Last US television maker races to keep up with Japan
Chicago — Last year, Zenith Electronics Corporation won an Emmy. The award, which was for engineering - not acting - was granted by the National Academy of Television Arts and Sciences for the development of a new technology for broadcasting stereo sound. In an alliance with the Bose Corporation, Zenith has put this technology to use in digital circuitry televisions that project stunningly clear stereo.
The stereo television is just one among an array of new products introduced by the Chicago-based television and electronics company as part of its drive to stay abreast - or even ahead - in the competitive consumer electronics field. Zenith developed a ``flat tension mask'' picture tube designed to reduce glare for computers, which will show up on televisions in 1988. A special-effects videocassette recorder with such digital attractions as a ``picture within a picture'' for simultaneous television and VCR viewing is another Zenith product.
Zenith, soon to be the last American company with a United States television manufacturing plant, may discover that its technological thrusts are no match for the dominating kingpins of the television industry - the Japanese. With plants spread around Asia and the US, the Japanese companies match their American competitors in market share in this country today, at 29 percent; in 1982 Japan had 15 percent, while the US had 60 percent, according to Television Digest.
Marshall Field & Co., Chicago's giant department store, offers consumers a bewildering variety of television sets. The large-screen sets range from RCA to Gold Star to Mitsubishi to Sony. Small sets include Emerson, Sharp, and Toshiba - brand names dominated by the Japanese.
American companies like Zenith are trying to confront their Japanese competitors with efficient production costs and a technological edge. But they are behind in the battle for price. To top it off, the slowly sinking dollar by all rights should have driven up the price of television sets, but the Japanese have chosen to swallow profits rather than increase prices and lose market share. As Laura Lederman, an analyst with Duff & Phelps, a Chicago securities firm, concludes about Zenith's plight, ``They've got good products, but in a market where prices are falling, quality is not good enough.''
Prices are indeed falling. They are down more than 4 percent, from an average of $343 per color TV in 1984 to $329 this year, according to the Electronic Industries Association. Meanwhile, Zenith's share of the American market has also dipped from 17.5 percent three years ago to 14.5 percent now, Television Digest estimates. Zenith's 1987 selling prices for color TVs fell 5 percent below last year's.
The combination of lower prices and smaller market has been deadly for Zenith. The company recently announced that another 100 people would be laid off as part of a goal of retiring or dismissing a total of 500 salaried employees in Zenith's North American electronics group. Two years of losses, and a nine-month 1987 financial statement in the red, have convinced Zenith that drastic measures are in order. Consumer products, mainly televisions, accounted for more than 60 percent of the company's sales in 1986.
Ironically, Zenith can be credited with imitating a strategy pioneered by the Japanese almost 20 years ago: sound manufacturing practices and investment in new technology. In the 1960s, the Japanese pounced on solid-state and transistor technology, while American makers stodgily stuck with color tube production and tried to beat the competition through cheaper, foreign labor.
``The television manufacturers made a couple of errors when confronted with Asian competition,'' said Jeffrey A. Hart, a professor of political science at Indiana University at Bloomington. ``Their first analysis was that labor costs were the problem. The second major error they made was to continue with tube technology on color while moving to transistors on black and white rather late.''
American companies balanced their reliance on outdated technology and overseas labor with congressionally mandated import controls in the early 1970s that gave them breathing room - yet they failed to modernize. Gradually they relinquished black and white production to Japan, Korea, and Taiwan. Then, except for Zenith, they abandoned domestic plants in favor of outsourcing to Mexico and Asia.
Zenith, however, is an odd bird in a field full of companies with factories littering the globe. Picture tubes, wood and plastic cabinets, and the bulk of its color TV components are manufactured in the US. Tempted to move plastic molding production to Mexico, Zenith struck a deal with the union in Springfield, Mo., to make a five-year production commitment there in exchange for an 8.1 percent wage cut over the next three years.
That arrangement may signal a trend among American manufacturers to keep their plants close to home.
Indiana University's Mr. Hart believes the Zenith/Bose partnership may succeed, because ``they compensate for higher production costs by being close to the market and by having access to engineers.'' The Zenith spokesman conceded, however, that although Taiwan is halfway across the globe, Mexico is near enough to make it an attractive alternative.
General Electric has taken a different tack. Looking for a worldwide presence, in July GE agreed to sell 80 percent of its consumer electronics line, including the RCA brand, to the French company Thomson.
In contrast, the Japanese have taken to outsourcing with a vengeance, particularly now that the exchange rate is unfavorable and American protectionism is an ever looming threat. Sony, for example, manufactures all of its picture tubes and assembles televisions in San Diego for the American market.
``Generally, Sony's policy is to try to produce as much product in a market as is sold there. Now, with the dollar/yen relationship, that makes more sense,'' a Sony spokesman said. In fact, 18.2 million color televisions were bought here last year, according to the Electronic Industries Association. Between 40 and 45 percent were imported, according to industry sources.
Despite the strength of the Japanese brand names, the No. 1 source of imported televisions in this country is Taiwan. Many American and Japanese companies operate plants there. Korea is second, followed by Mexico. Mexico, however, is the top source of imported chassis and kits that are assembled in the US.
Among retailers, Montgomery Ward, for example, sells TVs under its own label that are manufactured in Taiwan, Korea, Malaysia, and the US. Montgomery Ward also sells better-known brand names like Magnavox, Hitachi, and Toshiba. The pricing pressure is even starting to affect retailers. J.C. Penney will abandon store sales of TVs when inventory runs out in favor of higher-profit-margin apparel.
Zenith's future is representative of much of American manufacturing. What are its chances of success?
Ms. Lederman at Duff & Phelps is far from optimistic. A declining dollar has failed to persuade Japanese competitors to raise prices. Zenith's only hope is further trade legislation in Congress, she reasons. A staff assistant in the House Ways and Means subcommittee on trade said current legislation would close a tariff loophole concerning imports of ready-to-assemble color televisions.
Also, the Commerce Department recently ruled that color picture tubes from Canada, Japan, South Korea, and Singapore are being dumped in the US. The International Trade Commission will soon decide whether to impose anti-dumping duties. Last year, the four countries sold picture tubes worth $105 million to this country. But the legislation - and perhaps any import controls - are likely to have little effect on hard-pressed US companies.
Edward Lincoln, a Brookings Institution economist, thinks American color TV companies, through overseas production, deserve high marks for survival. ``In consumer electronics as a whole we've done very badly. In color televisions, we've done fairly well. We seem to be holding our own in a way we haven't in VCRs,'' he said. He points to America's 29 percent market share as evidence of market strength.
How long the Japanese will accept dwindling margins is an important unknown. In technology, Japan appears to be ahead of the US. It has perfected a new high-definition TV receiver and broadcasting system that could be in use in this country by the 1990s.
If the Japanese back off from price-cutting, and if the American companies can profitably put themselves in the high end of the market, they may find their race to stay afloat is not in vain.