In 3 years to replace China, Mexico occupies 60% of the US color TV market, and the core components still come from China

Three years ago, China's exports of color TVs still accounted for 60% of the US imported color TV market, and now it is a different picture. Today, Mexico exports color TVs that account for the largest share of the U.S. market, accounting for 60% of its market.

In the years of Sino-US trade frictions, Mexico has attracted investment from many color TV companies with its advantage of zero tariffs on trade with the United States. Color TV is an industry with mature technology and small profits. Chinese companies are also using Mexico as a manufacturing base, hoping to seize the US market.

Several business people interviewed by the first financial reporter said that China, Mexico and the United States have formed a color TV industry chain. The core components of color TVs still come from China, while the Supporting Industries in Mexico, as a manufacturing base, are becoming more and more mature, and the final products are marketed in the United States while taking into account the Central and South American markets.

Rush to Mexico

Yu Tao has been sent to Mexico for four years. As the general manager of Hisense's Mexican color TV factory, he is based in the Mexican border city of Rosarito, which is also home to Hisense's Mexican factory in the United States.

In the past few years, he has witnessed the great changes of Chinese companies in Mexico.

Hisense's factory originally belonged to the Japanese company Sharp. Japanese companies are losing ground in the color TV industry, and Hisense took over Sharp's Mexican factory in 2016 and intelligently upgraded the factory.

In the past few years, Hisense has continuously expanded its color TV production capacity in Mexico through continuous investment. According to Yu Tao's introduction to the first financial reporter, after Hisense completed the acquisition, the factory with an annual output of 600,000 color TVs was increased to an annual production capacity of 2.5 million units. By 2021, the plant's annual production will further increase to 8.5 million units, about four times in five years.

Chinese color TV companies set up factories in Mexico, which can be traced back to seven or eight years ago. TCL went deeper into Mexico earlier than Hisense. With the decline of some Japanese color TV brands, in 2014 TCL acquired the Mexican factory of Japanese company Sanyo.

These two leading Chinese color TV companies have established their own North American production bases in Mexico through the acquisition of japanese factories, and rely on this base to radiate the entire American market.

Zero tariffs are the biggest advantage of Mexican products entering the U.S. market. According to the "U.S.-Mexico-Canada Free Trade Agreement", Mexican color TVs exported to the United States are 0 tariffs, while China's exports of color TVs to the United States are subject to 11.4% tariffs.

The city of Monterrey in central Mexico has also been a hotspot for investment by Chinese home appliance companies in recent years. Hu Hai, chairman of the North American Huafushan Industrial Park in Monterrey, told the first financial reporter on July 6 that mexico's hydropower costs are similar to China's, and labor costs are a little cheaper than China's. The average Mexican worker earns about $300 a month without working overtime, plus social security, about $400, but Chinese workers are more efficient.

"Manpower, water and electricity costs are not the most important reason, behind the Construction of Factories in Mexico by Chinese home appliance companies, it is mainly because of Sino-US trade frictions." Hu Hai said that the original manufacturing industry was the optimal combination of globalization factors, and now it is regionalized, and the new manufacturing is concentrated in North America, the European Union and ASEAN. The US market wants products to shorten the supply chain, which has become more and more significant in the past few years and has become irreversible.

The color TVs that Hisense exports to the U.S. market are basically exported from Mexican factories. The lcd panel, the core component of the color TV, is mainly imported from Chinese mainland and Taiwan.

In order to further reduce costs and respond more quickly to market demand, enterprises have also driven supporting enterprises in the industrial chain to land in Mexico. Hisense has increased its localization investment and expansion, introduced the localization of raw materials such as injection molding, sheet metal, diaphragm and packaging materials, and the localization rate of the main components of its color TV products has reached more than 20%.

For those parts that Cannot be produced in Mexico, Hisense cooperated with China's Ocean Shipping Group (COSCO) to open a route from Qingdao to Ensenada Port in 2017, which can reach Mexico from Qingdao in 14 days, greatly shortening the supply chain cycle and saving 7 to 10 days compared with the original route through the Port of Long Beach in the United States. Moreover, COSCO's routes now run once a week and respond faster.

Customs data show that from January to May 2022, the amount of LIQUID crystal flat panel display modules exported by China to Mexico fell by 35.7% year-on-year. The industry estimates that this may be because the price of panels continues to decline this year and the US color TV market is not up to expectations, and the color TV brand factories have reduced the purchase of panels.

Manufacturing costs in China have also increased in recent years, with increases in labor, land, water and electricity, rents, and taxes offsetting the original cost advantages, and the epidemic has increased the cost of ocean logistics. Hu Hai believes that Japanese and Korean brands that compete with Chinese brands in the U.S. market have achieved localization of production. China's large-scale home appliances are increasingly unsustainable through ocean shipping to the United States.

Replace Chinese exports

"Mexico's color TV production capacity is mainly to meet the needs of North America, especially the US market." Zhang Bing, research director of Omdia China, told the first financial reporter.

Citing data from the ITC (U.S. International Trade Commission), he said that in January 2019, China's exports of color TVs accounted for more than 60% of the market share of color TVs imported from the United States, and Mexico's exports of color TVs accounted for about 30% of the market share of color TVs imported from the United States; By February 2022, Mexico's export of color TVs accounted for 60% of the market share of color TVs imported from the United States, and China's exports of color TVs accounted for less than 20% of the market share of imported color TVs from the United States.

The data provided by the China Chamber of Commerce for Import and Export of Machinery and Electronics to the first financial reporter shows that in the past five years, affected by trade frictions, the share of China's export color TV in the US imported color TV market has decreased year by year, 55% in 2018, 42% in 2019, 31% in 2020, 20% in 2021, and a total of 19% in January-April this year; The share of mexico, Vietnam and Thailand's export of color TVs in the US imported color TV market has risen steadily, 76%, 5% and 2% last year, and 76%, 7% and 4% from January to April this year, while the corresponding share of China's exports of color TVs to the United States has dropped from 12% to 10%.

"In the past 2-3 years, mexico's color TV production capacity layout has grown rapidly, the most important thing is that the first-line brand manufacturers have caused higher import tariffs to avoid Sino-US trade frictions, and the epidemic has led to a surge in us market demand." Zhang Bing thinks.

In the past two or three years, not only Hisense, TCL has expanded color TV production capacity in Mexico, and China's panel manufacturer BOE (BOE) has also set up a color TV processing plant in Mexico in 2021 to increase the panel "sea outlet", which has 4 production lines in Mexico. In addition, Guanjie, Foxconn and others have also set up color TV foundries in Mexico.

Lu Yong, secretary general of the Audiovisual Branch of the China Chamber of Commerce for Import and Export of Machinery and Electronics, told the first financial reporter that TCL supplied nearly 6.9 million color TVs to the US market in 2021, and 7.3 million units in 2020 (after the outbreak of the epidemic that year, the government's consumption stimulus policy amplified demand). TCL has several sources of production, one is the Huizhou base, after the United States imposed tariffs, it is basically unable to ship to the US market; The second is the Mexican base, TCL has two plants, MASA and MOKA, with an annual output of nearly 1.8 million units; The third is the Vietnam base, with an annual output of more than 3.5 million units; The fourth is the Indian base, which was put into operation last year and can be integrated into the production of modules and complete machines.

TCL related sources told the first financial reporter that the color TV products of TCL's Mexico factory are mainly 32-65 inches, and the panels are purchased from Chinese mainland or Taiwan, mainly for the North American market.

TCL Mexico color TV factory was the first to produce large-size LCD TVs to reduce international logistics costs, and in recent years, with the increase in US tariffs and soaring shipping costs, locally produced TVs have covered full size.

China is the world's largest producer of color TV and LCD TV panels, with the contraction of the domestic color TV market, expanding overseas markets is the only way. The US color TV market is huge and should not be abandoned. According to the U.S. Census Bureau, the U.S. color TV market imports 54.9 million units in 2020, 49.2 million units in 2021, and 10.48 million units from January to April 2022.

Li Dongsheng, founder and chairman of TCL, once said that under the new international trade situation, the internationalization of Chinese enterprises will change from exporting products to exporting industrial capabilities.

"Supply nearby is the direction of the future." Lu Yong said.

A arena for Chinese and Korean companies

The United States is the world's largest color TV market, and the competition is also very fierce. Before TCL and Hisense, Japanese and Korean companies laid out Mexican color TV production capacity earlier.

With the decline of some Japanese brands, Sanyo and Sharp's Mexican color TV factories have been transferred to TCL and Hisense, while the color TVs sold by Sony in the United States are mainly handed over to Foxconn's Mexican factory.

At present, South Korea's Samsung has its world's largest color TV factory in Mexico, with a production of 15 million units a year, covering the entire American market, and it has a deeper supply chain in the local supply chain, and many suppliers have brought it from South Korea.

In today's U.S. market, the main competitors are color TV companies in China and South Korea. South Korea's Samsung and LG are still in the leading position in the North American color TV market, and Chinese companies are closely following.

At the 2021 annual performance briefing in May this year, TCL revealed that its TCL smart screen (color TV) sales ranked second in the United States in 2021, third in Canada, fourth in Mexico, and fourth in Brazil and Argentina.

Does Mexico have the ability to become a completely self-circulating industrial ecology?

Yu Tao believes that it is "difficult" because Mexico does not have a complete industrial system like China, small parts are basically imported from China, and China still has advantages in supply chain and manufacturing.

Talking about the challenges and difficulties of the development of Chinese enterprises in Mexico, Yu Tao believes that enterprises must adapt to local culture and laws, and second, they must integrate with local employees, which generally takes one or two years. After the company integrates the local culture, it can start to develop at a high speed.

According to Yu Tao, Hisense is currently building its white goods industrial park in Mexico at Monterrey, covering refrigerators, washing machines, kitchen appliances, etc., and is expected to be put into production this year.

Zhou Nanxiang, secretary general of the Home Appliance Branch of the China Chamber of Commerce for Import and Export of Machinery and Electronics, analyzed to the first financial reporter that trade barriers and the impact of the epidemic are causing global industries to shrink near the local market. Originally considering production in a low-cost place, it is now considering producing in a safe and reliable place. Mexico has become an important home appliance production base for the U.S. market after China. China's home appliance companies adhere to globalization, one is to follow the national policy, the other is to follow the market, and the global layout of the supply chain should have a long-term vision.