LG Electronics: Global

Strategy in Emerging Markets

Submitted by : Group 9

Arun Raj | Anupriya |Nishtha |Manisha |Srinivas |Shardul

 Introduction
History of LG
1970 the electronics, refining and
• LG was born as Lak Hui Chemical Co. in 1947 for
chemical business set record high revenues
manufacturing cosmetics cream by Mr In-hwoi koo
1980 started massive exports to
• Utilized the excess capacity to manufacturing small
developing nations
consumer based out of plastics
Swiftly moved to capture developed
• Later on, they moved into manufacturing of plastic
nations by entering into JV with Caltex and
component for Telecommunication
EDS and launched their electronic products
• It also ventured into refining and shipping of crude oil
in US market
• Became theadi first Korean company to build a
2007 Launched a rebalancing and
vacuum tube radio, B&W TV, electric fan, Washing
restructuring program to divide its business
Machine and automated Telephone Switching system
into core and non core activities

Focus Electronics
1960 they were present in a host of industries
Area Chemicals
ranging from oil refining, cables, heavy manufacturing
Telecom
and energy
 • Co. followed holding company structure to
provide autonomy to subsidiaries
• LG’s CDMA phones outsold all competitors
in US
• Made its presence strongly felt in the flat
screen TV through it JV with Philips and
became largest manufacturer flat screen
Electronics industry in Korea
• LG electronics was a major contributer in
establishing the LG brand worldwide and
contributed to 47% of group revenue
Followed “ Come from behind strategy and
entered markets where no body
dared to enter
The 3 Chaebol of Korea: Samsung, LG and
Daewoo pioneered in the field of consumer
electronics by working closely with the Korean
govt.
Government Support in Korea
• Government recognized electronic industry as of
national importance and favored its development
• Govt. favored FDI to secure technology and creation of
JVs with major electronics co.
LG+Hitachi, Daewoo+GE, Samsung+Sanyo
• Soon, these foreign co. along with their JVs with local
Korean players were exporting 70% of electronics from
korea
• This was a period when labor intensive low technology
captured the market
• 1980 Industry focused on technology and
invested in R&D
• Korea also focused on R&D with emergence of a lot of
vocational trainings and universitie
• Result: No of people involved electronics R&D
increased five fold from 1975 to 1995
 Initial failures in developed nations
• LG and Samsung started exporting their
improved products to developed nation
where they were not well received
• This led to the realization that a super
premium and highly differentiated product is
needed to succeed in developed nation
• Result: Invested more heavily in technology
R&D
LGs move
• Leveraged the relationship with leading
consumer electronics companies to
understand market
• LG wanted to breakout f the OEM role and
launch its own brand of products
• It launched its own line of product under the name
“GoldStar” which included microwave and toaster ovens
in U.S.
• It faced competition from European and Japanese co.
to claim shelf space for its products in U.S. market
• Then they ventured into emerging markets such as India
with a long term strategy
• They entered in India in 1990s and waited for a decade
pass through the local regulations and barriers to establish
a strong foothold
• This proves that although LG had made a presence in
developed markets such as North America and Europe, it
tasted initial success only with emerging markets
 Entry into BRIC Nations
BRAZIL
• LG established its Brazilian operations in mid 1990s
• Set-up 2 factories
• Manaus – Audio/Video products and related equipment
• Taubate – Communications products (Cellular telephones and Monitors)
• Government offered tax incentives and subsidized land for investors in the underdeveloped rain forest
region

Challenges faced by LG Strategies used by LG

• LG decided to stay in brazil and targeted
local as well as the US and south American
market
• Very high import tariffs
• They utilized the govt. policies in their benefit
• Significant competition from gray
• branding campaign through sports events
goods market
sponsorship
• Low brand awareness
• Focused on quality and after sales service
• Increased the level of uncertainty in
• Signed agreements with
exchange rate
local distribution chains to gain quick access
to the market
• Customized offerings focused on unique
cultural
 Entry into BRIC Nations
INDIA
• Entered India in 1993 through a joint venture with a consumer products company named Bestavision
which failed in a short span of time
• While LG had begun negotiations with one of India’s leading business groups for a possible joint venture,
Indian Government announced significant market reforms which allowed foreign companies to set up
their wholly owned subsidiaries in India
• 1997 - Launched LGEIL (LG India Ltd.), a fully owned subsidiary
• Manufacturing operations in Greater Noida – TVs, Washing Machines, ACs, Refrigerators

Challenges faced by LG Strategies used by LG

• Brick and Mortar distribution strategy

• Geographical diversity and inadequacy
of infrastructure
• Cultural and Linguistic diversity
• Local players were dominating the
market
• Low brand awareness
• Power supply imbalances
• Customization to local needs
• They utilized the govt. policies in their benefit
• Brand building initiatives- cricket
• sponsorship, addressed healthcare needs of
employees, established village school, subsidized
education and books
• New version of product line for rural markets
• Localization in administrative and Managerial
functions
 Entry into BRIC Nations
RUSSIA
• Entered Russia in1990
• LG commenced operations in Russia with a bonded warehouse business through which it imported
goods manufactured at its plants for sale in Russia – this business largely focused on the Goldstar brand
and was limited to operations in and around the city of Moscow

Challenges faced by LG Strategies used by LG

• Despite the crisis, LG heavily invested in the

• Communist Heritage
Russian market and focused on local
• State sponsored business enterprises
customization of its product range
• Challenging economic environment
• Established LG brand shops and dedicated
• 1998 Russian economic crisis
retail channels to carry LG brand portfolio
• Investment of $150 million halted
• Culture marketing events such as LG
• Low brand awareness
festivals and cooking events
• Used Local talent for Global R&D mission

In 2005, LG received permission from the Government allowing it to use the Narodnaya Marka logo on
its products, implying that the products were considered to be national brands
 Entry into BRIC Nations
CHINA
• LG had sought to tap this market through the establishment of a sales subsidiary in Hong Kong as early as
1988
• Followed with a joint venture established in Huizhiou on the mainland in 1991
• By 2002, the company had 12 production subsidiaries and sales centers
• By 2006, LG had built 16 corporate entities across China

Challenges faced by LG Strategies used by LG

• Taking the labour cost advantage, LG made
China a hub for exports to other markets
• Aspirations of LG matching with the
• Geographical diversity
developmental needs of China – Facility
• Unique nature of govt. regulations
location and hiring local employees(98%
• SARS crisis in china
Chinese workforce)
• Established Chinese product design team to
oversee localization of design
• LG Village to showcase state of art
technologies
• “I Love China” campaign, CSR initiatives
 Developed nation : Still a Challenge

By 2007, LG had established its strong foot hold in the major emerging
nations

Korean manufacturers had gained the spotlight as established itself as a

high quality, innovative consumer electronic products

Mr. Nam Woo, the then President of LG electronics in China established that
China is on the top priority as it scales up in economic importance

The question now was can they use the same strategy to establish a
strong foothold in developed nations
Case Analysis
1. What were the key strengths of the Korean electronics industry during
formative years? How did Korean firms leverage these advantages to
enter developed markets?
 Key strengths of Korean Electronics Industry
Impetus by the government – Electronics industry encouraged as a National priority sector
Government wanted to boost exports and consolidate economic growth
Powerful Chaebol led business conglomerates – influenced Govt policy
Chaebols filled institutional voids by investing in a number of sectors, creating credibility in smarket
Economic liberalization – Foreign Direct Investment to secure technology and JVs with world leaders
LG – Hitachi, Daewoo – GE, Samsung – Sanyo & NEC
Creation of supporting infrastructure and institutions for growth of electronics industry
Govt encouragement to firms to invest in local R&D
Creation of 120 private research institutes & 18 research consortia
Industry co-operation councils & cooperative institutions
National Education Policy – focus on science and technology
Leveraging advantages to enter developed markets
Small domestic market – need to focus on exports for existence
Leveraged OEM relationships to understand the markets
Exposure to demanding developed markets – understood the need for differentiation
Demands forced Korean companies to invest aggressively in technology, process innovation and
cost control
Improved competitiveness surpassing global competitors
Using local talent to run lead and run subsidiaries
Better market insights and quick responsiveness
Launch of own brand in developed markets
Battle for shelf space difficult due to poor consumer perception, lack of brand recognition
2. Trace the strategic growth of LG Electronics. Were there any distinct
patterns in terms of the company's approach to emerging markets?
Identify the commonalities across its strategies in the BRIC countries
 Strategic growth of LG Electronics
Identification of Market Voids:
Goldstar consolidated position in plastic manufacturing in Korea
Identifying and filling Institutional Voids
Backward integration through Chaebol network into Oil refining for raw material
Forward integration into telecom equipment
Joint Ventures with global leaders for electronics
Entry into Emerging markets
Forced by failure in developed markets & small domestic market
Focus on long term potential rather than immediate sustainable profits
Identified and filled institutional voids in emerging markets
High degree of localization
Products & services, Management, R&D
Treating emerging markets as “1st World” rather than “3rd World
 LG’s approach to emerging markets
Investing for the Long term
Creation of assets in host countries & persisted during downturns, exploited opportunities
Selecting & Empowering Local Management
Majority of management positions filled by Locals, high degree of ownership, decentralization ,
responsiveness
Integration and empowerment by providing opportunities in 3rd countries
Customized Products & Service
Global market segment – serviced by globally established product line
Glocal market segment – by customizing products without compromising quality
Provision of product guarantees to gain customers trust
Wide ranging, quick & efficient service network
Distribution
Established own distribution networks to penetrate even interior markets
 LG’s approach to emerging markets
Cultural Marketing
Improved brand recognition through sponsoring “National Passions” – Football, Cricket, Films
Supporting national causes – “I Love China” during SARS epidemic
Building relationships with distributors, retailers
Social Welfare
Developing local economies by providing infrastructure, education, support
Giving back to the community it is working in
Working with Government
Provided support to the government in developing institutions
Leveraged Government polices and helped develop local economies especially during crises
Cross Learning from Subsidiaries
Assimilated knowledge and experience from worldwide subsidiaries and implemented good
initiatives across other geographies as necessary
 Commonality of strategy in BRIC markets
Brazil India China Russia

Long term investment

Local Management

Customization

Distribution

Cultural Marketing

Social Welfare

Working with Government

3. What are the 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 transferable?
 Lessons from Emerging & Implementing in Developed Markets
Implementing in Transferring to
Lessons from Emerging Markets
Developed Markets Developed Markets
Focus on long-term potential rather than short-
Can be implemented Yes
term payoffs
Emphasis on localization: Products, Can find loose
Yes
Management and R&D bricks/compete head on
Overcoming uncertainties: Take ownership of
value-chain, associate with credible local Can be implemented Yes
players
Treat emerging markets as “1st World” rather
Not Applicable -
than “3rd World
Cross Learning from Subsidiaries Can be implemented Yes
Building trust to overcome institutional voids Not Necessary -
Building relationship across the value-chain Not Necessary -
Building brand acceptance in local markets Difficult to implement No
Working in close association with governments Not Necessary -

Company specific strategies are transferable but strategy might vary according to country’s
economic situation
Lessons from Emerging & Implementing in Developed Markets

Thank You