VZCZCXRO1152
PP RUEHGH RUEHVC
DE RUEHCN #0262/01 3220748
ZNR UUUUU ZZH
P 180748Z NOV 09
FM AMCONSUL CHENGDU
TO RUEHC/SECSTATE WASHDC PRIORITY 3525
INFO RUCPDOC/USDOC WASHDC PRIORITY 0023
RUEHOO/CHINA POSTS COLLECTIVE
RUEHCN/AMCONSUL CHENGDU 4229

UNCLAS SECTION 01 OF 02 CHENGDU 000262 
 
SIPDIS 
 
DEPT FOR EAP/CM 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD EINV PGOV KIPR KNNP CH
SUBJECT: SW CHINA ELECTRONICS GIANT SETS SIGHTS ON U.S. MARKET, SEEKS 
TO BECOME A GLOBAL PLAYER IN 10-20 YEARS 
 
CHENGDU 00000262  001.2 OF 002 
 
 
¶1. (U) This cable contains sensitive but unclassified 
information - not for distribution on the Internet. 
 
 
 
¶2. (SBU) Summary and Comment: Sichuan electronics giant 
Changhong recently told us success in the U.S. market, elusive 
up to now, would be a litmus test of its arrival as a major 
global player.  The company's long-term strategy includes 
building a single worldwide brand name, and strengthening 
quality control so that it is able to compete on more than just 
price.  Changhong's chairman frankly compared his firm's 
relatively weak position in overseas markets to that of Korean 
companies such as Samsung in the 1980s; at the same time, he 
boldly predicted Changhong would become a world-class 
electronics firm in 10-20 years. 
 
 
 
¶3. (SBU) Comment: Changhong noted it is resolving unspecified 
"patent issues" in Europe and the United States.  These 
difficulties may be helping Chongqing, like some other Chinese 
companies, slowly realize that it will be impossible to operate 
successfully as a world-class multinational without showing more 
respect for intellectual property rights.  End Summary and 
Comment. 
 
 
 
International Partnerships, Domestic Base, One Brand 
 
--------------------------------------------- ------- 
 
 
 
¶4. (SBU) Changhong Chairman Zhao Yong told Consul General 
November 12 that his company already enjoyed a number of 
successful partnerships with international corporations such as 
General Electric, IBM, Dell, Intel, and Samsung.  He said that 
his company's products, which include flat-panel televisions, 
mobile phones, and an array of other consumer electronics, were 
selling better in Australia and Europe.  Changhong, which is 
based in Sichuan Province's second largest city, Mianyang 
(septel), already enjoys a sizeable share of China's domestic 
market for LCD and plasma televisions. 
 
 
 
¶5. (SBU) Zhao stressed that the company would concentrate on 
building a single worldwide brand name: "Changhong" (i.e. a 
strategy similar to that of Japan's "Sony").  The company had 
struggled with its branding strategy for 10 years, and in 2005 
even hired a U.S. firm to explore the idea of selling Changhong 
products under different names in different markets.  While some 
executives were still concerned that that Western markets might 
not respond well to the Changhong name, recent stronger sales in 
Europe (300 million Euros) have allayed their doubts, he said. 
 
 
 
U.S. Market the Highest Goal, Despite Previous Problems 
 
--------------------------------------------- ---------- 
 
 
 
¶6. (SBU) The United States is Changhong's largest potential 
market, Zhao stressed, adding that his firm could never truly be 
a global company without a major U.S. presence.  Changhong's 
international sales currently account for USD 700 million, or 
roughly 10 percent of total sales.  Ambitiously, Zhao hopes to 
grow this number to 30 percent over in the next three years. 
 
 
 
¶7. (SBU) Changhong previously encountered patent problems in the 
United States, and in Europe, Zhao said.  It had resolved these 
problems in Europe, and soon hoped to negotiate settlements of 
them in the United States as well, he added.  (Note: Press 
reports indicate that U.S.-based TV maker Zenith sued Changhong 
in 2004 for violating two of its patents.  Changhong reportedly 
agreed to pay a patent fee to Zenith, but has not paid it so 
far, according to Changhong former U.S. distributor, APEX, which 
has had its own legal problems with Changhong.  End Note.) 
 
 
 
Expanding Foreign Manufacturing, 
 
CHENGDU 00000262  002.2 OF 002 
 
 
 
But Still Lack International Competitiveness 
 
-------------------------------------------- 
 
 
 
¶8. (SBU) Changhong has established manufacturing bases outside 
China, and company officials seek to staff these operations, at 
least in part, with relocated Chinese managers and engineers. 
Zhao said his company had already invested USD 130 million in 
two factories in South Korea, and also had factories in the 
Czech Republic and Indonesia. 
 
 
 
¶9. (SBU) Unprompted, Zhao frankly acknowledged that Changhong 
products were weak competitors when compared to major Korean and 
Japanese brands, and needed to compete mainly on price.  He 
compared Changhong's weak, current market position to that of 
Korean brands in the 1980s (which were then just starting to 
compete, mainly against the Japanese majors).  He confidently 
asserted, however, that Changhong would be a global player 
within 10-20 years.  (Note: According to press reports, the high 
rejection rate by U.S. consumers of Changhong products -- 
reaching double digits -- was a source of contention between it 
and former U.S. distributor, APEX -- suggesting that poor 
quality has been a major problem.  End Note.) 
 
 
 
¶10. (SBU) Comment: Changhong flat panel televisions are among 
the least expensive brands available locally in Chengdu, and 
appear to sell well.  One ConGen LES said that the most Sichuan 
homes have a Changhong television.  A visual comparison of 
picture quality between Changhong and other major brands of 
televisions from Samsung, Sony, and Philips, reveals that 
Changhong's picture quality appears to lag behind the more 
expensive foreign brands.  As with pirated DVD movies -- many of 
which have lower picture quality than legitimate copies -- most 
consumers in southwest China currently rank price above quality 
in their electronics and other consumer purchasing decisions. 
End Comment. 
BROWN