LG ELECTRONICS

INTRODUCTION

LG Electronics is a South Korean multinational corporation. It is South Korea's second largest

electronics maker and the world's third largest Appliance maker. With headquarters in the LG
Twin Towers on Yeouido, Seoul, LG Electronics is the flagship company of LG Group, one of the
largest chaebols employing more than 80,000 people working in over 115 operations around
the world. With 2009 global sales of 55.5 trillion Korean Won (43.4 billion US Dollars),LG
comprises of five business units - Home Entertainment, Mobile Communications, Home
Appliance, Air Conditioning and Business Solutions. LG is one of the world's leading producers
of flat panel TVs, audio and video products, mobile handsets, air conditioners and washing
machines.

Q 1. What were the key strengths of the Korean electronics industry during the formative
years? How did the firms leverage these advantages to enter developed-county markets?

The key strengths that helped Korean electronics industry to reach the pioneer in its formative
years were the changes in government policies to support the industry and the prevalence of
chaebols in the country.

1. ROLE OF THE CHAEBOLS

The Korean electronic industries dominated by chaebol (single-family-dominated), largely

consisting of three large companies; LG, Samsung and Daewoo which were the key players in
the economic growth of Korea. In the immediate post-Korean War years, the chaebols took
advantage of subsidized loans and tax breaks provided by the Korean government that allowed
them to grow very quickly and they played a key role in development of the electronic
industries by utilizing the government policy at time which allowed the foreign direct
investment.

This policy led to the merger of the chaebols with the foreign countries; LG with Hitachi,
Samsung with Sanyo and Daewoo with GE which led to the entry of Korean companies into
markets of developed countries.
2. ROLE OF GOVERNMENT POLICY

The Korean government had placed a high priority on developing the country's indigenous
technological capabilities and creating a world-class industrial infrastructure. Government
promoted education and R&D for high-tech industry by providing direct financial support to
public and nonprofit institutes, universities, and other educational institutions, primarily
through the Ministry of Science and Technology (MOST); the Ministry of Trade, Industry, and
Energy (MOTIE); and the Ministry of Information and Communication (MOIC). Such support
often involves "partnering" with both established and emerging firms in cost-sharing new
product or technology development.

Government support for local R&D: Government took the initiatives to encourage the local
R&D by investing in the infrastructure and providing financial support to small and mid-sized
industries to do more local R&D. This resulted in 120 private research institutes and 18 research
consortia by 1980s.

Government Support for Science and Technology Education: The Government brought in
effect a national education policy that emphasized science and technology which led to
increase in the number of students having technical education. The Ministry of Education
administers public universities started contributing funds to universities science and
technology programs encouraging them to provide more technical education.

Industrial Support for S&T Education: Corporations started sponsoring research of

considerable educational value in order to get highly skilled and innovative engineers for
their firms.
3. The Korean companies made use of the OEM model in its formative years to enter into the
markets of developed countries as brand recognition was one of the major factors which played
an important role in the purchasing decision in developed nations.

4. Korean electronics market also made use of cheap labor and raw materials available in the
country to produce new and innovative products and differentiate their products helped them
enter into developed markets.

Q 2. Trace strategic growth of LG Electronics. Were there any distinct patterns in terms of the
company’s approach to emerging markets? Trace the commonalities across its strategies in
the BRIC countries.

LG Electronics had a much focused plan of action for their success and growth as they
established themselves in the BRIC countries.  LG has used a combination of 'globalization' and
'localization' strategies through extensive research and development and customization efforts
to take and stay at the top of these emerging markets.  LG customized their efforts for each
country, focusing on unique cultural and social dimensions of their consumers’ lives through
this heavy R&D emphasis.  But had a commonality of “sticking in there” when the going got
tough, and this investment proved to be fruitful time and time again.  With each country came
different unique challenges and changes that needed to be done to keep LG at the forefront of
the electronic world, constantly re-determining their position in their market in order to tailor
their plan accordingly.   
Distinct patterns in terms of the company’s approach to emerging markets
    In Brazil, there strategies were realized when the economy became unstable and competitors
began to scale back their operations, LG saw this as an opportunity to show local support, and
gain brand recognition and popularity through sponsoring sporting events.  They joined the
government in the fight against the smuggling of grey products into the country to further
support their products that came at a premium. LG took stake in the country through
government incentives offering land in lower developed areas.  Due to their commitment to the
country in an economic crisis, they became a preferred partner in national growth.  Also, LG
used a three-year warranty with traveling vans for repairs to remote consumers added an
innovative new assurance in their product to back up their quality with service, something no
other company offered.  LG focused on local relationship building and employed mostly local
staff at these new facilities in Brazil.  The Brazilians and the government could see that LG was
there to stay through the thick and thin.  
    In India, LG tried to get a start with a joint venture with Best vision, which then fell through;
consequently the government had changed regulations barring LG before from starting their
own independent operations, but when this was lifted they started a fully owned subsidiary,
LGIL.  Again due to uniqueness of cultures across the country alone, LG made product variations
that would meet the unique demands of the local consumer.  A small TV with a cricket, popular
sport nationally, video game, this TV also had other features to deal with India’s unique needs,
i.e. fluctuating power currents and lighting.  Again, they launched their fleet of repair vans, and
focused its new facilities and efforts in 2 and 3 tier cities for their potential growth capabilities.
They had up to 4,000 access points reaching all areas of the country, then offering online
channel called igezbuy.com which shared detailed product information and comparative
pricing, this set LG apart for its competitors.  LG became the sponsor of cricket to solidify their
branding, and started using celebrity endorsements for their products, at this time Indians were
fascinated with films.  To show their compassion and awareness for social welfare LG went one
step further in India noticing that the country lacked a reliable health care system, they decided
to put onsite medical clinics that were for employees, their families, and then open to the
public, although basic this investment in the community made Indians know that LG was going
to stay.  LG also built a school to give back to the community.  Localization was seen from the
administrative/managerial level as well as at the manufacturing level, supporting local
economies and providing jobs.  
    LG entered Russia looking at some more unique risks of communist heritage, and a
challenging economic environment.  LG made its first roots starting in a bonded warehouse
business, which imported it’s good to distribute.  Brand recognition was accomplished by event
sponsorships.  And customization of the products for a Russian market began to enter
popularity.  Once they were established the government allowed LG the use of the Narodnaya
Marka logo, which recognizes LG as a national brand, this honor is given to organizations with
the most popular branded products sold in Russia—this was a true sign of a successful
localization strategy.
    Efforts began in China with sales subsidiary, and then a joint venture.   LG wanted to
capitalize on the low cost manufacturing opportunity, focusing less on the local consumption of
goods.  This didn’t mean that R&D was not important and these facilities were locally staffed
even through administration.  They had been given the opportunity their own investments
within reason, and limited input from their counterparts in Korea, this showed a confidence in
the Chinese venture and the Chinese began to take ownership of the company and do
company-wide welfare projects and sponsorships that embraced Chinese culture, LG was
rewarded for their efforts in China with LG Day, which is the 31st of January.  Also, a downtown
street was given the name of LG—the very first time a major road was named after a foreign
company in China.  A few community support programs they did were an LG Village, taking a
run-down village in an agricultural area and turning into a showcase for their innovative
technologies to local consumers; an “I love China” campaign where LG handed out free sanitary
masks to locals during the height of the SARS outbreak; donated much-needed equipment to
hospitals; launching schools and medical centers; scholarship programs for the less fortunate;
and event sponsorships.  
    India and China were faced with new issues to stay on top of their segment, the focus had
shifted to software, and skills in manufacturing and engineering were becoming less
emphasized and important, and a change in strategy needs to be done in order to
accommodate this shift in importance, and to stay at the top of their segment.  

The commonalities across its strategies in the BRIC countries

    Looking at the commonalities of its strategies used in the BRIC countries, LG stayed through
economic crisis; devoted immense R&D to each country; increased brand recognition through
sponsoring of social events, and community involvement; started an innovative 3-yr warranty
and repair service with vans going to the consumers; created Country-specific product
portfolios; and emphasized the importance of Customer Service.  Although they may have
tweaked each strategy a bit, their basic ‘globalization’ with ‘localization’ strategy worked so
well and adapted to each culture/country at hand.  

Q 3. What are critical points of learning that can be distilled from its success in emerging
markets? How may these advantages be leveraged to compete in developed countries? Are
the advantages transferrable?

LG Electronics’ (LGE) success in the emerging markets can be attributed to its localization
approach, dedication to customer values, public visibility, and distribution channels. These
advantages allowed LG to stay competitive while its competitors scaled down their operation or
exited the marketplace.

LGE’s Localization Management Strategy focused on:

 Production localization
 R&D localization
 Product localization
 Human Resource localization
 Market localization

Due to the challenges faced in developed markets LGE chose to enter emerging market in
hopes to capitalize on the low wage human resource and avoid import barriers. Once it entered
the specific market, LGE implemented a tailored plan of action. Productions sites were acquired
and aligned in preparation to begin assembly. Local talent was hired and trained. It was from
these employees that the company was able to leverage insight into the environment and
market conditions. R&D would focus on understanding the local market and customizing the
existing LGE product line to meet those needs.

Looking back to LGE’s involvement in India, we saw that product localization was key in meeting
the unique demands of the region. LGE saw opportunity in the rural sections of India. So it
designed and manufactured low cost products from low cost materials to cater to this demand.
The result, rural consumer had the opportunity to use luxury items such as air conditioners and
washing machines. LGE’s expanded offerings set it apart from its competition because the
consumers were able to recognize LGE’s cultural diversity.

Strong customer values were also an important aspect to LGE’s success. LGE wanted to provide
good quality products. When those products failed, LGE made a strong effort to reassure the
consumer that they would be taken care of. Products were backed with warranties and
guarantee of service. There were service centers and even fleets of service vehicle readily
available to come to the customer assistance. By providing this service LGE was able to inject
into its brand reliability and consumer trust.

A difficultly most companies face when entering a new market is brand recognition. How can a
company attract the attention of the consumer? Luckily, LGE was able to gain expose through
region specific marketing, specifically, sporting event sponsorships. In Brazil, soccer was the fan
favorite and in India it was cricket. Slowly, LGE was able to reached the consumers thinking and
influence their recognition of the brand. Consumers were able to associate quality and class
with LGE’s products.

In contrast to it branding strategy, LGE’s social welfare agenda sparked local awareness. LGE’s
concern for its employees’ health emitted good publicity. It demonstrated a company that was
willing to give back to the community. In countries where health care was not available to all,
LGE took it upon itself to make sure its employees and their families were screened and
treated. LGE’s corporate responsibility to society left a lasting impression to local markets.
Many saw kinder side to the global giant, one with compassion.

LGE’s entrance into the emerging markets was driven by the desire to expand and gain as much
brand expose possible. LGE’s distribution channels were stong because they made it a priority
to maintaining close relations with vendors. LGE was able develop stronger network
relationships through local distributors and its own authorized dealers. By spreading out its
operations, LGE made it difficult for competitors to seize market share.

The success that LGE has experienced in the emerging markets may be carried over to the
developed markets. LGE can focus on customizing its product line to appeal to the premium
class consumers. It can also package a more sophisticated customer value program for
developed markets. LGE could attempt to expand its distribution channels to discount retailers
or general merchandise stores. These advantages can be transferred; however, it is important
that LGE does not venture far from its Localized Management Strategy. Being able to
differentiate itself from the competition is crucial. LGE is currently a dominant competitor in the
emerging markets. However, the players in the development will be fierce in defending their
territory.

SUMARRY

LG Electronics, Inc. (LGE) was primarily known for its low-cost appliances had more than 72,000
employees working in about 80 subsidiaries and marketing units across the world. Youngdungpo-
gu, South Korea based LGE was a technology innovator in electronics, information and
communications businesses.

LGE embraced the philosophy of “Great Company, Great People,” and pursued two growth
strategies which involved “fast innovation” and “fast growth” to secure global competitiveness.
The company sought to secure three core capabilities – product leadership, market leadership,
and people-centered leadership. In addition, to achieve an ideal management base, company
has also achieved “Global Top 3” status.

References:

http://www.wtec.org/loyola/kei/welcome.htm

http://www.nomurafoundation.or.jp/data/20000127-28_Chensil_Woo.pdf

http://pcic.merage.uci.edu/papers/2007/CapturingValue.pdf

http://pcic.merage.uci.edu/papers/2007/CapturingValue.pdf

http://books.google.com/books?
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XIc&sig=vGcC5SgSWT_1RfnQGKpeqlHm1qs&hl=en&ei=SBjiTP3AJ8Kclgec37j6Aw&sa=X&oi=boo
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http://www.nytimes.com/2010/01/28/world/asia/28seoul.html?_r=1
Ramaswamy, Kannan. LG Electronics: Global Strategy in Emerging Markets.   Thunderbird:
School of Global Management.  August 17, 2007

Press Release.  LG Electronics Air conditioner takes top spot for five consecutive years.
http://www.lg.com/us/press-release/article/lg-electronics-air-conditioner-takes-top-spot-for-
five-consecutive-years.jsp.  January 13, 2005

http://www.lg.com/us/download/pdf/pr-50-years-of-lg-electronics.pdf