Vizio and the Market for Flat-Panel TVs

Operating sophisticated tooling in environments that must be kept absolutely clean, fabrication centres in South Korea, Taiwan, and Japan produce sheets of glass twice as large as king-size beds to exacting specifications. From there, the glass panels travel to Mexican plants located alongside the U.S. border. There, they are cut to size, combined with electronic components shipped in from Asia and the United States, assembled into finished flat-panel TVs, and loaded onto trucks bound for retail stores in the United States, where consumers spend more than $35 billion a year on flat-panel TVs.
The underlying technology for flat-panel displays was invented in the United States in the late 1960s by RCA. But after RCA and rivals Westinghouse and Xerox opted not to pursue the technology, the Japanese company Sharp made aggressive investments in flat-panel displays. By the early 1990s, Sharp was selling the first flat-panel screens. But as the Japanese economy plunged into a decade-long recession, investment leadership shifted to South Korean companies such as Samsung. Then the 1997 Asian crisis hit Korea hard, and Taiwanese companies seized leadership. Today, Chinese companies are starting to elbow their way into the flat-panel display manufacturing business.
As production for flat-panel displays migrates its way around the globe to low-cost locations, there are clear winners and losers. U.S. consumers have benefited from the falling prices of flatpanel TVs and are snapping them up. Efficient manufacturers have taken advantage of globally dispersed supply chains to make and sell low-cost, high-quality, flat-panel TVs. Foremost among these has been the California-based company Vizio, founded by a Taiwanese immigrant. In just eight years, sales of Vizio flat-panel TVs ballooned from nothing to more than $2.5 billion in 2010. By late 2011, the company was the second largest provider to the U.S. market with a 15.4 percent share. Vizio, however, has fewer than 170 employees. These focus on final product design, sales, and customer service. Vizio outsources most of its engineering work, all of its manufacturing, and much of its logistics. For each of its models, Vizio assembles a team of supplier partners strung across the globe. Its 42-inch flat-panel TV, for example, contains a panel from South Korea, electronic components from China, and processors from the United States, and is assembled in Mexico. Vizio’s managers continually scour the globe for the cheapest manufacturers of flat-panel displays and electronic components. They sell most of their TVs to large discount retailers such as Costco and Sam’s Club. Good order visibility from retailers, coupled with tight management of global logistics, allows Vizio to turn over its inventory every three weeks, twice as fast as many of its competitors, which allows major cost savings in a business where prices are falling continually.

1. Who benefits when a company such as Vizio outsources its manufacturing and engineering work? Who is negatively affected by this?

2. Are companies with such global webs of linkages only found in the manufacturing sector? Can you give any such examples?

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