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Chinese TV Maker Sharpens Focus on Europe

"The problem with that low-cost advantage is that it isn't transferable," said Arthur Kroeber, managing editor of the China Economic Quarterly. "When they move to another market, it's gone. This whole home court advantage . . . disappears."

Executives at Hisense assert there is no choice but to try. In China, competition for consumer products is so intense that even top producers struggle to profit. Prices of televisions in China, for example, dropped by one-fifth every year from 1996 to 2000, according to Sino Market Research. In negotiating for IBM, Lenovo was in part motivated by its loss of share in China's highly competitive domestic computer market.

Hisense was among the vendors at Beijing's Appliance World Expo. The firm wants to establish a TV brand for which consumers will pay a premium. (Cui Hao -- Imaginechina/zuma Press)

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For Hisense, going global is about increasing the scale of production so it can get better deals on raw materials, while establishing a brand for which consumers will pay a premium.

"It's a question of survival," said Cheng Kaixun, vice president of Hisense Co. Ltd., in an interview at the company headquarters in the coastal Chinese city of Qingdao. "If we can't be strong overseas, we'll die."

Hisense began as the Qingdao City Number Two Radio Factory in 1969, when China was in the throes of its disastrous Cultural Revolution. With capital from the city government, 30 self-proclaimed revolutionary workers made AM radios to spread the message of class struggle. The next year, the firm produced its first black-and-white television.

As China took its first steps toward capitalism, the company evolved. In 1979, it produced more than 6,000 television sets. A decade later, it expanded into the computerized cash register business and adopted the name Qingdao Hisense Group. In 1997, the company sold shares on the Shanghai stock market and expanded into security systems and software. Today, Hisense employs more than 10,000 people in seven Chinese factories, with sales of more than $2.75 billion. Despite the stock sale, it remains majority government-owned.

A walk through Hisense's newest factory in Qingdao, where 400 workers make flat-panel televisions as large as 50 inches, reveals the low-cost culture. Two teams of 80 workers who earn about $100 per month labored under a digital display showing how many sets they had already completed and how many remained to reach their target of 1,700 for their 12-hour shift.

"If you succeed, you get paid more," explained a technician, An Yujiang. "If you cannot, you will be punished."

Hisense made its first foray abroad in 1996, buying a stake in a South African factory and distributing televisions across southern Africa. Two years ago, Hisense forged a similar partnership with a factory in Pakistan. It has operations in Algeria and Iran as well. Where skeptics once questioned whether China could make its own goods or be consigned to assembling parts produced elsewhere, these factories now use local labor to assemble kits made by Hisense at its factories in China.

Amid its expansion, one key region remained closed -- Europe, which comprises nearly one-third of the global consumer electronics market.

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