LG ELECTRONICS STRATEGIC PLANNING ASSINGMENT

by Dainius Skirbutas
A Capstone Project
Presented to LCC International University
in Partial Fulfillment of the Requirements
for the B.A. Degree
LCC International University
April 2013
LG Electronics 2
Business Administration Department
Supervisor: Sargent Bradford
Instructor: Frank Thomas M.B.A
LG Electronics 3
INTRODUCTION.....................................................................................................................5
MISSION/VISION STATEMENT........................................................................................5
INTERNAL ASSESSMENT.....................................................................................................6
MANAGEMENT...................................................................................................................6
Organizational Structure....................................................................................................6
Management System..........................................................................................................6
Planning.............................................................................................................................7
Motivation..........................................................................................................................8
Organizing..........................................................................................................................8
Staffing...............................................................................................................................9
MARKETING......................................................................................................................11
Marketing, Management Philosophy...............................................................................11
Customer Analysis...........................................................................................................11
R&D Workforce and Investment.....................................................................................12
Innovation........................................................................................................................12
Patent Holdings................................................................................................................13
Marketing Mix.................................................................................................................13
Distribution......................................................................................................................16
Production........................................................................................................................17
Green Product Strategy....................................................................................................17
FINANCIAL STABILITY ..................................................................................................19
MAIN STRENGTHS AND WEAKNESSES......................................................................21
Strengths..........................................................................................................................21
Weaknesses......................................................................................................................22
EXTERNAL ASSESSMENT..................................................................................................22
Political Trends................................................................................................................22
Economic Trends.............................................................................................................23
Technological Trends.......................................................................................................25
Socio-cultural Trends.......................................................................................................25
Competition Trends.........................................................................................................27
MAIN COMPETITORS......................................................................................................28
Samsung...........................................................................................................................29
Sony.................................................................................................................................29
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Philips..............................................................................................................................30
Panasonic.........................................................................................................................30
LGs Competitive Strategy..............................................................................................31
LGs Porter Five Forces Model .......................................................................................31
MAIN OPPORTUNITIES AND THREATS......................................................................32
Opportunities....................................................................................................................32
Threats..............................................................................................................................33
NEW LG VISION AND MISSION STATEMENT................................................................34
Vision Statement..............................................................................................................34
Mision Statement.............................................................................................................34
OBJ ECTIVES..........................................................................................................................34
STRATEGY FORMULATION AND IMPLEMENTATION................................................35
SWOT Matrix..................................................................................................................35
SO Strategies....................................................................................................................35
WO Strategies..................................................................................................................36
ST Strategies....................................................................................................................36
WT Strategies...................................................................................................................36
BOSTO CONSULTING GROUP (BCG) MATRIX.......................................................37
THE GRAND STRATEGY MATRIX............................................................................38
STRATEGY FORMULATION...........................................................................................38
J oint Ventures and Alliances...........................................................................................38
South Africa, BRIC and Other Emerging Countries.......................................................40
New Technologies, Investments in R&D and Innovation...............................................40
Reorganize Marketing......................................................................................................41
CRITICAL RISK ISSUES.......................................................................................................42
References................................................................................................................................43
LG Electronics 5
INTRODUCTION
The company was originally established in 1958 as GoldStar, producing radios, TVs,
refrigerators, washing machines, and air conditioners. The LG Group was formed through the
merger of two Korean companies, Lucky and GoldStar, from which the abbreviation of LG
was derived. The current "Life's Good" slogan is a backronym. Before the corporate name
change to LG, household products were sold under the brand name of Lucky, while electronic
products were sold under the brand name of GoldStar.
LG Electronics, Inc. is one of the global leaders and technology innovators in consumer
electronics, mobile communications and home appliances. With 117 operations around the
world, LG achieved global sales of KRW 54.26 trillion (USD 49 billion) in 2011. LG is
comprised of four business units Home Entertainment, Mobile Communications, Home
Appliance, and Air Conditioning & Energy Solutions and is one of the worlds leading
producers of flat panel TVs, mobile devices, air conditioners, washing machines and
refrigerators.
LGE's business portfolio is geographically well-diversified. In 2011, LGE made about 83%
of its total revenues in overseas markets--22% from North America, 13% from Europe, 8%
from China, 21% from Asia (excluding Korea and China) and Africa, and 14% from Central
and South America. Together with its strong positions in relatively stable businesses, such as
washing machines and refrigerators, Standard & Poor's believes this good geographic
diversity should partially offset volatile demand in the electronics industry (Reuters, 2012).
2012 Motto:
Put progressive thinking first, prepare for the future in advance, and create a culture where
we do things the right way.
MISSION/VISION STATEMENT
LG Electronics does not holdan official mission statement.
LG Electronics (LGE) visionstatement, taken from its website, states:
LG Electronics pursues its 21st century vision of becoming a true global digital leader who
can make its customers worldwide happy through its innovative digital products and services
(Lg.com, 2013).
LG Electronics 6
INTERNAL ASSESSMENT
MANAGEMENT
Organizational Structure
Following the launch of the holding company, LG Corp., LG Electronics operates under an
advanced corporate governance structure that comprises a professional administrator and a
Board of Directors. This structure helps us deploy more transparent, value-creating
management activities that help increase corporate and shareholder value.
Management System
When LG Electronics removed the Circulating Investment Structure of its affiliated
companies (through the launch of a holding company system), this enabled the holding
company to take full charge of investments. Consequently, LG Electronics has been able to
focus on its own businesses while increasing the overall value of the Company. This
corporate governance structure has laid the groundwork for increasing managerial
transparency. Through a responsible management system comprising of the CEO of LG
Electronics and a Board of Directors, we are taking huge steps in strengthening our
competitiveness at both the domestic and international level, in order to maximize corporate
and shareholder value (Official LG Website, 2013).
LG Electronics 7
Board of Directors
LG Electronics' Board of Directors maintains independence from its management and major
shareholders. Currently, the Board has a total of seven directors, four of whom are outside
directors. To ensure that external directors are appointed fairly and independently, the
"External Director Recommendation Committee," comprised of one in-house director and
one external director, nominates external directors following close examination of their
qualifications. These outside directors are then voted on at the next shareholders' meeting
(Official LG Website, 2013).
Committees
The BOD is supported by three Board Committees. They are the Audit Committee, the
Outside Director Candidate Recommendation Committee and the Management Committee.
The Audit Committee consists of three Outside Directors, and is responsible for examining
corporate financial records and accounting to ensure compliance with the accounting laws
and transparency. The Management Committee reviews and determines the agendas
delegated by the BOD and ordinary management activities. In 2010, the Management
Committeereviewed a total of 52 agendas (Official LG Website, 2013).
Planning
Preparation for the Future
To back up our word in product leadership and constantly developing consumer values, our
R&D ensures that we target to be the first mover in the market with new ideas and products.
To make certain that there would not be an under-supported area; we will be expanding our
investment in R&D with continuous efforts in securing the brightest and the most innovative
minds in the industryNot only in the products we create, but in the way we nurture and
challenge our future engineers, designers and corporate leaders. We must have the vision
today to trust in their vision for tomorrow. And to give them the freedom now to explore new
LG Electronics 8
avenues of innovation that will keep LG on the forefront for generations, and will keep our
planet a greener place for us all. (Annual Report 2011, 2012).
Achieving Through Top Talent Recruitment and R&D Systems Consolidation
LG Electronics continuously recruits new talent and strives to increase its global business by
consolidating R&D systems oriented toward local markets in strategic countries such as
China and India. The company is also building international R&D capacity by pushing ahead
on strategic alliances with other major companies in regard to standardization and new
products.
LG Electronics operates a global R&D system that consists of more than 30 research centers
around the world. Through this system, the company facilitates open innovation utilizing
innovative technologies from the outside, in order to secure core technologies and the early
identification of future growth engines. In all these ways, LG is on target toward realizing its
vision: Top Global R&D.
Motivation
Inside the LG Electronics Corporationvarious measures are used to motivate employees,
parts of them arecorporate principles and values, such as creativity, competence or equal
opportunities. LG An individual's creativity isthe basis for value creation and so LG
Electronics respects diversity and autonomy, allowing each of its employees to exercise their
creativity to the full. Equal opportunities build trust among people, it is ensured that equal
opportunities regardless of gender, race, age, religion, or nationality would be respected.
Maintaining a long-term perspective is the foundation for LG's human resource policies. LG's
human resource programs are designed with a long-term perspective and implemented with
dedication and persistence.
Typical tools to motivate employees are also used, for example rewards based on
performance are essential for motivation. LG Electronics evaluates performance results fairly
and rewards them accordingly. LG Electronics employs a competitive, unique rewards
system that takes account of employee working situations by nation, region, and job. This
rewards system motivates employees to perform better by helping enhance their quality of
life. Fixed salaries are determined every year through a fair evaluation process. Flexible
salaries are immediate rewards given to individual employees for their performance and
competence. Since technology industry is rapidly improving training is required for LG
Company. Throughits education centers worldwide, LG Electronics offers diverse
educational programs to its employees. These opportunities are accorded by rank and job to
encourage growth and developmentto instill the professional capabilities theyll most need,
such as enabling them to apply the latest technologies to their work.
Organizing
J obs at LG Electronics are categorized into several different areas, including R&D,
marketing, production, and support. Each area offers keen opportunities for development and
career advancement. Each job category is described below.
Research and Development
LG Electronics R&D division is responsible for many key disciplines, including advanced
research, product plans, designs, standards and patents, and R&D planningto name but a
LG Electronics 9
few. By securing leadership in the technology field, LG Electronics is steadily moving
toward its goal of joining the ranks of the Global Top 3.
Major jobs: R&D, Design, and R&D Support
Production
LG Electronics' production division is responsible for product manufacturing, production
planning and management, production technologies, product-quality management,
purchasing, materials planning and management, and other production-related jobs. This
division upholds LG Electronics' unrivaled global product leadership, and devotes its
technological prowess to LG products using its innovation tools, Tear Down and Redesign
and Six Sigma.
Major jobs: Production Management, Production Engineering, Procurement, and Quality
Assurance
Marketing
LG Electronics' marketing division is responsible for domestic and overseas marketing and
sales, marketing planning, product planning, customer service, and other jobs related to
product sales and services. It has secured LG Electronics' market leadership through
differentiated sales and customer service strategies. It continually strives to bolster LG
Electronics' market presence, both domestic and overseas.
Major jobs: Domestic Sales & Marketing, Overseas Sales & Marketing, Product Planning,
and Customer Service
Support
LG Electronics' support division is responsible for formulating the company's policies and
business direction, and supporting its R&D, production, and marketing divisions. It consists
of LG Electronics' headquarters, affiliated companies, and various departments and teams
according to job and location.
Major jobs: Business Planning, Finance/Accounting, Legal, Internal Consulting, HR, PR, IT,
General Affairs, and Environment/Safety
Staffing
LG Electronics is a long-time user of Oracle technology. The company has implemented
Oracle E-Business Suite in its corporate headquarters and is now embarking on an ambitious
four-step project to migrate its worldwide offices to the Oracle platform by 2008. Since 2010
LG Electronics have all subsidiaries, production facilities, and the Seoul head office using the
same Oracle system. The single, integrated Oracle system delivered HR information from
around the world in real time, enabling LG Electronics to gain better insight into its
workforce and facilitating informed decision-making around recruitment and performance
management. The company also improved efficiency by standardizing processes and lowered
costs by introducing self-service HR functions and online learning for employees
(Top10ERP, 2012).
Key Benefits
Established enterprise-wide view of operations across 114 subsidiaries in 39 countries
by moving to a centralized HR management platform
LG Electronics 10
Improved efficiency by standardizing HR processes
Enhanced HR management by giving senior managers real-time access to information
Boosted employee satisfaction and eased workload on HR staff by introducing self-
service options
Boosted staff learning by providing online training.
Established enterprise-wide view of operations across 114 subsidiaries in 39 countries
by moving to a centralized HR management platform
Improved efficiency by standardizing HR processes
Enhanced HR management by giving senior managers real-time access to information
Boosted employee satisfaction and eased workload on HR staff by introducing self-
service options
Boosted staff learning by providing online training.
This made it extremely difficult, time-consuming, and costly to consolidate HR information
for global reporting. Inefficient management procedures were also affecting the ability of HR
staff to complete their jobs effectively. As costs mounted, LG Electronics decided it was time
to move to a single unified system that would streamline HR management and enhance the
companysability to attract and retain high quality staff.
Human resources functions are grouped into six categories: position, title, recruitment,
promotion, performance, and compensation. The system also allows other categories to be set
up to cater for specificrequirements. In addition to establishing a single repository for
information, the Oracle-based system is used to distribute and execute HR policies globally
(Top10ERP, 2012).
Improved Employee Satisfaction
The new HR management system includes self-service options for staff to update their
details, view pay slips, and apply for leave. It also allows them to track their performance
against set goals, and to ask for feedback and support if they are not meeting certain
requirements.
Staff can boost their knowledge by undertaking online training, ensuring they can learn at
their own pace and at a time that suits them. Paying attention to employee needs in such ways
enables LG Electronics to retain quality staff and enhance its reputation as an employer that
is committed to its workforce(Top10ERP, 2012).
LG Electronics 11
LG Electronics Job Application Process
LG Electronics implements a standard recruiting process in all of its global operations.
Small variations in the recruiting process may be found depending on local employment
conditions, such as the local labor market (industry, average retirement age, etc.), and local
labor laws and regulations relating to recruitment.In some countries, an additional stage may
be added to the recruiting process, such as with the administrationof aptitude and attitude
tests (LG Application Process, 2013)
LG Electronics provides a variety of self-development opportunities in accordance with its
human resources system.
The company offers diverse in-house, online, and offline educational courses to support the
self-development of employees. Each employee is required, by internal regulation, to amass
more than 40 class-hours a year.
Employees who stand out in evaluations may be offered the chance to enroll in external
diploma programs, courses of MBA study, or take part in other development opportunities.
MARKETING
Marketing, Management Philosophy
LGE's operates under the product concept of marketing management. From 52" Plasma Flat
Panel televisions to thin, sleek mobile phones that also store and play music, LGE is a
company that is devoted to "fast innovation and fast growth". It has focused on "developing
new products in winning and key businesses, and securing technology leadership." It
provides high quality and constantly updated products to further ensure its success as a top
electronics manufacturer. Its research and development efforts are specifically concentrated
in the area of technological capabilities anddeveloping new growth products. As a worldwide
corporation, LGE strives to "make its customers happy through its innovative digital products
and services and in doing so operate under the product concept" (Experts.123.com, 2013).
The LG Brand is more than the products we sell. It is brand based on adding value to
consumers lives every single day. It is that same spirit that forms the core of our many
marketing efforts. Campaigns meant not merely to inform consumersbut to inspire them to
enjoy life more (Annual Report 2011, 2012)
Customer Analysis
LGE is conducting a thorough market and customer analysis to introduceproducts that satisfy
LG Electronics 12
customer needs. A close study of local customers lifestyles and collaboration with local
research organizationsare also part of our effort to identify customer needs. In March 2012,
LGE launched a social media portal Social LGE (http://social.lge.co.kr) that provides
integrated access to all LGEs social media outlets Blog, Twitter and Facebook. LG
Electronics is organizing events and engaging in campaigns with diverse themes andconcepts
tailored to local customers, improving LGEs brand image in the global market and
contributing to revenue growth.
Strategic Brand Communication
LG Electronics brand slogan Lifes Good conveys a message that LGE enriches
customers lives with its products, services and technology, and creates a unique brand
identity of the company. We are engaging in various marketing activities to reinforce the
corporate brand identity in the global market while establishing a youthful and dynamic
brand image with differentiated brand marketing activities utilizing sports, the Korean Wave,
video games, etc. Since 2009, LGE has partnered with the F1TM franchise, the worlds
greatest auto racing competition with some 600 million audience members from over 180
countries, and is establishing a youthful and exciting brand image in the global market. With
the Korean Wave and K-Pop popularity reaching every corner of the world, LGE has also
been engaging in Korean Wave marketing, sponsoring K-Pop concert tours in overseas
markets. As part of its effort to strengthen the companys positioning in the 3D and Smart TV
markets, LGE has been featuring 3D Game Zone in various events, including the CES, and
sponsored the worlds largest game festival BlizzCon in 2011.
R&D Workforce and Investment
As of year-end 2011, LG Electronics invested 3.1% of its consolidated revenue for the year,
or KRW 1.7 trillion, in R&D with a total R&D staff of 15,506 personnel in Korea. LGE plans
to recruit more quality R&D talents to strengthen its fundamentals. In 2012, we plan to invest
a total of KRW 2.6 trillion into product leadership, production innovation and new
businesses, including KRW 840 billion for stronger fundamentals and preparation for the
future (2011-2012 LG Electronics Sustainability Report, 2011).
Innovation
LG HE B2B Division thrives on innovation. Our products and technologies enhance lives and
introduce our customers your quests, to a whole new world of entertainment solutions. We
are committed to finding new ways to make your life, your customers life and your business
needs easier-through simple user interfaces, stylish designs and intelligent, state-of-the-art
technology.
Pro:Centric
LG HE B2B Division's' exclusive Pro:Centric applications platform offers the hospitality
market a robust new interactive communications interface. This is a cost-effective way for
hotels to deliver uniform services and features across both RF (radio frequency) and IP
(Internet protocol) based networks, without the need for additional hardware such as set top
boxes. The new system also allows for portability between existing platforms, as-well-as
faster time to market for new applications and back office integration.
LG Electronics 13
A standards-based application platform offering in-room television interactivity that
advances the guest experience and streamlines how hoteliers deliver in-room
information.
Supports J ava and AdobeFlashapplication software.
Pro:Centric platform supports a wide range of high-definition applications such as
interactive electronic program, games, and internet feeds.
Through Electronic Program Guide (EPG), Pro:Centric can offer guests access to
important hotel amenities and information such as room service menus, spa services,
golf course scheduling and more.
Pro:Idiom Digital Rights Management System
Developed by Zenith (LG) the Pro:Idiom systems high-quality security unlocks access to
premium content availability to help assure rapid, broad deployment of HDTV and other high
value digital content. Pro:Idiom has been designed specifically for industries that use
premium HDTV content from cable, satellite or video on demand (VOD) services and as
such, could result in lower costs, and reduced maintenance. This system is one of the leading
DRM systems embraced by content providers for both of these key programming sources. By
using this embedded approach, security is provided and helps eliminate the possibility of
customers tampering with or removing needed components.
Patent Holdings
Possessing world-class competitiveness in telecommunications and broadcasting patents,
LGE is consistently striving to maintain a balanced level of patent competitiveness across its
businesses. In the area of telecommunications standards, U.S. investment bank J efferies & Co
recently announced that LGE currently holds the largest share (23%) of key global LTE
patents, with over 1,400 patents valued at about USD 7.9 billion. Additionally, LGE is
strengthening patent partnerships with competitors, forging a licensing agreement with Sony
to share each others patent portfolios across their respective businesses and also with
Microsoft. The Blu-ray patent portfolio LGE jointly manages with HP, Hitachi, Philips and
Sony is generating licensing fees as well (Blu-ray Disc: An optical disc storage medium
driven by the optical recording format established by the Blu-ray Disc Association, which is
headlined by Sony, stores digital data for high definition (HD) video materials). In order to
maintain its competitiveness, LGE is seeking to acquire more patents, paying particular
attention to elevate overseas patents to a similar level as Koreas (2011-2012 LG Electronics
Sustainability Report, 2011).
Marketing Mix
Every company has increased its marketing mix strategy to improve its sales growth among
competitor. The LG Corp also has marketing mix like Price, Place, Promotion, Product,
people, process, physical evidence etc. The LG has also used its more strategic alliances and
performances of its product.
Price
The LG has enormous technology and it has used the more electronics and quality spares for
its products. So the price of the product has increased. After some period the LG has realized
and it give more quality and services for its expensive product. None of the competitor has
increased its effectiveness in the sounds and videos. In 2008 because of the recession the LG
LG Electronics 14
has reach its low sales market and it has declined in the various products and services. After
the recession in 2009 they startedto cut cost materials and providea variety of pricing
strategies. The price of the LG has givensome effects to the customer and it leads to sales
growth for some period (Ukassays.com, 2013).
Place
The LG Corp make.believe thebrand image hasa worldwide to produce more customersto
enter into the market. The LG product has sales around world. But some of the product has
not reached into the some of places like china and some of the countries are not allowing
getting the product into the market. The geographic are must be increased worldwide. The
manufacturing company is in J apan, U.K, U.S, etc. It has increased its product range and it
sales around the world. At present the retail market has developed and it increasesits
competitiveadvantage towards its customer (Ukassays.com, 2013).
Promotion
The LG different product has a different range of effects and it has many offers it depends
upon the product range and products. The LG has provided a different Advertisement to the
different countries of same product, because the people and customer views and culture will
be different into a various countries. The advertisement and promotion strategy has been
formulated by LG management to increase its sales growth by nature (Ukassays.com, 2013).
Product
The product has segmented as electronic goods, financial services, networking system, health
science R&D etc. the different product has a different ranges and qualityeffective towards its
customer. LG products are divided into four main groups: Consumer Electronics, Home
appliances, Computer Products, and Mobile phones. It is the world's second-largest television
manufacturer (after Samsung), and the world's fifth-largest mobile phone maker by unit sales
in the second quarter of 2012.
Business areas Products
Consumer Electronics
LCD TV , Plasma Display , Display Panel, Color Television,
Home Theatre System, Music system, DVD Recorder/Player, MP3
& MP4 Player
Home Appliances
Room Air Conditioner, Commercial Air Conditioner , Refrigerator,
Washing Machine, Dishwasher, Microwave, Vacuum Cleaner
Computer Products
Laptop, Personal Computer, LCD monitor, CRT monitor, Optical
Storage Devices
Mobile Phone
Premium trend setter phone , Camera Phone , Music Phone , Color
Screen GSM Handset
LG Electronics 15
Securing Product Quality and Safety
Reflecting the CEOs strong commitment towards product quality, LG Electronics has
reinforced organizations related to product quality and is striving to provide differentiated
value and quality to customers by adhering to basics. With the vision of an LGE recognized
by customers for the worlds best product quality, we will create a culture that does not
tolerate any quality issues, no matter how insignificant, based upon the collective agreement
that we strive for perfect product quality with absolutely no compromises. Also, we are
pushing forward with corporate-wide efforts to improve product quality and renewing our
commitment towards product safety, all in an effort to provide safer, superior quality
products to customers.
People
The LGs employee has more skills to produce morequality product to the customer. The LG
has sustained its innovative technologies by their way of employee. Presently the LG has
playeda vital role in delivering the effective technology and innovative product to the
customer. It happened because of the staff and employee of the LG Corp. Recently, the LG
has innovate in the flow cytometry in life science in health sector, because the LG has a skill
and talented staff to invent sucha product. The employee has upgradedtheir technology and
improved their innovative skills. Without a employee of the LG corp. it cant achieve its
goals and the entire organizationhas believe their employee workstation (Ukassays.com,
2013).
Process
The LG has concentrated in every activities of business till its reach to customer and after
services of the product. LG has more effective quality and more price movements in
delivering the goods. The company has followed its effectiveness by the process of product
movement to the customer. From the spare parts assembling to the electronic goods and it
reached to the customer, its every process has depending upon their classes and services. It
also includes technological process for time and cost saving of the product. The product must
reach its customer satisfaction. So LG has included its technology factor into its process that
reaching to the customer (Ukassays.com, 2013).
Physical Evidence
The LG has increased its infrastructure at every movement. It has several showrooms and
retail market to increase its sales growth and it should impress the customer to buy the
product. Hope it make a enormous physical quality to the LG. The every movement of LGs
workstation has increased its quality range in infrastructure facility and it have more stylish in
nature. It has increased its profitability in hardware, software and networking system
(Ukassays.com, 2013).
Jeong-do Management
LG Electronics' 'J eong-do Management' embodies our high ethical standards and doing
business in a transparent and honest manner.
"J eong-do Management" is LG's unique application of ethics. LG will succeed through fair
management practices and constantly developing our business skills.
LG Electronics 16
Code of Ethics
It is the intention of LG, as set forth in the management charter, to spread the management
philosophies of "creating value for customers" and "respect based management" allowing for
more responsible and open management. LG continues to develop as the global leading
company through seeking greater public benefits founded in cooperation, mutual trust, and
respect for the free market economy. For this reason all LG employees promise to act
uprightly and make value judgments in accordance with the code of ethics (J eong-do
Management, 2013).
Distribution
LG Electronics offer retailers to sign up in LG Partner Program. By becoming a member of
the LG Partner Program, retailers will gain access to a wide variety of benefits that will help
with pre-sales and demand generation:
Turn-Key Solutions
SPIFF Incentives and Promotions
Sales Support
Demo Program
Technical Support
Product Launches and Campaigns
LG Electronics already have wide and strong distributionnetwork. The main distribution
partners are: Sears, Apex Procurement, MDM Lodging, Global Motel Supplys, Direct Hotel
Source, Flagstaff, Sinnex, DTS, Tech Data, Ingram Micro, MA Labs, HD Distributing, Almo
Professional AV, US Electronics Inc., Salitek andmany others.
Distribution Marketing Strategy
LGs initial step was to try to get distribution in higher-end retailers but this effort was
stymied by the low-quality couldnt be trusted perception of the product line. A critical
LG Electronics 17
decision in the early 2000s was to avoid the path of least resistance and seek distribution in
stores like K-Mart, Wal-Mart and Sams Club. While such distribution would have made the
Korean factories hum with activity it was off strategy for Ahn who sought to make LG an
upscalebrand. Instead Ahn and LG targeted upscale regional retailers like P.C. Richard. The
company also started paying 30 percent of its sales to distributors instead of the more typical
25 percent. Another smart move was providing sales staffers at retailers with expanded
training and other incentives so that these sales people would be more likely to recommend
LG to buyers and thus overcoming the previous low-image perception. While distributing
through Wal-Mart and Sams Club was off-strategy in the early 2000s, the companys
transformation put this channel on-strategy in 2010 when LG flat screen TVs began
appearing on the shelves at Wal-Mart and Sams Club. This was an acknowledgement of
consumers recognizing that LGs image as a high-end product has followed the product life
cycle dynamics as big screen TVs have become more of a commodity (J ames T. Berger,
2012).
Production
LG has four major plants in Mexico, Poland, China and Korea, recently big investments
reached Mexico manufacturing plants. Other countries where LGE is manufacturing are:
India, Indonesia Thailand, Vietnam, Kazachstan, Russia, Turkey and Brazil. For many years
LG Electronics manufacturing facilities are recognized as greenest manufacturers in the wold.
LG Electronics strives to minimizethe resources used in its business operations, while
attempting to decrease the emission of pollutants. LGE is committed to enhancing our green
management capabilities by securing talented individuals and providing training in all of
facilities and to our business partners.
Greenhouse Gas/Energy Management
Controlling greenhouse gases during the manufacturing process has become an important
issue for companies due to the growing concerns over the global climate change. LG
Electronics acknowledges the importance of taking action against climate change and is
actively working to implement initiatives with the goal of reducing greenhouse gases by
75,000 tons by 2012 and 150,000 tons by 2020.
Green Product Strategy
The objective of LG Electronics green product strategy is to minimize the environmental
impact on the whole value chain while enriching lives. The strategy consists of three
components; energy, human and resources. The strategy is based on a model that takes into
consideration high energy efficiency, a reduction in raw material usage, and human welfare
(Official LG Website, 2013).
LG Electronics 18
Energy
LG Electronics' energy strategy has been divided into two areas of emphasis: substantially
enhancing product energy efficiency and reducing greenhouse gas emissions during the
manufacturing process. By enhancing energy efficiency, we are working to reduce changes in
the climate and provide actual economic benefits to our customers. We are trying to do our
part as a global company to help protect the environment for future generations by engaging
in activities that potentially reduce greenhouse gas emissions during the entire manufacturing
process (Official LG Website, 2013).
Resources
Our resource strategy involves significantly reducing our resource usage and enhancing the
recyclability of the resources that we do use. This strategy is intended to reduce the amount
of new resources that are used by decreasing the size and volume of the product and utilizing
recycled materials when possible. We are also working to simplify the structure of the
product components so that it is easier to recycle once it is discarded. This strategy is part of
our efforts to establish sustainable resource usage while increasing the ease of recycling
(Official LG Website, 2013).
Human
LG Electronics continues to substitute hazardous substances with non-hazardous substances
when possible. We have also incorporated technologies that potentially reduce allergens into
some of our products (Official LG Website, 2013).
LG Electronics 19
FINANCIAL STABILITY
From the chart belowit is clearly to see the effects of global crisis, revenues decreasing and
Net Income after 2009 rapidly decreased in 2010 and 2011; however we see slow growth in
2012.
Year on year, growth in dividends per share remained flat whileearnings per share excluding
extraordinary items increased 112.71%. Additionally when measured on a five year
annualized basis, both dividend per share and earnings per share growth ranked below the
industry average relative to its competitors.
LG Electronics 20
Financial ratios taken from infinancials.com website: (see reference page)
Fiscal Year End Industry
average
31 Dec 12 31 Dec 11 31 Dec 10 31 Dec 09 31 Dec 08
Report Currency KRW KRW KRW KRW KRW
GROWTH RATES 2012 2012 2011 2010 2009 2008
Growth of Net Sales 8.41% -6.08% -2.69% -23.58% 15.28% 18.44%
Growth of EBITDA 9.33% 90.03% -33.25% -75.71% 7.10% 13.74%
Growth of EBIT 0.15% 505.46% -72.84% 80.79% 0.51% 44.40%
Growth of Earning before Tax N/A 231.24% N/M- -87.38% 112.60% -31.94%
Growth of Net Income 3.6% 114.22% N/M- -37.71% 369.33% -63.86%
Growth of Free CashFlow -65.44% N/M- -79.26% N/M- 102.68% -31.6%
PROFITABILITY 2012 2012 2011 2010 2009 2008
Return on Equity 8.49% 0.53% -3.68% 11.26% 22.31% 5.66%
Return on Assets 12.2% 0.21% -1.45% 3.33% 4.72% 1.14%
Return on Fixed Assets N/A 0.90% -6.81% 11.21% 12.55% 2.86%
Return On Capital Employed 4.76% 9.44 1.57% 4.14% 18.94% 19.88%
MARGINS 2012 2012 2011 2010 2009 2008
EBITDA/Sales 7.72% 5.36% 2.65% 3.86% 12.15% 13.07%
EBIT Margin (%) 3.30% 2.78 0.43% 1.55% 6.15% 7.06%
Pretax income/Sales N/A 1.03% -0.74% 0.78% 4.72% 2.56%
After Tax income/Sales N/A 0.18% -0.8% 0.78% 3.83% 1.80%
Net Profit Margin (%) 1.21% 0.13% -0.87% 2.3% 2.82% 0.69%
ASSET UTILISATION 2012 2012 2011 2010 2009 2008
R&D To Sales N/A -5.79% -3.13% -2.69% 0.74% 0.72%
Sales To Cash N/A N/M- -44.4 82.29 28.91 30.83
Sales to acc receivables 8.19 7.68 7.89 7.56 10.53 11.02
Sales to inventory 7.0 10.68 10.03 8.93 11.17 10.41
Sales to work capital N/A 30.82 40.35 22.49 25.54 27.61
Sales To Total Assets 1.10 1.59 1.67 1.45 1.67 1.64
LIQUIDITY RATIOS 2012 2012 2011 2010 2009 2008
Quick Ratio 58.36% 65.16% 64.01% 58.11% 69.06% 59.51%
Cash Ratio N/A 14.3% 16.5% 12.28% 30.29% 29.58%
Current Ratio N/A 113.56% 111.04% 107.28% 119.22% 109.18
Net Interest Coverage N/A N/M- N/M- N/M- N/M- N/M-
Days In inventory 50.76 32.49 32.83 37.92 32.64 36.69
Days In Accounts Payable N/A 49.11 48.84 49.11 50.38 50.11
Days In Cash N/A 0.03 -2.79 -13.07 16.68 9.49
Days in receivables N/A 46.05 44.8 45.21 38.22 34.73
CAPITAL STRUCTURE 2012 2012 2011 2010 2009 2008
Fin. Debt/Equity 84.41% 53.01% 58.79% 57.96% 95.71% 157.25%
Net Debt / Equity 0.30 0.38 0.40 0.42 0.35 0.83
Goodwill & Intangibles /
Total Assets
N/A 0.47% 0.45% 0.12% 0.04% 0.10%
Net Debt / Total assets N/A 15.02% 15.82% 16.51% 7.97% 16.31%
Total Debt / Total Assets 21.56% 20.57% 22.77% 22.26% 21.29% 30.36%
Total Equity / Total Assets 26.12% 39.59% 39.48% 39.12% 22.64% 19.63%
Net Debt / EBITDA 1.16 1.73 3.60 2.48 0.40 0.84
Payout Ratio 0.00% 55.22% N/M- 2.58% 13.74% 13.05%
Retention ratio N/A 44.78% 107.85% 97.42% 86.26% 86.95%
LG Electronics 21
From the table of various ratios it is worth to mention that net income is very unstable in LG
Corporation. Financiallyyear 2009 was the most successful, many ratios exceeds the industry
average, the years ago and years to come. Looking at the past two years company is facing
serious financial problems at least LG Electronics is keeping away the threats associated with
Debt. The return on assets and equity are very low, which indicated poor management of the
assets and has to be changed. In addition Sales to Total Assets also shows unfavorable
numbers comparing with industry, however Inventory turnover is increasing in thelast 3
years and oversteps Industries average, for that we can make an assumption that other assets
in corporate level is not used sufficiently.
It is extremely important to know from what LG Electronics generate the most revenue and
profit, table below shows Sales and Operating profit distribution among product divisions.
Consolidated Sales and Profit by Division
(Unit : KRW bn)
Fiscal Year 12 YoY
Home Entertainment
Sales 22,738 -4.9%
Op. Profit 168
Mobile Communications
Sales 10,078 -13.8%
Op. Profit 59
Handset
Sales 9,941 -13,1%
Op. Profit 51
Home Appliance
Sales 11,221 1.3%
Op. Profit 528
Air Conditioning
& Energy Solution
Sales 4,350 -5,1%
Op. Profit 156
MAIN STRENGTHS AND WEAKNESSES
Strengths
LG Electronics is a multinational company and a recognize brand around the world. It has
successful established not only in developed countries but also indeveloping countries. LG
products are reliable, easy to use, and have simple designs which satisfy customers thats why
LG have the advantage of having loyal customers. LG Corporation the research
anddevelopment has given greater importance because to satisfy the customers and provide
the customerswhat theywant the research anddevelopment if required. LG Electronics tryto
keep products innovative to attract the customers and to capture more market share. LG
Company is at its growing stage and its growing quickly. It is producing solid products which
rapidly satisfying the customers.
LG Electronics 22
Strong Marketing Communication
LG wants to deliver synchronized communication messages worldwide to elevate their
profile and promote their brand identity. In order to increase consumers' understanding of the
LG brand and to differentiate the company's image, LG has set up a single global brand under
the theme ``Life's Good." To accomplish this, all brand marketing communications from LG
have a consistent look and feel, as well as consistent messages (LG to Become Top-Level TV
Maker, 2010).
Alliance Joint Venture
LG Electronics is making technology advances and identifying business opportunities
through various partnerships relationships with some of the world's leading companies. LG
Electronics will do its best to create new products and services with an open mind, while
developing new technologies and business fields through various partnerships with some of
the world's most successful companies (Lg.com, Strategic Alliances, 2013) Some of them are
PRADA, General Electrics, Schneider, Siemens, Toyota, Qualcomm, Hitachi, Microsoft,
Mark Levinson, and Dolby Laboratories, Inc.
Weaknesses
Product Line
In comparing LG televisions with its directed competitors like Sony and Samsung, it lacks in
producing variety of products and features. Comparatively, Samsung and Sony have a wide
product line offering different models of TVs. For example, LG only has 29 types of TV, but
Samsung has 102 types of TV.
Higher Overall Costs than Its Rivals
LG TV sets has a higher price than the competitor because LG offers premium TVs. LG
offers Television with stylish looks, sleek design, and smart technology.
Slow Brand Recognition
Despite its size - $49 billion in sales and more than 90,000 employees worldwide, which
makes it nearly as big as Microsoft - LG doesn't enjoy instant brand recognition. Some
consumers assume LG is a subsidiary of other electronics makers. Rebranding needed.
EXTERNAL ASSESSMENT
Political Trends
LG Electronics is the intercontinental company which focus in the international market for
its product. The political environment is mainly the law and government taxation policies
that influence an organization .There is a lot of political interaction that has integrated in this
business since developed countries require specific certificates and charges the different
tariffs so far LG Electronics has operated between the political and legal factors. These
factors may increase the cost of goods; sometimes it decreases the product cost. The LG
electronics is facing lots of problems while manufacturing and exporting goods to the
overseas.
LG Electronics 23
The Role of Korean Government
The Korean government had placed a high priority on developing the countrys technological
capabilities and creating the world-class industrial infrastructure. Government promoted
education and R&D for high-tech industry by providing direct financial support to public and
non-profit institutes, universities, and other educational institutions, primarily through the
Ministry of Information and Communication. Such support often involves partnering with
both established and emerging firms in cost-sharing new product or technology development.
This resulted in rise of 120 private research institutes and 18 research consortia (wtec.org,
2007).
Economic Trends
The global economy has yet to shake off the fallout from the crisis of 2008-2009. Global
growth dropped to almost 3 percent in 2012, which indicates that about a half a percentage
point has been shaved off the long-term trend since the crisis emerged. This slowing trend
will likely continue. Mature economies are still healing the scars of the 2008-2009 crisis. But
unlike in 2010 and 2011, emerging markets did not pick up the slack in 2012, and wont do
so in 2013. Uncertainty across the regions from the post-election fiscal debate question in
the U.S. to the Chinese leadership transition and reforms in the Euro Area will continue to
have global impacts in sluggish trade and tepid foreign direct investment
(TheConferenceBoard.com, 2013).
World Gross Domestic Product Trends
HE worlds growth continued to slow in the third quarter of last year, according to The
Economist's measure of global GDP, based on 52 countries. Global growth fell by 0.4
percentage points from the previous quarter to 2.4%, its lowest level since the end of 2009.
Emerging economies accounted for four-fifths of global GDP growth. Developed countries,
weighed down by a slow recovery in America and the ongoing euro crisis, contributed little.
The coming year is expected to be much the same. The three economies forecast to contract
the most in 2013 are all euro members (Greece, Portugal and Spain), while the fastest
growers (Macau, Mongolia and Libya) are all emerging economies (The Economist, 2013).
LG Electronics 24
LG has a very big competitive market in world and it have constant development in their
innovation in electronics equipment, secondary products, planned process of LG etc.. it have
leads to sell goods to other countries . The LG contribute the world wide stock market and
money market also. The LG have well and strong economic source and it has capable of
introduce some new technology to the electronic market.
The consumer electronics market is expected to see a significant growth compared to 2012,
an increase in spending of about 4%. Emerging markets will be the majority of this increase,
projected to grow 9% annually compared to only 1% for mature markets. Many believe that
the growth is due to advances in smart technology, such as tablet computers and other devices
that use apps. Tablets and smartphones are some of the fastest growing devices of all time;
they are projected to account for 40% of gadget spending in 2013. This is significant because
nearly every field, from the healthcare industry to the retail industry, relies on technological
innovation in some sort. I believe that advances in intelligent technology will be a recurring
theme throughout this years CES (Brown, 2013).
LG Electronics 25
Real Period Growth in Per Capita Annual Disposable Income in Asia Pacific and
Other Regions: 2007-2012
Source: Euromonitor International from national statistics
Chart makes obvious statement that markets in Middle East, Western Europe and North
America are shrinking, while Australasia, Latin America, Asia Pacific, and Eastern Europe
are growing in disposable income indicating sighs of potential markets.
Technological Trends
High-technologies are the fastest developing industry in the world; therefore technologies are
changing the lifestyle for the whole worlds population. Consumer electronics are the most
common and most financed industry, which reached $209 billion revenues last year.
To get the best knowledge of technological trends coming in to visit International CES
exhibition in Las Vegas, Nevada . The main trends of 2013 that will change the future
focuses on 3-dimentional printing, the next generation of television and displays, the
evolution of audio, how wireless technology is changing lives in Africa, and the impact of
technology on education (Shapiro, 2013).
The most upcoming consumer electronics devices on which International Electronic
Corporationsare working on are the high-definition TV (HDTV) digital video recorder, HD
radio, organic light-emitting diode (OLED) TV, 3-D HDTV, connected TV, smart appliances,
Ultrabooks, Android 4.0 tablets, and 3-D printers (Shapiro, 2013).
Socio-cultural Trends
Consumer Demant Trends
It is crucial to understand the consumer behavior and forecast the future trends especially in
rapidly changing consumer electronics industry. For six consecutive years, Accenture
research has studied preferences for consumer electronics products and services. It presents
this years research findings and technology trends and discusses the implications for
LG Electronics 26
companies as they navigate this open market to fullfil consumer needs. The research
discovers four specific trends:
Consumers are focusing on fewer, multiple-function devices. Purchase intentions for
single-function devices are flattening or declining as smartphones, tablets, PCs and
high-definition televisions climb at double-digit rates.
Consumers are not locked into any single platform. Consumers know about the
operating system of their devices but the research does not suggest loyalty to a
specific operating system.
As consumers experiment and search for the technologies and services that best meet
their needs, cloud-based services and apps are showing substantial increase in use. A
significant increase in use of apps and online services is occurring among both
younger and older generations.
The increasing capabilities and rapid adoption of mobile multi-function devices are
fuelingthe continued consumerization of IT in the workplace. As consumers
increasingly do multiple activities on their mobile devices they are also choosing to
use these devices for work purposes and finding productivity improvements in doing
so (Accenture.com, 2013)
Consumer Spending Trends
As adoption of many consumer technologies reaches maturity in traditional markets such as
the United States and Europe, emerging markets are becoming increasingly important to the
consumer electronics industry.It is in the emerging economies of Brazil, Russia, India and
China, where the latest edition of Accentures annual consumer electronics report finds
reason to be optimistic about the industrys future growth prospects. The trend is clear
though: consumers from emergingmarkets are hungry for technology and willing to shell out
a lot of money for personal gadgets (Richter, 2013)
This chart shows the results of a survey among 11,000 consumers across 11 countries
regarding their expected expenditure on consumer electronicsin 2013.
LG Electronics 27
Consumer Going-Green Recognition
While the global economy seems to have an impact on both consumer and capital investment
in green products and technologies, many companies are still moving toward greater
sustainabilitywhich is good news. Because some consumers are opting for affordability
over eco-friendly, they still look favorably at companies that adopt sustainable practices.
More than half of global consumers (53 percent/representing 1.1 billion people) prefer to
purchase products and services from a company with a strong environmental reputation,
according to a new global survey released by video-conferencing company Tandberg. Not
only is a companys environmental reputation a clear preference for its customers, but also
for its employees, according to the survey. In fact, eight in ten workers surveyed globally said
they would prefer to work for an environmentally ethical organization
(EnvironmntalLeader.com, 2011).
Competition Trends
LG Electronics is among the smaller players in the smartphone market. Counterpoint
Technology Market Research estimated that more than 90 percent of the smartphone market's
profit is claimed by Samsung Electronics Co. and Apple Inc. But higher-end smartphones
have steadily increased in importance for LG's overall mobile business as it battles
competition from Chinese makers at the low-cost end of the market. LG said it plans to bet on
countries that have begun introducing faster wireless networks called LTE, which it expects
will produce higher demand for smartphones compatible with the new technology. The
company, which competes in the TV market with Sony Corp., Panasonic Corp. and local rival
LG Electronics 28
Samsung Electronics Co., is counting on early launches of advanced displays such as OLED
and ultra-high definition this year to get ahead of its rivals (Youkyung, 2013).
Since LG Corporation is operating in many product divisions it is clear to see many
competitors in different fields. LG Corporation is competing with many international and
regional competitors they are Sharp, Panasonic, Sony, Pioneer, Samsung, Electrolux, Philips,
Toshiba, TCL, Sichuan Changhong and many others. The table below was created by the data
from Infinancials.com webpage showing growth rates of the main competitors.
Net
Sales
Growth
EBITDA
Growth
EBIT
Growth
Income
Before
Tax
Growth
Net
Income
Growth
Free
Cash
Flow
Growth
Company % % % % % %
LG Electronics -6.08 90.03 505.46 N/M+* 114.22 N/M-
Peer Median 1.86 -10.36 -49.84 -20.88 -33.98 -75.53
Sharp Corporation -18.73 -40.27 N/M- N/M- N/M- N/M+
Panasonic Corp. -9.74 -43.09 N/M- N/M- N/M- N/M-
SONY CORPORATION -9.58 -43.10 N/M- N/M- -75.92 -62.22
Pioneer Corp -4.54 -19.28 -66.62 -67.08 -64.54 N/M-
Samsung Electronics Co. 21.88 43.32 62.85 74.34 73.55 N/M+
AB Electrolux 8.26 21.80 37.55 25.11 25.92 38.99
Koninklijke Philips Electronics
NV
9.78 -11.53 N/M+ N/M+ N/M+ N/M-
Toshiba Corp -4.66 -9.20 -33.05 -22.06 -46.53 -96.63
TCL Corporation 14.46 31.09 -80.07 -19.71 -21.43 -88.84
Sichuan Changhong Electric Co. 24.67 21.75 0.15 -18.61 38.99 13.18
*N/M, N/M+and N/M- are displayed for valuation multiples, financial ratios or growth rates that are
not meaningful for any reasons.
MAIN COMPETITORS
Samsung and Sony are the top competitors of LG Corporation, in order to make competitive
strategy it is essential to analyze these two companies more detailed. Samsung is the worlds
LG Electronics 29
number one company in consumer electronics industry. It has huge market share worldwide
which can be transferred into LGs market share. Sony is the very similar company to LG,
they both have lots of things in common and so it is natural that Sony and LG interest are
clashing all the time. Samsung and Sony are found out to be aggressive competitors to LG
Corporation.
Samsung
Samsung Electronics vision for the new decade is Inspire the world, create the future.With
the TOP plan and sponsorship strategies, Samsung has become the top brand in the world. It
has become the worlds leading brand in electronics and digital industry. This achievement is
mainly due to the strategies followed as explained below (The top brand in the world, 2010).
Sponsoring Strategies
Samsung has associated its name to the TOP plan which is called the The Olympic Partner
plan. It is strategy which has made Samsung the TOP brand. Without this strategy it will not
have much effectiveness and efficiency. Samsung has been sponsoring various activities in
order to create brand awareness and enhance its market position. Samsung was an official
sponsor in wireless communication equipment presented by the Wireless Olympic works.
Reposition of its products
Initially in 1990s Samsung was targeting the lower income groups with penetration pricing.
Later on it realized that it would be better to target the cream or skimmed group of the
population by increasing the price and improving the quality. It realized that in upscale
marketing, technology and brand are competitive means. Thus it repositioned its products to
upscale the market. To Samsung, higher price increases its profit and it will also imply good
quality.
Technology innovation
Samsung realized that digital is the future of the world and technology upgrades are essential
to sustain in the competitive market. They switched their core competitive power from mass
manufacture to high-end product supplier which is based on digital technology. Samsung
launched the industry design revolution to get rid of its image of imitator. It employed
worlds top designers to expand, differentiate and innovate its product.
Sony
Sony is a J apanese company and key players in consumer electronics especially television
and video game consoles. The brand for Sonys game console is PlayStation, the best-selling
video game consoles of all time. The strategies of Sony Electronics are (Sony Electronics
Inc., 2010) the following.
The leader in product innovation
Sony has an ability to identify imagination and enhance peoples life. The company has been
at the cutting edge of technology for more than 50 years. Now, Sony develops its business
with sales of innovative products as well as Sonys convergence strategy. For example, Sony
has Hi-Scan flat screen TV which can deliver near HDTV picture quality through Digital
Reality Creation (DRC) circuitry.
LG Electronics 30
Broadband network area
Sony is well positioned to bring new benefits for consumer by combining hardware, software,
content and services. Consumers can access information wherever and whenever they want
through cable, satellite, or internet.
Promoting a world class brand
Sony conducts an advertisement campaigns to secure consumer attention and utilizes world
class public relations to enhance Sonys value, reputation and brand image. Communications
campaigns are executed on both an individual product and strategic platform basis which
ensures exposure for the companys fundamental products including digital TV.
Brand values
In the mind of consumers, Sony is one of the worlds greatest brands. Sony tries to leverage
its brand beyond the products and add the value to the brand by re-focusing its brand outside
the world.
Philips
Koninklijke Philips Electronics NV is a Netherlands-based parent company of the Philips
Group (Philips). The Company operates within three main business sectors, such as
Healthcare, Consumer Lifestyle and Lighting, as well as through the Group Management and
Services sector. The Healthcare sector offers both personal care and professional products,
such as computer tomography equipment, radiography equipment and refurbished systems,
among others. The Consumer Lifestyle sector offers a range of sound, vision and household
products, such as television, headphones and digital cameras, among others. The Lighting
sector offers lighting products, such as professional lamps, ballasts and luminaires, among
others. The Group Management & Services sector provides the operating sectors with support
through shared service centers. As of December 31, 2011 Philips had 124 production sites in
26 countries, as well as sales and service outlets in approximately 100 countries.
Panasonic
Based in Osaka, J apan, Panasonic Corporation (formerly Matsushita Electric Industrial Co.,
Ltd.) is one of the world's leading manufacturers of electronic and electrical products,
systems, and components for a wide range of consumer, business, and industrial uses.
Panasonic emphasizes the use of sophisticated electronics, precision, and leading-edge
technology to develop its products. Panasonic's business segments are organized into six
categories Digital AVC Networks (46% of fiscal 2010 sales), Home Appliances (15.4%),
PEW and PanaHome (22%), Components and Devices (13.5%), SANYO (5.5%), and Other
(13.6%). AVC Networks products include video and audio equipment (TVs, VCRs,
camcorders, digital still cameras [DSCs], DVD players and recorders, and other personal and
home audio equipment) and information and communication equipment (personal computers
[PCs], PC displays, CD-ROM, DVD-ROM, DVD-RAM, and other optical disk drives, hard
disk drives [HDDs], copying machines and printers, facsimile equipment, cordless
telephones, cellular phones, other mobile communications equipment, car audio, and
navigation equipment). Sales for fiscal year 2011 amounted to 7.4 trillion, a 4% decrease
from the previous year, due to decline in sales in all business segments. In the Digital AVC
Networks segment, favorable sales of flat-panel TVs and automotive electronics and Blu-ray
Disc recorders were offset by decline of notebook PCs and mobile phones. In the home
LG Electronics 31
appliances segment, strong sales of refrigerators were offset by decrease in sales of air
conditioners and compressors. In the PEW and PanaHome segment, lower sales in electrical
construction materials and building materials, along with ongoing sluggishness in the
J apanese housing market conditions led to sales decrease. In the Components and Devices
segment, batteries and semiconductors decreased in sales.
LGs Competitive Strategy
LGs competitive strategies are (LG Electronics 50-Year History 2008):
Focusing on boosting ROIC (Return on Investment Capital) instead of simple growth.
LG targets toachieve ROIC 15%, it means company have to improve gross margin.
LG will decrease indirect costs and switch to high-profit products.
Optimizing the portfolio.
The company increase its profitability, strengthened its brand in the market, use
external resources (alliances) to expand the business in order to optimize the portfolio.
Counter measuring the market bipolarization.
LG develops the products based on customer needs and identify potential needs of the
target segment based on STP (Segmenting, Targeting, and Positioning) strategies.
Technology innovation and design differentiation.
LG focus on technology innovation and design differentiation through R&D process
based on customer needs.
Strengthening brand investments.
Repositioning LGs brand identity and reorganize brand communication by
developing Lifes Good slogan and new futuristic logo.
Reinforcing global competencies.
LG advance all internal and external resources for the organizational competencies by
hired the best people to create the best human resources pool in the world.
LGs Porter Five Forces Model
Porters Five Forces is one of the models of competitive analysis for the purpose of
developing strategies in many industries. But the intensity with which competition exists in
the industry keeps varying. According to Michael Porter, the nature of competitiveness in an
industry is based on the following five forces (David, 2010).
Rivalry among Competitive Firms
The enduring conflict with Sony and Samsung for the purpose of gaining customer share is
too high. The competition is more intense as these firms pursue strategies that give
competitive advantage over the strategies pursued by its rivals.
Potential Entrants
Potential entry of new competitors is an important factor to intensify competition in the
industry. Larger the band of new entrants, more intense will be the competition. Considering
the trait of product differentiation and innovation as for example Apple with its masterpiece
of innovation iPhone can open gates into consumer electronics industry; however it requires
large investment into R&D which is hardly affordable to new competitors.
LG Electronics 32
Development of Substitute Products
LG faces strong competition by substitute products producers firms especially when the
switching cost of thecustomer is lower, and when the functionality and quality of the
substitute product is better. On account of this reason, LG has to monitor its trend for the
purpose of tracking those strategies as it may face competition not only from similar industry
but also from different industry. But LG, Sony and Samsung have penetrated into the industry
for a long time and they have created economies of scale, product differentiation, strong
familiar brands, that will make it difficult for new brands to enter the industry.
Bargaining Power of Suppliers
The bargaining powers of suppliers affect the intensity of competition for LG on account of a
large number of suppliers, and less availability of raw materials. Based on these attributes,
the suppliers of LG have the power to enforce certain terms and conditions on manufacturers
by charging a high cost of raw material.
Bargaining Power of Buyers
The buyer group is powerful if it purchases in large volumes. The bargaining power of
consumers of LG is more, as products arenot differentiated and widely available. In this case
consumers of LG can ask for more discounts, extended warranty and services. As the
satisfaction level of consumer goes up, the intensity level of competition increases. As a
result, LG has to monitor the strategies of its competitors by taking into consideration the
likes and dislikes of its customers.
MAIN OPPORTUNITIES AND THREATS
Opportunities
Marketplace
Oppostunities are everywhere, such as the changes in technology, government policy, social
patterns, and so on. An opportunity is a major situation in a firm's environment. Key trends
are one source of opportunities. Identification of a previously overlooked market segment
changes in competitive or regulatory circumstances, technological changes, and improved
buyer or supplier relationships could represent opportunities for the firm.
Alliance or Joint Ventures
LG has alliance or joint venture with companies that have established a brand for themselves
in the market. It can further increase its market share and market presence and increase its
brand image, by having alliances and joint ventures with other successful companies. This
would also help in generating more revenues for them (Strategic Alliances, 2010).
Ex-CEO Nam was at the restructuring unit of LG Group, he led negotiations to sell off LG
Semiconductor, to Hyundai Electronics. That means LG lacks a semiconductor division like
Samsung, putting it at a technological and cost disadvantage in mobile technology. With New
CEO Koo's assumption of the helm, there is now discussion of a possible bid by LG to take
over Korean semiconductor manufacturer Hynix (Shin Kiju, 2012).
LG Electronics 33
Distinguish its Services from Competitors
The consumer electronics services are expected to grow in emerging countries. As several
initiatives are being realized, it is found that would be integrated so that LG can distinguish
from its competitors.
Threats
War with North Korea
NorthKoreas communist dictator Kim J ong-eun has been issuing near daily threats of
bombing aimed at his democratic neighbors to the south. In case of war tremendous losses are
guaranteed, which will affect the Brand image, manufacturing and management.
OLED TV Market loss
So far in 2013 is an important year because for LG, it marks the beginning of a new TV era,
In this market LG has a leading position, however Samsung and Sony also entered the market
threatening to take a significant share of the market. OLED technology offers richer colors,
deeper blacks, higher contrast and sharper images than liquid crystal displays (LCDs), light-
emitting diodes (LEDs) and plasmas. OLED technology is energy efficient and does not
require LED back lighting used in LCD displays. This explains OLED TVs thinness. LG's
model measures 4 millimeters thick at 22 pounds (De Sausa, 2013)
Low-cost competitors from China
Huawei is the company which focuses on low cost products and is a leader in fixed line
networks, mobile telecommunications networks, and budget smart phones.
Price wars
LG Corporationis already showing signs of price war with Samsung. LG has a low gross
margin on many of its products. Competitors could follow price cutting strategy too and
induce price wars, which would blast LG profit margin to zero percent.
Apples iTV launch
Apples iTV is the next big lunch from Apple, which will definitely affect TV sales for LG
and its competitors. However, the exact time of the launch is unknown and so the price is
which may handicap the entrance to the market.
Rapid technological change
The serious threat that LG Corporation and the other technology companies are facing is a
rapid technological change. Companies are under the pressure to release the new products
faster and faster. The one that cannot keep up with the competition soon fails. This is
especially hard when the company wants to introduce something new, innovative and
successful.
LG Electronics 34
NEW LG VISION AND MISSION STATEMENT
Vision Statement
LG constant focus on innovation will allow us to offer latest customer solutions in
entertainment, communications and household. LG Electronics intend to create reliable and
respectable brand image through sustainable, top quality, and modern design products
delivered all over the world.
Mision Statement
LG mission is to be one step ahead in developing future technology and providing first class
devices to worldwide customers.
OBJECTIVES
1. Reverse negative sales growth in 2013 and 2014; make it steadily increasing up to 10%
by the year 2015.
2. Maintain positive but low profit during the next 3 years, for the sake of R&D and market
development.
3. Conquer Smartphone market share from 3.8% in 2012 to 9% in 2015.
4. Establish J oint Ventures with innovative and beneficial companies.
5. Strengthen positions in Africa, BRIC and other emerging countries.
6. Create new technologies, invest in R&D and innovation.
7. Reorganize marketing. Increase brand awareness. (Product differentiation Cut down
market penetration)
8. Increase online sales and services.
LG Electronics 35
STRATEGY FORMULATION AND IMPLEMENTATION
SWOT Matrix
Positive Negative
I
n
t
e
r
n
a
l
Strengths
1. Wide and strong distribution
network
2. Green production: Human,
Resource and Energy
3. Strong Alliances and Joint
Ventures
4. High R&D and Innovation
5. Attractive design products
6. High quality products
Weaknesses
1. Downsizing revenues in the past
three years.W1
2. Unstable Net Profit
3. Higher overall costs than its rivals
4. Unrecognized Brand image
5. Unfavorable software solutions
6. Lack of user-friendliness
7. Small variety in products and
features
8. LG lacks competitive advantage in
the smartphone market, which is the
only market with high growth
potential.
E
x
t
e
r
n
a
l
Opportunities
1. New market geographies in BRIC
and other emerging countries
2. Alliances and Joint Ventures to
gain software, technological or
informational advantage
3. New market of innovative
products creation and
dominance in it.
4. Increased online shopping sales
all over the world.
5. Young, well-educated specialists
in South Korea can make great
contribution in product creation.
Threats
1. War with North Korea
2. US and Euro zone is still struggling
with Global Financial Crisis.
3. Low cost competitors from China
4. Rapid technological change
5. OLED market loss
6. Price wars
7. Impact of strengthening Korean won
8. Apples iTV launch
9. Increasing costs of labor, materials
and operations
SO Strategies
1. Use international distributers to settle in BRIC and other emerging countries. (S1, O1)
2. Strengthen and eccelerate R&D on new devices like smartphones, 3D Printer, OLED TV
and etc. (S4, O3)
3. Recruite and train specialists from South Korea to work in R&D department.(S4, O5)
LG Electronics 36
WO Strategies
1. Entering new markets will increase the downscaling revenues. (W1, O1)
2. Alliences and J oint Ventures with suppliers will decrease costs. (W3, O2)4
3. Allience with reliable software company will make products more desirable and user-
friendly. (W5, W6, O2)
4. Create wider selection of products with new products which will help to satisfy needs
of mew markets. (W7, O1)
ST Strategies
1. Keep investing in R&D and Innovation to keep up with changing technology trends.
(S4, T4)
2. Develop and promote OLED TV niche, secure patents, distribute and sell it worldwide.
(S1, S4, T5)
3. Differentiate products by design solutions and higher quality to avoid price wars. (S5,
S6, T6)
4. Sing long-term contracts with supplier alliences, build or lease factories in India, China,
Indonesea, even Africa. (S3, T9).
WT Strategies
1. Sell mobile communications division which is the most profitless, focus on simple-to-
use, low-cost phones. (W1, W2, T6, T4)
2. Liquidate assets in US, Europe, and South Korea, move operations to China. (W1, W3,
T1, T2)
LG Electronics 37
BOSTO CONSULTING GROUP (BCG) MATRIX
RELATIVE MARKET SHARE POSITION
HIGH MEDIUM
LOW
I
N
D
U
S
T
R
Y

S
A
L
E
S

G
R
O
W
T
H

R
A
T
E
HIGH
MED
LOW
Stars Question Marks
LG Home Appliances Division
e.g. Refrigerators Market Growht 8.7%,
Market Share 36.6%
LGMobile Communications Divisions
Market Growth 35.8%, Market Share
3.8%
Lg Home Entertainment Division
e.g. TVs Market Growth 4.2%, Market
share 15.2%
Cash Cows Dogs
LG Electronics 38
THE GRAND STRATEGY MATRIX
RAPID MARKET GROWTH
W
E
A
K

C
O
M
P
E
T
E
T
I
V
E

P
O
S
I
T
I
O
N
LG stands in rapidly growing
market and slighly strong
competetive position
S
T
R
O
N
G

C
O
M
P
E
T
E
T
I
V
E

P
O
S
I
T
I
O
N
SLOW MARKET GROWTH
STRATEGY FORMULATION
Joint Ventures and Alliances
J oint Ventures and Alliances became very popular in a recent decade. For LG Corporation
some J oint ventures Alliances or even merging or requisition will benefit in risk sharing,
because company is planning to increase funding to R&D which might not always payback.
Other reasons to corporate with other companies are Market accessibility, lower burden of
high fixed cost, open broader acquisition opportunities, and most important sharing
technological capabilities, information and strengths. First targets of J oint venture are the
most innovative companies.
ARM Holdings is a British multinational semiconductor and software design company.
Its largest business is in processors, although it also designs software development tools,
systems and platforms, system-on-a-chip infrastructure and software. A Company which
made Cloud Computing cheaper by reducing power requirements for Data centers. Recent
key innovation is Power Server Processors developed for power conscious mobile devices.
LG Electronics 39
LG, after selling off its semiconductor division to Hyundai Electronics, faces
technological and financial obstacles.
After a fiasco with Microsoft OS LG could use improved software design.
J oint Venture with ARM fits into LGs corporate responsibility mission to reduce
power consumption,
Smartphone customers demand longer serving batteries with power-saving processors
will give LG small competitive advantage.
Tabula is a fabless semiconductor company founded in 2003. It has raised $215 million in
venture funding. Produced processors with incredible combination of flexible software and
efficient hardware. Chips produced by Tabula can re-configure themselves faster than any
other chips available in the market.
LG can offer its laboratories and fabrication for experimental and exploratory
purposes.
Tabula is young but very perspective company where LG can be part of its potential
fulfillment.
So far Tabula has fastest chips which can be very beneficial in Smartphones and
especially in Smart TV, where speed improvements are very desirable.
Hitachi Plant Technologies is looking forward to a joint venture with LG in the water
business. Hitachi ishuge J apanese corporation with over $122 million in sales and ranked
#38 in Fortune 500 list.
J oint venture will beneficently fulfill each other LG with in marketing, planning and
manufacturing technology and Hitachi with and engineering strengths in water
treatment systems and information control systems.
Its a change for LG to begin business-to-business sales.
With a wide production spam Hitachi will make LGs expansion cheaper and easier
for example supply industrial machinery systems and Electrical machinery control
systems.
SK Hynix Inc. is a South Korean memory semiconductor supplier of dynamic random
access memory ('DRAM') chips and flash memory chips. Hynix is the world's second-largest
memory chipmaker and the world's sixth-largest semiconductor company. LG used to be
merged with Hynix, but former CEO sold its semiconductor division Hynix.
Semiconductors became high expense for LG Electronics Hynix could decrease those.
Samsung and Apple are clients of Hynix, it would be possible to raise pricesto
specific services and products for rival companies giving LG cost advantage.
Hynix is local, South Korean company, what benefits in many ways and eases the
joint.
First step in J oint Venture is to start negotiations, prepare contractual agreements closely
supervised with lawyers, and Sign the contract with specific purposes and duration.
Implementing the contract duties LG has to adjust its financial goals, objectives and
strategies. Lastly, join management and control over the J oint Venture companies.
LG Electronics 40
South Africa, BRIC and Other Emerging Countries
North America and Western Europe are suffering the consequences of Global Financial Crisis
and the GDP growth is close to zero percent. The chart in External assessment shows the
growth of disposable income different global regions where Middle East and Western Europe
have negative growth (North America almost zero). Totally different view is on Latin
America, Asia Pacific and Eastern Europe, where growth in 2012 was close to 20% or even
reached it (Eastern Europe). The other source (BusinessTech.co.za, 2013) provides valuable
information on consumer spending on consumer electronics in 2012. BRIC countries and
J apan showed the best result exceeding US, Germany, France UK and others. It is a good
guideline for LG on which markets to focus in the near future. LG already has manufacturing
facilities in Brazil, Poland, Russia, India, and China it will decrease the transportation cost,
what is left is to make LG products sold. Strategic steps to win prospective markets:
1. Immediately in 2013, begin search and negotiation for new channels for distribution.
2. Take a long-term loan on low interest rates which are extremely attractive.
3. Build a new distribution centers and find agents if necessary.
4. Employ local human resource companies to hunt and recruit necessary management team
for deeper expansion in new markets.
5. Establish manufacturing facility in South Africa specialized in LG Smartphones because
Africa is rapidly growing in mobile communication services. Begin worksin 2014.
6. Run low cost market penetration strategy emphasizing good-quality and design. This
should not be hard because one of the main rivals in Smartphone industry Apple has no
stable ground as it does in North America and Europe.
7. Since target countries are big in size LG has to develop wider distribution network, not
only main cities, where many competitors chooses to stay away.
8. Employ and empower local managers and executives to run the business.
New Technologies, Investments in R&D and Innovation
LG Electronics is operating in rapidly changing industry, where all companies are creating
the future. It is time transforming LG from a marketing-centered to a technology-centered
company. Common sense and historical evidences proves that investment in research and
development often generously pays back. For example Apple occupied Smartphone market
not only with marketing but mainly with its design, interface, and software available for
applications. Creation of unique products or features of products can give unique selling point
wining the market share, used as competitive advantage. Ongoing research also leads to new
opportunities - researchers cannot always anticipate what the results of their research will be.
Sometimes it can be extremely beneficial for J oint Ventures and Alliances. Great investment
in new technologies enhances LG reputation as a perspective company and therefore raises
the stock price, of course, if the financial statements are not disappointing. To begin new era
of technological renaissance these steps should be taken:
LG Electronics 41
1. Get funding from J oint Ventures and Alliances with innovative and financially strong
partners. Research and Development will benefit both companies.
2. Apply for Federal funding for the sake of Green technologies and environmental welfare.
3. Increase investment by 30% in 2013, by 50% in 2014 and if R&D shows good results by
double it from 1,500,000 Korean won in 2012 to 3,000,000 in 2015.
4. Main focus on future technologies that analysts are predicting bright future.
OLED TVs on which LG already has a leading position.
3D printers are the most desirable devices with endless appliance. So far
launched in industries but unspecialized to universal customer usage.
Solar power is very favorable and highly promoted industry.
Smart appliances in a household, just like TVs are getting smart so should
home appliances.
5. Recruit necessary scientist from J oint Ventures, South Korean Universities, and
Competitors.
6. Create and implement interactive training program promoting innovation.
7. Instantly apply inventions and innovations into production.
Reorganize Marketing
LG Electronics marketers experienced huge disappointment when find out revenues are
decreasing. New LG top CEO Bon-J oon Koo came into chair knowing that product comes
first before the marketing. When revenues started showing negative signs previous LG CEO
cut down R&D and kept financing inefficient marketing. These new ideas will help to
recover LG Electronics brand and push revenues forward:
1. Hire new non-Korean (best American) as the LG Marketing Officer.
2. Pay distributers an extra percents above the competitors because distributors are playing
with a final choice of customer.
3. Cheaper TV prices (discounts) for businesses related with public: airports, hotels,
restaurants, etc. to increase brand awareness.
4. Product localization helps to discover market needs, cuts down costs, simplifies
management.
5. In BRIC and other emerging markets cut down TV commercial, focus on Print and
Public Advertisement; Focus not onlyon the top wealthiest class, but also penetrate
growing middle-class.
6. Product differentiation is necessary for LG Electronics, entering different international
markets several modifications is not enough, it has to vary according to regional needs
interests, traditions and way of living.
LG Electronics 42
7. Run the marketing campaign based on image of LG as always changing company having
to offer new experience all the time.
8. Ally or employ top-class designer house for creating the design and decorate LG
products with its logo.
9. Inform customers of LGs engagement in Green revolution.
10. Keep high emphasis on product design, modern looks, imitate good quality materials,
and focuson details, user-friendly interface.
CRITICAL RISK ISSUES
J oint Venture is low-risk deal providinglots of benefits and opportunities; however the main
risk in it is incompatibility, when partners have different objectives for the joint venture. Also
there is an imbalance in levels of expertise, investment or assets brought into the venture by
the different partners. Lastly different cultures and management styles result in poor
integration and co-operation. To avoid these risks the preparation for contract must be well
done and mentioned in legal papers.
Strengthening emerging markets there is always a risk of low demand of LG product. To
figure this out a market research must be completed, but not all countries can provide
necessary information, the only way out of this situation is to trust local marketers, analysts
and economists. Other risk can be legal regulations high import taxes; lack of competitive
employees, corruption can make entrance difficult.
Research and Development is always a risky business, firstly because of high cost with
unknown outcome. To secure investment proper encouraging innovation environment must
be created and motivated staff must be employed.
New foreign Marketing Officer might be unfamiliar with companys way of doing business,
specifications, management style, and new country. Time and training are the best solutions.
Penetrating growing middle-class in emerging countries LG is risking with delayed brand
recognition, the way out is to supervise customers interests and intentions of purchasing in
LG products. If positive brand image is created but prospects of harvesting marketing efforts
is highly questionable, move the penetration up to the pyramid to upper-income class.
LG Electronics 43
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