CANTON, Mich.—For the past four weeks, a team of 45 workers
in gray smocks have been doing something here that hasn't been attempted on a
large scale in America for at least four years.
They're making TVs.
The new assembly line is tucked inside a cavernous factory
in this Detroit suburb that once made old-style tube televisions. Their first
product: a 46-inch flat-screen model going on sale soon at Target stores for
$499.
The project is the unusual result of a partnership between a
U.S. branding company and a Chinese producer and is as much about marketing a
U.S.-made television as it is about a global shift in manufacturing costs.
Making TVs in the U.S.A.
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Brian Widdis for The Wall Street Journal
Justin Parks worked at Element Electronics in Canton, Mich.
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"We think the economics favor this," says Michael
O'Shaughnessy, chief executive of Element Electronics Corp., the Eden Prairie,
Minn., company that has sold Chinese-made televisions in the U.S. under its
Element brand name for six years.
To be sure, costs in China are going up as worker pay and
other expenses, such as transportation, rise. Meanwhile, muted wage gains in
the U.S. and fast productivity advances have reshaped many U.S. factories into
tougher competitors. A recent survey of large U.S.-based producers by the
Boston Consulting Group found more than a third plan to or actively considering
bringing work home from China.
But Element's televisions also illustrate the limitations in
restoring some types of production on U.S. soil. The only other domestically
assembled televisions today come from a tiny California producer of waterproof
models designed for use outdoors and there is virtually no domestic supply base
for crucial parts, such as glass screens. The upshot: Virtually all the key
parts needed to make a television today are imported.
Few industries have fallen as hard as television
manufacturing. In the 1950s, there were some 150 domestic producers and with
employment peaking at about 100,000 people in the 1960s. Then came the imports,
first from Japan and later from other parts of Asia. TV manufacturing in the
U.S. went all but extinct in the last decade. Syntax-Brillian Corp., a Tempe,
Ariz.-based, company opened a production facility in Ontario, Calif., in 2006
to much fanfare—but that operation lasted only two years.
Flat screens tipped the scales even more in favor of the Far
East, because as tube televisions grew bigger, the weight and size of the glass
made shipping increasingly costly. That was the one thing that kept U.S.
production going even in the face of imports. Flat screens, however, are a
fraction of the weight and much more compact.
Element says the decision to produce in Detroit hinges on
savings they gained by avoiding the roughly 5% duty on imported televisions and
the reduced cost of shipping final products from the heartland of the U.S. to
retailers. All the parts are initially being imported—which is one reason the
products can only be marketed as "U.S. assembled."
Mr. O'Shaughnessy estimates the average savings on duties is
about $27 for a 46-inch television—enough "to account for the increase in
labor costs" in Detroit. The company declined to give more specifics, but
noted that production methods in the U.S. are streamlined, involving component
assemblies that in China might be separate steps on the production line.
The first televisions being made for Target have 52 pieces and
require 24 production steps, including testing and final packaging.
Mickey Cho, chief operating officer of Tongfang-Global, the
television-making arm of state-owned Tsinghua Tongfang Co., the Chinese
partner, says Canton is only its first move toward what he calls global
localization, making more products closer to where they are sold.
"Our Chinese suppliers want to invest domestically,
too," he said. "They'll follow someone who shows them how to do
it."
Shawn DuBravac, chief economist for trade group Consumer
Electronics Association, says there are "definitely financial
reasons" television companies are looking again at domestic
production—though so far only Element has taken the plunge with a U.S. factory.
"The labor cost differential isn't as great as it once was" compared
with China, he says, and automation has reduced the amount of labor needed in
to put together a television in any locale.
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The project does have skeptics. Paul Gagnon, director of
North American TV research at NPD DisplaySearch, a Santa Clara, Calif.-based
market research company, says the real competition for Element is factories
just over the border in Mexico, not China. About half the televisions sold in
the U.S. every year are made in Mexico, using parts imported from Asia—a model
that avoids import tariffs and benefits from lower-cost Mexican labor.
"I just don't see any advantage to doing it here, other
than for marketing purposes," says Mr. Gagnon.
Mr. O'Shaughnessy, however, insists there is reason to do it
here. He notes that televisions made in Mexico, though benefiting from cheaper
labor, end up costing more to ship to customers. The final cost of a set made
in Mexico or Michigan "would be very similar," he says.
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Brian Widdis for The Wall Street Journal
An Element worker in Michigan inspected a flat-panel set
last month.
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To be sure, being able to market a U.S. assembled product is
part of Element's strategy which the company is convinced also carries value.
The company's U.S.-made televisions are being sold in boxes emblazoned with a
red-white-and-blue flag splashed across the side. Mr. O'Shaughnessy says he
began by showing retailers a more subtle design, but they requested the big
flag. The image of a television on the box, meanwhile, displays a picture of
American workers on the line assembling televisions in Detroit. The company had
to hire actors to stage the work when they were developing the packaging
because production hadn't yet begun.
But even the boxes illustrate the difficulty of sourcing
things domestically. The first wave of product is going out in boxes imported
from China. Mr. O'Shaughnessy says he hopes to have a domestic supplier for
those and the plastic pads and other packaging by the end of the year.
Scott Nygaard, Target Corp.'s TGT -0.58%vice president of
electronics, said in a statement that he views the domestic origins of the
televisions an "added bonus" to the product. QVC Inc., which also
plans to market the Detroit-made sets, said the new factory shows how Element
can "zig while others zag."
For now, the production is starting small, but could rise to
200,000 TVs a year if a second shift were added on the line. The factory, owned
by Lotus International Co., a U.S. company that mostly does television repair
on behalf of Element and other TV producers, has opened up floor space for up
to five assembly lines.
Walking through the factory, Mr. O'Shaughnessy stops next to
one of the flag-splashed boxes near the assembly line. "You get no points
for subtlety in the TV market," he says
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