The world television market is huge: 2004 unit sales numbered nearly 150 million, and the aggregate value of those sets, in terms of what distributors paid manufacturers, was US $48 billion, according to Gartner Inc., in Stamford, Conn. Gartner estimates that China supplied about 50 million of those sets, but the China Securities Journal puts the number higher, at 73 million units. Nobody knows exactly what is happening in this large and fast-evolving market, but it seems clear that China makes between one-third and one-half of the world's televisions and buys close to a third of them itself.

Matsushita began selling televisions in China, pushing the Panasonic brand it is best known for worldwide, not long after the reformist leader Deng Xiaoping invited the company to help modernize the country's consumer electronics industries [see sidebar, "Matsushita: First Through the Looking Glass"]. In a 1987 joint venture with the Beijing city government, the company opened a plant in the capital to make cathode-ray tubes. It was the first factory Matsushita established in the People's Republic of China to fabricate a sophisticated component rather than just to assemble components made elsewhere.

Five years ago, following a radical restructuring that shifted more manufacturing overseas, Matsushita began to consolidate its China operations into major manufacturing centers that produce all kinds of consumer products—not just televisions, but everything from rice cookers to remotely controllable washing machines.

Following that reorganization, in 2001 Matsushita built a plasma-display factory in Shanghai that now turns out high-tech TV screens at a rate of 240 000 annually. Today one key focus of Matsushita engineers at a nearby R and D lab is the development of custom chip sets for digital televisions. The company's long-term strategy is based on the assumption that as Chinese consumers replace their analog sets with high-definition and flat-screen sets, it will have a clear advantage over the technically less advanced domestic manufacturers.

As part of that strategy, Matsushita will make full use of its status as the "official visual sponsor" for the 2008 Olympic Games, which means that the Panasonic name will be seen everywhere. Matsushita will provide equipment for the digital broadcast centers, the public address systems, and the viewing venues inside and outside the Olympic facilities, including the TVs in the Olympic villages.

Not to be outdone, LG has been building for itself a flashy headquarters in Beijing, the 30-story, blue-glass-and-granite LG Tower, at a cost of $400 million. Designed by the renowned Chicago architectural firm Skidmore, Owings and Merrill LLP, it is meant to signal that LG is as much a Chinese company as a Korean one and that it is in China for the long haul. "We want to root in this soil, to no longer be viewed as a foreign company," Yuhn-Sihk Pahk, president of LG Beijing Building Development Co., says in an interview, gazing out at the construction site from a neighboring building.

LG won't have the privilege at the Olympics of being a sponsor, but "our products will be seen," promises Jim Sohn, chairman and chief executive officer of LG Electronics China Inc., in Beijing. The company's plans, besides billboards and bus-stop displays, include installing large flat-screen televisions for public viewing throughout Beijing.

Like Matsushita, LG is having engineers at its Beijing R and D center—its largest lab outside Seoul—concentrate on the design of chip sets for digital TVs (DTVs), and it established a plasma display production line in China in 2004. It's setting up a factory in Nanjing to manufacture liquid-crystal displays for televisions, as well as for computer monitors, with Philips Electronics NV, in Amsterdam, with which it has a global partnership in LCDs. The LG-Philips alliance, in fact, is more or less tied with Seoul's Samsung Group as the world leader in LCDs. Currently, LG-Philips is building the world's largest LCD manufacturing facility near Seoul, at a cost of about $5 billion.

Although LG's managerial style and philosophy are certainly different from Matsushita's, its strategic thinking about the China entertainment market is essentially the same: it's betting it can acquire market share in advanced television technology before lower-cost domestic manufacturers catch up. At the same time, both companies appreciate that for the near future, at least, conventional cathode-ray tubes will continue to prevail in the Chinese market. So they are pushing their engineers to develop better and cheaper CRTs that will give them an edge over local manufacturers.