Chapter 9 〇8. TCL: Looking forward to "the rebirth of the eagle"

In September 2006, Li Dongsheng, the head of TCL, published the article "The Rebirth of the Eagle".In the article, Li Dongsheng reviewed and reflected on his management mistakes with TCL, and used the example of "the rebirth of the eagle" to illustrate the necessity and urgency of TCL Group's cultural change and innovation. An international company has not achieved the expected goal, and I think this is also the main internal factor for the relative decline in the competitiveness of our company and the difficulty in promoting international operations in recent years.” Li Dongsheng hopes that through a new round of reform and innovation, TCL will Capable of "Rebirth of the Eagle". After the publication of "The Rebirth of the Eagle", it has aroused widespread attention and discussion in the industry. Li Dongsheng's frankness has been praised and criticized.

In early November 2006, both the Financial Times and the Wall Street Journal reported that TCL Multimedia planned to reorganize its troubled European business. The expansion strategy encountered new problems.Under the restructuring plan, TCL will reduce the number of TVs it produces in France and temporarily reduce production in other European countries.Almost at the same time, the two media reported that TCL Corporation had lifted the equity lock-up agreement with Thomson, allowing the French company to sell its 29.32% stake in TCL Multimedia, but in The agreement signed by the two companies during the reorganization two years ago also stipulated that the two parties agreed not to transfer or sell their respective TCL Multimedia shares within 5 years.

What problems did TCL encounter, what role did Thomson play in it, and what is the causal relationship between these two incidents?It all started with a merger and acquisition case in January 2004 or earlier. In July 1957, Li Dongsheng was born in Huizhou, Guangdong. He was admitted to the Radio Department of South China University of Technology in 1978. Among his classmates were Huang Hongsheng, the later chairman of Skyworth Group, and Chen Weirong, the head of Konka Group. When they graduated from South China University of Technology in 1982, no one could have imagined that they would become important figures affecting China's color TV industry in the next few years.

Li Dongsheng, who returned to his hometown with the dream of being an excellent engineer, chose a small factory that produced TTK tapes and was established only one year ago. Li Dongsheng became the 43rd employee of the company. His position was a workshop technician and he was responsible for the maintenance of workshop equipment.No one thought that this factory would later grow into the famous TCL Group. In 1984, Li Dongsheng, who had been in the company for two years, was sent to Hong Kong to be in charge of overseas business contacts, raw material procurement and order sales, and gradually got involved in management work. In 1985, the company established TCL Communication Equipment Co., Ltd., which produces telephones. Li Dongsheng, who was only 28 years old, was appointed as the general manager.However, the general manager was transferred to be the director of the introduction department of Huizhou Industrial Development Corporation in less than a year, responsible for the introduction of foreign capital.Later, because of his excellent work, Li Dongsheng returned to the company in early 1993 and successfully served as the general manager of the reorganized TCL Electronics Group Corporation. In 1996, Li Dongsheng became the president of TCL Corporation.

Along the way, with the continuous development and growth of TCL, Li Dongsheng also completed the transformation from an engineer to an entrepreneur. Since Li Dongsheng took the helm of TCL, it seems that every expansion of TCL has been accompanied by a merger and acquisition case: in 1996, TCL merged with Lushi Group, a veteran color TV company in Hong Kong; The strategy of retaining the Miller brand has created a precedent for retaining the original brand in the merger of the domestic color TV industry; in 1997, it merged with Inner Mongolia Rainbow; in 2000, it merged with Wuxi Hongmei; in 2003, it merged with Lehua.

Li Dongsheng led TCL farther and farther, and finally, the time came to the time when the M&A case in this article occurred: July 2003. However, in order to clearly understand why the development of time is emphasized at this node, time has to move forward to be better interpreted. In 1996, when Hong Kong Lu’s Company was merged, TCL and Lu’s color factory in Vietnam were also taken over. Vietnam has since become the starting place for TCL’s internationalization. TCL in the overseas market suffered a loss of 1.8 billion yuan. Fortunately, Li Dongsheng insisted on the Vietnamese market in the end, and finally turned losses into profits after 18 months.

In the autumn of 2002, Li Dongsheng led TCL to defeat other competitors in the acquisition battle, and finally successfully acquired the color TV business of Schneider, an old German company, for 8.2 million euros. TCL began to extend its hands to the European and American markets.Shortly thereafter, TCL acquired the American company Galveda. TCL has accelerated its pace on the road of internationalization. Undoubtedly, TCL is getting bigger and bigger. In 2003, TCL ranked second in the color TV industry nationwide in terms of retail sales.According to the 2003 annual report of TCL International, the profit of TCL's color TV business is about 500 million yuan. The inventory turnover rate and accounts receivable turnover rate of TCL color TV business in the first half of 2003 reached 9.01 and 125.59 respectively, far higher than those of Konka, Changhong and Hisense in the same industry. Occupy an absolute advantage.

But during this period, the trade friction between China and the United States became more and more tense, to the point where important national leaders personally served as the head of the delegation to participate in negotiations with the United States. In November 2003, two years after joining the World Trade Organization, the preliminary ruling on color TV dumping made China's color TV industry even more disturbed. In April 2004, the U.S. Department of Commerce officially announced the final result of the anti-dumping case on Chinese color TVs. TCL’s 22.36% dumping tax rate was only two percentage points lower than Changhong’s 24.48%, but TCL still ranked second in terms of anti-dumping duties. s position.However, imposing anti-dumping duties on importers in the United States means the loss of channels.

At the time when the color TV anti-dumping is about to start, a passage from Li Dongsheng may help us better understand the deep meaning of the merger case described in this article.He said: "Internationalization is a must. Since the European anti-dumping, Chinese companies have rarely been able to sell color TV products to Europe. The United States also announced the anti-dumping tax rate on Chinese companies a few days ago. , which brings a very big nationalization obstacle to Chinese enterprises. In addition to the country's struggle for China's market position, enterprises must use WTO rules to strive for their own development opportunities. We must move our own production to other places, such as Mexico and India , the Philippines and other places. I have observed the giants in the field of consumer electronics, all of which are global international companies without exception. Therefore, we must withstand pressure and risks and internationalize through mergers and acquisitions. However, any kind of internationalization will risky."

Li Dongsheng hopes to expand overseas markets by merging and acquiring an international company, even though there are certain "risks" in this way, and "turning opportunities" are about to appear. In July 2003, Li Dongsheng led TCL to discuss joint ventures with Philips in Hong Kong, but Philips was not enthusiastic about it; Thomson CEO Charles De Haley, who happened to be in Hong Kong at the time, proposed that the two parties meet and hold a meeting. During the meeting, De Hali put forward a proposal for the two sides to cooperate in the color TV business, and the conditions offered were similar to those negotiated by TCL and Philips.Li Dongsheng immediately expressed his willingness to cooperate.There is a saying that as early as 1999, when De Hali met Li Dongsheng in Singapore, he proposed that the two establish a joint venture company that Thomson could hold a controlling stake in. However, considering the situation of TCL at that time, Li Dongsheng did not agree.By 2003, when De Haley proposed cooperation between the two companies again, Thomson had given up his controlling stake.

Subsequently, TCL hired Morgan Stanley, an internationally renowned investment bank, and BCG Consulting Company to issue a risk assessment report for it.It is said that the risk assessment report gave Li Dongsheng "sleepless nights."Statistics show that the failure rate of global corporate restructuring and integration is 60%.The main reason for the failure is that the differences in the corporate culture background and the differences in the styles of the corporate management teams are difficult to eliminate.In addition, for TCL, the acquisition and reorganization of German Schneider and the failure of the American GO-VIDEO project are not far away.The lack of cadres who are competent in international business management is also the reality of TCL. However, in Li Dongsheng's view, the opportunity to cooperate with Thomson is a once-in-a-lifetime opportunity. "When analyzing the project, we believe that this opportunity is almost unique to us. There are only a handful of global TV companies. If we do not In the future, it will be difficult to have such conditions to form the opportunity to become the number one in the global industry.” In Li Dongsheng’s eyes, Thomson is obviously an ideal partner—with a brand, a production line, and R&D capabilities. The industrial structure with Europe is also relatively good, and it can just complement TCL, not to mention that Thomson has a deep accumulation in technology and is the company with the most color TV technology patents in the world. For Li Dongsheng, who is determined to make a difference in the mainstream European and American markets, once the cooperation is successful, TCL can smoothly enter the European and American markets with the help of Thomson's brand and channels.After considering various conditions, Li Dongsheng finally decided to start a cooperative business with Thomson, and TCL then stepped up negotiations with Thomson. The negotiation process was long and complicated.Thomson initially requested cash flow conversion. According to the exchange rate at that time, Thomson's TV business net assets were 170 million euros, and TCL's net assets were 200 million euros.In this case, Thomson does not need to make any investment in the joint venture.And TCL hopes to make an assessment of the profit in the next 36 months, and use the value of this assessment to estimate the value of the assets of both parties entering the company.In the end, TCL persuaded Thomson to invest 90 million as compensation, of which 70 million was cashed in the form of intellectual property rights, and another 20 million in cash.However, it was later announced that Thomson's color TV business suffered a huge loss in 2003, and Li Dongsheng asked Thomson to pay another 50 million euros in restructuring costs.The two parties were at odds for a while, and finally reached a plan for Thomson to invest resources worth more than 300 million euros in the joint venture company and obtain a 33% stake in the joint venture company. The negotiations lasted for more than three months and finally came to an end in October 2003. On November 3, 2003, TCL International Holdings issued an announcement on the Hong Kong Stock Exchange regarding the establishment of a memorandum of understanding for a joint venture company. On January 28, 2004, TCL signed a formal cooperation contract with Thomson.The two parties jointly established TCL-Thomson Electronics Corporation (TTE for short), and TCL International Holdings and Thomson held 67% and 33% of the shares of TTE respectively. On July 28, 2004, TTE held an opening ceremony in Shenzhen to announce the establishment of the company. On August 1, TTE Company was officially registered in Hong Kong, and the company's operating headquarters was located in Shenzhen. Li Dongsheng served as the chairman of the new company.The new company has more than 29,000 employees, including more than 1,100 R&D personnel. It has 10 factories around the world, 5 R&D centers, and more than 20,000 global marketing outlets. It mainly promotes the TCL brand in Asia and emerging markets. Mainly promote the RCA brand, and mainly promote the THOMSON brand in the EU market. Its products cover all types from economical to luxury, from basic functions to high-tech, from analog systems to digital systems.According to the annual report released by the joint venture parties, in 2003, the total sales volume of TCL and Thomson's color TVs reached 18.5 million units, making TCL the world's largest color TV supplier. So far, the most important merger and acquisition case of TCL so far has finally come to an end, but it is a new beginning for future development. At the beginning of the merger and acquisition, Li Dongsheng, who had "sleepless nights" due to the merger risks pointed out in the risk assessment report, said, "Color TV is TCL's core industry, and we cannot afford to lose this battle." On the day the new company was listed, TTE announced that Announced its own strategic goal: TTE's future annual sales of color TVs will reach or exceed 30 million units. To achieve this goal, TTE has formulated three major strategies: growth strategy, synergy effect strategy and brand and new business expansion strategy.Through these, TTE's existing core competitive advantages can be brought into play.They include: first, a strong global research and development strength, which can reflect the application of the most advanced technology; second, the production base adjacent to major international markets enables the company to respond quickly to the changing needs of global customers; third, Tom The customer bases of the Sony, RCA and TCL brands in the EU, North America and China markets respectively. However, an unavoidable reality is that the color TV business sold by Thomson has been losing money for many years, and the total loss in 2003 was as high as 1.732 billion yuan. A burden to carry.For this, the outside world began to doubt whether TCL could absorb such a huge loss. Concerning the suspicion of the outside world, in June 2004, when he was interviewed by many media after a human resources recruitment conference of TCL Group, Li Dongsheng said: "TCL and Thomson will put their net assets into the joint venture. It is wrong to bear the debt of Thomson." "After careful calculation before the merger, Thomson valued assets such as patents, fixed assets and human resources at 300 million euros, but only accounted for 33% of the shares. The asset price and cash total about 220 million euros but account for 67% of the shares of the joint venture company, so we are very cost-effective.” At this media conference, Li Dongsheng confidently told the media that TTE plans to make a profit in 18 months. "I can say responsibly that TTE will be profitable in 18 months. Everyone can come and check in 18 months. My personal reputation is relatively good. In fact, I think we will be profitable in less than 18 months. .” However, according to the subsequent development, things did not go smoothly. After TCL Group acquired Thomson's color TV business and Alcatel's mobile phone business successively in the third quarter of 2004, it began to enter a state of loss in the fourth quarter of that year. In the first three quarters of 2005, TCL lost more than 1.1 billion yuan.The time came to January 29, 2006, which was the day when Li Dongsheng promised to be profitable in 18 months, but the result of the actual development was not as Li Dongsheng hoped. TTE failed to realize profitability in the end, and on the other hand, TCL continued to lose money In the first half of 2006, TCL lost 738 million yuan, an increase of 6.5% year-on-year. Since 2005, the market value of TCL Multimedia's stock has dropped from HK$1.65 billion to the current HK$927 million, a drop of nearly 50%. When the time came in October 2006, TCL Group announced that TCL Multimedia Europe, the most important subsidiary of TCL in Europe at present, would begin its transformation at the end of October and the beginning of November 2006. The main measure was to terminate all TVs except the OEM business. sales and marketing activities; most of the employees of TCL Multimedia Europe currently engaged in European business in Europe will also be reorganized; as part of the plan, some of TCL Multimedia's subsidiaries in Europe, including sales in Germany, Spain, Italy The company will be reorganized; TCL Multimedia will also realize its assets and inventory in Europe as the case may be. Cash requirements related to the restructuring are expected to be approximately EUR 45 million. TCL hopes to quickly restore the overall profitability of the color TV business through restructuring, but in yesterday's announcement, unlike in the past, TCL did not expect the turnaround time of the European market. As for the reasons for the reorganization, apart from the continuous loss, there is another problem that cannot be ignored, that is, TCL has been slow to respond to the rapidly growing demand for flat-panel TVs in the past two years, and its business focus is still on traditional CRT TVs.Li Dongsheng said, "We reacted too slowly to market changes." "The changes in the European market are very fast, far exceeding the speed that our management team can cope with." In Europe, sales of LCD TVs are growing faster than anywhere else. The core technology CRT (cathode ray tube) technology mastered by TCL's acquisition of France's Thomson color TV department has fallen behind the times, and now the mainstream product is flat-panel TVs.According to market forecasts, global sales of flat-panel TVs will reach 45 million units in 2006, an increase of 60% over 2005.The world's TV market has begun to move from the picture tube era to the flat panel era, but TCL did not adjust its strategic direction in time. As a result, it missed the opportunity in the LCD and plasma flat panel TV market. It was not until last year that TCL opened the first flat panel TV production center. factories, far behind rivals Sony, Samsung and LG.In the process of replacing LCD TVs with CRT TVs, the assets of the Thomson TV business acquired by TCL will not only fail to generate profits for the company, but will also impose a huge financial burden on the company.The pressure brought by the market has prompted TCL to consider transformation. Regarding the failure of the acquisition of Thomson's TV business, Li Dongsheng said he did not regret it.Because "going global is the only way for Chinese enterprises to expand" and "we are definitely moving in the right direction."So, through reorganization, in the days to come, can TCL be able to "rebirth of the eagle" as Li Dongsheng expected in "Rebirth of the Eagle"?Is this transformation suitable for TCL in the current situation?