LG Electronics: Global Strategy In Emerging Markets

Group 4: Arun Ravindran PGP14/138 Kapil Verma PGP14/147 Smitesh Vaidya PGP14/178 Soumya Barik PGP14/180 Soumya Bhatia PGP14/181 Sruthi Keerthi PGP14/244

Agenda
Purpose of the case:
Improving share in emerging markets Strategy for developed markets

Case Facts Emerging markets: BRIC Analysis Developed market scenario Recommendations Key Learning

Case Facts: 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 1980 s adopted the Internationalization
Intense exports to developing markets Capture developed markets (through Joint Ventures)

In 2007 considered rebalancing and restructuring:

Rationalized business holdings: Core and Non-Core groups 3 key activity domains: Electronics, Chemicals & Telecommunications

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

Case Facts: LG Electronics

Instrumental in launching LG brand worldwide Suite of consumer electronics home appliances mobiles 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 1980 s 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 LG s success lay in visualizing emerging markets in the long-term

LG in Brazil
Steps taken Setting up facilities in under developed areas tax exemption Leverage Obtained Cost Control

Retaining + Expanding its existence in Brazil despite Convenient and easier reigning plummeting exchange rates ; all competitors were of market on the trade off of exiting some losses Sponsoring sports events Consumer awareness Customization of products to suit local needs; Exploitation of understanding of Demanded a premium for the same; Introduce new Product Markets products for lower price points Offering three year warranty; Employing service vans Contracted local third party distributors; Relationship building Service differentiation Effective implementation by local resource market and supply chain know-how

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 Scaling up product line and investment during debt moratorium ; Competitors were exiting Outcome / Reason Brand awareness

Exploitation of understanding of Product Markets Filling up institutional voids

Disallowance for setting up facility at a leased land Pre mature wrt control on near Moscow due to legal constraints political games in the playing field

LG in India
Product Innovation Product Customization
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

Recognized that there was enormous potential to be tapped at the lower levels of the economic society 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 Geographic diversity along with lack of infrastructure were major roadblocks in the path of increasing the 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

Distribution Inroads

LG in India
Customer Satisfaction Brand Promotion Local Recruitment CSR
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

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

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

Emphasized compassion and social welfare in all its initiatives Medical clinics for employees; setting up primary schools for children and providing books.

LG in India
LG initially was looking for a JV in the light of the existing government regulations. However they got shelved as significant market reforms were introduced and government allowed wholly owned subsidiaries to be set up. LGEIL was hence born. LG decided to not downgrade the Indian market but to formulate a whole new strategy to provide customers a whole new range of products The success in the Indian market could be attributed to the three pronged effect: culture marketing, rural distribution & customized products Local players like Videocon and global rivals like Motorola were faced with severe competition as a consequence of LG s neck breaking strategies

LG in China
Building a manufacturing base
Low labor cost Building an export hub Building a strong presence across the country

Local employees

Allowing local employees to take decisions and respecting all such decisions with the view of building a national image

Investment in R&D

Training local employees Design localization to fit the existing demands

Building national loyalty

I Love China campaign during the SARS crisis Establishing itself locally through event sponsorships like launching schools, offering scholarships, founding hospitals, etc.

LG in China
LG s approach to the china market was derived form its experiences in India and Brazil However the stringent government regulations called for some changes in strategy LG in China used close proximity to Korean manufacturing base to its advantage By 2005, LG was able to build a commanding position in the Chinese market

Insights Emerging Markets

Objective Investments in R&D Implementation Staffing with locals for understanding markets and demand; Customization of global products to meet local needs; Cost Control 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) Anticipatory Internationalization Retaining and Expanding products in adverse economic condition coupled with fall in competition Offering differentiated after sale service Process Innovation Collaboration with a local firm for cracking local distribution network Brand awareness campaigns

Strategy for Emerging Markets

Conduct a market study for finding the reason behind success of its competitors Carry on with the current approach
Building trust in the local market by employing local talent R & D investment Nation wide distribution channel Customer support and after-sales service Brand awareness by associating itself with popular activities of national importance

Consumer electronics in developed countries

Competition between big players to gain maximum market share
Already established players in the market Intensified market competition

Declining overall profitability Improvement in competitiveness through

Expansion Examples M & As Brand consolidation

European design favored in white goods Shift of advantage to software

Skills in manufacturing and engineering were proving to be obsolete

 Demand mostly for high-end products rather than cheaper ones Innovation in products along with quality a major aspect in selection of the electronic goods Need for greener products

Green and low-carbon economy Social responsibility Technological changes can bring in new growth points Strong companies growing stronger on account of this

Need for portable consumer electronics

LG in USA
Launched a sizeable branding campaign Done away with commodity-related name of Goldstar Range of high-end TVs introduced Won 14 awards for excellence in design and creativity in CES, 2006 LG CDMA phones outsold all other competitors for successive 2 years

Strategy for developed countries

Blue Ocean
Redefining industry boundaries Focus more on high-end products Uncontested market space the only feasible option

JV with a major player for gaining an advantage in the distribution network Focus on innovation in terms of green products
Need of the hour Perceived differentiation by the consumers

Innovation in terms of portable electronics

High growth in this segment

Key Learning
In 1980 s it was on an internationalization drive and entered developed markets through JVs LG used come from behind approach and entered markets that few dared to enter Adopted Anticipatory Globalization by investing in emerging markets It could adapt itself to the local culture, it came up with many initiatives:
Customization efforts (unique cultural and social dimensions) Relationship development (public social gatherings in Brazil) R&D localization, educational opportunities, healthcare opportunities, sponsorships In India, emphasized on good quality products both urban and rural markets, customer service to suit Indian electricity distribution, localization philosophy (administrative + global functions), cultural marketing, rural distribution, customized products SARs crisis: free mask distribution