LG pursues balanced growth initiative in Poland
By Kim Yoo-chul
WROCLAW, Poland — While the debate continues in the Korean government concerning the well-being of small- and medium-sized enterprises (SMEs), LG is planning to further accelerate its years-long initiatives for balanced growth with Korean SMEs in Poland.
“LG Chairman Koo Bon-moo has always emphasized the importance of cooperation and mutual growth between LG and South Korean SMEs that have been supplying key parts here since 2006, ”said Seong Jun-myeon, president of LG Electronics Wroclaw, in a recent interview.
“Koo asked us to increase the partnership between LG and parts-suppliers upon his recent visit in May, this year. He also requested enhanced risk-management, more cost-cuts, improved product quality and increased productivity.”
Continued healthy partnerships with eight Korean suppliers with LG’s technology support and financial help at the LG Cluster in Poland’s fourth-biggest city since 2006 has helped LG and the SMEs save on tariffs, logistics, boost on-time product delivery systems and strengthen inventory control, said the LG executive.
“One other noticeable thing is that some 20 LG suppliers, including eight Korean partners, have been supplying 75 percent of components used in LG televisions and home appliances, resulting in LG guaranteeing on-time product delivery to European customers,” said Seong.
LG plans to receive $66 million by 2016 as a means of financial support package from Poland, an amount Seong claims is “sizable” and a trustable gesture by Poland for LG’s contribution to help regional economies.
Since October 2006, LG has been producing flat-screen TVs from the cluster, some 350 kilometers southwest of the capital Warsaw. LG is also manufacturing refrigerators and washers.
The complex is home to LG Group’s four key affiliates of LG Display, LG Innotek, LG Chem and LG Electronics.
Some 13,000 workers including 2,000 LG Electronics officials work in Wroclaw and LG Electronics produced 3.2 million LCD TVs last year from seven TV-making lines there, making up some 11 percent of the 23.5 million sets LG produced in 2010, according to Seong.
LG Electronics Wroclaw is located on a tract of 135,000 square meters with 85,000 square meters allocated for home appliances and the remaining 50,000 for TVs.
“We forecast the portion of 3D televisions to be over half the total output from the current rate of around 35 percent amid good responses to LG’s film-based 3D televisions in Europe,” said Seong, adding LG is set to make 240,000 refrigerators this year to meet rising demand, especially in Western Europe.
Seong is one of the people in the LG community who led the expansion of LG’s Poland business. Under his leadership, LG has doubled its TV share in Europe with shipments tripling since 2006.
The executive said setting up a localization model, which has been commercially successful, was behind LG’s steady rise.
“No matter how wonderful your product and business strategy, it doesn’t work unless you have the right people in the right place,” he said adding LG staff members have spent time to respect and reflect local culture.
“We faced difficulties when we started business here in terms of product, the people, systems and strategy. However, a year later the consensus is that the local aspect is not just limited to the product, but the organization itself,” said Seong.
“A local product needs to be run by local people.”
Hiring Polish staff with more authority and responsibilities is due to “a localization business strategy” that has been sought in the last five years.
“Outstanding work means good bonuses. LG maintains a three-step rewarding system according to personal accomplishments. We’ve that some of our employees were scouted within two years of joining LG with a significant rise in paychecks.”
Tougher conditions
Seong, who spent 10 years in India before taking on the role of leading LG Electronics Wroclaw, admits that signs of the European debt crisis are hitting the world’s second-biggest TV maker.
The executive doubts over any imminent market recovery because consumer sentiment in Italy, Greece and Spain is freezing drastically after being hit by economic turmoil.
“LG Electronics Wroclaw will report disappointing annual revenue report throughout this year. With economic troubles, in Europe, the situation in the United Kingdom is now falling.”
LG Electronics Wroclaw reported $1.8 billion for revenue in 2010 however Seong expects it to drop below that for 2011.
As a cost-cutting contingency, LG Wroclaw plans to invest some $12 million this year to transform one of its TV lines into a co-design manufacturing system (cDMS) line.
“We need more measures to cut costs.”
On the outlook for LG’s in-house 3D televisions he said, “In the long-term, our FPR 3D sets will sweep the entire market. As an engineer for televisions, I am sure that FPR 3D TV will completely beat Samsung’s battery-powered 3D glasses system.”
TV majors are migrating to advanced TV-making technologies and 3D has emerged as the new market. Samsung’s battery-powered 3D technology is leading the way with its Japanese alliance including Sony and Panasonic.
LG is a latecomer to the rising segment, however, LG’s “FPR 3D camp” has Toshiba, Sharp, Philips and leading Chinese local makers and is narrowing the gaps as its system is cheaper.
Seong said Samsung Electronics has competitive brand awareness in Poland thanks to aggressive marketing and investment.
But he added Samsung is struggling with its fridge business due to cultural clashes.
“I’ve heard that Samsung Electronics has difficulties over cultures resulting in it delaying the production of two-door fridges from next year,” said Seong, adding Samsung’s preference to hire experienced workers was the reason for culture-related problems.
In a separate briefing to the South Korean media, LG Display said it will increase the output of FPR 3D displays to more than one million to meet rising demand.
LG Chem is seeing its chance to sell its film-based retarders to its existing Japanese partners including Sharp and a possibly new client in Panasonic, according to anofficial from LG Chem in Poland.
LG’s investment in the entire cluster will expand to $950 million by the end of this year. LG Display has invested $380 million, followed by $200 million from LG Electronics.