Battle-Tested LG Electronics Aims for Supremacy in Consumer Electronics, Mobile Devices
By Kim Tong-hyung
The rivalry between LG Electronics and Samsung Electronics is the perhaps the oldest and the meanest one in Korea Inc. And checking in with the fiercest combatants now, it's the latter that is awash in the afterglow of clinching the title as the world's biggest electronics company, gaining the undisputed status in memory chips, digital displays, flat-screen televisions and mobile phones.
Samsung Electronics is indeed the new beast of the world's technology industry, but LG Electronics insists that the rivalry isn't as lopsided as one may assume. LG Electronics, which actually entered the electronics business a decade before its domestic rival in 1958, is confident about regaining the upper hand, and with it, global supremacy.
LG Electronics believes it can compete with Samsung Electronics in its rival's two main markets in finished products ― consumer electronics and mobile phones. Another LG Group affiliate, LG Display, is currently giving Samsung Electronics a run for its money in liquid crystal display (LCD) panels.
Last year was supposed to be a dismal one for the technology industry, but the Korean electronics giants managed to exploit the weakened competition to strengthen their positions in key global markets.
At the end of 2009, LG Electronics slightly edged Sony to trail Samsung Electronics as the second-biggest maker of flat-screen televisions. The company is also the No. 3 handset vendor, behind Nokia and Samsung Electronics.
Deciding that the world economy has already seen the worst, LG Electronics last month dissolved its ``crisis war room,'' established at the end of 2008 as a contingency management tool until each business unit regained its normal level of autonomy. The central management unit had successfully executed a plan to cut around 3.2 trillion won (about $2.8 billion) in costs over the full-year of 2009, company officials said.
However, the company is planning to maintain its emergency management to a certain degree, attempting to balance the efforts for expanding market share with healthy profit margins. Although the world economy is predicted to regain its post-recession form in the first-half of the year; the prospects for the second half remain uncertain, evidenced by all the talk of a ``double dip,'' company officials remarked.
``In the past three years, we have focused on developing our core strengths in the key markets. Now, we are ready to flex our muscles and use our improved ability to find new opportunities and improve market share,'' Nam Yong, vice chairman and chief executive of LG Electronics, wrote in an e-mailed statement to The Korea Times.
Aiming for All-Around Strength
LG Electronics foresees a number of challenging factors for 2010, including the renewed efforts by competitors to regain their lost market share, the emergence of newcomers from China, and rising raw material prices.
The company will focus on delivering innovative products in key areas such as smartphones and flat-screen televisions as well as tap into opportunities in business-to-business (B2B) areas and new growth engines such as renewable energy and healthcare-related businesses.
The company will also look to hire more foreign talent, while reorganizing to give more autonomy to regional units and allow them to deploy strategies that better attend to the needs of each local market.
``There was a consensus that we needed better communication between each product unit and the regional operational units. Under our new organizational structure, each business unit will dispatch `regional business leaders' to each regional unit to speed up the decision-making process,'' an LG Electronics official said.
The company is also tweaking its business lineup to diversify revenue sources, which includes pulling out of struggling areas and increasing the proportion of outsourcing, with the objective of achieving a 10 percent growth in revenue.
LG Electronics is expecting visible results from its B2B efforts, as it continues to garner more corporate customers for its air conditioning and digital display businesses in Western Europe and other advanced nations.
New business areas such as solar cells, which will now be controlled by the company's air conditioning business unit, is expected to gain traction, and LG could also plunge into the merger-and-acquisitions (M&A) market.
Nam believes that LG Electronics' current rebuilding efforts will either push the company forward or derail it, with the verdict determined in the next three to five years. The company, as with many other South Korean companies, feels pressured from the competition coming from the two regional powers of China and Japan.
The Japanese firms, which haven't lost much of their technological sophistication and manufacturing prowess, are putting in increased efforts to recover lost market shares against the Korean juggernauts. And there is no reason why the up-and-coming technology companies from China won't take and execute the blueprints of their Korean and Japanese counterparts, while competing more ruthlessly on cost, Nam commented.
``The current business lineup will allow us to achieve a certain level in operating-profit rates if we strengthen marketing a bit, but we don't have a prayer for double-digit profit growth under the current structure. The pressure for innovation is mounting,'' Nam said.
He added that he wants to make LG Electronics more like Apple, which is understandable as his company has tried to deliver products to compete with the iPhones and iPods of the world, but so far has failed miserably.
Handset vendors like Samsung and LG Electronics are banking on smartphones, as they provide higher margins than conventional handsets. Although Samsung Electronics trails only Nokia as the world's No. 2 overall vendor, with a global share of over 20 percent, it is only the No. 5 brand in smartphones with just about a 3 percent share of the segment. LG Electronics, the overall No. 3 handset vendor, is also among the also-rans in smartphones.
``Apple's strength is more about `know-where' than `know-how.' Technology wise, we can do everything that Apple does, but the company's open and flexible corporate culture stimulates new ideas and allows it to innovate in a way we have not yet been able to follow,'' Nam said.
Nam says he considers smartphones, which work more like handheld computers than conventional phones, and ``smart'' Web-enabled televisions as key products going forward.