0. On October 14, 2015, Liu Hongxin, the original principal of the Hisense TV department, succeeded Yu Shumin, who had been in office for 15 years, as the new president of Hisense Group. Nowadays, the financial situation of Hisense Group has already begun to deteriorate; in this context, should the group subsidiary company Hisense Hiview Tech Company, which has been continuously at a loss, be kept? If so, what can be done to make up the deficits and get profit? Liu Hongxin must make a decision as soon as possible.

   Hisense Group is a mega electronic information industry group company with more than 20 subordinate companies throughout the country, and it is one of the largest TV production enterprises in China.

   The core of the TV technology mainly refers to chip technology. The cost of a liquid crystal TV is mainly composed of 3 parts: panel module (30%), backlight module (30%), and chip (6%); these three components constitute the core parts of an LCD TV. Not only that, but the chip determines the function of the TV set, and the program and

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complexity of the circuit; therefore it plays a vital role in the finally displayed image quality.

Japan and the United States are two chip industry superpowers. Currently, the high- end chip production brands in the global market are mostly manufacturers from America, Japan, and South Korea, such as Samsung, Sony, Panasonic, Intel, and so forth; the brand chips that occupy the low-end market are mainly MediaTek, Ding Tai, Sunplus (Taiwan), and some other manufacturers. Chip makers from mainland China are rarely seen.

Without chip design and chip manufacturing, it is impossible to gain the initiative in market competition. On the one hand, the prices of imported chips are very high, which increase the costs of complete machines and cut the overall profits of the electrical appliance enterprise. On the other hand, Chinese enterprises usually get the chip design scheme one year later or more than home appliance giants like Panasonic, Sony, and Samsung. For a new type of TV, time means profit; and the profit gained in the first half year after its first launch is the highest.

Aware of the importance of chips in 1997, the Hisense management team seized on the idea of self-developed chips. Due to lack of experience and technology, Hisense Group first tried to acquire chip technology by utilizing cooperation, but intellectual property rights like the chip code and chip design process were under strict and tight protection of cooperative enterprises from the United States, and they would not reveal a word. Little success had been achieved through cooperation with them. The failed cooperation made the Hisense Group learn a lesson: to develop the chip industry, autonomous development is the only option for enterprises. But self-developed chips required a huge initial investment and it had a long cycle, low success rate, and high- risk decisions. For this reason, for a long time the Hisense Group management team could not make up their mind.

In 2000, Chinese electrical appliance enterprises fell into a downturn; the overall level of profitability of the color TV industry was close to an all-time low. In order to enhance the level of enterprise competitiveness, the Hisense Group management team finally decided to start independent research and development of TV chips. In 2001, Hisense set up “Hisense Group Co., Ltd. ASIC Development Division” in National Industrialization Base of Integrated Circuits in Shanghai. The R&D team was very simple and young with only 11 core members, of whom the average age was only 28 years old.

The first step of chip R&D was to identify target chip products. Researchers established the development goal as a kind of digital video-processing chip.

The second step was to determine the chip design process. Chip development has two kinds of design process: top-down design and bottom-up design. Top-down design products were more innovative and technical but also more difficult and demanded very strong research and development ability; it was a kind of design suitable for high- end products. Bottom-up design was less difficult and it was usually used in the design of low-end chips. Considering all the factors, researchers decided to adopt the more complex method of top-down design to improve the innovation and quality of chips.

Hisense Group invested altogether 30 million RMB in the R&D project and it took over 1,600 days to finally and successfully develop “Hiview (信芯)” in 2005 (hereinafter referred to as “Hiview”). Hiview was a kind of high-definition and high-quality digital video media-processing chip. It belonged to the middle-level chips in the international world. The success of Hiview made Hisense Group master the preliminary technology ability of chip development and enhanced its confidence to develop in the chip industry independently.

In 2005, with Qingdao Hisense Electric Appliance Co., Ltd., as the major initiator and Hisense Group Co., Ltd., ASIC Development Division as the foundation, Hisense Hiview Tech Co., Ltd. (hereinafter referred to as Hisense Hiview Tech Company), was established. It was responsible for the development of the digital video-processing chip of Hisense Group’s multimedia business and its system solution. Since then, the sector of chip development, which was originally a division in Hisense Group, became an independent R&D enterprise.

With the successful experience of Highview and the earlier talent pool and technology, the morale of Hisense Highview Tech Company was boosted. It successively launched a series of new products. In order to crack the problem of insufficient R&D domestic resources, Hisense Group started to establish overseas R&D centers in 2012 to access overseas innovation resources. So far, Hisense Group has set up seven overseas R&D centers around the world, among which five are in the United States, one is in Canada, and one is in the Netherlands.

After Review, Hisense developed and completed the first network multimedia TV system-on-chip (SoC) main chip in China in 2013. In November 2015, the Hi-ViewPro graphics engine chip was successfully developed. By then, the two generations of Hisense chips have been used in some product lines in the company, while most of the chips used in Hisense TVs still depend on foreign procurement. Today, there are more than 100 people in the R&D team of Hisense Highview Tech Company. Although the emergence of Highview has improved the confidence and expectation of industry manufacturers and consumers for domestic chips, Hisense managers have always known that, due to the inadequacy of technical accumulation, it is quite hard to catch up with the level of foreign manufacturers in a short time and their costs are higher than that of foreign manufacturers.

When Liu Hongxin took over as the president, the color TV industry in China entered a stage of the white-hot competition. Hisense Group’s profits have already started to fall and Hisense Highview Tech Company has been losing money since its establishment. The existing main problems in the company are as follows.

Its high-end TV chip development ability is insufficient. The Hisense group takes high-end TVs as the main direction of the enterprise development, which requires Hisense Highview Tech Company to design high-end TV chips. Although Hisense Highview Tech Company already has certain experience in mid-range and low-end TV chip designs, its high-end chip design ability is obviously insufficient. The R&D speed of high-end chips cannot keep pace with that of Hisense Group’s high-end TV sets, and once the chip research and development is not finished on time, heavily invested chips will not be able to be put into production and use.

The cost of chip development is higher than that of foreign rivals. The enterprises in developed countries started early in the chip industry and they have applied for a large number of related patents. The chip development of Hisense Highview Tech Company inevitably would be confronted with the patent barriers set by those enterprises; in this case, it will have to pay for some patents. Also, the chips developed by Hisense Highview Tech Company can be used only for Hisense Group’s high-end TVs, which means small batch production and difficulty in playing the effect of economies of scale. This kind of situation further pushes up the cost for Hisense Highview Tech Company.

In fact, Hisense Highview Tech Company has always been in a state of loss and has been relying on the group’s funds to maintain operations since its establishment more than ten years ago.

Given the above reasons, some managers of Hisense Group have suggested closing Hisense Highview Tech Company. They insist that the day when Hisense Highview Tech Company turns losses into gains is far away and not within the foreseeable future, and chips purchased from overseas not only meet the demand of the development of Hisense TV products but also have lower prices.

Still, even though Hisense Highview Tech Company is losing money, its chip development ability has been gradually improved, and its technological gap with the international leading enterprises has been reduced to one year or so. The managers of Hisense Highview Tech Company believe firmly that as long as the group increases its financial input, the company will surely make profits one day in the future.

As a matter of fact, the voice that Hisense Highview Tech Company should be separated from Hisense Group has long existed, but the then-president Yu Shumin prevailed over all dissenting views, making managers of the group shut their mouths. After Liu Hongxin became the president, the demand of decoupling Hisense Highview Tech Company from the group has again arisen, especially that of the executives from financial departments and Hisense Electric Company, the company that is engaged in TV production.

Having felt the change in the attitudes of executives of Hisense Group, researchers at Hisense Highview Tech Company have begun to lose morale. Some researchers worried about Hisense Highview Tech Company being deserted by the group and therefore have left the company for new jobs in other enterprises. The number of the company’s staff has been reduced from more than 140 in the first half of 2015 to more than 90 at the beginning of the year 2016. Among those who have left, most people are experienced developers. Does Hisense Group still need to retain Hisense Highview Tech Company? If the new president, Liu Hongxin, still could not make his attitude clear, the backbone staff of Hisense Highview Tech Company would sooner or later be running out.

How can Liu Hongxin of Hisense Group effectively manage the integration challenges at Hisense Highview Tech Company? Answer this question in 400 words