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vizio-manufacture-in-mexicoIrvine-based Vizio Inc. is moving the contract manufacturing hub for its line of larger flat TVs from Asia to Tijuana, Mexico. The shift comes as Vizio aims to cut costs amid a changing economic climate in China and particularly Taiwan, according to founder and Chief Executive William Wang.

"The shipping cost will be lower and the tariff cost will be lower," Wang said last week after an Orange County Business Council breakfast meeting in Costa Mesa. "And the labor rate in Mexico is not that bad compared to China."

"Millions" of Square Feet

Vizio's subcontractor is setting up at least two plants in Tijuana that will add "millions" of square feet for TV production, according to Wang. "We're getting ready for mass production soon, within three months," he said.

Vizio will maintain significant production operations in Taiwan, where its smaller TVs, consumer electronics accessories, tablets and a newly launched line of personal computers are made.

The company has grown rapidly since it started in 2002, with annual revenue now approaching $3 billion. It has for years relied on Taiwanese contract electronics maker and investor AmTran Technology Co. and others there for production.

The Taiwanese companies, in turn, rely on various suppliers in China's mainland. Manufacturing costs throughout the region have increased in recent years as rapid economic development lifted wages. China also has raised tariffs on components and materials used in TV production, prompting some manufacturers to consider a shift in operations. The tariffs on imported LCD panels to be used in the assembly of TVs 32 inches and higher recently rose to 5%, up from 3%.

The higher tariff "has the potential to erode the market share of Taiwanese suppliers," according to a recent analyst report from Englewood, Colo.-based market researcher IHS Inc.

Taiwan has long held the market share lead for LCD TV production but the gap is narrowing as some U.S. companies move manufacturing operations closer to their domestic markets in an effort to cut shipping costs. Mexico is an attractive option since the North American Free Trade Agreement eliminated tariffs among the U.S., Mexico and Canada.

"It's about efficiencies, faster distribution and lower cost that we can pass on to the consumers" said Wang, who was born and raised in Taiwan before moving to Hawaii with his family as a child.

Domestic Sales

Vizio sells most of its TVs in North America through a network of retailers that includes Walmart, Sam's Club, Costco and Amazon.com.
It regained the U.S. market share lead in the LCD TV segment in the first quarter of 2012, surpassing South Korea-based Samsung Group, which had held the title since the second quarter of last year.

This isn't Vizio's first foray in Mexico. It established partnerships prior to NAFTA with free trade zones known as maquiladoras in the border town of Jaurez.

Vizio's move to swap some manufacturing in Taiwan for Mexico comes as significant numbers of other companies are bringing production back to the U.S. Benefits such as quicker turns and closer contact with customers have been cited by many small and midsize manufacturers who have brought operations back from offshore markets.

Vizio and other consumer electronics makers aren't likely to go that far, since many operate on low margins, putting a premium on keeping costs to a minimum.
"You can't lower everyone's wages here," Wang said. "If you want to get manufacturing back here, you have to raise the tariff."

By Chris Casacchia

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