LG ElectronicsGlobal Strategy in Emerging Markets

LG History

Lak Hui Chemicals was established in 1947 as a manufacturer of cosmetic creams Backward integration: Bottle caps manufacturing plastic consumer products Entry into telecommunication and electricals Later diversified into many business lines Goldstar Co. now LG Electronics LG Electronics pioneered the growth of Korean electronics and appliances industry In 1980s adopted the Internationalization

Intense exports to developing markets Capture developed markets (through Joint Ventures) Rationalized business holdings: Core and Non-Core groups 3 key activity domains: Electronics, Chemicals & Telecommunications

In 2007 considered rebalancing and restructuring:

LG has been successful in the Emerging countries (BRIC Brazil, Russia, India and China) Growing at a CAGR of 22% since 1980s for 2 decades

LG Electronics

Key player in launching LG brand worldwide consumer electronics giant home appliances mobiles contribution to 47% of revenues Part of the largest chaebol along with Samsung, Daewoo Began globalization efforts, as it realized that OEM relationship would not lead to global competitiveness In 1980s focus shifted on Technology and indigenous research Through Goldstar it entered US home appliances market, but faced a setback in the form of poor brand recognition which led to battle for shelf space LG adopted anticipatory globalization strategy (investments in emerging markets) Come from behind approach enter markets that few dared to venture into Unique mix of management principles and practices LGs success lay in visualizing emerging markets in the long-term

LG Product History
Founded as cosmetic cream maker Plastic caps Electric Fan Blades and telephone casting

Combs toothbrushes and Soapboxes

Electronic Equipment and telecom

Oil Refining

Insurance

Shipping

Key Strengths in the Formation Years

Role

of Chaebols Korean Govt Policy Merger of Chaebols with foreign countries Government policy in Developing infrastructure , technology and education Support for Local R&D and Technology Use of OEM model in the formation Years

Involvement of Korean GOVT &Development of Electronic industry

Creation of research Creation of research infrastructure;120 private infrastructure;120 private research institutes and 18 research institutes and 18 research consortia research consortia Industry promotion councils Industry promotion councils and cooperative institutions and cooperative institutions Emphasis on science and Emphasis on science and technology education technology education Vocational schools attracted more students for technical education. No of people engaged in R & D jobs multiplied roughly 5% In a 20 year period between 1975 and 1995.

Involvement of Korean GOVT &Development of Electronic industry

Encouraged by technology Encouraged many firms investment, by technology investment, many firms including Samsung , LG, including Samsung , LG, Davoo started to explore Davoo started to explore export markets under their export markets under out of own labels breaking their own labels breaking out of OEM mode OEM mode

But surprised to find their products were not well received in the developed markets due to global competition.

Audacious investments in R & D. Anticipatory internationalization Focus on process innovation Careful cost control

LG Global presence

U.S.A

Russia China

South Korea
India Brazil

BRIC Countries Key Contributor to LGs Success

LG in Brazil
Steps taken Setting up facilities in under developed areas tax exemption Retaining and Expanding its existence in Brazil despite plummeting exchange rates ; all competitors were exiting Sponsoring sports events Results
Cost Control Convenient and easier reigning of market on the trade off of some losses Consumer awareness Exploitation of understanding of Product Markets

Customization of products to suit local needs; Demanded a premium for the same; Introduce new products for lower price points
Offering three year warranty; Employing service vans

Service differentiation

Contracted local third party distributors; Relationship building

Effective implementation by local resource market and supply chain know-how

Emerging Markets entry a snapshot Brazil: A bold move forward The passage to India
USD 150 million investments Trouble from local authorities Rising legal obstacles Promotion of gold star brand Moscow city focus.

Russia: An Early foray

Across the sea to China

Sales subsidiary in Hong Kong in 1988 By 2006,16 corporate entities focusing on manufacturin g plasma TV white goods and R & D

Currency instability Lower manufacturi ng cost Export opportunity from brazil

Manufacturi ng setup at Grater Noida And Pune 500 cr investment in south

LG in Russia
Steps Taken
Importing products from outside of Russia; Dedicated LG brand shops; Cultural promotion festivals Hot and Cold conditioners; Karaoke player; specially designed microwave ; Set up local R&D

Effect
Brand awareness

Exploitation of understanding of Product Markets

Scaling up product line and investment during debt moratorium ; Competitors were exiting

Filling up institutional voids

LG in India
Steps taken Product Innovation Effect
Product variations to reflect the unique demands of the local Indian market Television sets with Golden Eye technology and inbuilt video games and air-conditioners with dust filtering mechanism

Product Customization

Identified the potential in the rural segment Instead of lowering prices, LGEIL decided on introducing a whole new range of products Rural versions of air-conditioners & washing machines and small screen televisions

Distribution network

Adopted a 3-tier approach wherein the Regional Distributor overlooked tier 2 & 3 cities Bricks-and-mortar strategy along with online channel formed a cohesive network

LG in India
Steps taken Customer Satisfaction Effect

Launched a fleet of repair vans that could reach remote areas on short notice Walking-after-sales service concept according to which repairing crew could reach inaccessible remote areas quickly

Brand Awareness/ promotion

LG tried to create brand awareness in the local market by playing to the sentiments of the customer base Becoming key sponsor of Cricket World Cup, bringing in Indian celebrities to endorse the brand

Local Recruitment

Apart from a few top Korean officials, most of the employees were Indians Decision making power was vested in the local managers unless a few that were sent across to the head-office for approval

LG In China
Steps taken Developing a Strong Manufacturing Hub Effect
Low labor cost Building an export hub Building a strong presence across the country

Invest in R&D

Training local employees Design localization to fit the existing demands I Love China campaign during the SARS crisis Establishing itself locally through event sponsorships like launching schools, offering scholarships, founding hospitals, etc.

Building Loyalty

Key insights for Emerging Markets

Investments in R&D
Staffing with locals for understanding markets and demand; Customization of global products to meet local needs;

Cost Optimization
Introducing special products at lower price points rather than subsidizing existing ones Grabbing opportunities in terms of Govt. regulations (tax exemption, wholly on subsidiaries entry)

Product/Market Localization
Retaining and Expanding products in adverse economic condition coupled with fall in competition Offering differentiated after sale service

Innovation
Collaboration with a local firm for cracking local distribution network Brand awareness campaigns Invest in disruptive innovation

HR Localization
Formation of Local talent pool Employee empowerme nt

Market Share Snapshot

CTV market share(top 3)
25 20 15 10 5 0 LG Samsung Onida

Refrigerator marketshare(top 3)
24 23 22 21 20 19 18 LG Whirlpool Godrej

percentage

%age

Series1

Series1

Washing Machine market share (top 3)

40
%age

Microwave oven market share(top 3)

50 40 30 20 10 0 LG Samsung Kenstar

%age

30 20 10 0 LG Samsung Videocon Series1

Series1

LG Key financials
Operational & Financial performance
Particulars
2003 KRW bn 2006 KRW bn Growth Percentage between 2003 and 2006
15

Sales Domestic Exports Cost of Sales Gross Profit SG&A Operating profit Income before Income Tax Tax Net Profit

20,177 4794 15383 15351 4826 3764 1062 837 174 663

23,177

17726 5445 4910 535

15 13

30

-50

261
-69

49 212

-72
-68

LG key Financials
Operational and financial performance of LG electronics-balance sheet
Particulars 2003 KRW bn
3773 2269 1504 7505 3546

2006 KRW bn
2974 1439 1535 10128 5417

Growth Percentage between 2003 and 2006

-21 -37 2

Current assets Quick assets Inventories

Fixed Assets
Investment Assets

35
53

Tangible Assets
Intangible Assets

3123

4423

42
836
11277

288

-66

Total Assets
Current liabilities Fixed Liabilities

13102

16
5091 2682 7773 5020 1898 6918

-1 -29 -11

Total Liabilities

Total Shareholderss Equity

3505

6184

76
Total Liabilities and Shareholders Equity 11277 13102

16

Thank You