LG Electronics: Global Strategy In Emerging Markets

Group 4:Arun Ravindran PGP14/138Kapil Verma PGP14/147Smitesh Vaidya PGP14/178Soumya Barik PGP14/180Soumya Bhatia PGP14/181Sruthi 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 BrazilSteps taken Leverage Obtained

Setting up facilities in under developed areas tax exemption

Cost Control

Retaining + Expanding its existence in Brazil despite plummeting exchange rates ; all competitors were exiting

Convenient and easier reigning of market on the trade off of some losses

Sponsoring sports events Consumer awareness

Customization of products to suit local needs; Demanded a premium for the same; Introduce new products for lower price points

Exploitation of understanding of Product Markets

Offering three year warranty; Employing service vans

Service differentiation

Contracted local third party distributors; Relationship building

Effective implementation by local resource market and supply chain know-how

LG in Russia

Steps Taken Outcome / Reason

Importing products from outside of Russia; Dedicated LG brand shops; Cultural promotion festivals

Brand awareness

Hot and Cold conditioners; Karaoke player; specially designed microwave ; Set up local R&D

Exploitation of understanding of Product Markets

Scaling up product line and investment during debt moratorium ; Competitors were exiting

Filling up institutional voids

Disallowance for setting up facility at a leased land near Moscow due to legal constraints

Pre mature wrt control on political games in the playing field

LG in India

LG in India

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

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 MarketsObjective Implementation

Investments in R&D 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 & A’s– 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