 539,000 +122.4%
P.R. China 761,000 227,000 +235.2%
Overseas & Strategic 438,000 312,000 +40.4%
OEM
CRT TVs 1,222,000 2,998,000 (59.2%)
P.R. China 830,000 1,672,000 (50.4%)
Overseas & Strategic 392,000 1,326,000 (70.4%)
OEM
Total TV shipments 2,421,000 3,537,000 (31.6%)
AV Products 3,381,000 3,329,000 +1.6%
Source: PR Newswire Asia (24 April 2009) “TCL Multimedia Reports Net Profit of HK$25
Million in 1st Quarter 2009”, http://www.prnasia.com/pr/09/04/09241311-1.html (accessed 10
August 2009).

EXHIBIT 4: SAMSUNG GROUP FINANCIALS

Year Revenue Net Income Net Profit Number of

(US$ million) (US$ million) Margin Employees
2006 90,892.9 8,433.4 9.3% 222,000
2005 141,420.7 9.483.0 6.7% 229,000
2004 133,135.0 12,954.0 9.7% 222,000

Source: Samsung Group (2004-2006) Annual Report.

EXHIBIT 5: ROYAL PHILIPS ELECTRONICS N.V. FINANCIALS

Year Revenue Net Income Net Profit Number of

(US$ million) (US$ million) Margin Employees
2007 39,463.4 6,139 15.6% 123,801
2006 11,686.6 (762.1) N/A 121,732
2005 35,999.8 3,396.9 9.4% 159,226

Source: Philips (2005-2007) Annual Report.

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 10/465C TCL: Seeking the Road to Product Innovation

EXHIBIT 6: SONY FINANCIALS

Year Revenue Net Income Net Profit Number of

(US$ million) (US$ million) Margin Employees
2008 89,601.3 3,731.3 4.1% N/A
2007 70,513.4 1,073.8 1.5% 163,000
2006 63,541.2 1,050.7 1.7% 158,500
2005 60,840.0 1,392.6 2.2% 151,400

Source: Sony (2005-2008) Annual Report.

EXHIBIT 7: THE STORY OF EAGLE TRANSFORMATION

“This is a story about eagle.

Eagle has the longest life expectation among birds. Its life can last as long as 70 years old.
In order to live longer, it has to make a very difficult but important decision at the age of 40.
At that time, his beak becomes too long and curved, nearly reaching his breast; his claws are
also ageing, unable to capture its prey; and his feathers become very thick and wings become
very heavy, making flying difficult.
At that time, eagle only has two options: one is to wait for death, the other one is to
experience a painstaking transformation process – a 150 days’ transformation. It must try its
best to fly to the top of a mountain, build its nest on the cliff and stay there without flying
away.
Eagle must first use its beak to hit the rocks, until the beak is completely separated. Then, it
must wait until the new beak to grow. Eagle will use the newly grown beak to pull out the
fingernails of its claws one by one, allowing the blood to drop. When the new fingernails
grow up, eagle will use new fingernails to pull out its feathers one by one.
Five months later, the new feathers grow up, and eagle can fly again, for another 30 years!
I am deeply moved by this article about eagle. From this story, I deepen my understanding of
the necessity and urgency of this cultural innovation at TCL.”

Source: ‫ޕ‬䢕‫( س‬2006) 嚊ऱૹ‫س‬, TCL 䦱ՠ兌䨫[Li, D. (26 July 2006) “Transformation of Eagle”,
TCL Staff Discussion Forum].

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