Walmart's :ED bulb supplier has Boom At Hand, TCP's Ellis Yan Faces New "Green" Bulb Battle
4/11/2011 @ 7:58PM
Long before green energy was as popular as it is today, Shanghai-born Ellis Yan was charged up. He had arrived in the U.S. as a college student after China launched its “open door” reforms in 1979, and grew interested in setting up his own lighting company. In 1993, he finally took the plunge, forming Technical Consumer Products in, fittingly, Aurora, Ohio.
TCP has since turned itself into the biggest North American supplier of CFL (compact fluorescent lamp) light bulbs. Compared with traditional ones, CFLs use less energy and last longer. Although TCP does some of its bulb business as it did when it first started—by putting the name of private-label name of customers such as Home Depot and Office Depot on its bulbs, more than half of its shipments of nearly 300 million bulbs last year—or more than 40% of the total North American CFL purchases—were sold in big chains such as Wal-Mart and Sears under the TCP brand. Total sales last year reached a record $425 million. For its work promoting energy efficiency, TCP has received U.S. Department of Energy awards.
The demand for energy-saving bulbs that Yan foresaw years ago is about to rocket to even higher levels. Based on legislation passed by Congress in 2007, the U.S. next year is to start phasing out older models of incandescent bulbs. The 80%-20% sales split today between traditional and CFL bulbs in the U.S. today will reverse within five years, Yan says, helping to create demand for hundreds of millions of replacement bulbs globally. “This is big,” Yan says. To gear up, Yan’s three factories in Shanghai, Yangzhou and Zhenjiang have doubled production this year to two million light bulbs a day from one million three years ago.
Manufacturing work at the company falls to Ellis’ older brother, 66-year-old Solomon, in China. When Ellis talked to him about working together in his business in the 1990s, Solomon had a steady job in a state-owned pharmaceutical company. “SOEs were seen as more stable” at the time, says Solomon. “There weren’t that many entrepreneurs in Shanghai.”
Today, Solomon says, the two brothers have a good distribution of labor: Solomon handles the factory work back in China and Ellis sells. “He’s extroverted, aggressive and has guts,” Solomon says of Ellis. “I’m relatively conservative.”
Ellis, who was a member of the Forbes “Notable Chinese-Americans” List in 2008 owing to his success, is pushing TCP to expand its sales into new markets such as Brazil and Europe. He is pushing ahead in China, too. In the U.S., TCP plans to open a CFL light bulb factory in Ohio that will produce what it expects will be the only CFL bulbs made in the U.S. (albeit it with some China parts) for customers that want to “buy American.”
But Yan knows that a U.S. plant isn’t going to solve his technology challenges. A new partner or outside financier is likely in the offing. “I have to do something,” he says.
Yet TCP is facing a new problem: technology used in energy-efficient light bulbs is changing. Just as the CFL light bulb market is poised to take off in a bigger way than ever, bulbs that tap rival light-emitting-diode technology, potentially even cheaper than CFL, are on the rise. Bigger electronics giants are trying to expand in the business, too, including Siemens and Philips.
So Yan, for all of his foresight, still needs to keep coming up with bright ideas. Last year, he introduced his own LED products by working with new suppliers, and is currently working to add new microchips to TCP’s CFL bulbs to make them last even longer. To keep up with rivals, Yan, 56, says family-run TCP may have to look for outside capital. The company has spent $35 million on new investments in the past two years alone, and needs at least that much in the next two. “Organic growth may not be able to do it alone,” he says, without saying where he is looking for additional funds.
Light bulbs have come a long way since Thomas Edison invented them back in 1879. Long-dominant incandescent technology started to change in the 1970s when higher oil prices led businesses to think more about energy efficiency. Engineer Ed Hammer, then with GE, is credited with the breakthrough that has landed TCP where it is today: He invented “spiral,” or curly CFL bulbs. GE had a winner but didn’t know it. Today, at age 82, Hammer is a consultant working for TCP.