LG ELECTRONICS STRATEGIC PLANNING ASSINGMENT

by Dainius Skirbutas

A Capstone Project Presented to LCC International University in Partial Fulfillment of the Requirements for the B.A. Degree

LCC International University

April 2013 LG Electronics 2

Business Administration Department

Supervisor: Sargent Bradford

Instructor: Frank Thomas M.B.A LG Electronics 3

INTRODUCTION ...... 5 MISSION/VISION STATEMENT...... 5 INTERNAL ASSESSMENT...... 6 MANAGEMENT...... 6 Organizational Structure ...... 6 Management System...... 6 Planning ...... 7 Motivation...... 8 Organizing...... 8 Staffing...... 9 MARKETING...... 11 Marketing, Management Philosophy...... 11 Customer Analysis...... 11 R&D Workforce and Investment...... 12 Innovation ...... 12 Patent Holdings...... 13 Marketing Mix ...... 13 Distribution ...... 16 Production...... 17 Green Product Strategy...... 17 FINANCIAL STABILITY ...... 19 MAIN STRENGTHS AND WEAKNESSES...... 21 Strengths ...... 21 Weaknesses...... 22 EXTERNAL ASSESSMENT...... 22 Political Trends ...... 22 Economic Trends ...... 23 Technological Trends...... 25 Socio-cultural Trends...... 25 Competition Trends ...... 27 MAIN COMPETITORS ...... 28 Samsung...... 29 Sony ...... 29 LG Electronics 4

Philips ...... 30 Panasonic ...... 30 LG’s Competitive Strategy ...... 31 LG’s Porter Five Forces Model ...... 31 MAIN OPPORTUNITIES AND THREATS ...... 32 Opportunities...... 32 Threats...... 33 NEW LG VISION AND MISSION STATEMENT...... 34 Vision Statement...... 34 Mision Statement ...... 34 OBJECTIVES...... 34 STRATEGY FORMULATION AND IMPLEMENTATION ...... 35 SWOT Matrix ...... 35 SO Strategies...... 35 WO Strategies ...... 36 ST Strategies ...... 36 WT Strategies...... 36 BOSTO CONSULTING GROUP (BCG) MATRIX...... 37 THE GRAND STRATEGY MATRIX...... 38 STRATEGY FORMULATION...... 38 Joint Ventures and Alliances ...... 38 South Africa, BRIC and Other Emerging Countries ...... 40 New Technologies, Investments in R&D and Innovation ...... 40 Reorganize Marketing...... 41 CRITICAL RISK ISSUES...... 42 References...... 43 LG Electronics 5

INTRODUCTION

The company was originally established in 1958 as GoldStar, producing radios, TVs, refrigerators, washing machines, and air conditioners. The LG Group was formed through the merger of two Korean companies, Lucky and GoldStar, from which the abbreviation of LG was derived. The current "Life's Good" slogan is a backronym. Before the corporate name change to LG, household products were sold under the brand name of Lucky, while electronic products were sold under the brand name of GoldStar.

LG Electronics, Inc. is one of the global leaders and technology innovators in consumer electronics, mobile communications and home appliances. With 117 operations around the world, LG achieved global sales of KRW 54.26 trillion (USD 49 billion) in 2011. LG is comprised of four business units – Home Entertainment, Mobile Communications, Home Appliance, and Air Conditioning & Energy Solutions – and is one of the world’s leading producers of flat panel TVs, mobile devices, air conditioners, washing machines and refrigerators.

LGE's business portfolio is geographically well-diversified. In 2011, LGE made about 83% of its total revenues in overseas markets--22% from North America, 13% from Europe, 8% from China, 21% from Asia (excluding Korea and China) and Africa, and 14% from Central and South America. Together with its strong positions in relatively stable businesses, such as washing machines and refrigerators, Standard & Poor's believes this good geographic diversity should partially offset volatile demand in the electronics industry (Reuters, 2012).

2012 Motto: “Put progressive thinking first, prepare for the future in advance, and create a culture where we do things the right way.”

MISSION/VISION STATEMENT

LG Electronics does not hold an official mission statement.

LG Electronics (LGE) vision statement, taken from its website, states:

LG Electronics pursues its 21st century vision of becoming a true global digital leader who can make its customers worldwide happy through its innovative digital products and services (Lg.com, 2013). LG Electronics 6

INTERNAL ASSESSMENT

MANAGEMENT

Organizational Structure

Following the launch of the holding company, LG Corp., LG Electronics operates under an advanced corporate governance structure that comprises a professional administrator and a Board of Directors. This structure helps us deploy more transparent, value-creating management activities that help increase corporate and shareholder value.

Management System

When LG Electronics removed the Circulating Investment Structure of its affiliated companies (through the launch of a holding company system), this enabled the holding company to take full charge of investments. Consequently, LG Electronics has been able to focus on its own businesses while increasing the overall value of the Company. This corporate governance structure has laid the groundwork for increasing managerial transparency. Through a responsible management system comprising of the CEO of LG Electronics and a Board of Directors, we are taking huge steps in strengthening our competitiveness at both the domestic and international level, in order to maximize corporate and shareholder value (Official LG Website, 2013). LG Electronics 7

Board of Directors LG Electronics' Board of Directors maintains independence from its management and major shareholders. Currently, the Board has a total of seven directors, four of whom are outside directors. To ensure that external directors are appointed fairly and independently, the "External Director Recommendation Committee," comprised of one in-house director and one external director, nominates external directors following close examination of their qualifications. These outside directors are then voted on at the next shareholders' meeting (Official LG Website, 2013).

Committees The BOD is supported by three Board Committees. They are the Audit Committee, the Outside Director Candidate Recommendation Committee and the Management Committee. The Audit Committee consists of three Outside Directors, and is responsible for examining corporate financial records and accounting to ensure compliance with the accounting laws and transparency. The Management Committee reviews and determines the agendas delegated by the BOD and ordinary management activities. In 2010, the Management Committee reviewed a total of 52 agendas (Official LG Website, 2013).

Planning

Preparation for the Future To back up our word in product leadership and constantly developing consumer values, our R&D ensures that we target to be the first mover in the market with new ideas and products. To make certain that there would not be an under-supported area; we will be expanding our investment in R&D with continuous efforts in securing the brightest and the most innovative minds in the industry Not only in the products we create, but in the way we nurture and challenge our future engineers, designers and corporate leaders. We must have the vision today to trust in their vision for tomorrow. And to give them the freedom now to explore new LG Electronics 8 avenues of innovation that will keep LG on the forefront for generations, and will keep our planet a greener place for us all. (Annual Report 2011, 2012).

Achieving Through Top Talent Recruitment and R&D Systems Consolidation LG Electronics continuously recruits new talent and strives to increase its global business by consolidating R&D systems oriented toward local markets in strategic countries such as China and India. The company is also building international R&D capacity by pushing ahead on strategic alliances with other major companies in regard to standardization and new products. LG Electronics operates a global R&D system that consists of more than 30 research centers around the world. Through this system, the company facilitates open innovation utilizing innovative technologies from the outside, in order to secure core technologies and the early identification of future growth engines. In all these ways, LG is on target toward realizing its vision: Top Global R&D.

Motivation

Inside the LG Electronics Corporation various measures are used to motivate employees, parts of them are corporate principles and values, such as creativity, competence or equal opportunities. LG An individual's creativity is the basis for value creation and so LG Electronics respects diversity and autonomy, allowing each of its employees to exercise their creativity to the full. Equal opportunities build trust among people, it is ensured that equal opportunities regardless of gender, race, age, religion, or nationality would be respected. Maintaining a long-term perspective is the foundation for LG's human resource policies. LG's human resource programs are designed with a long-term perspective and implemented with dedication and persistence.

Typical tools to motivate employees are also used, for example rewards based on performance are essential for motivation. LG Electronics evaluates performance results fairly and rewards them accordingly. LG Electronics employs a competitive, unique rewards system that takes account of employee working situations by nation, region, and job. This rewards system motivates employees to perform better by helping enhance their quality of life. Fixed salaries are determined every year through a fair evaluation process. Flexible salaries are immediate rewards given to individual employees for their performance and competence. Since technology industry is rapidly improving training is required for LG Company. Through its education centers worldwide, LG Electronics offers diverse educational programs to its employees. These opportunities are accorded by rank and job to encourage growth and development—to instill the professional capabilities they’ll most need, such as enabling them to apply the latest technologies to their work.

Organizing

Jobs at LG Electronics are categorized into several different areas, including R&D, marketing, production, and support. Each area offers keen opportunities for development and career advancement. Each job category is described below.

Research and Development LG Electronics’ R&D division is responsible for many key disciplines, including advanced research, product plans, designs, standards and patents, and R&D planning—to name but a LG Electronics 9 few. By securing leadership in the technology field, LG Electronics is steadily moving toward its goal of joining the ranks of the Global Top 3. Major jobs: R&D, Design, and R&D Support

Production LG Electronics' production division is responsible for product manufacturing, production planning and management, production technologies, product-quality management, purchasing, materials planning and management, and other production-related jobs. This division upholds LG Electronics' unrivaled global product leadership, and devotes its technological prowess to LG products using its innovation tools, Tear Down and Redesign and Six Sigma. Major jobs: Production Management, Production Engineering, Procurement, and Quality Assurance

Marketing LG Electronics' marketing division is responsible for domestic and overseas marketing and sales, marketing planning, product planning, customer service, and other jobs related to product sales and services. It has secured LG Electronics' market leadership through differentiated sales and customer service strategies. It continually strives to bolster LG Electronics' market presence, both domestic and overseas. Major jobs: Domestic Sales & Marketing, Overseas Sales & Marketing, Product Planning, and Customer Service

Support LG Electronics' support division is responsible for formulating the company's policies and business direction, and supporting its R&D, production, and marketing divisions. It consists of LG Electronics' headquarters, affiliated companies, and various departments and teams— according to job and location. Major jobs: Business Planning, Finance/Accounting, Legal, Internal Consulting, HR, PR, IT, General Affairs, and Environment/Safety

Staffing

LG Electronics is a long-time user of Oracle technology. The company has implemented Oracle E-Business Suite in its corporate headquarters and is now embarking on an ambitious four-step project to migrate its worldwide offices to the Oracle platform by 2008. Since 2010 LG Electronics have all subsidiaries, production facilities, and the Seoul head office using the same Oracle system. The single, integrated Oracle system delivered HR information from around the world in real time, enabling LG Electronics to gain better insight into its workforce and facilitating informed decision-making around recruitment and performance management. The company also improved efficiency by standardizing processes and lowered costs by introducing self-service HR functions and online learning for employees (Top10ERP, 2012).

Key Benefits ∑ Established enterprise-wide view of operations across 114 subsidiaries in 39 countries by moving to a centralized HR management platform LG Electronics 10

∑ Improved efficiency by standardizing HR processes ∑ Enhanced HR management by giving senior managers real-time access to information ∑ Boosted employee satisfaction and eased workload on HR staff by introducing self- service options ∑ Boosted staff learning by providing online training. ∑ Established enterprise-wide view of operations across 114 subsidiaries in 39 countries by moving to a centralized HR management platform ∑ Improved efficiency by standardizing HR processes ∑ Enhanced HR management by giving senior managers real-time access to information ∑ Boosted employee satisfaction and eased workload on HR staff by introducing self- service options ∑ Boosted staff learning by providing online training.

This made it extremely difficult, time-consuming, and costly to consolidate HR information for global reporting. Inefficient management procedures were also affecting the ability of HR staff to complete their jobs effectively. As costs mounted, LG Electronics decided it was time to move to a single unified system that would streamline HR management and enhance the company’s ability to attract and retain high quality staff.

Human resources functions are grouped into six categories: position, title, recruitment, promotion, performance, and compensation. The system also allows other categories to be set up to cater for specific requirements. In addition to establishing a single repository for information, the Oracle-based system is used to distribute and execute HR policies globally (Top10ERP, 2012).

Improved Employee Satisfaction The new HR management system includes self-service options for staff to update their details, view pay slips, and apply for leave. It also allows them to track their performance against set goals, and to ask for feedback and support if they are not meeting certain requirements.

Staff can boost their knowledge by undertaking online training, ensuring they can learn at their own pace and at a time that suits them. Paying attention to employee needs in such ways enables LG Electronics to retain quality staff and enhance its reputation as an employer that is committed to its workforce (Top10ERP, 2012). LG Electronics 11

LG Electronics Job Application Process LG Electronics implements a standard recruiting process in all of its global operations.

Small variations in the recruiting process may be found depending on local employment conditions, such as the local labor market (industry, average retirement age, etc.), and local labor laws and regulations relating to recruitment.In some countries, an additional stage may be added to the recruiting process, such as with the administration of aptitude and attitude tests (LG Application Process, 2013)

LG Electronics provides a variety of self-development opportunities in accordance with its human resources system.

The company offers diverse in-house, online, and offline educational courses to support the self-development of employees. Each employee is required, by internal regulation, to amass more than 40 class-hours a year. Employees who stand out in evaluations may be offered the chance to enroll in external diploma programs, courses of MBA study, or take part in other development opportunities.

MARKETING

Marketing, Management Philosophy

LGE's operates under the product concept of marketing management. From 52" Plasma Flat Panel televisions to thin, sleek mobile phones that also store and play music, LGE is a company that is devoted to "fast innovation and fast growth". It has focused on "developing new products in winning and key businesses, and securing technology leadership." It provides high quality and constantly updated products to further ensure its success as a top electronics manufacturer. Its research and development efforts are specifically concentrated in the area of technological capabilities and developing new growth products. As a worldwide corporation, LGE strives to "make its customers happy through its innovative digital products and services and in doing so operate under the product concept" (Experts.123.com, 2013).

The LG Brand is more than the products we sell. It is brand based on adding value to consumers’ lives every single day. It is that same spirit that forms the core of our many marketing efforts. Campaigns meant not merely to inform consumers—but to inspire them to enjoy life more (Annual Report 2011, 2012)

Customer Analysis

LGE is conducting a thorough market and customer analysis to introduce products that satisfy LG Electronics 12 customer needs. A close study of local customers’ lifestyles and collaboration with local research organizations are also part of our effort to identify customer needs. In March 2012, LGE launched a social media portal “Social LGE (http://social.lge.co.kr)” that provides integrated access to all LGE’s social media outlets – Blog, Twitter and Facebook. LG Electronics is organizing events and engaging in campaigns with diverse themes and concepts tailored to local customers, improving LGE’s brand image in the global market and contributing to revenue growth.

Strategic Brand Communication LG Electronics’ brand slogan “Life’s Good” conveys a message that LGE enriches customers’ lives with its products, services and technology, and creates a unique brand identity of the company. We are engaging in various marketing activities to reinforce the corporate brand identity in the global market while establishing a youthful and dynamic brand image with differentiated brand marketing activities utilizing sports, the Korean Wave, video games, etc. Since 2009, LGE has partnered with the F1TM franchise, the world’s greatest auto racing competition with some 600 million audience members from over 180 countries, and is establishing a youthful and exciting brand image in the global market. With the Korean Wave and K-Pop popularity reaching every corner of the world, LGE has also been engaging in “Korean Wave” marketing, sponsoring K-Pop concert tours in overseas markets. As part of its effort to strengthen the company’s positioning in the 3D and Smart TV markets, LGE has been featuring “3D Game Zone” in various events, including the CES, and sponsored the world’s largest game festival BlizzCon in 2011.

R&D Workforce and Investment

As of year-end 2011, LG Electronics invested 3.1% of its consolidated revenue for the year, or KRW 1.7 trillion, in R&D with a total R&D staff of 15,506 personnel in Korea. LGE plans to recruit more quality R&D talents to strengthen its fundamentals. In 2012, we plan to invest a total of KRW 2.6 trillion into product leadership, production innovation and new businesses, including KRW 840 billion for stronger fundamentals and preparation for the future (2011-2012 LG Electronics Sustainability Report, 2011).

Innovation

LG HE B2B Division thrives on innovation. Our products and technologies enhance lives and introduce our customers – your quests, to a whole new world of entertainment solutions. We are committed to finding new ways to make your life, your customers life and your business needs easier-through simple user interfaces, stylish designs and intelligent, state-of-the-art technology.

Pro:Centric™ LG HE B2B Division's' exclusive Pro:Centric™ applications platform offers the hospitality market a robust new interactive communications interface. This is a cost-effective way for hotels to deliver uniform services and features across both RF (radio frequency) and IP (Internet protocol) based networks, without the need for additional hardware such as set top boxes. The new system also allows for portability between existing platforms, as-well-as faster time to market for new applications and back office integration. LG Electronics 13

∑ A standards-based application platform offering in-room television interactivity that advances the guest experience and streamlines how hoteliers deliver in-room information. ∑ Supports Java™ and Adobe® Flash® application software. ∑ Pro:Centric platform supports a wide range of high-definition applications such as interactive electronic program, games, and internet feeds. ∑ Through Electronic Program Guide (EPG), Pro:Centric can offer guests access to important hotel amenities and information such as room service menus, spa services, golf course scheduling and more. Pro:Idiom® Digital Rights Management System Developed by Zenith (LG) the Pro:Idiom system’s high-quality security unlocks access to premium content availability to help assure rapid, broad deployment of HDTV and other high value digital content. Pro:Idiom has been designed specifically for industries that use premium HDTV content from cable, satellite or video on demand (VOD) services and as such, could result in lower costs, and reduced maintenance. This system is one of the leading DRM systems embraced by content providers for both of these key programming sources. By using this embedded approach, security is provided and helps eliminate the possibility of customers tampering with or removing needed components.

Patent Holdings

Possessing world-class competitiveness in telecommunications and broadcasting patents, LGE is consistently striving to maintain a balanced level of patent competitiveness across its businesses. In the area of telecommunications standards, U.S. investment bank Jefferies & Co recently announced that LGE currently holds the largest share (23%) of key global LTE patents, with over 1,400 patents valued at about USD 7.9 billion. Additionally, LGE is strengthening patent partnerships with competitors, forging a licensing agreement with Sony to share each other’s patent portfolios across their respective businesses and also with Microsoft. The Blu-ray patent portfolio LGE jointly manages with HP, Hitachi, Philips and Sony is generating licensing fees as well (Blu-ray Disc: An optical disc storage medium driven by the optical recording format established by the Blu-ray Disc Association, which is headlined by Sony, stores digital data for high definition (HD) video materials). In order to maintain its competitiveness, LGE is seeking to acquire more patents, paying particular attention to elevate overseas patents to a similar level as Korea’s (2011-2012 LG Electronics Sustainability Report, 2011).

Marketing Mix

Every company has increased its marketing mix strategy to improve its sales growth among competitor. The LG Corp also has marketing mix like Price, Place, Promotion, Product, people, process, physical evidence etc. The LG has also used its more strategic alliances and performances of its product.

Price The LG has enormous technology and it has used the more electronics and quality spares for its products. So the price of the product has increased. After some period the LG has realized and it give more quality and services for its expensive product. None of the competitor has increased its effectiveness in the sounds and videos. In 2008 because of the recession the LG LG Electronics 14 has reach its low sales market and it has declined in the various products and services. After the recession in 2009 they started to cut cost materials and provide a variety of pricing strategies. The price of the LG has given some effects to the customer and it leads to sales growth for some period (Ukassays.com, 2013).

Place The LG Corp “make.believe” the brand image has a worldwide to produce more customers to enter into the market. The LG product has sales around world. But some of the product has not reached into the some of places like china and some of the countries are not allowing getting the product into the market. The geographic are must be increased worldwide. The manufacturing company is in Japan, U.K, U.S, etc. It has increased its product range and it sales around the world. At present the retail market has developed and it increases its competitive advantage towards its customer (Ukassays.com, 2013).

Promotion The LG different product has a different range of effects and it has many offers it depends upon the product range and products. The LG has provided a different Advertisement to the different countries of same product, because the people and customer views and culture will be different into a various countries. The advertisement and promotion strategy has been formulated by LG management to increase its sales growth by nature (Ukassays.com, 2013).

Product The product has segmented as electronic goods, financial services, networking system, health science R&D etc. the different product has a different ranges and quality effective towards its customer. LG products are divided into four main groups: Consumer Electronics, Home appliances, Computer Products, and Mobile phones. It is the world's second-largest television manufacturer (after Samsung), and the world's fifth-largest mobile phone maker by unit sales in the second quarter of 2012.

Business areas Products

LCD TV , Plasma Display , Display Panel, Color Television, Consumer Electronics Home Theatre System, Music system, DVD Recorder/Player, MP3 & MP4 Player

Room Air Conditioner, Commercial Air Conditioner , Refrigerator, Home Appliances Washing Machine, Dishwasher, Microwave, Vacuum Cleaner

Laptop, Personal Computer, LCD monitor, CRT monitor, Optical Computer Products Storage Devices

Premium trend setter phone , Camera Phone , Music Phone , Color Mobile Phone Screen GSM Handset LG Electronics 15

Securing Product Quality and Safety Reflecting the CEO’s strong commitment towards product quality, LG Electronics has reinforced organizations related to product quality and is striving to provide differentiated value and quality to customers by adhering to basics. With the vision of an “LGE recognized by customers for the world’s best product quality”, we will create a culture that does not tolerate any quality issues, no matter how insignificant, based upon the collective agreement that we strive for perfect product quality with absolutely no compromises. Also, we are pushing forward with corporate-wide efforts to improve product quality and renewing our commitment towards product safety, all in an effort to provide safer, superior quality products to customers.

People The LG’s employee has more skills to produce more quality product to the customer. The LG has sustained its innovative technologies by their way of employee. Presently the LG has played a vital role in delivering the effective technology and innovative product to the customer. It happened because of the staff and employee of the LG Corp. Recently, the LG has innovate in the flow cytometry in life science in health sector, because the LG has a skill and talented staff to invent such a product. The employee has upgraded their technology and improved their innovative skills. Without a employee of the LG corp. it can’t achieve its goals and the entire organization has believe their employee workstation (Ukassays.com, 2013).

Process The LG has concentrated in every activities of business till its reach to customer and after services of the product. LG has more effective quality and more price movements in delivering the goods. The company has followed its effectiveness by the process of product movement to the customer. From the spare parts assembling to the electronic goods and it reached to the customer, its every process has depending upon their classes and services. It also includes technological process for time and cost saving of the product. The product must reach its customer satisfaction. So LG has included its technology factor into its process that reaching to the customer (Ukassays.com, 2013).

Physical Evidence The LG has increased its infrastructure at every movement. It has several showrooms and retail market to increase its sales growth and it should impress the customer to buy the product. Hope it make a enormous physical quality to the LG. The every movement of LG’s workstation has increased its quality range in infrastructure facility and it have more stylish in nature. It has increased its profitability in hardware, software and networking system (Ukassays.com, 2013).

Jeong-do Management LG Electronics' 'Jeong-do Management' embodies our high ethical standards and doing business in a transparent and honest manner.

"Jeong-do Management" is LG's unique application of ethics. LG will succeed through fair management practices and constantly developing our business skills. LG Electronics 16

Code of Ethics It is the intention of LG, as set forth in the management charter, to spread the management philosophies of "creating value for customers" and "respect based management" allowing for more responsible and open management. LG continues to develop as the global leading company through seeking greater public benefits founded in cooperation, mutual trust, and respect for the free market economy. For this reason all LG employees promise to act uprightly and make value judgments in accordance with the code of ethics (Jeong-do Management, 2013).

Distribution

LG Electronics offer retailers to sign up in LG Partner Program. By becoming a member of the LG Partner Program, retailers will gain access to a wide variety of benefits that will help with pre-sales and demand generation:

∑ Turn-Key Solutions ∑ SPIFF Incentives and Promotions ∑ Sales Support ∑ Demo Program ∑ Technical Support ∑ Product Launches and Campaigns LG Electronics already have wide and strong distribution network. The main distribution partners are: Sears, Apex Procurement, MDM Lodging, Global Motel Supplys, Direct Hotel Source, Flagstaff, Sinnex, DTS, Tech Data, Ingram Micro, MA Labs, HD Distributing, Almo Professional AV, US Electronics Inc., Salitek and many others. Distribution Marketing Strategy LG’s initial step was to try to get distribution in higher-end retailers but this effort was stymied by the low-quality “couldn’t be trusted” perception of the product line. A critical LG Electronics 17 decision in the early 2000s was to avoid the path of least resistance and seek distribution in stores like K-Mart, Wal-Mart and Sam’s Club. While such distribution would have made the Korean factories hum with activity it was off strategy for Ahn who sought to make LG an upscale brand. Instead Ahn and LG targeted upscale regional retailers like P.C. Richard. The company also started paying 30 percent of its sales to distributors instead of the more typical 25 percent. Another smart move was providing sales staffers at retailers with expanded training and other incentives so that these sales people would be more likely to recommend LG to buyers and thus overcoming the previous low-image perception. While distributing through Wal-Mart and Sam’s Club was off-strategy in the early 2000s, the company’s transformation put this channel on-strategy in 2010 when LG flat screen TVs began appearing on the shelves at Wal-Mart and Sam’s Club. This was an acknowledgement of consumers recognizing that LGs image as a high-end product has followed the product life cycle dynamics as big screen TVs have become more of a commodity (James T. Berger, 2012).

Production

LG has four major plants in Mexico, Poland, China and Korea, recently big investments reached Mexico manufacturing plants. Other countries where LGE is manufacturing are: India, Indonesia Thailand, Vietnam, Kazachstan, Russia, Turkey and Brazil. For many years LG Electronics manufacturing facilities are recognized as greenest manufacturers in the wold. LG Electronics strives to minimize the resources used in its business operations, while attempting to decrease the emission of pollutants. LGE is committed to enhancing our green management capabilities by securing talented individuals and providing training in all of facilities and to our business partners.

Greenhouse Gas/Energy Management Controlling greenhouse gases during the manufacturing process has become an important issue for companies due to the growing concerns over the global climate change. LG Electronics acknowledges the importance of taking action against climate change and is actively working to implement initiatives with the goal of reducing greenhouse gases by 75,000 tons by 2012 and 150,000 tons by 2020.

Green Product Strategy

The objective of LG Electronics’ green product strategy is to minimize the environmental impact on the whole value chain while enriching lives. The strategy consists of three components; energy, human and resources. The strategy is based on a model that takes into consideration high energy efficiency, a reduction in raw material usage, and human welfare (Official LG Website, 2013). LG Electronics 18

Energy LG Electronics' energy strategy has been divided into two areas of emphasis: substantially enhancing product energy efficiency and reducing greenhouse gas emissions during the manufacturing process. By enhancing energy efficiency, we are working to reduce changes in the climate and provide actual economic benefits to our customers. We are trying to do our part as a global company to help protect the environment for future generations by engaging in activities that potentially reduce greenhouse gas emissions during the entire manufacturing process (Official LG Website, 2013).

Resources Our resource strategy involves significantly reducing our resource usage and enhancing the recyclability of the resources that we do use. This strategy is intended to reduce the amount of new resources that are used by decreasing the size and volume of the product and utilizing recycled materials when possible. We are also working to simplify the structure of the product components so that it is easier to recycle once it is discarded. This strategy is part of our efforts to establish sustainable resource usage while increasing the ease of recycling (Official LG Website, 2013).

Human LG Electronics continues to substitute hazardous substances with non-hazardous substances when possible. We have also incorporated technologies that potentially reduce allergens into some of our products (Official LG Website, 2013). LG Electronics 19

FINANCIAL STABILITY

From the chart below it is clearly to see the effects of global crisis, revenues decreasing and Net Income after 2009 rapidly decreased in 2010 and 2011; however we see slow growth in 2012.

Year on year, growth in dividends per share remained flat while earnings per share excluding extraordinary items increased 112.71%. Additionally when measured on a five year annualized basis, both dividend per share and earnings per share growth ranked below the industry average relative to its competitors. LG Electronics 20

Financial ratios taken from infinancials.com website: (see reference page)

Fiscal Year End Industry 31 Dec 12 31 Dec 11 31 Dec 10 31 Dec 09 31 Dec 08 Report Currency average KRW KRW KRW KRW KRW GROWTH RATES 2012 2012 2011 2010 2009 2008 Growth of Net Sales 8.41% -6.08% -2.69% -23.58% 15.28% 18.44% Growth of EBITDA 9.33% 90.03% -33.25% -75.71% 7.10% 13.74% Growth of EBIT 0.15% 505.46% -72.84% 80.79% 0.51% 44.40% Growth of Earning before Tax N/A 231.24% N/M- -87.38% 112.60% -31.94% Growth of Net Income 3.6% 114.22% N/M- -37.71% 369.33% -63.86% Growth of Free CashFlow -65.44% N/M- -79.26% N/M- 102.68% -31.6% PROFITABILITY 2012 2012 2011 2010 2009 2008 Return on Equity 8.49% 0.53% -3.68% 11.26% 22.31% 5.66% Return on Assets 12.2% 0.21% -1.45% 3.33% 4.72% 1.14% Return on Fixed Assets N/A 0.90% -6.81% 11.21% 12.55% 2.86% Return On Capital Employed 4.76% 9.44 1.57% 4.14% 18.94% 19.88% MARGINS 2012 2012 2011 2010 2009 2008 EBITDA/Sales 7.72% 5.36% 2.65% 3.86% 12.15% 13.07% EBIT Margin (%) 3.30% 2.78 0.43% 1.55% 6.15% 7.06% Pretax income/Sales N/A 1.03% -0.74% 0.78% 4.72% 2.56% After Tax income/Sales N/A 0.18% -0.8% 0.78% 3.83% 1.80% Net Profit Margin (%) 1.21% 0.13% -0.87% 2.3% 2.82% 0.69% ASSET UTILISATION 2012 2012 2011 2010 2009 2008 R&D To Sales N/A -5.79% -3.13% -2.69% 0.74% 0.72% Sales To Cash N/A N/M- -44.4 82.29 28.91 30.83 Sales to acc receivables 8.19 7.68 7.89 7.56 10.53 11.02 Sales to inventory 7.0 10.68 10.03 8.93 11.17 10.41 Sales to work capital N/A 30.82 40.35 22.49 25.54 27.61 Sales To Total Assets 1.10 1.59 1.67 1.45 1.67 1.64 LIQUIDITY RATIOS 2012 2012 2011 2010 2009 2008 Quick Ratio 58.36% 65.16% 64.01% 58.11% 69.06% 59.51% Cash Ratio N/A 14.3% 16.5% 12.28% 30.29% 29.58% Current Ratio N/A 113.56% 111.04% 107.28% 119.22% 109.18 Net Interest Coverage N/A N/M- N/M- N/M- N/M- N/M- Days In inventory 50.76 32.49 32.83 37.92 32.64 36.69 Days In Accounts Payable N/A 49.11 48.84 49.11 50.38 50.11 Days In Cash N/A 0.03 -2.79 -13.07 16.68 9.49 Days in receivables N/A 46.05 44.8 45.21 38.22 34.73 CAPITAL STRUCTURE 2012 2012 2011 2010 2009 2008 Fin. Debt/Equity 84.41% 53.01% 58.79% 57.96% 95.71% 157.25% Net Debt / Equity 0.30 0.38 0.40 0.42 0.35 0.83 Goodwill & Intangibles / N/A 0.47% 0.45% 0.12% 0.04% 0.10% Total Assets Net Debt / Total assets N/A 15.02% 15.82% 16.51% 7.97% 16.31% Total Debt / Total Assets 21.56% 20.57% 22.77% 22.26% 21.29% 30.36% Total Equity / Total Assets 26.12% 39.59% 39.48% 39.12% 22.64% 19.63% Net Debt / EBITDA 1.16 1.73 3.60 2.48 0.40 0.84 Payout Ratio 0.00% 55.22% N/M- 2.58% 13.74% 13.05% Retention ratio N/A 44.78% 107.85% 97.42% 86.26% 86.95% LG Electronics 21

From the table of various ratios it is worth to mention that net income is very unstable in LG Corporation. Financially year 2009 was the most successful, many ratios exceeds the industry average, the years ago and years to come. Looking at the past two years company is facing serious financial problems at least LG Electronics is keeping away the threats associated with Debt. The return on assets and equity are very low, which indicated poor management of the assets and has to be changed. In addition Sales to Total Assets also shows unfavorable numbers comparing with industry, however Inventory turnover is increasing in the last 3 years and oversteps Industries average, for that we can make an assumption that other assets in corporate level is not used sufficiently. It is extremely important to know from what LG Electronics generate the most revenue and profit, table below shows Sales and Operating profit distribution among product divisions.

Consolidated Sales and Profit by Division (Unit : KRW bn) Fiscal Year ‘12 YoY Sales 22,738 -4.9% Home Entertainment Op. Profit 168 Sales 10,078 -13.8% Mobile Communications Op. Profit 59 Sales 9,941 -13,1% Handset Op. Profit 51 Sales 11,221 1.3% Home Appliance Op. Profit 528 Air Conditioning Sales 4,350 -5,1% & Energy Solution Op. Profit 156

MAIN STRENGTHS AND WEAKNESSES

Strengths

LG Electronics is a multinational company and a recognize brand around the world. It has successful established not only in developed countries but also in developing countries. LG products are reliable, easy to use, and have simple designs which satisfy customers that’s why LG have the advantage of having loyal customers. LG Corporation the research and development has given greater importance because to satisfy the customers and provide the customers what they want the research and development if required. LG Electronics try to keep products innovative to attract the customers and to capture more market share. LG Company is at its growing stage and its growing quickly. It is producing solid products which rapidly satisfying the customers. LG Electronics 22

Strong Marketing Communication LG wants to deliver synchronized communication messages worldwide to elevate their profile and promote their brand identity. In order to increase consumers' understanding of the LG brand and to differentiate the company's image, LG has set up a single global brand under the theme ``Life's Good." To accomplish this, all brand marketing communications from LG have a consistent look and feel, as well as consistent messages (LG to Become Top-Level TV Maker, 2010).

Alliance Joint Venture LG Electronics is making technology advances and identifying business opportunities through various partnerships relationships with some of the world's leading companies. LG Electronics will do its best to create new products and services with an open mind, while developing new technologies and business fields through various partnerships with some of the world's most successful companies (Lg.com, Strategic Alliances, 2013) Some of them are PRADA, General Electric’s, Schneider, Siemens, Toyota, Qualcomm, Hitachi, Microsoft, Mark Levinson, and Dolby Laboratories, Inc.

Weaknesses

Product Line In comparing LG televisions with its directed competitors like Sony and Samsung, it lacks in producing variety of products and features. Comparatively, Samsung and Sony have a wide product line offering different models of TVs. For example, LG only has 29 types of TV, but Samsung has 102 types of TV.

Higher Overall Costs than Its Rivals LG TV sets has a higher price than the competitor because LG offers premium TVs. LG offers Television with stylish looks, sleek design, and smart technology.

Slow Brand Recognition Despite its size - $49 billion in sales and more than 90,000 employees worldwide, which makes it nearly as big as Microsoft - LG doesn't enjoy instant brand recognition. Some consumers assume LG is a subsidiary of other electronics makers. Rebranding needed.

EXTERNAL ASSESSMENT

Political Trends

LG Electronics’ is the intercontinental company which focus in the international market for it‘s product. The political environment is mainly the law and government taxation policies that influence an organization .There is a lot of political interaction that has integrated in this business since developed countries require specific certificates and charges the different tariffs so far LG Electronics has operated between the political and legal factors. These factors may increase the cost of goods; sometimes it decreases the product cost. The LG electronics is facing lots of problems while manufacturing and exporting goods to the overseas. LG Electronics 23

The Role of Korean Government The Korean government had placed a high priority on developing the country’s technological capabilities and creating the world-class industrial infrastructure. Government promoted education and R&D for high-tech industry by providing direct financial support to public and non-profit institutes, universities, and other educational institutions, primarily through the Ministry of Information and Communication. Such support often involves partnering with both established and emerging firms in cost-sharing new product or technology development. This resulted in rise of 120 private research institutes and 18 research consortia (wtec.org, 2007).

Economic Trends

The global economy has yet to shake off the fallout from the crisis of 2008-2009. Global growth dropped to almost 3 percent in 2012, which indicates that about a half a percentage point has been shaved off the long-term trend since the crisis emerged. This slowing trend will likely continue. Mature economies are still healing the scars of the 2008-2009 crisis. But unlike in 2010 and 2011, emerging markets did not pick up the slack in 2012, and won’t do so in 2013. Uncertainty across the regions – from the post-election ‘fiscal debate’ question in the U.S. to the Chinese leadership transition and reforms in the Euro Area – will continue to have global impacts in sluggish trade and tepid foreign direct investment (TheConferenceBoard.com, 2013).

World Gross Domestic Product Trends HE world’s growth continued to slow in the third quarter of last year, according to The Economist's measure of global GDP, based on 52 countries. Global growth fell by 0.4 percentage points from the previous quarter to 2.4%, its lowest level since the end of 2009. Emerging economies accounted for four-fifths of global GDP growth. Developed countries, weighed down by a slow recovery in America and the ongoing euro crisis, contributed little. The coming year is expected to be much the same. The three economies forecast to contract the most in 2013 are all euro members (Greece, Portugal and Spain), while the fastest growers (Macau, Mongolia and Libya) are all emerging economies (The Economist, 2013). LG Electronics 24

LG has a very big competitive market in world and it have constant development in their innovation in electronics equipment, secondary products, planned process of LG etc.. it have leads to sell goods to other countries . The LG contribute the world wide stock market and money market also. The LG have well and strong economic source and it has capable of introduce some new technology to the electronic market.

The consumer electronics market is expected to see a significant growth compared to 2012, an increase in spending of about 4%. Emerging markets will be the majority of this increase, projected to grow 9% annually compared to only 1% for mature markets. Many believe that the growth is due to advances in smart technology, such as tablet computers and other devices that use apps. Tablets and smartphones are some of the fastest growing devices of all time; they are projected to account for 40% of gadget spending in 2013. This is significant because nearly every field, from the healthcare industry to the retail industry, relies on technological innovation in some sort. I believe that advances in intelligent technology will be a recurring theme throughout this year’s CES (Brown, 2013). LG Electronics 25

Real Period Growth in Per Capita Annual Disposable Income in Asia Pacific and Other Regions: 2007-2012

Source: Euromonitor International from national statistics

Chart makes obvious statement that markets in Middle East, Western Europe and North America are shrinking, while Australasia, Latin America, Asia Pacific, and Eastern Europe are growing in disposable income indicating sighs of potential markets.

Technological Trends

High-technologies are the fastest developing industry in the world; therefore technologies are changing the lifestyle for the whole world’s population. Consumer electronics are the most common and most financed industry, which reached $209 billion revenues last year.

To get the best knowledge of technological trends coming in to visit International CES exhibition in Las Vegas, Nevada . The main trends of 2013 that will change the future focuses on 3-dimentional printing, the next generation of television and displays, the evolution of audio, how wireless technology is changing lives in Africa, and the impact of technology on education (Shapiro, 2013).

The most upcoming consumer electronics devices on which International Electronic Corporations are working on are the high-definition TV (HDTV) digital video recorder, HD radio, organic light-emitting diode (OLED) TV, 3-D HDTV, connected TV, smart appliances, Ultrabooks, Android 4.0 tablets, and 3-D printers (Shapiro, 2013).

Socio-cultural Trends

Consumer Demant Trends It is crucial to understand the consumer behavior and forecast the future trends especially in rapidly changing consumer electronics industry. For six consecutive years, Accenture research has studied preferences for consumer electronics products and services. It presents this year’s research findings and technology trends and discusses the implications for LG Electronics 26 companies as they navigate this open market to fullfil consumer needs. The research discovers four specific trends:

∑ Consumers are focusing on fewer, multiple-function devices. Purchase intentions for single-function devices are flattening or declining as smartphones, tablets, PCs and high-definition televisions climb at double-digit rates. ∑ Consumers are not locked into any single platform. Consumers know about the operating system of their devices but the research does not suggest loyalty to a specific operating system. ∑ As consumers experiment and search for the technologies and services that best meet their needs, cloud-based services and apps are showing substantial increase in use. A significant increase in use of apps and online services is occurring among both younger and older generations. ∑ The increasing capabilities and rapid adoption of mobile multi-function devices are fueling the continued ‘consumerization’ of IT in the workplace. As consumers increasingly do multiple activities on their mobile devices they are also choosing to use these devices for work purposes and finding productivity improvements in doing so (Accenture.com, 2013) Consumer Spending Trends As adoption of many consumer technologies reaches maturity in traditional markets such as the United States and Europe, emerging markets are becoming increasingly important to the consumer electronics industry.It is in the emerging economies of Brazil, Russia, India and China, where the latest edition of Accenture’s annual consumer electronics report finds reason to be optimistic about the industry’s future growth prospects. The trend is clear though: consumers from emerging markets are hungry for technology and willing to shell out a lot of money for personal gadgets (Richter, 2013)

This chart shows the results of a survey among 11,000 consumers across 11 countries regarding their expected expenditure on consumer electronics in 2013. LG Electronics 27

Consumer Going-Green Recognition While the global economy seems to have an impact on both consumer and capital investment in green products and technologies, many companies are still moving toward greater sustainability—which is good news. Because some consumers are opting for affordability over eco-friendly, they still look favorably at companies that adopt sustainable practices.

More than half of global consumers (53 percent/representing 1.1 billion people) prefer to purchase products and services from a company with a strong environmental reputation, according to a new global survey released by video-conferencing company Tandberg. Not only is a company’s environmental reputation a clear preference for its customers, but also for its employees, according to the survey. In fact, eight in ten workers surveyed globally said they would prefer to work for an environmentally ethical organization (EnvironmntalLeader.com, 2011).

Competition Trends

LG Electronics is among the smaller players in the smartphone market. Counterpoint Technology Market Research estimated that more than 90 percent of the smartphone market's profit is claimed by Samsung Electronics Co. and Apple Inc. But higher-end smartphones have steadily increased in importance for LG's overall mobile business as it battles competition from Chinese makers at the low-cost end of the market. LG said it plans to bet on countries that have begun introducing faster wireless networks called LTE, which it expects will produce higher demand for smartphones compatible with the new technology. The company, which competes in the TV market with Sony Corp., Panasonic Corp. and local rival LG Electronics 28

Samsung Electronics Co., is counting on early launches of advanced displays such as OLED and ultra-high definition this year to get ahead of its rivals (Youkyung, 2013).

Since LG Corporation is operating in many product divisions it is clear to see many competitors in different fields. LG Corporation is competing with many international and regional competitors they are Sharp, Panasonic, Sony, Pioneer, Samsung, Electrolux, Philips, Toshiba, TCL, Sichuan Changhong and many others. The table below was created by the data from Infinancials.com webpage showing growth rates of the main competitors.

Net EBITDA EBIT Income Net Free Sales Growth Growth Before Income Cash Growth Tax Growth Flow Growth Growth

Company % % % % % %

LG Electronics -6.08 90.03 505.46 N/M+* 114.22 N/M-

Peer Median 1.86 -10.36 -49.84 -20.88 -33.98 -75.53

Sharp Corporation -18.73 -40.27 N/M- N/M- N/M- N/M+

Panasonic Corp. -9.74 -43.09 N/M- N/M- N/M- N/M-

SONY CORPORATION -9.58 -43.10 N/M- N/M- -75.92 -62.22

Pioneer Corp -4.54 -19.28 -66.62 -67.08 -64.54 N/M-

Samsung Electronics Co. 21.88 43.32 62.85 74.34 73.55 N/M+

AB Electrolux 8.26 21.80 37.55 25.11 25.92 38.99

Koninklijke Philips Electronics 9.78 -11.53 N/M+ N/M+ N/M+ N/M- NV

Toshiba Corp -4.66 -9.20 -33.05 -22.06 -46.53 -96.63

TCL Corporation 14.46 31.09 -80.07 -19.71 -21.43 -88.84

Sichuan Changhong Electric Co. 24.67 21.75 0.15 -18.61 38.99 13.18

*N/M, N/M+ and N/M- are displayed for valuation multiples, financial ratios or growth rates that are not meaningful for any reasons.

MAIN COMPETITORS

Samsung and Sony are the top competitors of LG Corporation, in order to make competitive strategy it is essential to analyze these two companies more detailed. Samsung is the world’s LG Electronics 29 number one company in consumer electronics industry. It has huge market share worldwide which can be transferred into LG’s market share. Sony is the very similar company to LG, they both have lots of things in common and so it is natural that Sony and LG interest are clashing all the time. Samsung and Sony are found out to be aggressive competitors to LG Corporation.

Samsung

Samsung Electronics vision for the new decade is “Inspire the world, create the future.”With the ‘TOP plan’ and sponsorship strategies, Samsung has become the top brand in the world. It has become the world’s leading brand in electronics and digital industry. This achievement is mainly due to the strategies followed as explained below (The top brand in the world, 2010).

Sponsoring Strategies Samsung has associated its name to the ‘TOP plan’ which is called the ‘The Olympic Partner’ plan. It is strategy which has made Samsung the TOP brand. Without this strategy it will not have much effectiveness and efficiency. Samsung has been sponsoring various activities in order to create brand awareness and enhance its market position. Samsung was an official sponsor in wireless communication equipment presented by the Wireless Olympic works.

Reposition of its products Initially in 1990s Samsung was targeting the lower income groups with penetration pricing. Later on it realized that it would be better to target the cream or skimmed group of the population by increasing the price and improving the quality. It realized that in upscale marketing, technology and brand are competitive means. Thus it repositioned its products to upscale the market. To Samsung, higher price increases its profit and it will also imply good quality.

Technology innovation Samsung realized that digital is the future of the world and technology upgrades are essential to sustain in the competitive market. They switched their core competitive power from mass manufacture to high-end product supplier which is based on digital technology. Samsung launched the industry design revolution to get rid of its image of imitator. It employed world’s top designers to expand, differentiate and innovate its product.

Sony

Sony is a Japanese company and key players in consumer electronics especially television and video game consoles. The brand for Sony’s game console is PlayStation, the best-selling video game consoles of all time. The strategies of Sony Electronics are (Sony Electronics Inc., 2010) the following.

The leader in product innovation Sony has an ability to identify imagination and enhance people’s life. The company has been at the cutting edge of technology for more than 50 years. Now, Sony develops its business with sales of innovative products as well as Sony’s convergence strategy. For example, Sony has Hi-Scan flat screen TV which can deliver near HDTV picture quality through Digital Reality Creation (DRC) circuitry. LG Electronics 30

Broadband network area Sony is well positioned to bring new benefits for consumer by combining hardware, software, content and services. Consumers can access information wherever and whenever they want through cable, satellite, or internet.

Promoting a world class brand Sony conducts an advertisement campaigns to secure consumer attention and utilizes world class public relations to enhance Sony’s value, reputation and brand image. Communications campaigns are executed on both an individual product and strategic platform basis which ensures exposure for the company’s fundamental products including digital TV.

Brand values In the mind of consumers, Sony is one of the world’s greatest brands. Sony tries to leverage its brand beyond the products and add the value to the brand by re-focusing its brand outside the world.

Philips

Koninklijke Philips Electronics NV is a Netherlands-based parent company of the Philips Group (Philips). The Company operates within three main business sectors, such as Healthcare, Consumer Lifestyle and Lighting, as well as through the Group Management and Services sector. The Healthcare sector offers both personal care and professional products, such as computer tomography equipment, radiography equipment and refurbished systems, among others. The Consumer Lifestyle sector offers a range of sound, vision and household products, such as television, headphones and digital cameras, among others. The Lighting sector offers lighting products, such as professional lamps, ballasts and luminaires, among others. The Group Management & Services sector provides the operating sectors with support through shared service centers. As of December 31, 2011 Philips had 124 production sites in 26 countries, as well as sales and service outlets in approximately 100 countries.

Panasonic

Based in Osaka, Japan, Panasonic Corporation (formerly Matsushita Electric Industrial Co., Ltd.) is one of the world's leading manufacturers of electronic and electrical products, systems, and components for a wide range of consumer, business, and industrial uses. Panasonic emphasizes the use of sophisticated electronics, precision, and leading-edge technology to develop its products. Panasonic's business segments are organized into six categories Digital AVC Networks (46% of fiscal 2010 sales), Home Appliances (15.4%), PEW and PanaHome (22%), Components and Devices (13.5%), SANYO (5.5%), and Other (13.6%). AVC Networks products include video and audio equipment (TVs, VCRs, camcorders, digital still cameras [DSCs], DVD players and recorders, and other personal and home audio equipment) and information and communication equipment (personal computers [PCs], PC displays, CD-ROM, DVD-ROM, DVD-RAM, and other optical disk drives, hard disk drives [HDDs], copying machines and printers, facsimile equipment, cordless telephones, cellular phones, other mobile communications equipment, car audio, and navigation equipment). Sales for fiscal year 2011 amounted to ¥7.4 trillion, a 4% decrease from the previous year, due to decline in sales in all business segments. In the Digital AVC Networks segment, favorable sales of flat-panel TVs and automotive electronics and Blu-ray Disc recorders were offset by decline of notebook PCs and mobile phones. In the home LG Electronics 31 appliances segment, strong sales of refrigerators were offset by decrease in sales of air conditioners and compressors. In the PEW and PanaHome segment, lower sales in electrical construction materials and building materials, along with ongoing sluggishness in the Japanese housing market conditions led to sales decrease. In the Components and Devices segment, batteries and semiconductors decreased in sales.

LG’s Competitive Strategy

LG’s competitive strategies are (LG Electronics 50-Year History 2008):

∑ Focusing on boosting ROIC (Return on Investment Capital) instead of simple growth. ∑ LG targets to achieve ROIC 15%, it means company have to improve gross margin. LG will decrease indirect costs and switch to high-profit products. ∑ Optimizing the portfolio. ∑ The company increase its profitability, strengthened its brand in the market, use external resources (alliances) to expand the business in order to optimize the portfolio. ∑ Counter measuring the market bipolarization. ∑ LG develops the products based on customer needs and identify potential needs of the target segment based on STP (Segmenting, Targeting, and Positioning) strategies. ∑ Technology innovation and design differentiation. ∑ LG focus on technology innovation and design differentiation through R&D process based on customer needs. ∑ Strengthening brand investments. ∑ Repositioning LG’s brand identity and reorganize brand communication by developing “Life’s Good” slogan and new futuristic logo. ∑ Reinforcing global competencies. ∑ LG advance all internal and external resources for the organizational competencies by hired the best people to create the best human resources pool in the world.

LG’s Porter Five Forces Model

Porter’s Five Forces is one of the models of competitive analysis for the purpose of developing strategies in many industries. But the intensity with which competition exists in the industry keeps varying. According to Michael Porter, the nature of competitiveness in an industry is based on the following five forces (David, 2010).

Rivalry among Competitive Firms The enduring conflict with Sony and Samsung for the purpose of gaining customer share is too high. The competition is more intense as these firms pursue strategies that give competitive advantage over the strategies pursued by its rivals.

Potential Entrants Potential entry of new competitors is an important factor to intensify competition in the industry. Larger the band of new entrants, more intense will be the competition. Considering the trait of product differentiation and innovation as for example Apple with its masterpiece of innovation iPhone can open gates into consumer electronics industry; however it requires large investment into R&D which is hardly affordable to new competitors. LG Electronics 32

Development of Substitute Products LG faces strong competition by substitute products producers firms especially when the switching cost of the customer is lower, and when the functionality and quality of the substitute product is better. On account of this reason, LG has to monitor its trend for the purpose of tracking those strategies as it may face competition not only from similar industry but also from different industry. But LG, Sony and Samsung have penetrated into the industry for a long time and they have created economies of scale, product differentiation, strong familiar brands, that will make it difficult for new brands to enter the industry.

Bargaining Power of Suppliers The bargaining powers of suppliers affect the intensity of competition for LG on account of a large number of suppliers, and less availability of raw materials. Based on these attributes, the suppliers of LG have the power to enforce certain terms and conditions on manufacturers by charging a high cost of raw material.

Bargaining Power of Buyers The buyer group is powerful if it purchases in large volumes. The bargaining power of consumers of LG is more, as products are not differentiated and widely available. In this case consumers of LG can ask for more discounts, extended warranty and services. As the satisfaction level of consumer goes up, the intensity level of competition increases. As a result, LG has to monitor the strategies of its competitors by taking into consideration the likes and dislikes of its customers.

MAIN OPPORTUNITIES AND THREATS

Opportunities

Marketplace Oppostunities are everywhere, such as the changes in technology, government policy, social patterns, and so on. An opportunity is a major situation in a firm's environment. Key trends are one source of opportunities. Identification of a previously overlooked market segment changes in competitive or regulatory circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities for the firm.

Alliance or Joint Ventures LG has alliance or joint venture with companies that have established a brand for themselves in the market. It can further increase its market share and market presence and increase its brand image, by having alliances and joint ventures with other successful companies. This would also help in generating more revenues for them (Strategic Alliances, 2010).

Ex-CEO Nam was at the restructuring unit of LG Group, he led negotiations to sell off LG Semiconductor, to Hyundai Electronics. That means LG lacks a semiconductor division like Samsung, putting it at a technological and cost disadvantage in mobile technology. With New CEO Koo's assumption of the helm, there is now discussion of a possible bid by LG to take over Korean semiconductor manufacturer Hynix (Shin Kiju, 2012). LG Electronics 33

Distinguish its Services from Competitors The consumer electronics services are expected to grow in emerging countries. As several initiatives are being realized, it is found that would be integrated so that LG can distinguish from its competitors.

Threats

War with North Korea North Korea’s communist dictator Kim Jong-eun has been issuing near daily threats of bombing aimed at his democratic neighbors to the south. In case of war tremendous losses are guaranteed, which will affect the Brand image, manufacturing and management.

OLED TV Market loss So far in 2013 is an important year because for LG, it marks the beginning of a new TV era, In this market LG has a leading position, however Samsung and Sony also entered the market threatening to take a significant share of the market. “OLED technology offers richer colors, deeper blacks, higher contrast and sharper images than liquid crystal displays (LCDs), light- emitting diodes (LEDs) and plasmas. OLED technology is energy efficient and does not require LED back lighting used in LCD displays. This explains OLED TVs thinness. LG's model measures 4 millimeters thick at 22 pounds” (De Sausa, 2013)

Low-cost competitors from China Huawei is the company which focuses on low cost products and is a leader in fixed line networks, mobile telecommunications networks, and budget smart phones.

Price wars LG Corporation is already showing signs of price war with Samsung. LG has a low gross margin on many of its products. Competitors could follow price cutting strategy too and induce price wars, which would blast LG profit margin to zero percent.

Apple’s iTV launch Apple’s iTV is the next big lunch from Apple, which will definitely affect TV sales for LG and its competitors. However, the exact time of the launch is unknown and so the price is which may handicap the entrance to the market.

Rapid technological change The serious threat that LG Corporation and the other technology companies are facing is a rapid technological change. Companies are under the pressure to release the new products faster and faster. The one that cannot keep up with the competition soon fails. This is especially hard when the company wants to introduce something new, innovative and successful. LG Electronics 34

NEW LG VISION AND MISSION STATEMENT

Vision Statement

LG constant focus on innovation will allow us to offer latest customer solutions in entertainment, communications and household. LG Electronics intend to create reliable and respectable brand image through sustainable, top quality, and modern design products delivered all over the world.

Mision Statement

LG mission is to be one step ahead in developing future technology and providing first class devices to worldwide customers.

OBJECTIVES

1. Reverse negative sales growth in 2013 and 2014; make it steadily increasing up to 10% by the year 2015. 2. Maintain positive but low profit during the next 3 years, for the sake of R&D and market development. 3. Conquer Smartphone market share from 3.8% in 2012 to 9% in 2015. 4. Establish Joint Ventures with innovative and beneficial companies. 5. Strengthen positions in Africa, BRIC and other emerging countries. 6. Create new technologies, invest in R&D and innovation. 7. Reorganize marketing. Increase brand awareness. (Product differentiation Cut down market penetration) 8. Increase online sales and services. LG Electronics 35

STRATEGY FORMULATION AND IMPLEMENTATION

SWOT Matrix

Positive Negative Strengths Weaknesses 1. Wide and strong distribution 1. Downsizing revenues in the past network three years.W1 2. Green production: Human, 2. Unstable Net Profit Resource and Energy 3. Higher overall costs than its rivals l

a 3. Strong Alliances and Joint 4. Unrecognized Brand image n

r Ventures 5. Unfavorable software solutions e

t 4. High R&D and Innovation 6. Lack of user-friendliness n

I 5. Attractive design products 7. Small variety in products and 6. High quality products features 8. LG lacks competitive advantage in the smartphone market, which is the only market with high growth potential. Opportunities Threats 1. New market geographies in BRIC 1. War with North Korea and other emerging countries 2. US and Euro zone is still struggling 2. Alliances and Joint Ventures to with Global Financial Crisis.

l gain software, technological or 3. Low cost competitors from China a informational advantage 4. Rapid technological change n

r 3. New market of innovative 5. OLED market loss e t products creation and 6. Price wars x dominance in it. E 7. Impact of strengthening Korean won 4. Increased online shopping sales 8. Apple’s iTV launch all over the world. 9. Increasing costs of labor, materials 5. Young, well-educated specialists and operations in South Korea can make great contribution in product creation.

SO Strategies 1. Use international distributers to settle in BRIC and other emerging countries. (S1, O1)

2. Strengthen and eccelerate R&D on new devices like smartphones, 3D Printer, OLED TV and etc. (S4, O3)

3. Recruite and train specialists from South Korea to work in R&D department.(S4, O5) LG Electronics 36

WO Strategies 1. Entering new markets will increase the downscaling revenues. (W1, O1)

2. Alliences and Joint Ventures with suppliers will decrease costs. (W3, O2)4

3. Allience with reliable software company will make products more desirable and user- friendly. (W5, W6, O2)

4. Create wider selection of products with new products which will help to satisfy needs of mew markets. (W7, O1)

ST Strategies 1. Keep investing in R&D and Innovation to keep up with changing technology trends. (S4, T4)

2. Develop and promote OLED TV niche, secure patents, distribute and sell it worldwide. (S1, S4, T5)

3. Differentiate products by design solutions and higher quality to avoid price wars. (S5, S6, T6)

4. Sing long-term contracts with supplier alliences, build or lease factories in India, China, Indonesea, even Africa. (S3, T9).

WT Strategies 1. Sell mobile communications division which is the most profitless, focus on simple-to- use, low-cost phones. (W1, W2, T6, T4)

2. Liquidate assets in US, Europe, and South Korea, move operations to China. (W1, W3, T1, T2) LG Electronics 37

BOSTO CONSULTING GROUP (BCG) MATRIX

RELATIVE MARKET SHARE POSITION HIGH MEDIUM LOW HIGH Stars Question Marks LG Mobile Communications Divisions Market Growth 35.8%, Market Share 3.8% E T A R LG Home Appliances Division H

T e.g. Refrigerators – Market Growht 8.7%, W

O Market Share 36.6% R G MED S E L A S

Y R T

S Lg Home Entertainment Division U e.g. TVs – Market Growth 4.2%, Market D N

I share 15.2%

LOW Cash Cows Dogs LG Electronics 38

THE GRAND STRATEGY MATRIX

RAPID MARKET GROWTH N N O I O I T I T I S S O O P

P

E E V I V I LG stands in rapidly growing T T E E market and slighly strong T T E E P

P competetive position M M O O C

C

G K N A O E R T W S

SLOW MARKET GROWTH

STRATEGY FORMULATION

Joint Ventures and Alliances

Joint Ventures and Alliances became very popular in a recent decade. For LG Corporation some Joint ventures Alliances or even merging or requisition will benefit in risk sharing, because company is planning to increase funding to R&D which might not always payback. Other reasons to corporate with other companies are Market accessibility, lower burden of high fixed cost, open broader acquisition opportunities, and most important sharing technological capabilities, information and strengths. First targets of Joint venture are the most innovative companies.

ARM Holdings – is a British multinational semiconductor and software design company. Its largest business is in processors, although it also designs software development tools, systems and platforms, system-on-a-chip infrastructure and software. A Company which made Cloud Computing cheaper by reducing power requirements for Data centers. Recent key innovation is Power Server Processors developed for power conscious mobile devices. LG Electronics 39

∑ LG, after selling off its semiconductor division to Hyundai Electronics, faces technological and financial obstacles. ∑ After a fiasco with Microsoft OS LG could use improved software design. ∑ Joint Venture with ARM fits into LG’s corporate responsibility mission to reduce power consumption, ∑ Smartphone customers demand longer serving batteries with power-saving processors will give LG small competitive advantage.

Tabula – is a fabless semiconductor company founded in 2003. It has raised $215 million in venture funding. Produced processors with incredible combination of flexible software and efficient hardware. Chips produced by Tabula can re-configure themselves faster than any other chips available in the market.

∑ LG can offer its laboratories and fabrication for experimental and exploratory purposes.

∑ Tabula is young but very perspective company where LG can be part of its potential fulfillment.

∑ So far Tabula has fastest chips which can be very beneficial in Smartphones and especially in Smart TV, where speed improvements are very desirable.

Hitachi Plant Technologies is looking forward to a joint venture with LG in the water business. Hitachi is huge Japanese corporation with over $122 million in sales and ranked #38 in Fortune 500 list.

∑ Joint venture will beneficently fulfill each other LG with in marketing, planning and manufacturing technology and Hitachi with and engineering strengths in water treatment systems and information control systems.

∑ Its a change for LG to begin business-to-business sales.

∑ With a wide production spam Hitachi will make LG‘s expansion cheaper and easier for example supply industrial machinery systems and Electrical machinery control systems.

SK Hynix Inc. is a South Korean memory semiconductor supplier of dynamic random access memory ('DRAM') chips and flash memory chips. Hynix is the world's second-largest memory chipmaker and the world's sixth-largest semiconductor company. LG used to be merged with Hynix, but former CEO sold its semiconductor division Hynix.

∑ Semiconductors became high expense for LG Electronics Hynix could decrease those. ∑ Samsung and Apple are clients of Hynix, it would be possible to raise prices to specific services and products for rival companies giving LG cost advantage. ∑ Hynix is local, South Korean company, what benefits in many ways and eases the joint. First step in Joint Venture is to start negotiations, prepare contractual agreements closely supervised with lawyers, and Sign the contract with specific purposes and duration. Implementing the contract duties LG has to adjust its financial goals, objectives and strategies. Lastly, join management and control over the Joint Venture companies. LG Electronics 40

South Africa, BRIC and Other Emerging Countries

North America and Western Europe are suffering the consequences of Global Financial Crisis and the GDP growth is close to zero percent. The chart in External assessment shows the growth of disposable income different global regions where Middle East and Western Europe have negative growth (North America almost zero). Totally different view is on Latin America, Asia Pacific and Eastern Europe, where growth in 2012 was close to 20% or even reached it (Eastern Europe). The other source (BusinessTech.co.za, 2013) provides valuable information on consumer spending on consumer electronics in 2012. BRIC countries and Japan showed the best result exceeding US, Germany, France UK and others. It is a good guideline for LG on which markets to focus in the near future. LG already has manufacturing facilities in Brazil, Poland, Russia, India, and China it will decrease the transportation cost, what is left is to make LG products sold. Strategic steps to win prospective markets:

1. Immediately in 2013, begin search and negotiation for new channels for distribution.

2. Take a long-term loan on low interest rates which are extremely attractive.

3. Build a new distribution centers and find agents if necessary.

4. Employ local human resource companies to hunt and recruit necessary management team for deeper expansion in new markets.

5. Establish manufacturing facility in South Africa specialized in LG Smartphones because Africa is rapidly growing in mobile communication services. Begin works in 2014.

6. Run low cost market penetration strategy emphasizing good-quality and design. This should not be hard because one of the main rivals in Smartphone industry Apple has no stable ground as it does in North America and Europe.

7. Since target countries are big in size LG has to develop wider distribution network, not only main cities, where many competitors chooses to stay away.

8. Employ and empower local managers and executives to run the business.

New Technologies, Investments in R&D and Innovation

LG Electronics is operating in rapidly changing industry, where all companies are creating the future. It is time transforming LG from a marketing-centered to a technology-centered company. Common sense and historical evidences proves that investment in research and development often generously pays back. For example Apple occupied Smartphone market not only with marketing but mainly with its design, interface, and software available for applications. Creation of unique products or features of products can give unique selling point wining the market share, used as competitive advantage. Ongoing research also leads to new opportunities - researchers cannot always anticipate what the results of their research will be. Sometimes it can be extremely beneficial for Joint Ventures and Alliances. Great investment in new technologies enhances LG reputation as a perspective company and therefore raises the stock price, of course, if the financial statements are not disappointing. To begin new era of technological renaissance these steps should be taken: LG Electronics 41

1. Get funding from Joint Ventures and Alliances with innovative and financially strong partners. Research and Development will benefit both companies.

2. Apply for Federal funding for the sake of Green technologies and environmental welfare.

3. Increase investment by 30% in 2013, by 50% in 2014 and if R&D shows good results by double it from 1,500,000 Korean won in 2012 to 3,000,000 in 2015.

4. Main focus on future technologies that analysts are predicting bright future.

∑ OLED TV’s on which LG already has a leading position.

∑ 3D printers are the most desirable devices with endless appliance. So far launched in industries but unspecialized to universal customer usage.

∑ Solar power is very favorable and highly promoted industry.

∑ Smart appliances in a household, just like TV’s are getting smart so should home appliances.

5. Recruit necessary scientist from Joint Ventures, South Korean Universities, and Competitors.

6. Create and implement interactive training program promoting innovation.

7. Instantly apply inventions and innovations into production.

Reorganize Marketing LG Electronics marketers experienced huge disappointment when find out revenues are decreasing. New LG top CEO Bon-Joon Koo came into chair knowing that product comes first before the marketing. When revenues started showing negative signs previous LG CEO cut down R&D and kept financing inefficient marketing. These new ideas will help to recover LG Electronics brand and push revenues forward:

1. Hire new non-Korean (best American) as the LG Marketing Officer.

2. Pay distributers an extra percents above the competitors because distributors are playing with a final choice of customer.

3. Cheaper TV prices (discounts) for businesses related with public: airports, hotels, restaurants, etc. to increase brand awareness.

4. Product localization helps to discover market needs, cuts down costs, simplifies management.

5. In BRIC and other emerging markets cut down TV commercial, focus on Print and Public Advertisement; Focus not only on the top wealthiest class, but also penetrate growing middle-class.

6. Product differentiation is necessary for LG Electronics, entering different international markets several modifications is not enough, it has to vary according to regional needs interests, traditions and way of living. LG Electronics 42

7. Run the marketing campaign based on image of LG as always changing company having to offer new experience all the time.

8. Ally or employ top-class designer house for creating the design and decorate LG products with its logo.

9. Inform customers of LG’s engagement in Green revolution.

10. Keep high emphasis on product design, modern looks, imitate good quality materials, and focus on details, user-friendly interface.

CRITICAL RISK ISSUES

Joint Venture is low-risk deal providing lots of benefits and opportunities; however the main risk in it is incompatibility, when partners have different objectives for the joint venture. Also there is an imbalance in levels of expertise, investment or assets brought into the venture by the different partners. Lastly different cultures and management styles result in poor integration and co-operation. To avoid these risks the preparation for contract must be well done and mentioned in legal papers.

Strengthening emerging markets there is always a risk of low demand of LG product. To figure this out a market research must be completed, but not all countries can provide necessary information, the only way out of this situation is to trust local marketers, analysts and economists. Other risk can be legal regulations – high import taxes; lack of competitive employees, corruption can make entrance difficult.

Research and Development is always a risky business, firstly because of high cost with unknown outcome. To secure investment proper encouraging innovation environment must be created and motivated staff must be employed.

New foreign Marketing Officer might be unfamiliar with company’s way of doing business, specifications, management style, and new country. Time and training are the best solutions. Penetrating growing middle-class in emerging countries LG is risking with delayed brand recognition, the way out is to supervise customers’ interests and intentions of purchasing in LG products. If positive brand image is created but prospects of harvesting marketing efforts is highly questionable, move the penetration up to the pyramid to upper-income class. LG Electronics 43

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