TV industry transfer: United States assembled TV

In Canton, a suburb of Detroit, in the past four weeks, a team of 45 workers in gray overalls has been doing something that no one has tried in the United States for at least the last four years.

They are making televisions.

This brand new assembly line was housed in a spacious factory room in Canton, which once produced old CRT TV sets. Their first product, a 46-inch flat-screen TV, will soon be sold at Target's chain for $499.

This project is an unusual result of a cooperative relationship between an American brand company and a Chinese manufacturer. It relates to the marketing of televisions made in the United States and the global transfer of manufacturing.

The American company is Michael O'Shaughnessy, president of Element Electronics in Eden Prairie, Minnesota. "We think this trend is driven by the economic environment." This company has already sold six years of China-made Element brand televisions in the United States.

There is no doubt that the cost of manufacturing in China is increasing with the increase in wages and other expenses such as transportation expenses. At the same time, the slowing wage increase in the United States and the rapid progress in production efficiency have led many American factories to regroup and grow into increasingly compelling competitors. Recently, a Boston Consulting Group survey of large US domestic producers found that more than one-third of US companies plan or are seriously considering returning jobs from China to the United States.

But Element's move also shows the limitations of the U.S. soil in restoring certain types of products. In addition to the factory that is currently assembling the TV for Element, the only domestic TV assembler in the United States is a small manufacturer in California that manufactures waterproof molds for outdoor use. And, in fact, the United States does not have a supply base for those important components at all, such as glass screens. As a result, all the key components needed to assemble a TV set will eventually have to be imported.

In the United States, there is hardly any industry like TV manufacturing. In the 1950s, there were about 150 local manufacturers in the United States; by the 1960s, the number of employees in the industry had reached a peak, with about 100,000 people. Afterwards, imported goods came from Japan, followed by other Asian countries. Although the TV makers in the United States have tried their best, they have disappeared in the last ten years. The Syntax-Brillian company in Tempe, Arizona, announced in 2006 that they had opened a manufacturing facility in Ontario, California—however, its operation lasted only two years. Flat-panel televisions have made the industry more concentrated in the Far East. Because of the larger size of CRT TVs, the weight and size of the glass will lead to increasingly high transportation costs. This is a factor that makes American products self-protected against the impact of imports. In contrast, flat-panel TVs are small and more robust.

Element stated that they decided to assemble TVs in Detroit considering that they would not have to pay about 5% of the tariffs on imported TVs, and sending final finished products from the central US region to each retailer would reduce transportation costs. All of the accessories are imported - this is one of the reasons why the product can only be marked as "Assembled in the United States."

According to Mr. O'Shaughnessy’s estimate, on a 46-inch TV, the average cost of tariff savings is US$27, enough to “pay for labor costs” in Detroit.

The company declined to provide more detailed information, but stressed that their production methods in the United States are optimized. If they are assembling components in China, it may be necessary to divide the production line into several steps to complete.

The first televisions assembled for Target consist of 52 components and require 24 procedures, including factory testing and final packaging.

Element's Chinese partner is TongFangGlobal Limited, a subsidiary of TsinghuaTongfangCo., a Chinese company that is responsible for TV production. Its chief operating officer, MickeyCho, said that Canton was only aiming at making goods. The first step to a "global layout" that is closer to sales.

He said, "Our Chinese suppliers also want to invest in the United States. As long as there are people who guide them, they will follow."

Shawn Dubravac, chief economist of the Consumer Electronics Association (Consumer Electronics Association), said that television manufacturers once again focus on domestic production, there must be "economic reasons" - although currently So far, only Element has dared to take this risk.

Dubravak pointed out that "the difference in labor costs between the United States and China is not as great as before." Automation in any region has reduced the amount of labor needed to assemble a TV set.

This project has indeed received some suspicions. Paul Gagnon, director of North American TV market research at DisplaySearch, Santa Clara market research firm, said that for Element, the real competition comes from factories in neighboring Mexico, not from China. About half of the TVs sold in the United States each year are made in Mexico and use parts imported from Asia—a model that eliminates high import tariffs and makes good use of Mexico’s low labor costs.

Geignon said, "I really didn't see any advantage in making television in the United States unless there is marketing considerations."

However, O'Shaughnessy insists that their production in the United States makes sense. He stressed that although TVs produced in Mexico have relatively low labor costs, they still cost more in terminal transportation. In the end, he said, TV sets made in Mexico and TVs in Michigan "will be very close to the total cost."

Marketing products assembled locally in the United States is part of Element's strategy and the company believes the move is valuable. When this batch of U.S.-made TVs was sold, the entire side of the box was decorated with bright red, white, and blue flag designs. O'Shaughnessy said that he first showed retailers a more subtle, subtle design, but retailers proposed to have a big banner. At the same time, there is a television set on the box showing American workers working in the Detroit TV assembly line. When the company produced this package, they had to hire actors to simulate the way the workers work, because real production at that time had not yet begun.

But even these boxes reflect the difficulties of using the domestic resources of the United States for production. The first batch of television sets was shipped in boxes imported from China. O'Shaughnessy said he hopes that by the end of the year, Scott Nygaard, vice president of the electrical division of Target Group, a local supplier of cardboard boxes, plastic liners and other packaging, will be able to find a statement. He said that he believes that the local identity of these television sets is an element of "adding flowers to the cake".

QVC, which also plans to sell these home-made Element TVs, said that the new factory shows how Element is “far left and right”.

So far, the production of the new factory is still at a small scale. This factory is owned by Lotus International Co., which is mainly responsible for TV repair service for Element and other TV manufacturers. The factory's factory building has an open space and can accommodate five assembly lines.

At the factory's walk, O'Shaughnessy stopped at the side of the assembly line by a tri-color-patterned box. He said, "It is difficult for you to understand the trouble in the TV market."