Submitted By

Samrat Guha 126

Sandeep Reddy 128
Sankalp Gupta - 130

PORTERS FIVE FORCES ANALYSIS

Consumer Electronics: An Analysis

Bargaining power of suppliers is not considered to be a specific issue

which is evidenced by ODM, CEM, EMS etc. who have not yet tried to
bypass manufacturers, as the market is characterized by squeezed
margins and growth decline.

Bargaining power of buyers: Bargaining power of consumers is high,

due to low switching costs. Bargaining power of operators and other sales
channels is high, however, the internet can be seen as an opportunity to
sell online and overcome operators dependence on sales.

Threat of potential entrants is high. Decreases in market growth and

marginal revenues due to market saturation allows for new entrants to
compete on price. Competing on price opens market opportunities in the
low-end segment in developed markets and emerging markets. This trend
has been emphasized through consumers demand of cheap
commoditized handsets.

Threat of substitutes is low as mobiles play an ever increasing role in

consumers life and convergence is likely to sustain this trend in the
future.
In terms of rivalry among existing firms one observes that this is
affected particularly by consumers bargaining power and the threat of
new entrants. Shorter product life cycles, convergence and price are main
elements characterizing global industry rivalry.

Applying the VRIO Framework to LG Electronics

The VRIO Analysis was developed by Jay B. Barney as a way of evaluating
the resources of an organization.
The VRIO Analysis is an analytical technique which for each type
of resource considers the following questions (evaluation dimension) for
an organization as well as for its competitors. VRIO is an acronym from the
first letters of the names of the dimensions:

Valuable. A resource is valuable if it can be used, for example, to

increase market share, achieve a cost advantage or charge a
premium price (these features of a resource are not mutually
exclusive, and hence a resource may have multiple attributes).
Barney suggests that this question has to be answered first because
a resource that is not valuable or is irrelevant cannot be a source of
competitive advantage.

Rare. If a valuable resource is not available to all competitors it is

rare and therefore a potential source of competitive advantage.
Rarity is important because if competitors possess the same
resources, there is no inherent advantage in those resources. Of
course different businesses can configure the same resources
differently to achieve competitive advantage, but this is not the
focus of the resource-based view of the firm.

Imitable. If a resource is not readily copied or imitable, then the

resource is a potential source of competitive advantage. To be
advantageous the resource must be difficult or expensive for
competitors
to
imitate
or
acquire,
such
as
brand
recognition/perception. If a resource is easy to imitate it offers only
a temporary advantage, not a sustainable one.

Organization. A business must be capable of taking advantage of

the resources at its disposal. If a resource is available, rare and
difficult to imitate, a business must be able to exploit it, otherwise it
is of little use. This may require reorganizing the business.

Use of the VRIO Analysis in practice: Evaluation with the help of a VRIO
analysis is used to assess the situation of the organization (enterprise), its
resources
and
possible
competitive
potential
or potential
for
improvement in the given area or for a given resource. Such an
assessment is then used for example in the strategic management of
development in various areas or for decision making about the advantage
of an external or internal process and the securing service (e.g.
outsourcing decision).
In practice, the VRIO analysis is also used in combination with
other analytical techniques to help organizational management evaluate
business resources in a more detailed view. For financial resources, there
are many detailed financial indicators that evaluate the financial condition
or performance of the business from different perspectives. Likewise,
human resources, property or information are other detailed indicators of
their performance, efficiency or quality. The advantage of a VRIO analysis
is its simplicity and clarity.

VRIO Framework For LG Electronics

Resource/Capabil
ity

Valuable

Rare

Costly to
imitate?

Exploited

Organizational
capabilities

Yes

Yes

No

Yes

Research and
Development

Yes

Yes

Yes

Yes

Financial Support

Yes

No

No

Yes

Human Resources
and Talent
Management
Process Innovation

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Competitiv
e
Implication
Temporary
competitive
advantage
Sustained
competitive
advantage
Competitiv
e parity
Temporary
competitive
advantage
Sustained
competitive
advantage

Our VRIO analysis indicates that LG Electronics has core competencies in Product
Designing capabilities and differentiation. The companies have leveraged these
competencies in order to pursue a three-pronged strategy of balancing growth,
profitability.

Organizational Capabilities:
Representing LGs unique corporate culture, the LG Way articulates their
belief in attaining the vision of becoming No.1 LG through Customer-

Value Creation and People-Oriented Management as we orient our

business practices with Jeong-Do Management.
No.1 LG
No.1 LG is the ultimate goal towards which all LG businesses should
strive. It expresses their commitment to become a dominant leader in the
global market by consistently providing customers with differentiated
value in each and every market segment.
Jeong-Do Management
In order to gain the complete trust of thier customers and achieve
sustainable growth, Customer-Value Creation and People-Oriented
Management must be facilitated by Jeong-Do Management. LG
Electronics believes that it is possible to compete fairly and produce
results with integrity by continuously strengthening our fundamentals.
Customer-Value Creation
Customer-Value Creation is the very reason for their existence and the
core principle of LG Electronics. They are in business because customers
buy their products and services, and it is only natural that they strive to
provide greater value to their customers and create new value for them.
People-Oriented Management
People-Oriented Management expresses their belief that each and every
employee is an integral part of their effort to create value for customers.
Based on this tenet, they are committed to creating an environment
where their employees can reach their full potential and utilize their
abilities to the fullest extent, thereby fostering a spirited workforce that is
prepared to tackle any challenges. This will ultimately guarantee a strong
and competitive LG.

Research and Development

Design has an important role to play in product innovation. It also allows
products to be effectively differentiated. LG Electronics was set up in 1958
in Korea were it broke new ground in that country by hiring as industrial
designer and one year later set up a product design department. It spends
some 1.5 billion on R&D in its twenty five R&D laboratories around the
world. Its strategy of global localization has led to become the worlds
leading manufacturer of Plasma TVs and number five for mobile phones.
LG has many technological firsts to its credit. It developed the first ever
disk player to support both Blu-ray disk and HD DVD content; the
industrys first ever steam washer; the most energy efficient side-by-side

refrigerator; the ultra-responsive LCD monitor as well as premium mobile

phone handsets the A Cappella Music Phone and the LG Shine phone.
LG aims to integrate technological developments with design and design
is key part of LGs culture. In 1999 it defined design as one of its four key
skills and in 2006 it announced its design management strategy.
Between 2005 and 2007it won fifty prestigious Red Dot design awards.
The company sees design as playing a crucial role in harmonizing the very
latest in technological developments with human needs. It strives for
design that is at once minimalist and seductive. Designers are
encouraged to experiment in a playful manner with fresh ideas and
unusual combinations to predict emerging needs, design new worlds and
lifestyle concepts, and handover their inventions to the public.
Researchers, designers and trend scouts predict the future by examining
and identifying consumer needs, observing the publics interest in
products, and finally developing design concepts and solutions. In this way
LG try to keep One step ahead of the game.
LG encourages designers to do town-watching- visiting the chic streets of
Hongdae or Cheongdam-dong to spot new design trends. It was one of
these trips that tend towards more natural shapes was identified that
eventually was incorporated into their KG800 mobile phone- the
Chocolate Phone, which won a Red Dot award. The phone has nothing to
do with chocolate; it was just thought that name was memorable. This
was the first mobile phone in the world to have a touch sensitive key pad.
LG believes it has integrated design into its business thinking. Many
innovations are design led, but responsive to market needs. LG believes it
must design its technologies for the way people actually behave, not the
way you would like them to behave. That means designers have to meet
people, hear what they have to say and see how they use electronic
products. Usability tests are important, and should not be confused with
market research or the inherent falsity of focus groups. LG are keen to
make their designs playful and fun-to-use.

Financial Support
LG Electronics makes continuous efforts to ensure the financial stability of
their suppliers by providing direct/indirect funding support and improving
payment schedule/period.
Direct Funding Support
LG Electronics provides direct funding support to suppliers for improving
productivity and quality, expanding capacity and facility, establishing
overseas operations for LGE projects, and developing advanced
technologies. They provided a total of KRW 170.9 billion in direct funding
between 2004 and 2012.
Combination/Indirect Funding Support

In partnership with financial institutions, LG Electronics provides low

interest funding to suppliers to ensure financial stability of their suppliers
and to lay the foundation for sustainable win-win partnerships. In 2012, LG
Electronics, in association with the Industrial Bank of Korea (IBK),
established the Win-win Growth Fund totaling KRW 125 billion and
provided KRW 106.6 billion to our suppliers. In 2013, they plan to allocate
additional KRW 32.5 billion to set up a Win-Win Growth fund dedicated to
our 2nd and 3rd tier suppliers. Additionally, they allocated KRW 150 for
the Network Loan, a low interest loan (production expenses/working
capital) for small and medium sized enterprises, through the IBK. In 2012,
they partnered with the Korea Export and Import bank to expand the
benefits to suppliers who have established overseas operations for LGE
projects.

Improvement of Payment Conditions

LG Electronics processes invoices from subcontractors twice a month and
makes payments in cash within 10 days of invoice processing. They also
adjust the payment schedule (increase the frequency of payment
processing or shortens payment period) to relive their suppliers of
financial constraints. Additionally, they make payment to suppliers earlier
than schedule before national holidays (New Years Day and Thanksgiving)
to improve suppliers financial management and employee welfare.

Human Resource and Talent Management

Union Social Responsibility,
Management Relations

New

Paradigm

in

Labor-

In order to build up on their labor-management relations that create

differentiated value and present a new direction for the labor union of a
global corporation, the LGE Labor Union declared Union Social
Responsibility (USR) in January 2010 as a pledge for social responsibility
and customer respect. Since the USR declaration, the LGE Labor Union has
been continuously carrying out social contribution initiatives that
demonstrate shared commitment of labor and management towards
corporate social responsibility.
The LGE Labor Union established a vision for USR as part of its efforts
toward goal-oriented and effective USR activities. In order to achieve the
vision of "Socially Responsible Labor Union that Provides Innovative Value"
the Labor Union focuses on fulfilling USR, improving the quality of
employees lives and making contributions to the global community as its
key role and responsibility. The USR system is constructed based on ISO
26000 - Social responsibility (Standards established by the International
Organization for Standardization to provide guidance on how businesses
and organizations can operate in a socially responsible manner) and
organized into the seven core subject areas of Governance, Human Rights,
Labor, the Environment, Fair Operating Practices, Consumer Issues,

Community Involvement & Development. the LGE Labor Union develops

action plans for each core subject and carries out systematic USR
activities.
LGEs Efforts to Secure Quality Talent
Based on the conviction that the driving force behind the companys
growth is its people, LG Electronics continuously works to find and acquire
quality talent with a wide range of recruiting activities. As part of their
efforts, they tour universities to host recruitment events and provide
career counselling to students, while pursuing industry-academia
cooperation programs with numerous universities to create a talent
recruitment process that benefits students, universities and LGE alike.
They also have diverse open recruiting programs in place to discover
quality talent on an ongoing basis. Their talent acquisition efforts extend
to overseas as well; every spring, top executives from LG Electronics
participate in the Techno Conference hosted by LG Corp. to introduce their
business operations and latest technologies to potential employees and
make recruitment efforts to secure quality talent based on mid to long
term HR requirements. In 2013, they plan to further strengthen our talent
acquisition efforts with diverse recruitment activities.

Process Innovation
LG Electronics intensified its drive for Win-Win Growth through internal
process innovation and established a wide range of programs to promote
communication with suppliers. The process innovation in the operations of
LG electronics has led to immense success in the output, value creation
and customer satisfaction.