LG plans to cut China payroll by 5 percent

By Kim Yoo-chul

LG Electronics plans to reduce the workforce at its mobile unit in China by up to 5 percent due to a steep fall in market share and delays in new handset launches in the world’s biggest consumer electronics market.

According to LG and industry sources, the Seoul-based company has recently sent dismissal notices to some low- and mid-ranking employees to cut costs amid continued struggles in its handset business.

``As far as I know, LG Electronics will cut the number of employees in China. Five percent will be affected by the restructuring plan,’’ said reliable LG sources contacted by The Korea Times Tuesday.

``The situation is not good for LG’s television business in China. But the TV business is better than the handset business in terms of market share and revenue. LG’s handset unit in China is in real crisis,’’ said the sources and officials.

The plan is no surprise. In mid-August, Motorola Mobility began laying off some 30 percent of its Chinese workforce, while even Samsung Electronics is maintaining greater flexibility for its human resources, according to Samsung.

LG representatives in China weren’t available for comments despite multiple calls.

As of the end of last year, 16,000 were employed in LG’s China operations. An LG spokesman declined to give a breakdown of workers by business division.

The restructuring plan comes a few days after LG Electronics promoted former home appliances division chief Shin Moon-beom to te president of its China operations after the previous head had failed to yield visible returns there.

Data from Strategy Analytics shows LG Electronics’ share in the Chinese handset market last year was 1.6 percent with total shipment of 4.1 million phones, downfrom 3.4 percent in 2010.

This year, its handset share in China is expected to fall under 1 percent. Strategy Analytics said total handset demand in China rose to 255 million, last year, from 212 million the previous year.

While LG is struggling, Samsung Electronics is still the second-biggest handset maker in China with a 17.1 percent share last year after Nokia, the research firm said.

``LG should release budget models for market expansion. But it has been passive in releasing new models. Also, Chinese budget phone makers such as ZTE and Huawei are very aggressive in market share, while a growing number of Chinese consumers are inclined to buy either Samsung or Apple phones, though the two companies are involved in court battles globally,’’ said one LG source.

``LG should reposition its brand for a bigger share with steady releases of new products,’’ stressed the source.

By the end of this year, LG Electronics expects to sell over 8.5 million smartphones with its latest Optimus G leading the way. During the third quarter, the company’s handset division saw the biggest jump in operating profit from a loss of 139 billion won last year to 22 billion won this year.

``LG is putting more focus on the United States and countries in South America. But without a greater presence in China, LG’s growth rate in handsets will be limited,’’ said the LG source.