LG Group expects to see robust growth this year
LG Chem pinch-hitting for the conglomerate, buying time for LGE’s comeback
By Kim Yoo-chul
Don't count out LG Group just because its erstwhile flagship LG Electronics has fared poorly.
As is often the case in business, the reinvention of the spirit of enterprise determines a company’s fate.
By this standard, LG is doing something entirely new. Chairman Koo Bon-moo is readjusting the group’s focus with its other affiliates, notably LG Chem, taking up the slack.
Koo Bon-joon, the younger brother of the chairman, is in charge of the troubled flagship. Ask LG Chem CEO Kim Bahn-suk how the group he belongs to will perform in 2011, he is likely to say that LG could emulate even beat Samsung.
But, however good the planning, the most important element in finding success is the execution.
LG, whose main business focuses range from electronics, and chemicals to telecommunications, is pushing to centralize its management and regain its past glory in the shortest time possible after its struggles in the highly-competitive consumer electronics field.
Over the last few years, LG has seen some progress in purchasing, supply-chain management, marketing and human resources mainly because former Western managers helped standardize the hodgepodge of processes and systems implemented across the globe.
The debate on the value of non-Koreans at LG still continues despite all of them have been stripped of their captaincies, as Chairman Koo has shifted his top priority to strengthen the corporation’s hardware-driven capabilities by giving more authority to Korean managers.
In an apparent strategy to speed up the finding of future earnings sources and to increase decision-making in key issues, Chairman Koo named his younger brother Bon-joon to lead LG Electronics, while leaving the CEOs of its key export-driven affiliates unchanged.
Chairman Koo knew LG needed to change as it lost some of its long-held virtues such as boldness and challenging spirit, pushing him to push “dedication and commitment” to all his employees.
``LG needs to go back to basics. In order to lead markets, it should boldly concentrate on key businesses,’’ according to the chairman in a recent internal meeting with its newly-promoted executives.
Last year was truly catastrophic for LG Electronics in key areas, the LG Group’s consumer goods-making unit.
Since it has shown its priorities are to foster a ``culture shift’’ rather than injecting more resources into the development of value-added products such as smartphones and three-dimensional (3D) television sets, the operating profit for 2010 dropped to 176 billion won from the previous year’s 2.68 trillion won.
Meanwhile, the annual sales were nearly unchanged at 55.75 trillion won from 55.49 trillion won year-on-year, LG said in a regulatory filing to the Korea Exchange (KRX).
``Chairman Koo believes that the company needs qualified engineers and more research staff rather than hiring trendsetters if LG wants to better compete with rivals in the global consumer electronics industry,’’ said a high-ranking LG executive in a phone interview with The Korea Times, Monday.
Record overseas sales
With the belief in active cooperation between the group’s key affiliates in the existing and future businesses, LG is planning to reap a record $107.3 billion in sales outside the peninsula for this year.
That’s an increase of more than 10 percent from last year’s $90 billion, LG said in a statement.
LG is targeting 156 trillion won total sales for 2011 including 97 trillion won from LG Electronics.
Officials say the return of ``ownership structure’’ will help it boost competitiveness from displays, handsets, home appliances, chemicals, IT-materials and other components sectors, where LG units are involved in intense fights with their international peers.
``A 21 trillion won facility investment for this year is also a greater reflection of LG’s increased boldness and devotion to improve the quality of its products,’’ said a senior LG spokesman Jeong Jeong-wook.
``Chairman Koo has already inspired the following phrase ― prepare for the future, making innovative products and the right timing of investment ― to senior LG staff,’’ added Jeong.
There are some positive signals.
LG Electronics sold 116.7 million handsets last year. Although its ``again portfolio’’ and lower prices leave the company ``vulnerable to the competition,’’ LG is upbeat.
LG sold over a million Optimus One smartphones in the device’s first month of availability and the two new versions ― the Optimus 2X and Optimus Black ― will be arriving soon, causing market research firm IDC to note that its ``smartphone strategy is paying off.’’
LG Electronics chief financial officer (CFO) Jeong Do-hyun said it is aiming to sell 4 million smartphones in the first quarter of this year and expects the sale of the Optimus 2X and Optimus Black to reach 640,000 and 700,000 within the first half of 2011.
``The average selling price (ASP) including smartphones and feature phones will rise to $110 in the fourth quarter from $93 a year earlier,’’ according to the CFO, adding smartphones will take up 19 percent and 48 percent of shipments and revenue respectively this year.
For an effective coverage of its smartphone businesses, LG is reviewing the possibility of launching some models equipped with advanced AM OLED displays.
In televisions, another critical business for the LG Group, LG Electronics is set to see more sales of light-emitting diode (LED) and three-dimensional (3D) TVs using film pattern retarder (FRP) technology, according to LG officials.
``Execution is already underway. We will do whatever we can,’’ said another LG executive, who is involved in LG’s TV-making unit.
LG is well known to have qualified design staff who helped create the sleek Shine, Prada and Chocolate phones.
Also, it has seen a ``vertical alignment’’ in the display-making business as LG Electronics produces TVs with flat-panels by LG Display, glasses & materials by LG Chem and needed components from LG Innotek.
In line with the chairman’s new focus on hardware-related strategies, LG is also planning to hire more research staff as part of its strategy to boost R&D capabilities in the ``next areas’’ from solar-cells and LED lightbulbs to car batteries.
With the replacement of LG Electronics CEO, Chairman Koo has decided to trim down business divisions of its key units to speed up decision-making and give more authorities to technology development divisions.
Enhanced partnership with suppliers
Dedication and commitment are not only applied to seek more revenue and develop technology-enhanced products, but also epitomize the increased partnerships with parts suppliers.
That has significant meaning as the decades-long ``A to B’’ structure between conglomerates and subcontractors has long been seen as a bad practice.
In a recent internal meeting with its executives, Chairman Koo declared that LG will abandon the so-called ``master-servant’’ relationship with its suppliers.
``The growth of our parts suppliers equals LG’s growth. You should be fully aware of that,’’ the chairman was quoted as saying to LG officials.
LG has already been involved with 17 local small- and medium-sized enterprises or SMEs for joint projects from solar-cells, batteries and healthcare to next-generation light-bulbs, LG’s Jeong said.
Jeong said the 17 SMEs will receive technology know-how and funding to progress and added it will provide 100 billion won to a selected SME over the next five years starting from 2011 for similar reasons.
Last year, LG created a 250 billion-sized fund to better support its suppliers. Suppliers are able to borrow money with low interest. LG Electronics, LG Chem, LG Display and LG Innotek are paying cash when buying components from their suppliers.
``We have no time to wait. LG needs to revive the `can-do’ spirit while sticking to the `LG Way,’’’ said Chairman Koo.
In many aspects, LG has long been global from its revenue-earning structure to the number of manufacturing bases outside the peninsula.
Critics say the time is not ripe for LG to focus on image as they believe the corporation will prosper with the right products amid rapidly changing consumer appetites for its devices.
``LG’s key power comes from manufacturing. All things start from manufacturing. Should LG not ignore this,’’ said Jeong Dae-ho, a media critic at Seoul’s Hanyang University.