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Ateneo de Zamboanga University Graduate School School of Management and Accountancy MASTER IN BUSINESS ADMINISTRATION (MBA)

Case Study LG Electronics: Global Strategy in Emerging Markets In Partial Fulfillment Of the Requirements for Strategic Management BA 583

Submitted to: Professor Francis H. Arroyo Submitted by: Arlene A. Miguel Eunice T. Tan August 27, 2016 LG ELECTRONICS: GLOBAL STRATEGY IN EMERGING MARKETS 1

I.

CASE SUMMARY By 2007 Korea had become synonymous with high quality innovative consumer

electronic products. It was this year when LG showcased the world’s first dual-system DVD player compatible with Blue Ray and HD-DVD standard. The market value of LG electronics grew at a compounded growth rate of 22% from $200 million in mid-1980s, $1 billion by mid-1990s and almost $11 billion by 2005. In 1947, LG was born as the Lak Hui Chemical Industry. The company was founded by Mr. In-Hwoi Koo. The evolution of LG Group’s business started from manufacturer of cosmetic creams, then manufactures injection moulding machines for products based in plastics, also production of plastic components for telecommunications business and moving into oil refining, shipping to transport crude oil. In 1958, Goldstar Co. which is now the LG Electronics established to consolidate expansion of the company’s fast growing area of plastics. It pioneered the growth of the Korean electronics and appliances industry. LG had a meteoric growth starting in 1970s, in this period it also move into financial services as an insurance company and a securities trading firm. Moving on in 1980s was the period of dedicated internationalization. LG started intensive exports to developing countries. LG electronics suite for consumers’ product from home appliances to mobile phones is instrumental to the launching of LG brand worldwide. It is the forefront of group’s globalization effort with approximately 47% of revenues. Though LG strategy was effective in the countries it already succeeded the market in India, Brazil, Russia, and China, however competitive landscape started to be stiffer. Also, LG still

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considering the population growth in other emerging markets and less-developed countries, especially large areas such as Africa and the Middle East along with Latin America. Mr. Nam Woo, President of LG Electronics is presently in charge to oversee the entire spectrum of LG operations and helping the company on its recent challenges. II.

PROBLEM STATEMENT

How will LG Electronics be the global market leader as a consumer electronics and appliance manufacturer?

III.

OBJECTIVES 1. To be the global market leader in consumer electronics and appliance industry. 2. To maintain its fast innovation with latest technology on products.

IV.

AREAS OF CONSIDERATION

Domestic Market (Korean Electronics Industry) • •

The Korean market was highly competitive The Korean Government placed strong emphasis on R&D making Korean

•

companies to exploit technological innovations while reducing costs LG built on its experience of working with governments, which it then displayed

•

most effectively in Brazil Universities were encouraged to build elite groups of experts in science and technology

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•

The Korean Government encouraged foreign direct investment which saw LG partner with Hitachi of Japan

Strategies in BRIC markets • Both countries combining a taking brands from local to global strategy by turning

• • •

local engineering excellence into innovation on a global scale Utilization of government-offered incentives and government policies Sports sponsorships and organization of events Signing of agreements with local distribution chains to gain quick access to the

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market Localization of product and services served as cornerstones of LG’s strategies

Challenges faced by LG

V.

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The emerging economies, where it had worked hard to establish itself,

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competition is increasing rapidly from new entrants and existing players LG needs to address its position in the developed economies

ANALYSIS OF THE CASE (SWOT) Strengths     

Location-specific advantage Focus on process innovation, Investments in R & D Ability to visualize markets in the long term Anticipatory globalization Market leader in many of the emerging markets

Weaknesses  

Difficulties in establishing a foothold in developed-country markets Low brand awareness in emerging markets

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Opportunities   

Growth in developed markets Geographical diversity To enter Africa, Middle East and Latin America markets.

Threats    

VI.

Import tariffs Volatility of exchange rates Significant competitions, dominating local players and new entrants Market risks such as heritage, government policies and economic environment

ALTERNATIVE COURSES OF ACTION

1. Maintain position in existing emerging markets and aggressively exploit the same markets such as the large areas of Africa, Middle East and Latin America using the strategies used in BRIC. Pros:  

Able to create specification based on the needs of the local markets Able to produce cheap products and still have the same quality of international

 

ones Able to support talented local employees by training them on global standards Be cost-efficient in manufacturing of the products thru savings in materials,



labor, and others. Population growth is quite promising

Cons: 

Foreign rivals will continue to dominate in the developed-country markets 5



Other hometown rivals will plunge ahead into developed markets

2. Maintain position in existing emerging markets and penetrate developed markets such as Japan, U.S. and Europe using the BRIC strategy. Pros: 

LG won as many as 14 awards for excellence in design and creativity therefore more innovative products may be offered which will shift the

 

interest of consumers to LG Able to support talented local employees by training them on global standards Able to create specification based on the needs of the local markets

Cons: 

Difficulty in penetrating developed markets due to existence of other strong



brands Some of the BRIC strategies might not work well in developed markets

3. Maintain position in existing emerging markets and conquer developed markets such as Japan, U.S. and Europe using other strategies since the latter markets have different environment than the other. This may be any or all of the following:  Having famous artists and influencers endorse the products  Use China as a source for operating a business to supply products  Exploit social media for advertising  Concentrate on marketing and sales activities by establishing retail stores in known factory outlets Pros: 

Cost reduction thru import and export savings 6



LG won as many as 14 awards for excellence in design and creativity therefore more innovative products may be offered which will shift the



interest of consumers to LG LG has the ability to visualize markets in the long term therefore it can think of more creative ways to compete with the other brands and not be limited to the BRIC approach.

Cons: 

Difficulty in penetrating developed markets due to existence of other strong

 

brands New strategies might not work since it is would still be on trial Further market study and understanding might be needed

4. Maintain position in existing emerging markets, exploit other emerging markets using the BRIC strategies and conquer one developed market (U.S.) first for trial using other strategies. This may be any or all of the following:  Having famous artists and influencers endorse the products  Use China as a source for operating a business to supply products  Exploit social media for advertising  Concentrate on marketing and sales activities by establishing retail stores in known factory outlets

Pros:  

Cost reduction thru import and export savings More innovative products may be offered which will shift the interest of



consumers to LG The BRIC approach was already tested therefore applying this method to the emerging markets will most likely succeed

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

Trying to conquer only 1 developed market can save money than having many at the same time

Cons:

VII.



Difficulty in penetrating developed markets due to existence of other strong



brands New strategies might not work since it would still be on trial and the cost that



may be incurred during trial may be too high Further market study and understanding might be needed

RECOMMENDATION We choose ACA No. 4 because the environment and circumstances of developedmarket countries may vary from that of the emerging markets where the BRIC approach worked. Market risks are not as volatile as that of the emerging markets, meaning the possibility of economic crisis and fluctuation of exchange rates are not too high. Other strategies may be done as trial in one market first so that the costs and failure will be in smaller scale than in trying to conquer many at the same time. Finding the right formula as what LG did in the BRIC would be advantageous in conquering the developed markets. In conquering the new developed markets, highend products and strong brand presence are needed unlike in emerging markets where cheaper products are most preferred. To compete with other electronic giants, the products would need excellent and creative designs since the consumers in the developed markets have diverse lifestyle and higher cost of living. LGE should focus on both markets using different methods just like what the other competitors do. 8

VIII. PLAN OF ACTION Time 2 weeks 1 week 1 month 1 week 2 days 6 mons to 1 year after

Action plan Collate information regarding potential market (developed) Plan which developed market will be conquered Define the strategies that are suitable for the decided developed market Discuss the needed resources for the strategies Appoint leaders to set out the strategies for the developed markets and emerging markets Leaders will set out the plans Monitor the results of the strategies for both markets

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