Flat-panel TVs display effects of globalization
Costs come down for consumers, but U.S. companies, workers pay

To understand the trade-offs inherent in 21st-century borderless commerce, consider one of the hottest items in consumer electronics: the flat-panel television set.
It begins in spotless, state-of-the-art fabrication centers in South Korea, Taiwan and Japan, where the glass panels that form the televisions' heart are produced. From there, the panels travel to Mexican plants clustered along the U.S. border to be assembled into cabinets and loaded onto trucks bound for retailers such as Circuit City or Wal-Mart.
Each link in this global supply chain specializes in what it does best and at lowest cost. By collaborating across time zones and oceans, these industrial networks have driven costs down and performance up in ways no single company ever could. With scores of brands jostling for attention -- from global icons such as Sony to newcomers such as Olevia and even "virtual companies" such as little-known Vizio -- a fierce price war is giving consumers more TV for less money with each passing day.
Dan Moll of Arlington, Va., just spent $4,000 on a 50-inch Pioneer Elite plasma TV after watching the price fall 25% in four months. "It's phenomenal. It's beautiful. ... It just looks great," he says.
The one-two punch of globalization and technological advances that define this industry, however, entails costs as well as benefits. Earlier this year, as manufacturers continued migrating from conventional cathode ray tube televisions to the new flat-panel TVs, workers in South Carolina and Arkansas who were producing the old models saw their jobs disappear. Flat-panel production is centered in Asia, the legacy of decisions by the American companies that invented the technology to leave the development of consumer products to others.
The furious price-cutting that cheers consumers also has exposed management weaknesses at one major retailer, Circuit City, leading last month to the replacement of 3,400 sales clerks and back-office workers with lower-paid hires. The unexpected speed of the flat-panel price declines is compelling Circuit City, which operates 655 stores in 158 locations across the USA, to compress a planned two-year restructuring into a single year, says spokesman Bill Cimino. "We're having to speed up some of the changes we've planned because the flat-panel TV pricing has come down so quickly. ... We don't have the luxury of time," he said.
Flat-panel technology was pioneered by RCA in the late 1960s. But after RCA and rivals Westinghouse and Xerox opted not to pursue it, Japanese companies such as Sharp were the first to produce consumer products using the thin screens. In the early 1990s, as the bursting of Japan's bubble economy crimped investment, leadership passed to South Korean competitors. When South Korea stalled after the 1997 Asian financial crisis, Taiwan elbowed in. Now, China, too, is making its push.
Falling costs
The high levels of capital, skilled labor and technology required were more than any single company possessed, so "meta-national" networks emerged, according to Tom Murtha, a business professor at the University of Illinois at Chicago. By cherry-picking talent and capital from around the globe, these cross-border alliances breached technological barriers at a blistering pace.
With each succeeding generation of technology, costs fell as the large glass sheets (called substrates) used to produce the individual TV screens grew larger. In 1990, just four 8.4-inch screens could be harvested from the first substrates. Today's seventh-generation yields six 42-inch TV screens.
"This is such a closely knit world, and such an international business," says Vincent Sollitto, chief executive of TV maker Syntax-Brillian. "We have to be an international company."
Last year, flat-panel sales worldwide reached $86 billion, up from $3.2 billion in 1990, according to Murtha, who led a study of the industry for the Alfred P. Sloan Foundation, which funds a variety of economic and technology research projects.
In the USA, well-known names such as Sony of Japan and South Korea's Samsung account for 45% of flat-panel consumer sales, according to research firm DisplaySearch of Austin. Lesser-known companies such as Tempe, Ariz.-based Syntax-Brillian, which sells the Olevia brand, also have witnessed strong growth. But the purest expression of the industry's global character can be seen in the growth of streamlined enterprises such as Vizio of Irvine, Calif. The 5-year-old, privately held company last year sold $704 million worth of LCD and plasma TVs through Costco and Sam's Club stores and expects to hit $2 billion this year.
Yet Vizio has just 85 employees in the USA, most of whom are customer service representatives. For each of its models, Vizio assembles a team of supplier partners strung across the globe. Its 42-inch LCD unit, for example, contains a panel from South Korea, electronic components from China, processors from the USA and is assembled in Mexico.
"We try to keep it pretty lean by utilizing global resources," says CEO William Wang. "How they built a television 20 years ago was very different than how they build it today. Instead of one company doing everything, now it's more global. ... It's more team work."
Last year was a watershed for the flat-panel business. Thanks to a flood of investment in new factories by major manufacturers, stores ended up with far more TVs than needed, triggering steep retail price declines. Panasonic, for example, accumulated a large inventory of plasma TVs in Europe, anticipating strong demand from fans of soccer's World Cup. When sales fell short, Panasonic shifted the stockpile to the U.S. market, fueling a price war as other makers scrambled to keep up, says Eddie Taylor of DisplaySearch.
Steep price declines
By Christmas, prices for the most-popular LCD and plasma models had fallen about 40%. Shoppers rushed to purchase the sleek units with crystalline screens. "It was really good for consumers, but it wasn't good for anybody else in the supply chain," says Taylor.
Normally, falling prices should benefit retailers by enticing more customers to buy. But flat-panel prices were falling so fast in the fourth quarter that Circuit City's weekly advertising circulars -- whose content is locked in six weeks before publication -- were outdated by the time they landed in customers' homes, Cimino says.
The retail sector also isn't a part of the economy considered especially vulnerable to globalization. Economists such as Princeton University's Alan Blinder distinguish between jobs that can be done remotely via the Internet, and thus are vulnerable to being moved offshore, and jobs that require face-to-face contact and so would be safe. By that measure, retail sales would be among the best insulated occupations.
Some leading retailers, such as solidly profitable Best Buy, weathered last year's price declines without difficulty. But Circuit City, which is more dependent on flat-panel TV sales, has not been as nimble. Though the company doesn't break out sales by individual product, it says that 44% of its 2006 sales were in the video category, which is largely comprised of flat-panel sets.
Murtha, the flat-panel industry expert, blames "bad management" for the retailer's difficulties, which only worsened after the recent layoffs. Circuit City acknowledges some management miscues but says last month's layoffs were driven by the company's need to respond to a turbocharged competitive cycle that globalization has accelerated.
Lost jobs in the USA
Meanwhile, on the factory floor, the transition from traditional cathode ray tube TVs to flat-panel models meant assembly line closures in the USA. Japanese electronics maker Sanyo laid off about 300 workers at its Forrest City, Ark., factory earlier this year, blaming the move on falling sales for traditional TVs. Likewise, Hitachi closed its Greenville, S.C., plant in January, idling about 200 workers, all that remained of the 1,400 jobs the factory had in the early 1990s. Hitachi's flat-panel displays are produced in Japan, where the company is headquartered, and assembled into TV sets in Tijuana, Mexico.
Unlike the textile or furniture plants that increasingly have moved abroad to capitalize on endless supplies of low-wage labor, the Asian factories that produce flat-panel TVs are highly automated and staffed by skilled engineers. Operating sophisticated tooling in environments that must be kept perfectly clean, they produce to exacting specifications sheets of glass twice as large as a king-sized bed. The sheets are then divided into individual TV-screen-size units.
Such industrial sophistication suggests that flat-panel TVs could be produced in the USA. But U.S. government financial support for reviving domestic production failed in the 1990s, largely because it restricted participants to cooperating with other U.S. firms.
After two decades of investment, therefore, flat-panel production is effectively anchored in Asia. In 2005, when Hitachi and joint venture partner Fujitsu decided to expand their plasma-panel production, they located a new fabrication facility immediately adjacent to their first factory -- in Kyushu, Japan, says Hitachi spokesman Gerard Corbett.
The latest fabrication plants, containing robotic machines that sprawl across an area the size of a basketball court, are among the largest buildings ever built, Murtha says. Establishing one of these new production lines in the USA would cost at least $3.5 billion, he says. There is no sign of that happening.
As the industry continues to turn out cheaper, better products, some wonder whether globalization's benefits are exceeding its costs. Jared Bernstein, an economist at the liberal Economics Policy Institute in Washington, D.C., notes that at the dawn of an earlier industrial era, automaker Henry Ford made sure to pay his assembly-line workers enough that they could afford the ever-better cars rolling out of his factories.
Today's border-spanning companies, says Bernstein, have forgotten Ford's insight that workers are consumers, too. "The gains from free trade create winners and losers," says Bernstein. "Obviously, it's getting harder and harder to find winners and easier to find losers."
Anchored in Asia
Such industrial sophistication suggests that flat-panel TVs could be produced in the USA. But U.S. government financial support for reviving domestic production failed in the 1990s, largely because it restricted participants to cooperating with other U.S. firms.
After two decades of investment, therefore, flat-panel production is effectively anchored in Asia. In 2005, when Hitachi and joint venture partner Fujitsu decided to expand their plasma-panel production, they located a new fabrication facility immediately adjacent to their first factory -- in Kyushu, Japan, says Hitachi spokesman Gerard Corbett.
The latest fabrication plants, containing robotic machines that sprawl across an area the size of a basketball court, are among the largest buildings ever built, Murtha says. Establishing one of these new production lines in the USA would cost at least $3.5 billion, he says. There is no sign of that happening.
As the industry continues to turn out cheaper, better products, some wonder whether globalization's benefits are exceeding its costs. Jared Bernstein, an economist at the liberal Economics Policy Institute in Washington, D.C., notes that at the dawn of an earlier industrial era, automaker Henry Ford made sure to pay his assembly-line workers enough that they could afford the ever-better cars rolling out of his factories.
Today's border-spanning companies, says Bernstein, have forgotten Ford's insight that workers are consumers, too. "The gains from free trade create winners and losers," says Bernstein. "Obviously, it's getting harder and harder to find winners and easier to find losers."