U.S.-Asia Business
How TCL TV Hit It Big in the US: A Subsidiary Success Story
By Melody Yuan
Getting financing in the US can fuel growth for a subsidiary of a cross-border company.
TCL TV is the fastest growing TV brand in America—an extraordinary feat for a subsidiary of a Chinese multinational electronics company headquartered in Guangdong. “We went from about zero to becoming the number one brand television here in the U.S. market in a matter of five years,” says Chris Larson, senior vice president of TCL North America. To achieve this, TCL’s U.S. subsidiary deployed strategies to successfully increase their sales abroad and leveraged financial resources through a U.S. bank.
“Most Chinese businesses don’t know how to get financing in the U.S., naturally because the processes are very different,” says Che Lai Chang, senior vice president and director of commercial banking, Eastern Region at East West Bank. “For example, because U.S. subsidiaries are often owned by a registered entity in China, personal guarantees of individual shareholders are typically unavailable. Even if the individual shareholders are willing to personally guarantee bank loans in the U.S., traditional U.S. banks often lack the understanding and tools to evaluate the character of these personal guarantors.”
The solution, according to Chang, comes down to building good credit. “An overwhelming number of U.S. subsidiaries still don’t have local financing in the U.S. because they’re funded solely by the parent company in the form of intercompany loans,” she says. “But actually, there are many ways that subsidiaries can get necessary bank financing.”
Access to funding
Chang has three important points to stress for U.S. subsidiaries looking for funding:
- Learn the basics of how commercial banks in the U.S. grant credit, which is different from China.
- Be able to provide at least 2-3 years of historical financial statements prepared by a reputable accounting firm.
- Be able to articulate to banks the strategic importance of your U.S. operations.
“Banks are most interested in developing relationships with companies that are experienced, transparent and have a high chance of survival across many years,” says Chang. Proving that the U.S. subsidiary and the parent company will thrive and contribute to the U.S. economy is an aspect that can’t be overlooked.
“Banks are most interested in developing relationships with companies that are experienced, transparent and have a high chance of survival across many years.”
Another process to understand is “the art of perfecting security interests,” says Chang. “By and large, commercial banks in the U.S. lend to companies on a secured basis by filing a UCC-1 (Uniform Commercial Code-1), which is based on the financial statement on the borrower’s assets in the U.S. The UCC-1 is the legal form that a bank files to give notice that it has an interest in the property, which includes accounts receivables, inventory, equipment, etc., of a company.” U.S. subsidiaries can put down collateral by allowing a bank to file this form, a process that mostly goes through the Secretary of State in the business’s home state.
“But first things first,” says Chang, “Chinese parent companies with U.S. subsidiaries interested in getting local financing should hire a reputable accounting firm to prepare quality, reviewed financial statements.” By doing so, more U.S. banks will be willing to engage in a conversation about funding and extending credit.
An American subsidiary success story
TCL hit all three key points that Chang stressed for supporting a subsidiary. When the parent company decided to launch a North American subsidiary in 2004, they strategically merged with Thomson Consumer Electronics, which was based in Indianapolis, Indiana. This merger allowed TCL to have greater access to U.S. markets and proved that their subsidiary was an important financial player in the U.S. economy. Then in 2009, they appointed Michelle Mao as president of the subsidiary and put her in charge of laying down the foundation for TCL North America’s success.
“We knew that we needed a reliable bank, and we are happy for the banking services provided by East West Bank,” says Mao. With East West Bank’s expertise in cross-border business and financial solutions, TCL North America was equipped with the right tools and access to funding.
“When we first visited TCL, we went with a whole entourage of experts,” says Pauline Hwang, vice president and area manager at East West Bank. “From our FX partners to our GTS team, we wanted to better understand what our client might need financially and have all the experts present to respond to their questions right away.”
While the banking relationship started with a standard account, TCL quickly began asking for other services, such as a standby line of credit and an integrated payables system. “We realized that this was a fast-growing business, and they were diligent about sharing their annual growth expectations from the beginning,” says Hwang. “They wanted to be the next LG and Samsung in the market.”
After understanding the urgency of the business, Hwang and her team made it their goal to make banking easy for TCL. “Our response time and care for them is unparalleled,” says Annie Ye, first vice president and China business banking manager at East West Bank. “When TCL initially came to us for a standby line of credit, it was for $250,000. The amount is now $4 million, since their product volume and inventory have increased.” The standby line of credit was used to secure U.S. customs bonds, required as a guarantee of payment, in this case for the import of TCL’s electronic goods from China to the U.S.
Measuring growth by local integration
By 2010, Mao had signed with Amazon, and in 2011, TCL North America’s headquarters moved to Southern California to develop regional venues. Because the company was in the electronics business and most well known for their TVs, TCL made a strategic marketing move in 2013 to purchase the naming rights of Hollywood’s landmark Chinese Theatre as part of a 10-year, $5 million deal.
Data from the NPD Group in 2017 showed that TCL has been growing 72 percent year-over-year, driven significantly by their partnership with Roku TV. “We partnered with Roku to introduce the Roku TV that used our skills of making a great television with their smart operating system,” says Larson. “We also focused on how to best communicate with our audience online and in retail stores to make sure we could easily reach them, and they could just as easily reach out to us.”
TCL successfully integrated their products locally by leveraging existing retail outlets. “We actually don’t do any direct-to-consumer sales at all,” says Larson. “We want to have a relationship with our consumers, but we’ve always believed that the consumer feels best dealing with a local retailer who they already trust.” TCL’s electronic products are currently sold in major retail outlets across the U.S. such as Costco, Target, Best Buy and Walmart.
By integrating their products through these outlets, TCL was able to subtly enter local markets. “Our ongoing goal is to eventually develop a full-brand ecosystem,” continues Larson. “TV is our leading product that consistently shows strength in sales, especially because of vertical integration, but we have a presence just about anywhere and on anything that requires a plug going into the wall.” From headphones to washing machines, TCL hopes to provide a range of smart, cloud-computing products that communicate with one another.