Global Strategy of Lg Electonics
Chapter 1 AN INTRODUCTION AND COMPANY BACKGROUND LOOK AT LG ELECTRONICS LTD Consumer electronics are irresistible, there is nothing quite fascinating than to see someone use an electronic gadget for the first time. There is absolutely no question that consumer technology sparks imagination like nothing else. The Consumer-Electronics industry is the world of entertainment, communication and office products. Currently, the global consumer electronics industry is dominated by the South Korean, Japanese and American companies.
One of these South Korean companies is LG Electronics Inc. Originally being established in 1958, LG Group is the merger of two Korean companies, Lucky and GoldStar, hence the acronym LG. Its current slogan, “Life’s Good” is the bacronym.
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LG Electronics is the flagship of LG Group, one of the world’s largest electronics conglomerate. The company is the world’s second largest manufacturer of television sets and third largest producer of mobile phones. Being its headquarters in Seoul, South Korea, LG currently employees 95,000 people worldwide with 75 subsidiary companies globally.
The main area for production division lies in mobile communication, digital appliances, digital display and digital media. In terms of distribution networks and worldwide sales, LG stands highest in the consumer electronics industry. Being a good control over the white goods market, LG has the highest market share in the home appliances. The company’s desire to create a happier, better life has always surrounded its history. It has unveiled many new products, applied new technology in the form of mobile devices and digital television in the 21st century and continues to reinforce its status as a global company.
A BRIEF LIGHT INTO CONSUMER ELECTRONIC INDUSTRY: From the early 1900’s till late 1980’s and 90’s, consumer electronics, computers, and telecommunications have developed as separate industries. Then came the era of digitalization and it changed the rules of the market by knocking down the walls between and making these industries one as the Consumer electronics industry. Now the consumer electronics market is an industry of $2 trillion. We can segment the consumer electronic industry into entertainment, productivity and communication.
The growth opportunities for this industry include mobile devices, personal era, networks and designing smart homes. There exist many investment opportunities in this industry. The convergence of the three separate industries into one is brewing up the perfect storm. And as it was quoted, “where there’s chaos, there’s opportunity. On November 4, 1959, the Kookje Daily News, one of the most influential newspapers in Korea, published the story of the first Korean-made radio developed and manufactured by LG Electronics (the company was then known as Goldstar).
By introducing all the different kinds of appliances produced by LG, the newspaper projected that “In the near future, we will be using these devices in our daily lives. ” In June 1959, LG Electronics embarked on an ambitious project – the first-ever Korean-made radio. Th company’s lack of experience made many industry observers to doubt the company’s success, aside fro the fact that the task itself was a historical challenge. The local production of component parts was also problematic. Nevertheless, LG Electronics succeeded in producing component parts in local regions, such a switches, sashes, and transformers.
Finally, the first domestic radio (Model Name: A-501) in Korea came of the assembly line in November, only five months after the project started. A-501 marked a new era in the history of Korean electronics industry, as more than 60% of the product was made with locally produced parts. The development of the first domestically produced radio clearly shows the entrepreneurship of LG Electronics. The company steadfastly upheld its pioneering spirit and willingness to take on challenges to overcome the hardships it faced.
In doing so, LG has succeeded in laying down the foundations for the Korean domestic electronics industry. LG Electronics today embodies the same old pioneering vision, which serves as the engine that propels the company toward the future. In 1958, painful memories of the Korean War still smoldered in the hearts and minds of the Korean people when LG Electronics began to lead the Korean electronics industry. Befitting its reputation as the ‘First Korean Electronics Company’, the words such as ‘The First’ and ‘The Best’ have always accompanied LG Electronics.
The history of LG Electronics is deeply embedded in the history of Korea’s electronics industry, and the company’s achievements are milestones that brought up the level of the nation’s electronics industry one stage after another. After succeeding in locally producing its first radio, LG Electronics wrote its own chapter in the history of Korean electronics industry with the company’s bold, pioneering spirit. LG Electronics developed many of Korea’s first products, such as telephones, refrigerators, TVs, air conditioners, and washing machines.
Today, LG has consolidated its position as Korea’s leading electronics company. In 1962, the radio developed by LG Electronics became Korea’s first electronic product to be exported to the USA. The company also further developed various electronic products using proprietary technologies and exported these products to numerous nations in the world, achieving the nation’s goal of ‘Export Korea’. In 1978, these efforts led LG to reach the goal of earning 100 million dollars in export revenues, the first company in Korea’s electronics industry to do so.
This feat inspired confidence in the slogan, ‘We can do it’ among Koreans who believed that exporting is the only way to develop Korea’s economy. “We made it! ” On October 8, 1982, LG Electronics reached an important milestone as its manufacturing plant in Huntsville, Alabama, USA (LGEAI; then GSAI) completed the company’s first ‘Made in USA’ product. In the early 1980s, LG Electronics began to expand its overseas manufacturing plants. The first overseas manufacturing corporation was established in 1982 in Huntsville, a city in northern Alabama, USA.
It was soon followed by a string of other overseas manufacturing and sales outposts in Europe, Central and South America and North America. LG Electronics has now become a global corporation with over 76 overseas subsidiaries and over 50 branch offices. LG Electronics faced its biggest challenge during the dispute between labor and management in 1989. However, the incident led the company to strengthen the relationship between labor and management and tobecome the No. 1 Company in terms of labor and management relationships.
In the late 1990s, LG Electronics, with its new Digital LG slogan, officially announced its goal of becoming a world-class electronics corporation. Since then, LG Electronics has introduced many of the world’s groundbreaking products such as IC sets for Digital TV Receivers, 60-inch PDPs, and Internet-capable refrigerators. With these achievements, the company was able to dominate the world’s CD-ROM drive market in 1998, aside from establishing a very strong market position for its TFT-LCD for monitors, shadow masks, air conditioners, CDMA WLL devices, home theaters, and other household electronic appliances.
As a result, the words describing LG electronics, such as ‘the first’ and ‘the best’ are no longer merely applicable in Korea, but are now recognized to be true aroundthe world. In January 2004, LG Electronics set the goal to become the Global Top 3. This move defines the company’s resolve tobecome the world’s top company in field of consumer electronics and mobile communications with the awareness that to get No. 1 position is the only way to survive. To that end, LG Electronics implemented a strategy to become the leader in the highly competitive sectors of home appliances, next-generation digital displays, and mobile communications.
LG Electronics continues to blaze the trail in new businesses and ventures into uncharted territories. The company has been able to lead the Korean electronic industry and grow into a global player with its own place among the world’s leading corporations. By taking on new challenges and progressing forward with the frontier spirit, the ‘Legend of No. 1’ of LG Electronics will continue in the global market where infinite potentials are present. THE RECORDS OF BEING ‘THE FIRST’ 1958 Korea’s first electonics corporation established 1959 Korea’s first radio produced. 1962 Korea’s first company to export radios to the USA. 965 Korea’s first refrigerators produced. 1966 Korea’s first black ; white TVs produced. 1967 Korea’s first air conditioners came off the assembly line. The first Korean corporation to establish an overseas branch office in New York, USA 1969 Korea’s first washing machine produced. 1970 Korea’s first electronics corporation to go public 1975 Korea’s first corporate Central Research Center established. 1978 Korea’s first electronics corporation to earn 100 million dollars in export 1981 Korea’s first home appliance corporation to introduce a customer service center. 982 First Korean corporation to establish an overseas manufacturing plant in Huntsville, Alabama, USA. 1983 First Korean corporation to establish an Integrated Design Research Center. 1997 Korea’s first company to develop 40-inch PDPs using proprietary technology. The world’s first company to develop IC Chipsets for Digital TV reception. 1998 The world’s first company to develop 60-inch PDPs for HDTVs. Korea’s first company to develop organic EL for next-generation displays. The company’s CD-ROMs ranked No. 1 in the world 4 years after their introduction to the market. 999 Korea’s first company to develop the synchronous IMT-2000 System. LG’s Whisen Air Conditioners ranked No. 1 in the global market. Korea’s first company to develop Korean standard Digital TVs 2002 The world’s first company to release Synchronous IMT-2000 Color Phones with Integrated Digital Camera The world’s first developer of the “23GB HD VDR” The world’s first company to release a DVD Combo for the Home Theater 2003 The world’s first company to release Intelligent Digital TVs The world’s first company to develop Integrated Synchronous and Asynchronous IMT-2000 Phones.
World’s largest 76-inch PDPs produced 2004 The world’s largest integrated 55-inch LCD TVs released. Korea’s first company to release a 12X External Super Multi-DVD Writers 2005 The world’s first company to release Terrestrial DMB Notebooks Mission statement LG Electronics pursues its 21st century vision of becoming a true global digital leader who can make its customers worldwide happy through its innovative digital products and services. LG Electronics set its mid- and long-term vision anew to rank among the top 3 electronics, information, and telecommunication firms in the world by 2010.
As such, we embrace the philosophy of “Great Company, Great People,” whereby only great people can create a great company, and pursue two growth strategies involving “fast innovation” and “fast growth. ” Likewise, we seek to secure three core capabilities: product leadership, market leadership, and people-centered leadership LG Electronics Vision. LGE’s mission statement explains that its goal is to become a top innovative electronics company in the world. It takes pride in its company and mployees and believes that this is what will make it into one of the most innovative companies of the 21st century. Marketing Management Philosophy LGE’s operates under the product concept of marketing management. From 52″ Plasma Flat Panel televisions to thin, sleek mobile phones that also store and play music, LGE is a company that is devoted to “fast innovation and fast growth” (LG Electronics Vision). It has focused on “developing new products in winning and key businesses, and securing technology leadership. It provides high quality and constantly updated products to further ensure its success as a top electronics manufacturer. Its research and development efforts are specifically concentrated in the area of technological capabilities and developing new growth products (LG Electronics Technology Strategy). As a worldwide corporation, LGE strives to “make its customers happy through its innovative digital products and services and in doing so operate under the product concept” Chapter 2 LG’s Global Strategy
Since its inception in 1958, LG expands its global operations through the historical patterns of growth in the form of (1)import substitution, (2)export to advanced nations, (3)production in advanced nations, (4)production in developing nations, (5)global production and marketing (Lee, 2000; Sue et al. , 2004). In its very first few years LG received loans and technology assistance from Germany and Japan. It produced electronic products that reached the maturity stage, took the role of providing inexpensive import substitute products to Korean domestic market.
In this way, LG laid the ground work for the further growth. In 1970s LG was benefited from Korean government’s export drive and built the major export centers in Gumi and Changwon area of Korea and established massive scale of export production system. By the late 1970s LG engaged in vigorous expansion strategy of the oversea market—particularly targeting USA and Western European markets. However, in the 1980s the growing protectionist move in USA and Western European countries stifled its export volumes. In response to these market hanges LG targeted these advanced markets by building color TV factory at Huntsville, USA in 1981, established another TV and VCR factory at Bromes, Germany in 1986 and microwave oven factory in Great Britain in 1988. Starting from 1988, with the wages increases in Korea, LG secured color TV and refrigerator manufacturing facilities in Thailand and Indonesia and started localization policies. From the middle of 1990s LG expanded its manufacturing facilities in Eastern Europe and South American regions in keeping up with the growing market opportunities in Eastern European and South American counties.
At the same time period LG actively positioned itself for global competitive system structure. From 1993 LG implemented strategic initiatives for the emerging markets in China, CIS and India. In 1995 LG changed its existing Gold Star brand to LG brand and based on sports marketing, it expanded to FPD TV/ Monitor market. As of 2009, LG Electronics have four business units that include Digital appliance, Digital display, digital media, Mobile communications. Its global operations has the total 114 overseas business units including many manufacturing units, marketing units, research and development centers and logistics and service units.
In Europe and China LG maintains regional business headquarters. However, 70% of manufacturing units are in Asia including China and India. 70% of marketing units are in North America and Europe. Based on 7 marketing organizations that cover the whole world LG engages in global strategic management. Its major products are TV, VCR, refrigerators, air conditioners, home appliances, display such as CPT/CDT, monitor, LCD/PDP TV, multi-media products such as CD-ROM drive and PC, information communication products such as handsets and IMT-2000.
Particularly, after the middle of 2000s LG rapidly moving toward the position of one of the global top three. Within three years after announcing its goals to become a producer of high premium products with its own unique global brands, LG successfully penetrated North America and European markets. LG is also marketing the emerging markets in South America, China and India with high premium product strategy. Thus, LG Electronics dare to battle in global premium markets because of its blue ocean technologies and differentiated design capabilities
Global strategy of LG Electronics as a leading Korean company Economic recovery in advanced countries including Japan is still sluggish, although corporate financial performance has been recovering gradually. And companies whose business activities in emerging countries experiencing an economic boom account for a larger proportion tend to show better financial performance. Leading Korean companies have a larger presence in the world market and attract considerable attention. I will focus on LG Electronics, Inc. A leading company ranking with Samsung Electronics Co. Ltd. in the world’s electrical and electronics industries, with the largest market share in home appliances markets in important emerging countries, such as India, Brazil, and Indonesia, and relatively advanced management methods including corporate governance, which are highly valued, and will discuss features or important points of its global management and personnel strategy . Leading Korean zaibatsu—The LG group The Korean zaibatsu (chaebol), a unique large companies group, is very influential in Korea’s corporate sector.
Top 28 companies by market capitalization other than public corporations account for 58 percent in the aggregate market value (Korea Composite Stock Price Index: KOSPI) at the end of 2009 and most of those companies belong to zaibatsu company groups. Striking features of the zaibatsu are as follows: 1. Many zaibatu started as a family company. 2. Zaibatsu leaders and their relatives and affiliated companies are major shareholders. 3. Share holding relationships are complicated. 4. Zaibatsu companies are engaged in businesses in diversified business areas. hows changes of companies groups and the LG group has occupied a higher position, although some groups failed or are downgraded due to the Asian currency and financial crisis in 1997 and 1998. Also its LG’s leader is in the third generation ahead of other major zaibatsu and he introduced a holding company system, aiming at clarifying the structure of owning and controlling group companies. Total assets of the LG group with 53 affiliated companies reach 78. 9 trillion won, the fourth largest in Korea’s private sector and combined market capitalization of the group’s leading our companies (LG Corp. , (a holding company), LG Electronics, LG Display, and LG Chem. ) accounted for approximately seven percent of the aggregate market value at the end. LG Corp. , a group’s core company, controls three large segments, that is, “electronics,” “chemicals,” and “telecommunications and services”. Among these, LG Electronics plays a central role in the “electronics” segment. However, the group expects LG Chemistry to play a heightened role in its battery business, one of the most important and promising business areas.
Features of LG group’s management policies are as flows: 1. Relatives including the zaibatsu leader, large shareholders, carried out corporate management in collaboration 2. Its extent of diversification of business lines is relatively limited and electronics and chemicals businesses have grown mainly. 3. The group’s management has abided by its management policies of “considering human beings first” and the group was the first zaibatsu to start recruiting employees publicly. Thus it has actively wrestled with the appointment and training of promising staff to be professional managers. . The group is said to have fewer relationships with politicians and less reliance on them. As a result, it managed to grow its businesses and concentrate management resources by its own policies and strategies. In Korea, many companies face difficulties in dealing with unions and labor strikes. However, “both employers and employees agreed on a pay increase for 20 years in a row without any offensive negotiations” in LG Electronics. The situation is different from Samsung Electronics which does not have a labor union.
The February 26, 2005 issue of the Toyo Keizai describes corporate culture of the leading zaibatsu as “Samsung’s management, Hyundai’s guts, and LG’s harmony and solidarity. ” 2 LGE ranked fourth in its industry in Global 500 LGE has five segments: Home Entertainment (TVs and audio products), Mobile Communications (cellular phones and handsets), Home Appliance (home appliances), Air Conditioning, and Business Solutions (monitors, commercial displays for hotels, equipment for automobiles, and security solutions).
LGE has expanded into approximately 80 countries and the number of employees exceeds 80 thousand. Its consolidated financial results (FY 2009) and position in the industry are as follows: ? Sales: 73. 0 trillion won (a 15. 3 percent increase year over year) ? Operating profit: 4. 2 trillion won (a 3. 6 percent increase y-o-y), operating profit margin: 5. 8 percent ?Net profit: 2. 8 trillion won (a 145. 0 percent increase y-o-y) ? Total assets: 44. 8 trillion won (equity capital: 17. 2 trillion won) ?
LGE was ranked fourth in its industry in 2009 Fortune Global 500 in terms of sales volume, behind first-place Siemens, second-place Samsung Electronics, and Hitachi and ahead of Panasonic and Toshiba, which were ranked fifth and sixth, respectively. ?LGE’s TVs or cellular phones market share and respective position in terms of sales volume in 2009 in the world. LGE had the second largest market share in terms of TV sales (the same 12. 4 percent share as SONY. Samsung Electronics had the largest share of 23. 3 percent. ) and the third largest share in cellular phones sales(10. percent. It was behind Nokia (38. 3 percent) and Samsung (20. 1 percent)). The company is one of the companies with the largest market share with respect to refrigerators, air conditioners, washing machines, microwaves in the world and is the leading home appliance supplier in growth markets including India, Brazil, and Indonesia. Its overseas sales account for 88 percent in its overall sales and is at a higher level in comparison to competing Japanese manufacturers (SONY: 74 percent, Panasonic:47 percent, and Sharp:48 percent).
This is largely because Korea’s domestic market is not large enough for the company to expand its businesses. Chapter 3 Strategic features of its global management are as follows: 1. Selection of growth markets based on long -range plans 2. Prompt and bold decisions to expand into new markets and concentration of management resources 3 3. Decisions by local offices on development, locally designed products, building a sales network and internationalization of headquarters 4.
Effective sales promotions with emphasis on its brand name I would like to examine those points by citing concrete examples and touch upon its expansion into India, a typical success case in an important market. Expansion into India with can-do attitudes Its main markets targeted for growth have been those of emerging countries with large potential for growth and fewer strong rivals. LGE expanded into India with the second largest population in the world and a younger age structure and longer population bonus period in 1997 (establishment of LG Electronics India, LGE’s fully owned subsidiary).
Although many of its rival companies including Japanese companies exported their products from home countries to India at that time, LGE started producing products at its factories ahead of the rivals and acquired a competitive advantage. LGE placed a priority on strategic advantages of taking the lead and determined it without hesitation, despite insufficient infrastructure with respect to operations of the factories, product distribution, or representatives’ daily lives.
The company has marketed a series of products, fully taking into accounts consumers’ tastes and regional needs or features, including TVs which work in an unstable voltage situation, various kinds of colorful and flowery and lockable refrigerators with large crispers for vegetarians and cooler cases for women’s cosmetics, TVs with on-screen display options in ten regional languages, washing machines with a “sari” (a national female costume) cycle, and microwave ovens with cooking menus including 77 kinds of Indian dishes.
Its products attract customers’ attention. Also it markets low-end products, while marketing high-end products at the same time in order to increase brand images, in relation to its brand strategy. Furthermore, it has made efforts to establish sales and service offices, building a network of offices across India. Expatriates dispatched from Korea (around 30 people) are mainly involved in the strategic matters or so ,and it has employed many talented local employees who knew markets and consumers since its start of local production.
The company has actively made use of such local human resources with respect to sales of products and customer service, or development and design of products. The organization has been operated by local staff over a long time and heads of personnel and sales and marketing divisions are Indians. The company has introduced an evaluation system on a performance basis which is understood and acceptable by local employees and welfare program including welfare facilities trying to motivate such employees.
On the other hand, there are some points to be noted with respect to representatives dispatched from Korea. First of all, the head of the local subsidiary has held the position since the creation of the subsidiary over a long time and made efforts to enable the company’s business to take root and expand from a longer point of view. Secondly, many Korean representatives are accompanied by their families and it appears easier for them to commit to their work, unlike Japanese representatives, many of whom are employees working away from their families in Japan.
Furthermore, when it comes to marketing methods on raising company’s awareness or corporate image, LGE places more emphasis on concentration and efficiency effects in each market than Samsung Electronics which seems to address the methods worldwide. As a result, it becomes a sponsor for cricket events which is very popular in India, as sports marketing rooted in the region. Additionally, LGE has two factories (It will start another new factory shortly. ) and one R & D center in India.
Although the company’s total investment amounts to approximately 13 billion rupees, it plans to spend 15 billion rupees to expand its production as a production and export base in accordance with its worldwide strategy, not just for sales in India. Sales in its Indian business stood at 130. 9 billion rupees in 2009, accounting for approximately six percent in LGE’s total sales. It plans to increase the percentage to 12 percent in 2015, which will exceed the proportion of Korea.
Making use of local human resources and “inner internationalization”on a HQ basis I would like to pay attention to features of LGE’s personnel strategy. First of all, making use of foreign human resources (local human resources and those without Korean nationality). The company tries to cut the number of representatives dispatched from Korea in various overseas offices considerably and employs many local staff members and promotes some of them to a higher position. Furthermore, capable officers and employees without Korean nationality are recruited in its headquarters positively.
Seven out of 13 executive officers, the highest level of officers, who are in charge of material business operations including marketing, procurement, supply 5 chain, HRM and strategy, do not have Korean nationality. This shows that its personnel system has been internationalized to a large extent. It is often said that how foreigners can show their abilities is closely connected with internationalization of headquarters (internationalization at home) and therefore it is important and necessary. It appears that the company’s method is advanced on this point.
That is, the Company employed many translators in order to support Korean employees who were not good at preparing English documents, when it made English its common language in the company. This was a measure to help the system to take root. Also the company says that employees’ average TOEIC score is said to be over 900 (excluding R & D staff who is required to have technical expertise, rather than language expertise), although high TOEIC scores of new employees of the company are often talked about. The average score including such R & D staff is between 800 and 850. ) It is said that there is a rule inside the company that there is no need to reply if an e-mail message in Korean is sent to an overseas office from its headquarters. It is reported that Rakuten and FAST RETAILING will make English the common language and I consider it important for those companies to create a mechanism to pay close attention to or support employees in order to help the system to take root and function efficiently, like LGE does.
LGE and other leading companies including Samsung Electronics and Hyundai Motor have taken similar measures, including targeting emerging markets with large growth potential and fewer strong rivals ahead of them and concentrating management resources on its business there, launching products timely, taking into accounts consumers’ tastes and regional needs or features, valuing a brand image, and making good use of foreign human resources, despite differences about where to place emphasis on or which method to take.
Especially features or strength of Korean companies lies in their can-do attitudes of cultivating a new market ahead of others, despite adverse conditions of insufficient infrastructure. On the other hand, companies utilize and maintain their strength, when responding to changes in their business environment properly. It is impossible to continue success by using the same business model and method. On this point, skillful responses of such Korean companies, which are “sandwiched” between companies of advanced countries including Japan and those of China, may not function properly and they may face a difficult situation in the future.
Actually LGE’s operating profit plunged in the second quarter of FY 2010 due to intensified competition in the world’s smartphone industry. I consider it necessary to watch responses of LGE and Samsung Electronics, while Japanese major companies start making more efforts to cultivate emerging markets. Also the corporate culture of “Samsung’s management and LG’s harmony and solidarity” and any changes in their culture in the future, Chapter4 Initial Business Operation in India LG India is established in 1997 as a 100% subsidiary of LG. It currently positions as the global No. market share firm in the areas of color TV, microwave oven, washer, airconditioner . LG India operates new manufacturing facilities in Noida, New Delhi and Pune in the region of Mumbai. LG aligned with an Indian company and supply 70% of its total component parts. Particularly, the second factory in the Pune region around Mumbai produces GSM mobile phones, TV, refrigerators, air conditioners and washers. With its increasing production capabilities LG now expands its target market areas to Southwest Region beyond the current North East Region market.
Noida factory at the India’s northern area of New Delhi produces TV, refrigerator, air conditioners and microwave oven. Besides, LG operates software R & D Center in Bangalore from 1998 to utilize excellent pools of research resources. LG’s strategic vision is to make India with 1. 1 billion people as the second global production base and achieve 10 billion . LG also plans to produce 20 million mobile phones by 2010 through utilizing production base in Pune . LG occupies #1 market position in home appliances including color TV, refrigerator, washer, air-conditioner, microwave oven, DVD players.
LG also ranks # 3 in PC, monitor and mobile phones. In 2005 LG’s PC market share was fifth but customer preference rank was #1. Indian customers’ trust and preference of LG products are quite absolute. Within seven years after LG India started its operation the total sales of household electronic goods reached up to one billion dollars. The 2005 sales figure was 1. 8 billion ($) and its employees are 2,800. As of 2008, its employees are 3,000. The number of its branches is 125. All the dealerships are 18,200 and service centers are 1,100. In this way, LG established sales and service network throughout India.
By 2010 LG will increase sales by 6 billion ($) and the amount of additional investment is 150 million ($). Presidential Leadership of LG India Mr. Kim started LG India . His career advancement details include operation manager of electronic division of Changwon LG, Korea (1994~1996). Since then, his mostly oversea work experiences include Chicago, USA (1981~1984), Germany (1996), Dubai (1977~1980), Central America (e. g. , Panama 1988~1994). In November 1996 he agreed to work for LG India, and after one month of preparation and training he arrived in January 9th, 1997.
He assumed the position of the president of LG India in 1997 and since then he made it grow to be No 1 global firm of home appliances market. In recognition of his outstanding performance in LG India he was promoted to the senior executive president of Southeast Asia Division in 2005. In January 2008 he concluded his work at LG after completing his work as the president of LG India. Since 1997 the annual growth rate of LG 9 India was 25-30%, which is the result of continuous innovative thinking for localization, brand building with new product ideas and ever changing marketing strategy including sports marketing.
Some of his leadership elements are summarized as below (Kim, 2009). (1) Openness and Transparent Management Mr. Kim asserts importance of openness in localization. This openness is based on understanding of local workers and beliefs on them. Without transparent management, however, this openness is not attained. Mr. Kim really tried to make management transparent in localization of LG. For example, he had corporate meeting with more than 150 mangers at 9:00 A. M. of every 2nd Saturday of each month. Here, all the cost information, profit and loss statements are disclosed to all the participating managers.
In this way all the mangers understand the overall operational status. Outsiders are allowed to visit and observe the factory operations. Mr. Kim says, “Positive thinking enhances the meaning of this life. If you have such positive view of work and India, then you will experience quite different results compared to those who regard India as a place of endless sufferings. Positive thinking, optimistic perspective and open management are quite important. ” Such mindset also relates to the motivation of employees in India. (2) Emphasis on Empowerment
For localization, beliefs in local workers have connection to empowerment. Mr. Kim always puts this credo into practice. For example, he says, “The great power is in entrusting others”. Many Korean executives ask, “Are Indian managers trustworthy? ” Mr. Kim always replies, “Yes, I trust them. To the extent I trust them, they display their loyalty. Ordinary people trust others no more than 50%. However, we expect others to trust ourselves 100%. 99% of people want that. Empowerment transforms people. If you cannot trust others, then don’t demand their loyalty, either.
Although you may experience undesirable results later, it is better to trust people first. “For example, at nine o’clock there is no Korean manager and yet many Indians work here and there. Indian managers work on their own initiatives. Compared to India LG, Mr. Kim comments on a factory of LG China, “At night many Korean mangers stay in the factory and supervise Chinese workers. This is not effective. If so, they do not regard it as their own company. They only regard it as Korean company and instead keep resentful feelings inside. ” 10 (3) Systematic Discipline of Management
Mr. Kim implemented empowerment and at the same time strengthened organizational disciplines. Mr. Kim used the term, “discipline”. Noida factory director said, “Mr. Kim never cancels any meeting that he chairs. He hardly misses work because of sickness. ” Empowerment requires systematic construction of work structures. Mr. Kim closes the book twice a month. At that time, CFO of LG Korea even did not understand the rationale of such practice. With empowerment based on trust Mr. Kim successfully implemented systematic management structures.
As the result, LG India mangers took every 15th of each month same as the last day of the month for performance evaluations of each functional units. (4) Innovation based on localization of R&D and customer-focused strategy For the success of localization, Mr. Kim emphasizes continuous innovation based on localization of R&D and customer-focused strategy. Through localization of R&D, products which fit local customers come into existence. This credo relates to customer-focused strategy, as localization of R&D is necessary for satisfaction of local customer.
For example, the total number of R & D personnel of LG India is 150, which is the largest among MNCs. India LG has the large number of R & D personnel comparing with ration of total employees. Mr. Kim comments, “Localization is about independence from the Korea Head Offices. This must include R & D’s independence as well. ” (5) Market and Field-Based Leadership Mr. Kim visited almost all parts of India on foot. In the course of building nation-wide marketing network he visited all the important places of India. LG India has 46 marketing centers and 70 other remote area offices are in operation as well. 6) Rapid Decision Making Mr. Kim’s speed of decision making is very fast. The style of his decision making is, “clear, simple and precise”. He rarely says, “Let me think over and talk about this later”. Chapter 5 Localization Strategy in India This section summarizes localization strategy and a few success factors of LG India (Park, 11 2009). LG Korea points three factors for LG India’s superior performance outcomes. First, production of high premium quality of products, Second, localization policy efforts, Third, strong distribution network for vast rural areas.
Among these three, localization policy initiatives are the most critical of all. LG India employs unique marketing practices with right products that fit to Indian market requirements (SERI, 2007b). In 1997 LG India deployed 70 product lines all together and started establishing LG brand power in Indian market. For new product development LG India became successful to plant the brand awareness among Indians that LG products reflect Indian tastes with Korean technologies. For example, Indian traditional costumes are quite thin and therefore quite sensitive for slight pressures.
LG India developed washers that do not use circulating wing in the center and accordingly they were a huge market success (SERI, 2007a). Initially, LG India produced products in the form of OEM through strategic alliances with Indian local suppliers (Park, 2009). However, with slow productivity progress in Indian suppliers, LG senior production manger started working together with Indian workers in the factory floor. He ate with them and discovered the practical problem areas. In this way, there was drastic change in work attitude and habits among Indian workers and accordingly noticeable productivity improvement became a reality.
Since more than ten different languages are spoken among workers, LG India devised a system through which workers may choose production instructions in their own languages. The primary reason why Japanese electronics firms were unable to capture Indian market was their failure in local accommodations. Because of unstable electric supply in India, accidents occur in relation to uneven flows of electricity. LG India investigated the causes of this accident and subsequently developed condenser that is capable enough to function under unstable electrical flows.
In this way, component parts were newly developed according to the local conditions. LG India boldly transferred almost all of decision making powers (up to 99%) to local experts who would devise effective marketing campaigns to handle changing customer requirements in India. LG India also introduced drum washer and dish washer product lines that have direct drive functionality. At the first year LG India sold 4,000 units of dish washers whose components are imported from Korea and then assembled in India. The retail price range was 40,000 to 80,000 rupees. Drum washer is produced in LG-owned factory nearby of Pune area.
LG emphasizes the functional advantages of its washers in terms of substantial reduction in 12 washing time and water usage. LG India also extends the period of free warranty of its new products from two years to seven years. Even in mobile phone development, LG India considered the local conditions. For example, in view of high noise level, the bell sound of the Indian phones is much louder than that of other advanced countries (Chosun, 2008. 9. 25). Even now, no more than twenty Korean managers work in LG India while the number of Indian employees is 3,000.
For the good community relations LG India built public health center nearby of its manufacturing facility at Noida. It also employs doctors, pharmacists and nurses to serve the people in the community at no cost to the people. At the 2nd factory location of Pune area LG India is also in the process of building public health center. LG is not merely making money. Rather, it is establishing the favorable corporate image to the people in that it creates employment opportunities for the people and contributes to the overall wellbeing of the community.
LG India also takes much effort in sports marketing. LG India sponsored Cricket National Championship for more than ten years and accordingly enhanced LG brand awareness Samsung engages in sports marketing in global scale while LG employs sports marketing in national or regional level. For example, Samsung implements brand promotion through its sponsorship of Chelsea Soccer Team for targeting the entire Europe. LG, on the other hand, focuses its sports marketing for particular nations. From 1999 LG has invested heavily on Cricket World Cup which South Africa, India and Thailand hosted respectively.
LG is proud of sponsoring local and regional popular sports such as Cricket World Cup and promotes its products through direct and relational marketing strategy. This is quite different from Samsung’s global sports marketing based on its abundant financial resources (Park and Park, 2007). Since the most favorite sport of Indians is Cricket, LG also embedded Cricket game functions in its TVs sold in India as well. Another reason why LG India was so successful in India was its upper middle class strategy. LG India targeted upper 5% of Indians through high premium product strategy. These people have purchasing power for LG products.
Besides, such brand image also allows other customers that join the upper middle classes prefer LG brands for the status symbol effect. Lastly, for localization strategy of LG India cobweb distribution and service strategy are important factors . LG India from its early pioneering years poured much of its resources to develop distribution and services networks which include 18 branches in major regions, 1,800 logistic centers and 85 service centers throughout the nation. While other firms 13 paid little attention to after services, LG India allocated almost half of its human resources for the after-services.
LG India also adopted saleswomen system that utilized India’s vast pool of women workforce. LG India was the first that implemented the system of saleswomen in India. These saleswomen certainly contributed to the sales increase of electrical household goods. Conclusion The international economic crisis of 2008-2011 was changing both general environment and the LG Electronics’ growth. The consequence was a fall of the financial results: Table 1. LG Electronics in 2011: a crisis of the profitability (in % of total) Ratio 1= Net income Revenue | -0. %| Ratio 2= Net income Total assets | -1. 5%| Ratio 3= Net income Total equity | -3. 8%| Source: LG Electronics. But with around 91,000 employee’s en 2011, LGE remained the world’s second largest television manufacture and the fifth largest mobile phone maker. In spite of the world economic crisis, LG Electronics aims to make the company one global top 3 in terms of shareholder return, profitability, growth, sales and market share. In this way, the LG Group adopted, in 2007, three specific values and, consecutively, six strategies:
Table 2. LG Electronics strategy task Vision| Global Top 3 in Electronics & IT Industries| Three values| 1/ Creating customer values through innovations and differential designs2/ maximizing shareholder values3/ Building an organization worth benchmarking| Six strategies| 1/ Focusing on boosting ROIC51 instead of simple growth2/ Optimizing the portfolio3/ Counter measuring the market bipolarization4/ Technology innovation and design differentiation5/ Strengthening brand investments6/ Reinforcing global competencies| Indeed, the LG Group remains a strong economic actor.
It controls very profitable subsidiaries. It is the case concerning LG Chem, LG display and, above all, LG Corp. , the LG Group’s holding: Table 3. The profitability of the most important LG Group’s companies in 2011 (in %) | LG Chem. | LG display| LG Corp| Ratio 1= Net incomeRevenue| 11. 3| 3. 1| 6. 5| Raito 2= Net incomeTotal Assets| | 4. 0| 9. 4| BIBLIOGRAPHY http://asiantalks. com/2012/05/16/globalization-at-lg-electronics/ http://cdn. intechopen. com/pdfs/12111/InTech-Globalization_of_markets_marketing_ethics_and_social_responsibility. pdf Values” , Beverly Hills, CA: Sage Publications, p. 1. http:// www. business-ethics. org/corpadv. html , April 12, 2005. http://www. consumerpsychologist. com/intro_Social_Responsibility. html, June 08, 2010. http:// www. business. org/index. php? show , April 12, 2005. http:// www. csreurope. org ; and Howard Stock, Euro Funds Bank on Social Metrics,” Investor Relations Business, April 21, 2003, p. 1. http:// www. globalpolicy. org/globaliz/define , April 23, 2005. http:// www. questia. com/popularSearches/ethics. jsp , May 2, 2005. http:// www. imf. org/external/np/2000 , April, 26, 2005. http://www. knowthis. om/principles-of-marketing-tutorials/, July 05. 2010 BARJOT (Dominique), (ed. ), « Globalization-La Mondialisation », Entreprise et Histoire, n° 32, 2003. BARJOT (Dominique), PARK-BARJOT (Rang Ri) (eds. ), «Aux origines du miracle coreen », Conflits Actuels, n° 22, 2008-2. BARJOT (Dominique), “South Korea’s Economic Development since 1950”, Les Cahiers de Framespa. Nouveaux champs de l’histoire sociale, n° 8, 2011, http//framespa. revues. org/744. HAN (Woo Keun), translation LEE (Kyung Shik), Ed. Grafton K. Mintz, The History of Korea, The Eul Yoo Publishing Company,