Asia Inc

IF A customer finds that a similar LG Electronics TV set bought in India tends to be louder, or that an LG refrigerator in that country has a bigger space for storage of vegetables and fruits, it is the manufacturer’s “localisation” strategy at work.

As a leading company in consumer electronics that is gaining an ever larger international presence and profile, LG Electronics can’t just cater to what customers in its native South Korea want. Even as the company seeks to enter more international markets, it is inaccurate to think of LG Electronics, part of the conglomerate LG Group, as just another South Korean company.

Currently, some 80% of LG Electronics’ revenue comes from outside South Korea, and of its 90,000 employees, more than 60,000 are outside the country, spread out in more than 100 nations.

“We are not saying that we are not a [South] Korean company, but we are a global brand,” says Woody Nam, president and CEO of LG Electronics Asia, in an interview with The Edge Singapore.

The company’s international presence and identity can also be seen in its selection and appointment of senior management executives. Of the seven top executives with functional responsibilities, five are non-Koreans. They are chief marketing officer Dermot Boden, chief human resources officer Reginald Bull, chief procurement officer Thomas Linton, chief supply chain officer Didier Chenneveau and chief go-to-market officer James Shad. These men have management experience with other big-name MNCs across various industries including Hewlett-Packard, IBM, Procter & Gamble, Johnson & Johnson, Pfizer and Unilever.

“We are the only company in South Korea that has a majority of non-Korean chiefs. This makes LG a truly global company,” says Nam. “We thought we would do better if we included top talent, at the executive level, from around the world. That’s why we decided to look elsewhere,” says Nam, a three-decade veteran of LG, who played a leading role in the restructuring of LG Group after the Asian financial crisis 10 years ago.

LG was previously known as Lucky Goldstar before its name change in 1995. It has since developed a more sophisticated image, created a catchy tagline of “Life’s Good”, and is a rapidly growing name in consumer electronics with an especially strong presence in white goods and mobile phones. Parent company LG Group is also a telecommunications service provider and petrochemicals producer, although LG Electronics is the biggest unit within the group.

’JUNG-DO’ MANAGEMENT

Over the years, Nam has played a part in formulating and implementing the changes in the company. “The most important part of the change is the customer orientation,” he says. The top and constant priority is to think of the customers.

The company’s current set of core beliefs and management principles can best be summarised in the LG Way, which has as its goal becoming the top global company. LG aims to create value for customers and respect human dignity; and implement “Jeong-do” management, which means integrity, fair treatment of everyone and fair competition, says Nam.

Besides the increased customer focus, LG has also initiated several big changes since the Asian financial crisis. The group became more focused by getting rid of businesses like construction, and concentrating on the three key areas of electronics, telecommunications services and petrochemicals. “I think the crisis expedited our transformation. No company can do all of these very well and be No. 1; it is very difficult,” says Nam.

The company also became more transparent. “We didn’t have many external independent directors for our board, but now, half of our directors are external,” Nam reveals. Along with the independent directors, various corporate governance practices like the formation of audit committees (consisting only of outside directors) followed, and the company also participated actively in roadshows organised by the various brokerages to visit overseas investors, raising visibility and profile.

LG has certainly set its sights far and high, in particular, in the very competitive mobile phone market, where it aims to be the No. 2 player in three to five years’ time.

According to industry estimates, Nokia, the dominant market leader, holds a market share of some 40%, which is around the same as that of the next three players combined. South Korean electronics giant Samsung is No. 2, followed by Motorola and LG just a shade behind.

LG already has a game plan. “We are focusing more on high-end products and features, so for our mobile phones, we like to have higher price, higher revenue than competitors. You mentioned that Motorola is No. 3, and that we are No. 4, but that’s for quantity and volume. In terms of value, we are third. But, be it third, fourth or second, it is not so important, it is how customers view us that is more important,” says Nam.

LG will continue to boost its brand image and step up the introduction of newly designed and feature-packed handsets like the LG Secret.

For now, despite the gloomy economic conditions, LG is maintaining its earlier forecast of shipping 100 million handsets this year, up from 80.5 million units in 2007. However, there will be some tweaks in the company’s strategy in this market.

“In the long run, we want to be the premium seller to consumers, but in order to be No. 2, we should serve all categories of consumers; so in this period, we will cater to consumers’ preferences, which means increasing the number of products for the midto lower-level categories. So, we are always ready [to produce] all categories of products, including high-, low- and mid-end,” says Nam.

“For the long term, we are going to build our brand image as that of a premium brand, and not a value-formoney brand. The most important thing is that our products are based on consumer insights. We are going to develop products that meet the needs of consumers in Asia,” adds Nam.

LG has clearly demonstrated its ability to keep a close eye on meeting specific needs of existing and potential consumers. For example, in India, its ability to cater to the needs of that market has paid off. Knowing that many of its customers are vegetarians, it decided to apportion a larger space in its refrigerators to store fresh vegetables and fruits instead of having a larger freezer compartment. Mobile ringtones and TV sets for that market also tend to be louder, and the design of other products are more colourful too, notes Nam.

LG has made its presence felt in India early enough, and in a significant way. Back in January 1997, LG Electronics India Pte Ltd was set up, and India was seen as not only a consumer market but also a major production base. “We saw the growth possibilities ahead of the competitors, and at that time the business environment in India for foreigners was not good, but we still thought that was the right time,” says Nam, whose area of responsibility also covers Southeast Asia and Australia.

A large proportion of the company’s product development efforts was planned and executed within India too. Thus, it is no wonder that LG now has the biggest market share in India for several key products including colour TVs, refrigerators, washing machines, microwave ovens, air conditioners and DVD players, according to data from market research firm ORG. LG, having built this premium positioning for itself, now expects the momentum to continue. India, which is now the company’s fourth-largest market, is expected to be LG Electronics’ second largest market (after the US) in five years, with revenue contribution to the company’s total rising from the current 6% to 10% by then.

LG’s localisation strategy extends beyond its products to human resources too. With the exception of the country managing director, everyone else in the Indian subsidiary is a local. “That’s why we are so successful,” says Nam.

He knows that the company not only needs good products with attention-grabbing design, features and prices. Beyond all these, LG is also placing a lot of emphasis on after-sales customer service. For example, the people manning the customer call centres should have full knowledge of the company’s products and services. There are also examples of how LG is going the extra mile. In Australia, LG has introduced the “777 service”, says Nam. Customer service is available seven days a week, from 7am to 7 pm, which is in stark contrast to competitors’, which tend to offer such services from 9am to 5 pm but not on Sundays and public holidays.

DOWNTURN AND OPPORTUNITIES

With the global economy rapidly slowing down, there is hardly any business sector that is immune to cuts in spending, investments and so on.

 

For the quarter ended Sept 30, LG reported a 93% drop in net profit to KRW24.9 billion ($19.6 million) y-o-y. The drop was mainly due to a KRW389.5 billion foreign-exchange loss caused by the depreciation of the won against the US dollar, which inflated the cost of the company’s debt taken out in US dollars. Sales, in the same period, rose 21% to KRW12 trillion, from KRW9.91 trillion y-o-y.

“The economic situation impacts everybody, so we are not the exception. But instead of lamenting the slowdown in the economy, we see this as a good time to expand our [sales] channels,” says Nam. Also, the company plans to step up research and development of products that are even more energy-efficient.

Furthermore, in a global business environment where the agenda of companies is dominated by the issue of talent, LG regards the downturn as a welcome opportunity to boost its assets in this department. “We also take this time to recruit more talented people, and to try to retain talented employees in the company,” says Nam.

After going through the 1997 Asian financial crisis, the company now has a better strategy, clearer focus, healthier balance sheet and an ambitious goal — to be No. 1 in the markets that it is competing in. These include mobile phones, home appliances, display panels and TV sets. LG will have to go head on against names like Samsung, Nokia, Philips, and Japanese electronics giants like Sony, Panasonic and many others.

Nam admits it won’t be easy to overtake all of them in each of these categories. “If we can do it, it will be good for us. We can’t be No. 1 in all categories; in general, as an aggregate, we should aim for No. 1 or 2, and by so doing, we can increase our brand visibility,” he says.