In an announcement earlier this month that could be characterized as counter-intuitive, Toshiba Corp. said it will stop manufacturing LCD televisions at its plant in Dalian, China by the end of December. The company says the move is aimed at helping improve profitability – even though most companies opened plants in China to take advantage of the lower labor costs to help their profitability.
See how Toshiba plans to improve its TV division profits by closing a China factory…
On the face of it, Toshiba’s announcement seems to fly in the face of conventional wisdom. Many companies have rushed to move production to China over the last few years due to its very low labor costs helping them to generate more profits on products manufactured there.
But this move by Toshiba is part of a greater initiative to consolidate its network of factories to reduce overhead. The company announced earlier that it was selling its television factory in Poland to a Taiwanese company.
Merging three into one…
With this new announcement, Toshiba says it plans to consolidate by moving the production of the Polish factory and the China factory to its Indonesia facility, moving from three television factories to one. The Indonesia factory will be the TV giant’s only plant producing televisions.
According to the Nikkei, Toshiba’s China plant went online in 1997…and in 2012, it cranked out between 700,000 to 800,000 units. But even with that level of production, Toshiba said the factory had been operating at a loss.
Working with contract manufacturers…
And in another surprising turn of events that likely demonstrates the continuing struggles of Japanese manufacturers in trying to turn around their television divisions – Toshiba is expected to announce that it will contract with a Taiwanese company to manufacture televisions under the Toshiba brand name…for the Japan market. A move like this couldn’t have been imagined five years ago.
Toshiba is said to be determined to propel their TV division back to profitability by the back half of this fiscal year. As part of this goal, it will liquidate Dalian Toshiba Television – the subsidiary that operates the China plan – cutting the plant’s approximately 900 jobs. The company will provide severance pay to terminated employees – a cost the company has already incorporated into the budget plan for this year.
Toshiba has made no decisions about what to do with the abandoned China facility at this point. However, the Nikkei said the company is looking internally at other Toshiba divisions – such as their medical equipment or industrial motors divisions – to determine if the plant could be useful there.