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Chinese TV Maker Sharpens Focus on Europe

Throughout the 1990s, the European Union accused China of exporting televisions at unfairly low prices, and slapped duties of 40 percent on most Chinese-made sets. The EU lifted the duties in 2002 and opened the market to seven major Chinese television-makers. But even then, Europe imposed quotas on how many sets could be imported and mandated minimum prices.

"We had to compete head to head against Sony and Phillips and we couldn't cut our prices lower," Cheng said. From 2002 to 2003, Hisense sold 2,500 televisions across Europe.

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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The entry of new member states to the European Union this year opened a key portal. Now, a Chinese firm could establish a factory somewhere inside the expanded Europe and ship goods to any other member states free of duties and quotas.

That gave impetus to the merger last year of China's largest television maker, TCL Group, and the French manufacturer, Thomson. As part of the deal, TCL gained control of the RCA brand in the United States as well as factory operations in Poland and Mexico.

In August 2003, Hisense executives visited Hungary, Poland and the Czech Republic to seek ground for a new factory. All three countries were former Communist lands well on the path to capitalism. All three offered central positions in the new Europe as well as relatively cheap and skilled labor -- the same mix that has prompted dozens of major western European brands to shift manufacturing there.

In Sarvar, a town of pastel-colored homes in the flatlands of western Hungary, Hisense found a community keen to attract foreign investment to counterbalance the negative forces of globalization: Only months earlier, Microsoft Corp. had shifted production of X-Box game consoles from a Sarvar plant to China.

Sarvar had a key asset -- an industrial park run by Flextronics, a Singapore firm that makes products for name brand electronics companies. Hisense had already hired Flextronics to make mobile phones at a plant in Shenzhen, China. Now, it struck a deal to have Flextronics make its televisions.

Sixty percent of the value of the parts and labor used must come from within Europe to qualify for the locally made designation. The rest can come from China, allowing Hisense to capitalize on its low-cost base. Though its European manufacturing costs are three times what they are in China, the lack of import duties makes the equation profitable, the company said.

The man charged with making the plan work was a reluctant recruit. Small and nervous, Wu, 34, was raised in the northern Chinese province of Shandong. Fresh out of graduate school, Hisense dispatched him to the remote northwestern province of Gansu, one of China's poorest areas, and a new venue for the company. In less than two years, Wu locked up one-fourth of the market, prove of his ability to build a new business in frontier conditions.

Hisense then dispatched him to one of its most lucrative markets, Zhejiang province, a fast-developing coastal region south of Shanghai. He reveled in his life in the provincial capital, Hangzhou, famed for its lake dotted with pagodas. When the chairman tapped him for the Hungary post, he demurred. He had a wife and a 2-year-old son and preferred to stay home.

But in China today, career ambitions usually trump family concerns. Wu ultimately traveled to Sarvar alone and resides here in a three-story manor house with four Hisense technicians and two company sales agents.

Despite the tennis court, the crystal chandelier and the marble bird bath in the garden, their lifestyle seems more frat boy than corporate titan. Empty beer bottles line the kitchen walls. Laundry dries on racks in the sun porch. Wu's bedroom is bare save for four flat-panel televisions and pants flopped over the door of a wardrobe. His office is set up in the foyer, naked telephone wires and printer cables snaking along red carpet.

Wu still struggles with his alien surroundings, his Hungarian vocabulary now expanded to three compact phrases: "thank you," "no" and "The bill, please." He is flummoxed by the paprika and potatoes in the local diet. He dislikes bread.

"We prefer to buy rice and cook ourselves," he said.

But if his existence feels improvised and strange, the results appear to be paying off. Hisense plans to ship in a second assembly line next year to make 40-inch liquid crystal display televisions.

"We are famous in Europe now," Wu says, perhaps getting ahead of himself. "Our customers know us."

Special Correspondent Jason Cai contributed to this report from Shanghai.

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