Lg Global Strategy Essay

This assignment focusses on LG’s Global Strategy looking into their operations in Brazil and India as well as researching minor parts of their efforts in Australia, China and the USA. LG (Lucky GoldStar) operates in the Consumer Electronics Industry on an international scale. The sources of information used for empirical evidence range from Academic journals and Interviews with LG Directors to information gathered from the LG press website and other academic online resources. To evaluate LG’s strategy one must access its worth, its usefulness and whether LG’s decisions and investments turned into tangible revenue.

To understand LG’s Global Strategy success one must understand LG’s background. LG started in 1947 as a cosmetics cream manufacturer. LG expanded in to many industries in later years, eventually LG operated in the consumer electronics market. LG has turned into a very successful multinational company now, in the past two decades LG Electronics’ market share had grown at 22% from £130 million in the 1980s to £65 million the 1990s and £7.

1 billion by early 2005. LG owed much of its success to the South Korean Government’s incentive rich market it provided for the consumer electronics market.

President Park Chung Hee of South Korea enacted the Economic Development Plan, which aimed to help the electronics industry by making it the national priority sector that would be developed. As a result, many western companies came to set up joint ventures, LG partnered with Philips, a European electronics company. LG-Philips became the largest manufacturer of flat screen TVs in world. By 2006, the group’s sales revenues massed up to $23 billion, making profits of $500 million. Of all of LG’s various revenue streams, LG Electronics provided 47% of the total revenue. LG knew they had to operate in the consumer electronics market internationally.

LG was encouraged to invest in localized research and development by the Government making extensive amounts of research infrastructure. This particular point is one of the most important methods by which LG implemented a successful Global Strategy. During the mid-1980s over 120 private research institutes and 18 research consortia were created. (W. R. Shin and A. Ho, 1997.) Having high quality research and development infrastructure allowed LG to create a series of products that were tailored to the needs of South Korea. LG learnt from this episode that research and development created a competitive advantage for its products, and this was something they had to do in every countries across the globe instead of selling a set of standardized products. During the 1990s LG started a International Strategy that aimed to capitalize on the emerging BRIC economies (Brazil, Russia, India and China).

LG started in Brazil by building a manufacturing plant in Manaus creating televisions and VCR’s to be sold around Brazil. The Government of Brazil offered low-tax rate incentives for businesses to build manufacturing plants in underdeveloped areas as well as subsidizing land for investors setting up operations. LG took full advantage of these incentives to establish themselves in Brazil. Brazil In the 1990’s had very high import tariffs, low brand recognition and had high competition in the grey goods market.

In 1990, exchange rates plummeted making planning for businesses very difficult. Global players in Brazil decided to withdraw their operations or terminate them entirely. This provided a turning point for LG, they decided to expand their presence and create a strategy that would make Brazil a manufacturing hub for exports in South America and the USA. The fall in Brazils’s currency allowed LG to take on some low-cost advantages that make exporting very advantageous(Ramaswamy, K. 2007). LG was the largest exporter of electronic goods in South America. LG now tackled the areas of marketing and financial management to clamp down it presence in Brazil.

LG wasn’t well recognized in Brazil so it needed to build some strong customer awareness. LG took advantage of the immense national popularity of football and started a branding campaign with sports events sponsorship. The LG sponsored a high ranking national football team in Sao Paolo(Ramaswamy, K. 2007), this brought immediate brand recognition to it’s products. LG now needed to transfer its brand recognition into tangible revenue though customizing it’s products to suit the needs of Brazilians. LG’s consumer electronics were a refreshing taste to Brazil’s market, LG gave most of its products a 3 year warranty pairing that with their promise of instant service if a customer’s product failed or broke-down. It used repair service vans able to reach a customer’s location in short time period. This helped ensure customers would receive a high level of quality and reliability from LG, this proved to be a worth-while competitive advantage over other competitors.

LG’s efforts in Brazil certainly reflected a good example of a well implemented global strategy. They took advantages of the Governments tax incentives, furthermore LG filled the void in the consumer electronics market that was created by previous companies leaving when times got tough and created a strong marketing campaign. The best measure of their strategy’s success in Brazil is that in 2006 LG posted sales of £1.2 billion, a 36% increase compared to the previous year. LG’s well implemented strategy in Brazil clearly led to market domination and a high profit. This was a strong international strategy, and LG adopted similar tactics in India.

LG started operating in India when the Indian Government created advantageous market reforms allowing foreign companies to establish their own wholly owned subsidiaries in India. LG quickly took advantage of these reforms and created LGEIL (LGE India Ltd.) in 1997. LGEIL’s first factory was built in Greater Noida(40km from New Delhi), which manufactured washing machines, televisions, air conditioners and refrigerators.

Mr Kwang-Ro Kim, Managing Director at the time said, “We knew it was important, for example, not to downgrade the Indian market and instead to treat it seriously as we would any developed market”, he goes on to explain “this meant preparing a preparing a full strategy and emphasizing good-quality products, the best technology, the best network and access to the best people”(Kim, K. R. 2005.). LG created these specialized products with vast research and development infrastructure, just like they had in South Korea.

Local research and development teams were made to create product variations that were designed for the unique demands of India’s market. For example, they launched a cricket television set that had a built-in cricket game to take advantage of the millions of people who adored cricket in India. LGEIL’s Golden Eye technology used in TV’s allowed the brightness of the screen to be adjusted to the surrounding level of light., this proved to be an important feature because India is very prone to power supply imbalances that effect lighting intensity.

Furthermore, they designed an air filtration system to keep it’s air conditioners working efficiently. This design was implemented because India’s metropolitan areas have high levels of particulate pollution. Its home appliance products were fitted with circuits able to handle the regular voltage fluctuations Indian households had. LG presented “an ‘Indianised’ face to its products but keeping the technology at global standards”(Mathur, U. C. 2010). These variations in products brought a refreshing taste to the Indian home appliance market.

One problem LGEIL faced was the geographical diversity and India’s lack of infrastructure making distribution of it products difficult. To reach small towns and villages in India a solid distribution system needed to be adopted, their tiered approach allowed an anchoring regional distributor to supply cities and then complimented this system with offices in remote areas for the small towns. This system encompassed 4,000 access points to reach the masses to India’s giant population. A website called lgezbuy.com helped their distribution with online ordering as well as providing detailed information about their products and comparative pricing for different areas of the country. This was the first attempt by a major electronic goods manufacture and proved successful by creating another competitive advantage for LG.

Customer Service was an important part of LGEIL’s strategy, just as they did in Brazil, they provided repair vehicles for reaching remote areas in short periods of time. Vans were fitted with electrical generators to ensure appliances could be fixed even in a country with regular blackouts. This was unseen to the Indian Market from any other competitor and became very favorable for customers. “This ‘walking-after sales service’ allowed traveling crews to cover ares that were previously unaccessible(Lee, D. W. 2005). This gave LG a competitive advantage over its Indian market competitors such as Onida or Whirlpool.

In terms of marketing strategy, LGEIL decided to sponsor an Indian Cricket team. This proved such a success that LG decided to sponsor the Cricket World Cup in 2002(LG. 2009). LG became the largest sponsor of cricket in the world and this gained instant brand recognition for them across India, a country full of millions of cricket fanatics.

A strong marketing campaign reaching customers all over India; LG’s localized product range and services provided with the products paid off rich dividends. LG’s “turnover for 2002 crossed Rs. 3000 Crore, that is a 37% increase on the previous year”(Mathur, U. C. 2010), that’s £38million. LGEIL clearly beat their competitors, for example in the color television market LG had a market share of 26.4% and their nearest competitor, Onida, only had 10.8%. In the refrigerator market LG had a market share of 30.9%, Whirlpool, their nearest competitor only had 23.6%(Sinha, P. R. 2005)[1]. This was the same story with all their other home appliances. Clearly LG was making considerable profit and stood out from their competitors by providing quality products and services. But LG knew they had to do more to establish a strong foothold in India.

LG had to demonstrate to India that they were not purely profit driven; they believed this would give LG a credible name in India and gain the loyalty from the Indian market. LG subsidized primary schools and gave educational books to children. They even built a village school close to manufacturing facilities. Local employees were staffed for most of the top managerial positions of LGEIL. This managerial tactic allowed a South Korean company to appear as an Indian business. These resulted in huge good-will from Indian customers which was the final tie in a successfully implemented Strategy.

In 2006 Mr Nam Woo, President of LG Electronics (LG), unveiled LG’s ambitious plans to grow its presence in China. LG had leant many lessons from its early missions in emerging markets such as Brazil and India that would help LG stay a dominate global player. “We want to make China a strategic base for our business, so we must be a leader not only in sales, but also in research and development and in localization.”(Liu Baijia, 2006). LG took advantage of China’s cheap labour costs and soon where able to “leverage an entire manufacturing network to serve countries such as Russia and the USA” (Ramaswamy, K. 2007). This is evidence of LG looking elsewhere to export their products, this was an integral part to LG’s Global Strategy.

Not every part of LG’s strategy was perfect though, many of their products were recalled, for example, in Australia 2009 some of LG’s refrigerators broke down due to faulty wiring “which resulted in reduced insulation from electricity passing through. It could cause minor electric shocks”(Global Data, 2009). Furthermore LG had to “recall it’s Spyder Cell Phones in the USA…over 30,000 cell phones of this type were in use” (Global Data, 2009). This adversely affected their brand name and shows lack for careful attention to product design which reflects a bad global strategy, this showed similar results to their efforts in the USA.

LG started to look towards providing its products in the West, most notably the USA, an already challenging market. LG started supplying US stores with its home appliances such as microwave ovens and toasters. The conquest for shelf space was extremely difficult because of LG’s poor brand recognition as well as questions about LG’s product reliability and quality. The USA was not the place for LG to display its products. The products that the USA consumer electronic market wanted were the more fashionable European and Japanese home appliance products. LG failed to create a series of products the USA market wanted in comparison to its competitors. This clearly shows a weak strategy in LG selling its products global.

Overall, the international strategy LG implemented shows a pattern, in emerging economies such as Brazil and India, LG thrived, however in developed economies such as Australia and the USA, LG was unsuccessful. LG’s successes derived from 3 key areas that created a useful and worth-while international strategy. Firstly, they invested heavily in research and development to create products that suited the needs of the local market. LG now has over “36 research and development activities worldwide” (Global Data, 2009). Secondly, they pursued a marketing strategy that targeted each country’s whole population. In both Brazil, and India we see LG sponsoring sports events and teams which was a great way to create instant brand recognition across each country.

Thirdly, LG treated emerging markets seriously by providing quality products complimented with high caliber services, this was a worth-while decision because countries like Brazil and India hadn’t been subject to this kind of service. The content researched is very interesting and insightful and poses the question, ‘Can these three factors be applied as a international strategy for any multinational company?’. To fully evaluate LG’s international one must further research there operations in Russia and China. Whilst LG showed signs of weaknesses, their international strategy gave their products and services a competitive advantage over their competitors making them market leaders in specific countries. LG’s efforts created LG a net income of over $13.1 billion in 2011 due to their global presence and is ranked 47th in the Fortune 500 companies, these achievements derived from what was a successful International strategy.

Bibliography

W. R. Shin and A. Ho, 1997. Industrial transformation: Interactive decision-making process in creating a global industry. Public Administration Quarterly. Summer.

Kannan Ramaswamy, 2007. LG Electronics: Global Strategy in Emerging Markets. Understanding Global Strategy.

Kwang-Ro Kim, 2005. Premium Marketing to the Masses: An interview with LG Electronics Managing Director. The McKinsey Quarterly Special Edition: Fulfilling India’s Promise

C. Mathur, 2010. Global Business Strategies. LG Group. Pg 290

Duk-Woo Lee, 2005. LG the No.1 company in India. LG News. february, Vol. 24

LG, 2009. Asia and Pacific Sponsorship, the Cricket World Cup. LG Press Website. (URL
http://www.lg.com/global/about-lg/corporate-information/global-sports-sponsorship/cricket-world-cup.jsp)

P. R. Sinha. 2005 Premium marketing to the masses: An interview with LG Electronics India’s Managing Director. McKinsey Quarterly.

Liu Baijia, 2006. LG wants local managers to aid growth. China Daily. April 20, 2006

Global Data, 2009. SWOT Analysis of LG.