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THE GLOBALIZATION OF THE FIRM AND ITS LIMITS: THE EXAMPLE OF LG ELECTRONICS1

Dominique BARJOT Professor of Economic History, Paris-Sorbonne (Paris IV) University Rang-Ri PARK-BARJOT Doctor of Economic History, Paris-Sorbonne (Paris IV) University

Introduction Today, LG constitutes a good example of multinational and even global firm 2 . Consequently, it is offering an interesting subject for to analyze tension between local and global. Founded by Koo In-Hwoi, the group was born in 1947 under the name of Lak-Hui (pronounced Lucky, today LG chem.). Become Lucky GoldStar in 1958, LG in 1995, it knew, since 1958, a quick and impressive growth, with convincing results: from 2003 from 2003, LG sold 6 % of the flat-screen television sets bought in the world. Become in 2004 the third world manufacturer of mobiles 3G, LG reached to the world leadership for a time among the manufacturers of television sets (11 % of the world market in 2006). Since 2004, the group kept, in front of a strong competition, robust positions: second world manufacturer of plasma screens in 2007; fourth world salesman of mobile phones in 2008 (ninth in 2003); fourth world manufacturer of flat-screen television sets (seventh in 2003); third world manufacturer of household electrical appliances (fifth in 2003). Very creative in the innovation of product, LG today constitutes a world group counting 250 companies and 160,000 employees. But he always remains faithful to the Confucian values of his founder and house still under the family control. In fact, LG Group constituted for a long time an archetype of the chaebol (from chae: wealth or property + pol: faction or clan), i.e. a South Korean form of business conglomerate. In 2010 even if it is difficult to talk of chaebol stricto sensu, LG remains the third Korean family group both in terms of revenues and controlled assets, behind Samsung3 and Hyundai4. Because the recent restructurings of the Hyundai Group, LG Group appeared more probably the second, before Hyundai Kia Automobile Group:

The research was supported by the Academy of Korean Studies Grant (ASK-2009-R-01). This study is founded on the LG Electronics annual reports from 1997 to 2011 and on the book: LG Electronics, 5 years history, vol. 4, Seoul, 2008, 214 p. 3 Electronics, insurances, construction and shipbuilding 4 Electronics, insurances, chemicals, telecoms and trade
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Table 1. The most important Korean Groups in 2010 Revenues (trillions of wons) Total Assets (trillions of wons)

1 Samsung Group 2 LG Group 3 Hyundai Kia Automobile Group5 4 SK Group6 5 GS Group7 12 LS Group8 Source: The Bank of Koreas, 2010 Report.

221 115 107 105 49.8 20.5

317.5 69.5 128.7 85.9 39.0 14.5

Today, LG Holdings remains in fact the top two Korean corporation:


Table 2. The Korean top 10 corporations in 2010 1 Samsung Electronics 2 LG Holdings 3 SK Holdings 4 Hyundai Motors 5 LG Electronics 6 SK Energy 7 GS Caltex 8 Hyundai Heavy Industries 9 Samsung Life9 10 SK Networks10 15 LG Display11 18 LG Chem12 30 LG International13 Source: The Bank of Koreas, 2010 Report. Revenues (trillions of wons) 121.3 90.2 88.8 79.7 63.3 52.6 34.4 31.3 25.3 22.2 16.3 14.5 11.3 Total Assets (trillions of wons) 105.3 64.7 68.9 103.2 42.3 24.9 18.0 42.8 121.6 25.5 17.3 11.0 3.7

Second Korean business group, LG remains very powerful. Indeed, the LS and GS Groups were spun off of LG Group respectively in 2003 and in 2004, under the pressure both of IMF and Korean government. But LS Group always is controlled by the Koo family. On the contrary, GS was born of a spin-off between the Koo and Heo families. Consequently, convenience stores and other retail companies, which formerly operated under LGs brand, were rebranded as GS (GoldStar). The GS Group particularly controls 50% of the capital of GS Caltex, the second-largest Korean refiner, after SK, as the result of an historical joint venture between LG and Chevron Corporation, the second-largest US oil company. In spite of the separation between the LG, LS and GS, the first Group is constituted, around LG Holdings, of powerful subsidiaries (LG Electronics, LG Display, LG Chem and LG International) and even, through LG Group, LS Cable (35th corporation in South Korean). The strong position of the LG Group was the result of a performing, but fragile pattern of growth, (part 1). Nevertheless, in the long term, the LGs ascent really was a success, both founded on a vigorous strategy of product innovation and the passage of an aggressive internationalization to the world global firm (part 2). In this process, the Key was the choice in favor of electronics, through the most important subsidiary, LG Electronics (LGE).

Motors, steel and stocks Energy, telecom, trade and construction 7 Energy, shopping and construction 8 Steel, cable and energy 9 Insurances 10 Trade 11 LCD 12 Chemistry 13 Trade
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1/ LG ELECTRONICS: A PERFORMING, BUT FRAGILE GROWTH PATTERN

The LG Electronics success was result of a growth pattern founded on exports and realized in three successive periods. Consequently, in the middle of the 2000s, LGE remained a performing firm, but with financial fragilities.

1-1/ A quick growth export-based In 1947, Koo In-Hwoi founded Lak-Hui Chemical Industrial Corporation. In 1952, LakHui (or Lucky) became the first Korean Company to produce industrial plastics. After the Korean War, the firm launched some household products (not available outside South Korea), sold under the brand name of Lucky. The Lucky brand became famous for hygiene products as soaps and HiTi laundry detergents and, more generally, cleaners and cleaning products. Nevertheless, the brand was mostly associated with its Lucky and Perioe toothpaste. Before the industrialization, the term Lucky was synonym of toothpaste (in the same way as Kleenex indicates paper tissues in a general way). Around 1960, the company diversified to petrochemical activities, thanks to the joint venture with Caltex (future Chevron). It was the origin of Lucky GoldStar Petrochemical Corporation. A/ 1958: a decisive turning point In October 1958, Koo In-Hwoi founded a second company, GoldStar Co. Ltd (future LG Electronics Inc.). The reason was that GoldStar produced South Koreas first radio. It was realized in July 1959. Rather than sourcing parts for its radio from foreign makers, GoldStar choose to make its own components. At this time, GoldStar was the alone Korean producer to take this risk. Indeed, this first Korean radio included more than 60% of domestic components. But, both this one became the symbol of the Korean rebuilding and of the emergence of the modernity. Lastly, it was the origin of the Korean electronic industry. From 1962, the first Korean-made radio was exported to the USA. Consequently, GoldStar became the first Korean firm to surpass ten millions US dollars of exportations. It was the start of the ascent of the Group. B/ To long term, a quick and sustained growth Indeed, between 1958 and 2007, GoldStar, then LGE knew a quick and sustained growth:
Table 3. Annual average growth rates from 1958 to 2007 (in % and in current Wons) Sales Revenue Subscribed Capital Employees Annual capital productivity Annual labor productivity Source: LG Electronics. + 28.4 + 27.5 + 11.5 + 0.9 + 16.9

The growth was characterized by an intense mobilization of capital, but also spectacular gains of labor productivity. Nevertheless, LGE created numerous jobs: GoldStar had only 300 employees, but LGE employed around 82000 persons in 2007. 3

This growth was founded on a impressive breakthrough to export:


Table 4. Annual average growth rates from 1962 to 2007 (in %) LG Electronics exports (in current US dollars) LG Electronics net income (in current Korean wons) Source: LG Electronics. + 28.5 % + 23.7 %

But this export strategy was probably correlative, in the last period, of a declining profitability:
Table 5. Ratios of profitability in 1962 and 2007 (in %) 1962 Ratio 1=Net income Subscribed capital Ratio 2= Net income Sales Source: LG Electronics. 21.7 2.9 109.4 2007 16.7

It was clear: the growth of LGE was constructed of a succession of contrasted periods. C/ From the export-based growth to a leading role of domestic demand Indeed, to 1987, the exports constituted the leading sector of the growth, even if there was a relative slowing down since 1975-1978:
Table 6. Annual average growth rates from 1962 to 2007 (in %) LG Electronics net income (in current Wons) 1962-75 1975-90 1990-2000 2000-2007 Source: LG Electronics. + 33.2 + 18.5 + 27.0 + 12.7 LG Electronics exports (in current US dollars) 1962-78 1978-87 1987-2000 2001-2007 + 47.5 + 28.5 + 14.9 + 9.3

From 1987-90, the exports do not play the leading role. The pattern of growth was changing to the profit of the Korean domestic market. Consequently, the slowing down of exports growth brought about this one of sales and, also, of net income.

1-2/ The steps of a success

In the LG Electronics history it is possible to distinguish three important phases. A/ Breakthrough in electronics (1958-1979) In 1957, Koo In-Hwoi saw that new business opportunities emerged in the electronics industry. On October 1, 1958, he decided to launch the first domestic radio: it was the reason of 4

the GoldStars foundation. In June 1959, companys design laboratory at the Yeonji-Dong plant started designing the new radio model, including domestic components. On November 15, 1959, the first domestic radio A-501 came off the assembly line. With a strong governments support, during the 1960s, GoldStar developed its second radio, the transistor type model T-701. But the result was disastrous. The market demand was very limited due to the fact that most people in South Korea were on low incomes. In 1961, GoldStar had to seriously consider whether to keep or abandon the company. Fortunately, the situation was changing then the military government announced its decision to supply radios to rural and farming areas. GoldStar was founding a way to enter on the market. In the same year, Korea and, consequently, GoldStar witnessed its first domestic radio exports. The company, fueled by its success, challenged the communications industry with Koreas first automatic telephone in July 1961. Thanks to the opening, in 1964, of the Oncheong-Dong plant, at Pusan, the production of Koreas first electric appliances soon followed the radio monochrome TV, air conditioners, refrigerator, etc. Because of the companys remarkable development, the Korean electronics industry was beginning to flourish. However, on December 31, 1961, the founder of GoldStar, Koo In-Hwoi, passed away. It was the beginning of a new period, under the impulse of Koo Ja-Kyung. The 1970s constituted the golden age of the Korean industry, with an average of 9.7% annual economic growth rate. GoldStar, the leading company of the Korean electronic industry, was pursuing both external growth and internal strength. In 1966, the Korean government announced an electronic industry development plan, then, in 1969, the Electronic industry 8 year development project. In response to the governments vision, GoldStar was the first Korean electronics company to go public in 1970. Through the establishment of big plants (Gumi, then Changwon and Guro, in 1975), GoldStar laid the basis for upsizing, nation-wide expansion and internationalization. During the 1970s, GoldStar was marked with steady growth, recording 42.3% from its sales increase. In December 1975, GoldStar established the Korean private companys first-ever central research laboratory. At this time, the Korean electronic industry was focused in labor-intensive manufacturing and suffered of a technological gap. Facing this situation, GoldStar undercook the investment and chose to develop high-quality technologies. In 1977, GoldStar saw the production of its first color TV. At the time, it was difficult to expect when the color TV broadcasting service would start. Nevertheless, the company succeeded in introducing Koreas first domestic color TV, ten years after its initial production of monochrome TVs. In spite of the 1973s oil crisis, the rise in exchange rates and the subsequent economic emergency measures, the companys strenuous effort to develop new technologies finally paid. In 1977, the company was recording its historical sales of 100 billions wons; in 1978, it surpassed the 100 millions dollars of exportations. Gradually, GoldStar was strengthening, its position as Koreas leading electronic company both on the domestic and world markets. B/ A global actor: GoldStar, then LG Electronics (1980-1998) In the late 1970s, the Koran economy was suffering from negative growth caused political situation was severely impacting the social stability. 1/ Internationalization (1980-1988) Despite the situation, from the beginning of the 1980s, GoldStar started overseas production sites to become a global corporation. The company went to an efficient organization of international subsidiaries including its sales bases and branch offices. In 1982, the company was settling in Huntsville (USA), by establishing the first Korean production site abroad. The new subsidiary GoldStar America Inc. or GSAI) produced color TV, VCR and microwave. The companys international expansion was followed by the constitution, in 1987, of a West German 5

subsidiary (GoldStar Europe GmbH or GSE), then, in 1988, of another subsidiary in Turkey (Vestel GoldStar Electronics Sanayi Ve Ticaret A.S. or V-GS). GoldStar did not neglect technological research and development. In November 1984, the company established the Koreas first design research laboratory to puts efforts in design advancement and in high quality product development. In order to secure the highest quality standard, the company established Koreas first product testing laboratory. Indeed, the 1980s was characterized by an intense competition among the Korean electronics companies: it was the reason of the building of the technology-intensive Pyeongtaek industrial site. The company has built its success through aggressive technology development, diversification of the products, strengthening nation-wide supply chain and diversification of the exportation structure. In the late 1980s, the pressure of the developed countries urging the Korean market to open its door was reading its highest peak. More, the labor-management dispute, which started in 198, severely incapacitated the company, because it propagated from the mother company to the affiliates firms. Nevertheless, thanks a swift management innovation, GoldStar was growing in quantity as well as in quality toward the status as a world leading company. 2/ Innovation (1989-1994) In 1989, Korea was characterized by intense aspirations for liberty and democracy, provoking Korean industry labor movements. At the same time, within GoldStar, the labormanagement dispute was reading its maximum of intensity, driving the company into a grave crisis. Developed countries were strengthening their protectionism and GoldStars internationalization was reaching its limits. But the company upturned the crisis into opportunity. In 1989, with the appointment of President Lee Hun-Jo, GoldStar initiated a far-reading management innovation combined with a labor-management unity and human-oriented management policy. The Total Productivity Control (TPC) campaign was aimed at renovating the mind, streamlining the office work and the logistics, renovating the quality, etc. In February 1990, LG Group officially announced its Management Plan toward 21st century, based on the business and management structure innovation, management by culture unit, self-management and talent management. The Group also set its customer-oriented slogans: Value creation for customer or Human-oriented management. GoldStar initiated the management and reinforced its production infrastructure by establishing the Changwon n 2 plant and Gumi n 2 plant in 1991. The Changwon n 2 plant was aimed to produce common home appliance (washing machine, microwave oven and refrigerator). The Gumi n 2 plant was the companys strategic base specialized in the production of color TVs, which demand will be sharply growing during the 1990s. Based on the new management principles, Value creation for customer and Human oriented management, GoldStar doubled its activities and reinforced its commitment toward customer satisfaction. By establishing its production subsidiaries in various parts of Europe including the UK and Italy, GoldStar achieved a spectacular brand awareness improvement in this highly developed European market. Soon, worldwide establishments of the production subsidiaries followed in Asia and in Africa, particularly in China and Egypt, then in former Soviet Union and East European markets. GoldStar focused on the products innovation: for instance, in 1993, the company succeeded in the development of the Worlds first chaos washing machine incorporating the chaos theory. 3/ LG Electronics, global leader (1995-1998) In 1995, World Trade Organization was formed and the worlds trade order brought out radical changes. Competition for new opportunities toward the Chinese and Indonesian markets was fierce. In January 1st 1995, GoldStar gave way to LG Electronics. In the mid-1990s, with the 6

constitution of NAFTA (North American Free Trade Agreement), the enlargement of EU (European Union) and the expansion of ASEAN (Association of South-East Asian National), the economic blocks were strengthening and the imports restitution were growing, LG Electronics must become a global enterprise: it was the reason why, in 1995, LGE took over Zenith Electric Corp., the largest US home appliance manufacturer. In 1996, LG formed a joint venture with IBM, terminated in 2004. In this way, the company engaged in extensive investments in China, the emerging worlds largest market, and Indonesia. In 1996, the company strengthened its penetration into Chinese market by establishing a color cathode-ray tube production subsidiary in Changsa (China). To secure its position in Indonesia, the emerging strategic location toward the East Asian market, LGE established a comprehensive electronic production subsidiary in July 1997: the plant became the n 3 production site of the firm. In 1997, Korea faced the biggest economic downfall of its history. Indeed, the IMF exchange and the foreign exchange crisis hit the nation. Consequently exchange rates and interest soared and the Korean economy froze. The electronic industry was not immune to the crisis. Hyundai Electronics, one of the biggest firm of the Korean information home appliance industry, completely withdrew from the market; Daewoo Electronics was the subject of much anxiety and outrage. More, LG Groups semiconductor business was relinquished to Hyundai Elect ronics. LGE suffered from collapse in both the exports and the domestic market. Financing was becoming impossible, because the high finance rate imposed too severe burdens. Consequently, the company restructured its workforce its organization in order to strengthen its competitiveness, focusing on customer-oriented researches and developments. As a positive result, LGE positioned itself among the global top 3 air conditioning industry. C/ A spectacular recovery (1999-2007) In July 1999, LGE was the first Korean company to announce its Digital Management principle. 1/ Digital Management (1999-2003) According this digital management, the companys performance was particularly brilliant in the digital field. In 2000, LGE introduced the worlds first 60-inch Plasma TV and realized the worlds first development of the OLED (Organic Light Emitting Diodes) for the synchronousasynchronous IMT-2000 phone. In February 2001, one year before the official launch of the IMT-2000 service, the company succeeded in commercializing Koreas first asynchronous-2000 system. LGE strengthened global companies. In November 1999, the company established LG Philips LCD, then, in July LG, Philips Display (CRT business joint venture). Through the joint ventures, LGE acquired the worlds largest production capability. On April 1st 2000, LG Chemical was split into three separate companies: LCCI, LG Chem and LG Household & Health Care. In September 1st 2000, LG Electronics and LG Information Communication merged to form a new LG Electronics. With its combined leadership in home and mobile networks, the new unified corporate built the bases toward a world leading company in the digital industry. In April 1st 2002, LG Electronics divided the corporation to two companies: an operating company, LG Electronics, and a holding company, LGE. LGE was becoming a leader of the Digital Era. 2/ The People company (2004-2007) Under the impulse of its new CEO, Kim Ssang-Soo, from October 2003, LGE was willing realize its global management through three purposes: 1/ Value-creating labor-management relationship 7

2/ Accelerated innovation 3/ Great Company, Great People (GEGP) In order to impose LG as a world-class premium brand, the company was maximizing its profitability through the 30% reduction in cost, 30% increase in sales strategy. But, due to the fierce competition and excessive supply, the market price was falling sharply, above all in the display industry. LGE countered the crisis by new technological developments: in November 2004, introduction of the worlds first 71-inch Plasma TV; in 2005 and 2006, introduction of the 50-inch and 60-inch HD PDPS, incorporating the single-scan method. In order to strengthen its mobile phone competency the company established, in December 2004, the fifth overseas mobile phone R&D center in France, at Villepinte, near Paris, then, in February 2005, the Integrated mobile handset research laboratory, Koreas biggest single mobile handset research laboratory. In November 2005, LGE launched its famous Chocolate phone, which reshaped largely the company. The same year, LGE entered into a joint venture with Nortel Networks, creating LGNortel Co. Ltd. LGE was accelerating its global management. In July 15, 2006, LGE became the second Design Team of the year in Asia, behind Sony14. In 2006, LGE established two important production plant respectively in Russia (Ruzal) and in Poland (Wroclaw). In 2007, Nam Yong became the new CEO of LGE the launched the 6 Major Strategies principle (see later) for to create The People Company, i.e. a company which consists of best employees, best teams, best output. Consequently, LGE expanded it executive staff around 300 selected executive officers. At the same time, in July 1st, 2007, LG Chemicals merged with LG Petrochemical and LGEI, with LGCI, the holding company of LG Chemicals to form LG Corporation, Ltd. Nevertheless, the company did place technology advancement in first place. On January 2, 2007, LGE introduced its next-generation DVD player, the Super Blue, which supported both the Blu-ray disc and the HD-DVD disc. LGE was also choosing to develop the luxury mobile phone era, with its Prada Phone. During the same period, the company introduced a large variety of design-oriented products to the market. Worldwide accomplishments were also important. In July 2007, with Tromm, a model of the drum-type washing, LGE became the US leader in US market: it was the end of the 100-year reign of Whirlpool.

1-3/ At the beginning of the 21st century: LGE, a performing firm

In 2005-2007, LGE was characterized by a high level of internationalization, an appreciable, but declining profitability, and active strategy of investment. A/ An high level of internationalization At this time, LG Electronics knew a growing internationalization. It was the case of the firms manpower:
Table 7. The manpower of LGE in 2005 and 2007 Korea Number 2005 31,415 2007 29,496 Source: LG Electronics.
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% of total 43.6 36.7

Number 40,689 50,787

Overseas % of total 54.4 63.3

Total Number 72,104 80,283 % of total 100 100

Best design team price awarded by the 2006 Reddot Design Award.

But, the process of multinationalization was arriving to its term. Indeed, LGE really was a global leader and a world firm:
Table 8. Sharing our of the LGEs sales (in % of the total) in 2005 and 2007 Korea North America Europe China + Asia-Pacific Central & South America Middle East and Africa CIS Source: LG Electronics. 2005 25 23 19 17 6.5 3 6.5 2007 15 27 19 17 10 7 5

B/ A profitable firm, but a declining profitability Indeed, LGE remained a profitable firm, particularly in terms of return on investment capital (R2 and, even, R4):
Table 9. Ratios of profitability of LG Electronics from 2004 to 2007 (in % of total) 2004 24 64.9 5.1 25.5 30.8 11.7 2005 25.7 60.8 3.9 17.5 11.4 5.0 2006 23.5 145.3 2.3 14.3 4.0 1.8 2007 22.0 116.4 2.4 12.7 17.0 8.5

R1= Gross profit Sales R1= Gross profit Long term productive assets R3= Operating income Sales R4= Operating income Long term productive assets R5= Net income Share holders equity R6= Net income Total assets Source: LG Electronics.

Most certainly, the financial profitability (R5) remained satisfying, in 2006 excepted. But, the operating margin (R3) was regularly declining to a weak level. It was the same concerning the total profitability (R6), in spite of a sensible recovery in 2007. Indeed, LG Electronics knew a slowing down of its activity, but more pronounced for the profits than the sales:
Table 10. Annual average growth rates from 2004 to 2007 (in % and current wons) Consolidated LGEs sales Not consolidated LGEs sales Gross profit on sales (1) Operating income (1) Net income (1) Cash dividend (1) (1)Not consolidated datas. Source: LG Electronics. +4.9 -1.6 -4.6 -26.5 -0.8 -17.7

The fall of the operating income was strongest. But, LG Electronics benefitted of the sustained activity of its subsidiaries and its important financial or exceptional revenues. Nevertheless, it was necessary to scarify the growth of dividends. It constituted the imperative condition in order to preserve the LGEs investment strategy.

C/ First priority: to preserve the self-financing of investments The LG Electronics growth pattern was founded on the maintaining of the investment rate:
Table 11. The LGEs investment rate total and sharing out (in % of LGEs sales) 2005 Productive investment rate (1) R&D investment rate (1) Total investment rate (1+2) Source: LG Electronics. 3.7 3.2 6.9 2007 2.7 4.1 6.8

The main reason was the necessity to invest massively in research and development, facing the fierce competition both abroad and on the domestic market. Consequently, LGE had to scarify relatively its productive investments. Indeed, LGEs suffered of a structural negative working capital:
Table 12. Evolution of the LGEs working capital from 2004 to 2007 (in trillions of wons) 2004 -848 Source: LG Electronics. 2005 -1,202 2006 -741 2007 -1,596

Consequently, LG Electronics gave priority to self-financing on the other financing long and medium resources:
Table 13. The investments financing: LGEs structure between 2004 and 2007 (in % of total) 2004 Capital stock (1) Reserves (2) Long and medium term liabilities (3) Total of long and medium term liabilities (1+2+3) Source: LG Electronics. 9.5 50.9 39.3 100 2005 9.1 60.7 30.2 100 2006 9.7 61.2 29.1 100 2007 8.2 64.5 27.3 100

As a result, LG Electronics benefitted of a satisfying and growing level of financial independence:


Table 14. Evolution of the financial independence ratio (1) from 2004 to 2007 (in % of total) 22004 37.9 Source: LG Electronics. 2005 43.9 2006 44.9 2007 50.3

It was an imperative requirement in order to pursuit the LGEs growth.

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2/ THE KEY OF THE SUCCESS

At the origin of the LGEs success, there was both a vigorous innovation of products and an efficient strategy of globalization.

2-1/ A vigorous innovation of products

From the beginning, GoldStar, then LG Electronics were producing a continuous innovations flow. A/ A continuous innovation flow It was the case from 1958 to 1979, but also in 1980-98, then 1998-2007. 1/ 1958-1979: learning by doing In a first period, the learning by doing from 1958 to 1979, the purpose of GoldStar was both to respond to the elementary needs of the Korean people and to export basis products thank low production costs of the domestic manpower. In November 15, 1959, the first-ever domestic radio came out of the assembly line. Developing in-house components constituted a daunting risk. Nevertheless, the company succeeded in developing its own radio components, thanks higher rates of product localization. In July 7, 1961, GoldStar produced the Koreas first automatic telephone. It minimized the use of foreign components and had succeeded not only in providing its own specification, but also in furnishing in-home transformer, bell, screw and most of other core components. During the same year, GoldStar also succeeded in manufacturing telephone wires: it was the beginning of the communication industry. During the sixties, GoldStar was diversifying its activities: 1/ in April, 1965, introduction on the Korean market of the first domestic refrigerator GoldStars ongoing efforts to improve the quality and diversify the model of its refrigerator proved fruitful, for instance with the launching, in 1975, of its indirect-cooling refrigerator. 2/ in August 1st 1966, GoldStar introduced Koreas first television. Because the foreign exchange crisis, the Korean government did not allow importation of foreign component. But in September 1966, the company concluded an agreement with Hitachi, for the introduction of foreign technology and the government finally authorized the production. 3/ In March 1968, production of the Koreas first air conditioner, in 1967, model, thanks, a technology agreement with General Electric. 4/ In May 1969, introduction of the Koreas first washing machine, named White Swan. 5/ In October 10, 1969, the GoldStars Communication division became an independent business named GoldStar Communication. At the same date, the Wiring Division was separated from the company to establish the GoldStar Cables subsidiary.

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GoldStar was pursuing the same policy during the 1970s. In March 1973, the company introduced Koreas first cassette recorder on the market. From this date, GoldStar developed a wide variety of models that combined radio, television and cassette tape recorder. In August 1977, GoldStar started the production of its first color TV. But, because it was unclear when the color TV broadcasting service would start, the company concluded a technology agreement with RCA and the condition to export the whole manufactured lot. 2/ 1980-1998: An aggressive strategy of innovation After the launching of the first color TV, GoldStar concluded a cathode-ray tube agreement with Hitachi and obtained the approval of the Economic Planning Board in April 1st 1978 with the condition to export the whole manufactured lot. Thanks the construction of a new plant, in May 1981, GoldStar was in measure to produce the Koreas first electronic VCR. Two years after, in august 1983, GoldStar succeeded in the development of Koreas first CD player. In February 1984, GoldStar introduced the Koreas first microwave. The 1980s constituted also a decisive period for the R&D organization within GoldStar, with the establishment, in March 1983, of the Koreas first comprehensive design research laboratory, then, in September 26, 1985, of an important product testing laboratory: it was the first attempt among the Korean private companies. During the 1990s, innovation was relaunched by the economic crisis. Nevertheless, in August 2, 1994, GoldStar announced the merger and acquisition of the GoldStar Communications. By merging and combining GoldStar Communications dedicated technologies, the company gained force to accelerate its pace toward the high technology media industry. In January 1996, Korea initiated the worlds first CDMA platform-based digital mobile service. It constituted a revolutionary turnover for the Korean analog mobile phone market, which was at this time exclusively occupied by foreign equipments. Not only it transformed the mobile phone into a date-oriented comprehensive multimedia terminal, it also provided a solid background for Korean companies as LGE or Samsung to play a leading role in the development of digital mobile phones. The same year, in September, LG developed Koreas first 40-inch plasma display Panel (PDP), demonstrating its own advanced digital technology. Lastly, in March 1998, LG Electronics developed successfully the World first clutch less turbo drum washing model. This product greatly reduced the noise, tangling and fabric damage. 3/ 1998-2007: the global enterprise, between innovation and restructuring In November 1999, LG Electronics awarded the first Korea Design management Prize. The next year, in November 2000, LG Electronics and LG Information & Communication officially merged to form the newly unified corporate LG Electronics: the merging was not only aimed to gain synergistic effect, but also to become a world leader of the electronic communication industry. November 2001 saw the demerger of the company between its business operation and investment divisions: it was the birth of LGEI (LG Electronics Investment) Co. Ltd. and the new LG Electronics Co. Ltd. (see early). But the company also was continuing to innovate. In February 14, 2001, one year prior the official launch of the IMT-2000 service, LGE succeeded in commercializing Koreas first asynchronous IMT-2000 service. Shortly after the successful commercializing of the worlds first linear compressor, LGE introduced its first lines compressor incorporated refrigerator. In spite of a fierce competition of Matsushita (Japan) and Embraco (Brazil), LGE was the first in the world to commercialize this product. In 2003, LG Electronics recorded n1 in the world CDMA terminal market. According to the research of the Strategic Analytics (SA), the SUs leading market analysis organization, at this date, LGE supplied a total of 2130 terminals in the worldwide, securing the n 1 position with 21.6% of market share. In November 2005, the company introduced its first Black Label series 12

nicknamed Chocolate Phone. Less than two years later, in January 2007, LGE joined hands with Prada, the renowned luxury fashion brand, Prada, to develop a phone, incorporating the touch screen technology. The same year, LGE introduced simultaneously, in 14 European countries, its Viewty camera phone standard. Lastly, in March 2008, LGE launched its new Plasma TV model Bobos and its new LCD TV model, Scarlett. For the first time in the world, Bobos TV integrated a whole panel glass filter bearing the appearance of a large glass, and was the sole product to win the Best of Best innovation award among the TV category in the USs CES of January 2008. B/ On 2007, unequal competitiveness and profitability between the different branches The growth of LG Electronics Inc. was largely based on this one of its subsidiaries: in December 31, 2007, the investments in subsidiaries represented 17.7% of the company total assets, but contributed highly to the net income of the companys income before income tax (48.2% also in December 31, 2007). The fourth most important subsidiaries were MC, DD, DA and DM. 1/ Mobile Communications Company Mobile Communications Company was very successful, producing 80.5 millions of mobile phone in 2007 (+27%) and realizing 11.2 billions of UD dollars of sales (++20%). In spite of the relative fall of prices, the operating profit margin remained high (8.1% in 2007) and even growing (6.8% in 2006). The most important reasons were the successful launch of the Chocolate phone (15 millions units sold through the end of 2007), the partnership with Prada, and a constant effort of innovation (CDMA 3G phones). 2/ Digital Display Company Digital Display Company (DD) was producing LCD or Plasma TV. In 2007, DD was worlds n 4 producer of LCD TVs, with 14% of the global market. DD appeared more competitive concerning plasma TVs, because it was worlds n 2 producer, with 30% of the global market. It was the same concerning projectors (X3 of the number of units in 2007) and LCD monitors. In this last sector, DD was n 4 producer just behind HP, but its sharing out of sales had risen from 9% in 2000 to over 35% in 2008. In spite of the high level of sale (13.6 billions of US dollars in 2007 and +11% on 2006), the operating profit margin remained extremely weak (0.6% in 2007) because a ferocious competition. 3/ Digital Appliance Company Digital Appliance Company (DA) benefited more largely to LGE, with 12.6 billions of US dollars of sales in 2007 (+18% comparing to 2006), but an operating profit margin of 5.8%. DD was producing air conditioners (worlds n 1, with exceptional successes in Africa, Europe and Middle East), refrigerators (worlds n3), washing machines (leader on the US market), cooking, vacuum cleaners, built-in in appliances (above all Europe) and home networking, particularly in United Arabia Emirates, China, but also USA, South Africa and Europe. 4/ Digital Media Company Digital Media Company (DM) constituted the most profitable subsidiary of LG Electronics: with a total of sales of 5.8 billions of US dollars in 2007, the DMs operating profit margin was reaching 16%. DD produced home audio (world n2 producer, with 13% of the global market behind Sony 15.2%), home video (launching in 2007 of the RH100 Super Blue, the worlds first dual format HD disc player), mobile entrainment choices, car audio (n3 ranking

13

in Latin America), Security systems (+10% in 2007), optical storage (35% of the worlds market) ad notebook PCs. Thanks its subsidiaries, LG Electronics was becoming a World firm.

2-2/ LG Electronics in the global market: to a world firm

Indeed, in 2008, LG Electronics benefited of 83 overseas subsidiaries, 39 branch offices and 122 worldwide marketing organization. It was the result of a successful localization strategy. It consisted to maximize management performance, by establishing a strategy tailored to each countrys specific circumstances and to execute this strategy. Consequently, localization management strategies included production localization, R&D localization, product localization, human resources localization and marketing localization. In fine, the goal of LGE was to grow as a successful local corporation, not a foreign corporation that is successful on a local scale. A/ Access to the mature markets LG Electronics precociously was interested by nature markets, and, firstly, by North America. 1/ North America If GoldStar had set foot on the North American market for the first time in 1962, the breakthrough began in February 1978, with the set up of a branch in Canada, definitively organized in May, at Toronto. In August 2, 1978, LGE established an overseas subsidiary, GoldStar Electronics International Inc. (today LGE US), set up to create an independent sales network within the US. Then GoldStar created two others branch (Los Angeles, in December 1978, then Chicago, in November 1980). In the early 1980s, GoldStar began to establish overseas production plant: so on Huntsville in Alabama, in 1981. Thanks the long term financial support of the Alabama state, the new GoldStar America Inc. (GSAI, today LGEAI) began to produce color TVs from July 1982. Overcoming the first difficulties (high defect and low production rates), GoldStar was successful: opened successively three other plan (October 1984, January 1985 for microwave products, and 1987 for product storage). Opening the way to the other Korean firms, GoldStar established, in October 1986, at San Jose (California), a researchsubsidiary GoldStar Technology Inc. (GS-Tech). During the same month, LGE incorporated its Toronto branch (GoldStar Canada Limited, today LGECI). The success of GSAI did not last long. In the second part of the 1980s, the revenue growth rate of GSAI dropped. More, in 1988, GSAI faced a carriage paid to (CPT) anti-dumping suit by the US government. Consequently, always in 1988, GoldStar established a new production plant, GoldStar Mexico, SA de CV (or GSMX15), which, rapidly, began to produce color TVs for the North American market. Because the North American Free Trade Agreement (NAFTA), in 1994, GSMX because a veritable supply base for the North American market. In the middle of the 1990s, due to the stagnation of the market and to creased market share of Japanese products, LGE was having difficult in North America. It was the reason of the acquisition of Zenith Electrics Corp. Because the Zeniths business performance was not as expected, LGE sold the Zeniths plant through restructuring and re-established the firm as a marketing and distribution and R&D oriented company. In November 1999, LGE established Zenith as its 100% subsidiary. During the 2000s, Zenith was earning huge profits from the
15

Now LGMX

14

special procurements of digital TV. During the 1990s, LGE also was developing its activities on the big Mexican market. Indeed, in 1993, LG Electronics Mexico SA (LGEMS) launched its sales activity in full scale. Because the foreign exchange crisis in Mexico, in 1994 and 1995, LGEMS signed a strategic alliance with Electra, n 1 home electronics distributor, and changed its brand name GoldStar to LG. Finally, the sales volume was rapidly growing (X 6 from 1995 to 2001). Consequently, LGE captured the n 1 spot in the premium home electronics sector (plasma TV, LCDTV, DVD players), thanks an active popular spot sponsoring (soccer) and the creation, in 2000, of two subsidiaries, LG Electronics Reynosa Inc. (LGERS), and LGE Mexico Monterrey SA (washing machines, air conditioners, digital TVs, refrigerators), in order to conquest North America, the biggest digital TV market in the world. Indeed, LGE was becoming n 1 in the North American CDM telecommunications market. It was not evidence. With the cooperation of Qualcomm Inc and Next Wave Wireless Inc. in June 26, 1995, LGE established LG Infocomm USA Inc. (LGICUS), at San Diego (California). But the start-up of LGCICUS surprisingly was compromise because a lawsuit by its competitors during the process of acquiring a license from Next Wave and the Korean crisis in 1997. Finally, LGE decided to build the plant in Mexico. From 1998, LGICUS began to grow. It sought economy of scale and increased production by focusing on his core products (LGC, CDMA). Because customers dissatisfaction and preference, LGICUS reorganized in 2001, and relaunched its activities to become the top corporation in the US CDMA market. In May 2005, LGE released the Edge Phone, which utilized the next generation GSM-type, according to a technology issued from Cingular Wireless Inc., the largest telecommunications corporation in North America. Lastly, in March 2006, only one year and one month after AT&T, LGE began to provide the 3G service product. Also, the company was in measure to conquest the US leadership (63% of the US mobile phone market in 2007). At the same time, LGE achieved n 1 in the North American Home Appliance Market and succeeded brand in its region-specific marketing. 2/ European successes GoldStar was early interested to European market: exports to transistors radios in Greece and Austria (1964), then Germany (1969); establishing of branches in Hamburg (1974), then in England (1978). In November 26, 1980 was created the first overseas subsidiary: GoldStar Electronics Europe GmbH (GSE) in Dsseldorf. In 1986, GoldStar opened the plant of the GoldStar Electronics Deutschland GmbH (GSDG). It was the beginning of a progressive conquest of the West European markets:
Table 15. Subsidiaries and branches created by GoldStar, then LG Electronics in West European countries Date 1980 1986 1987 1988 1990 1991 1992 1996 1996 1999
16 17

Name GSE GSDG GoldStar LGEUK16 GSFS17 GSDT18 GSMK19 LGEE20 LGEI21 LGEMA22

Country Germany Germany Sweden United Kingdom France Ireland Hungary Spain Italy Poland

Type Sales subsidiary Production subsidiary Branch Production subsidiary Sales subsidiary Design research subsidiary Sales subsidiary Sales subsidiary Sales subsidiary Production subsidiary

GoldStar Electronics UK Ltd. GoldStar Electronics France Ltd. 18 GoldStar Design-Tech Ltd. 19 GoldStar Electronics Magyar KFT, today LGEMK. 20 LGE Espana SA. 21 LGE Italia SpA.

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Source: LG Electronics.

But the most important success was obtained in Poland. In March 1999, the constitution of LGEMA furnished a TV supplier within the European market, thanks a building up of a first plant, then a second, in July 2006, always in Wroclaw. Consequently, LG Electronics became n 1 spot in the plasma TV market in France, Italy, Germany, Poland and Romania. In April 2007, LGE established LGs Poland cluster, which dominated the European Flat TV market. It was the third largest cluster of the LG Groups, behind Pajoo-Cluster (n 1, Korea) and Nanjing (n 2, China). This cluster resulted, in September 205, of an agreement with the Polish government. It associated the module assembly line of LG Philips LCD (today LG Display), the polarizers of LG Chemical Ltd. LG Innotek Co Ltd and three other partners. On the UK market, in order to develop an efficient brand marketing strategy, in 2006, LG made business ties with Harrods: with the confidence of Mohamed Al-Fayed23, LGE opened a luxury product gallery. In the same way, LGE signed a first 3 year official sponsor agreement, starting in 2007, with Fulham FC and sponsored Korean players of the British Champions League. In March 2005, LGE began the operations of its European mobile phone R&D Center in Paris. It was the beginning of successful cooperation with major European Companies (Vodafone, T-Mobile, and Orange). B/ LGE in the local market: to conquest emergent countries LG Electronics also tempted to conquest emergent countries market: China and other East Asian countries, but also South and Central America, Middle East and Africa, Russia and other countries of the previous CIS. 1/ China During the 1980s, GoldStar planned a strategy for market entrance in China. from 1988, the company founded LGE HK in Hong Kong. In 1991, CSCN and LGEQH constituted a joint enterprise with China-Ling Water Supplies, Chang-Ling Ltd., for produce industrial pumps. Then LGE strategically selected the South, the Middle and the North regions along the Chinese coast. It was the origin of LGEHZ (Huizou, in October 1993), then, in 1994, the biggest joint investment as Korean home appliance company, including two firms, LPPSG (Changsha) in order to produce color cathode ray tubes, and LGESY, at Xian yang, specialized in TVs production. LGEs breakthrough accelerated with the successively establishment of a lot of new subsidiaries:
Table 16. The LG Electronics subsidiaries created from 1995 to 1997 Name LGSH SPDBJ (then LGETA) LGECH LGETR LGEPN LGEQH LGEND Source: LG Electronics. Date 1995 1995 1995 1997 1997 1997 1997 Sites Shanghai Beijing Beijing Taizhu Nanjing Qinhuangdao Nanjing Type Sales Sales Holding Production Production (refrigerators) Production Production (monitors)

22 23

LGE Mlawa The CEO of Harrods.

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The most important subsidiary was LGEs China Holding Company (LGECH). It constituted the command center of LGEs China business, but also the first holding established in China by a Korean Company. It purposes were to participate in shareholding of local companies and to conduct bulk sales activities of manufactured goods. From 1999, LG Electronics drew up a plan to enter into information industry. In order to promote the local production LCDs, CD-RW and MP3 players, the strategy consisted to set up major production sites in China and to establish local autonomous business structure (LGTOPS, created at Guangzhou in March 1999). In 2001, because the Chinas entrance into WTO (World Trade Organization), LGE accelerated the development of digital business operations, chanced the cooperation between the existing business model and e-commerce, searched to maximize business competences and to solidify its localization strategy. Consequently, the company created new subsidiaries: -LGEXT (Changchao, 2001), to produce CDMA handsets; -LGEQD (Qingdao, 2003), to produce GSM handsets. In December 2000, LGE built its China R&D Center in Beijing, then, in October 2005, the LG Beijing Tower in Beijings Central Business District. At the same time, in March, LGE was been choose as one of the 10 Powerful brands in China, with its 13 production plants, 1 R&D center and its 5 branches (digital display, TV, digital media business, digital mobile communication, home appliances). In 1993, the Treaty of friendship between China and Korea had benefited to LGE, but also generated a cutthroat competition color TVs, DVDs, refrigerators and washing machines. In response, LGE adopted four localization strategies: 1/ of production: to acquire a complete know-how and cost competitiveness that would secure 95% local outsourcing of its components. 2/ of marketing: to develop connecting in airports, hotels, government agencies, construction companies rather than direct marketing for consumers. 3/ of R&D (a research laboratory for each company, two design laboratories, one China Research Center opened in December 2002). 4/ of human resources, in order to utilize Chinas superior workforce for management resources: creation of two business schools at Berlin and Nanjing in October 2006, partnerships with Beijing and Tsinghua Universities, etc. This strategies became more and more necessary, because local companies in China were rapidly extending their forces, based on cost competitiveness from low-end to premium markets. With strong support the Chinese government, China was getting out of production oriented to basis sectors and into active investments for technological independence. As a result, in 2004, Lenovo acquired IBMs PC unit of business, Haier became the largest home appliance company in China and the BOEs acquisition of Hynixs LCD unit, based on a strategy to compensate for the lagged development of technology. Facing the Chinese competition, LGE made efforts to secure profitability by specialization, concentration and localization and launched successful campaigns of differentiated products (Beijing Olympic Games, in 2008, Shanghai Universal Expo in 2010).

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2/ Asia In early 1960s, the attempts of GoldStar for international market conquest started in Asia: 1/ March 1962. GoldStar had a business talk with Bano of Hong Kong regarding radio exportation; 2/ 1963, GoldStar began to export transistor radios to Thailand; 3/ 1967, Export agreement of GoldStar with the Vietnamese government; 4/ in April 1971. GoldStar established of the Tokyo office. Nevertheless, the breakthrough began really during the 1980s. During this period, GoldStar expanded its sales and purchasing bases in Asia by establishing international branches:
Table 17. The GoldStars international branches (or subsidiaries) constituted during the 1980s Name GoldStar GSJ24 GoldStar GST25 GSM26 GSCP28 IPO29 GoldStar Source: LG Electronics. Date 1987 1987 1987 1988 June 1988 December 1988 October 1989 July 1990 Site Jakarta, Bangkok Japan Manila Thailand Thailand Philippines Singapore Japan Type Sales branch Production plant Sales branch Sales subsidiary Joint production plant27 Sales subsidiary Purchasing office Sales network30

More, in 1989, GoldStar visited Vietnam, in spite of the fact that Korea and Vietnam had not established diplomatic relationship. During the 1990s, LGE focused on the quality issue and management innovation. Indeed, both Thailand and Philippines plants began to improve. Above all, the company was establishing both in Indonesia and in India:
Table 18. The LGEs subsidiaries in Indonesia and in India during the 1990s Name GoldStar LGEDI31 LGEDF LGSI LGEIL34 LGEIN Source: LG Electronics. Date November 1990 1993 1995 1996 1997 January 1st, 2006 Site Indonesia Indonesia Indonesia India Indonesia Comments Production plant of color TVs and refrigerators Production plant of pumps Production plant of electronics32 Sales offices33 Production subsidiary35 Merger LGEDI+LGEIN into LGEIN36

GoldStar Japan GoldStar Electronics Thailand Co. Ltd 26 GoldStar Mitr-Co. Ltd 27 With BMC, one of the leading corporations in Thailand 28 GoldStar Corporation Philippines (today LGEPH), jointly with Collins (Automatic Center Group), line largest distributor in Philippines 29 International Purchasing Office 30 LGE was able to purchase parts from the Singapore Manufactures at lower cost and supplied to the plant of USA, Europe and Korea. 31 LGE Display Devices Indonesia 32 In 1995, LGEDI built the biggest plant among the electronic business enterprises in Indonesia (90% of exports). 33 Lucky GoldStar India (software industry) 34 LGE India Pvt Ltd 35 It was the second largest electronics enterprise in India. 36 Indonesias second largest electronics corporation
24 25

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Then, during the 2000s, LGE captured n 1 spot in market share in India (since 2003), in Thailand and in Vietnam. In this last country the company created LG-Meca Electronics Haiphong Inc. (LGE-MH), on September 2003, then merged, in September 2005, LGEMH with LGE Vietnam co. Ltd. (LGEVN), its TVs monitor production subsidiary to form an unify corporation. In India, LG Electronics benefitted of five favorable factors: development of products in a way to suit the Indian peoples preference (support to medical centers), practice of on effective sport-marketing (sponsoring of the Cricket World cup Championship), strategy targeting the top 5% high-income class, concentration of its distribution and service sector, continuous improvement of the region specific marketing. Established in New Delhi in January 1991, LGEIL was becoming n 1 spot in market share (around 30% of the total) in TVs, air conditioners light storage units, washing machines, refrigerators and microwaves. It was the same in Australia, thanks to LGE Australia Pty Ltd (LGEAP), become, in 2005 and 2006, top spot in seven production lines (LCD TV, PDP TV, monitor, home theater, DVD recorder, DVD player, microwave. Created in 1994, LGEAP succeeded thanks to its remarkable marketing strategic: the symbol was the slogan Lifes Good. Representing the Australians philosophy of life, this slogan was rapidly adopted by the entire LG Group. 3/ South and Central America GoldStar first entered the South and Central American Market in the late 1970s, with the creation of two branches: Panama (1978), then Santiago (1981). In 1993, GoldStar was present in Bogota, Buenos Aires, Caracas, Panama, Santiago and Sao Paolo and benefitted of the GSPs37 plant in Panama. At this period, in 1992, LGE entered on the Chilean Market, formerly dominated by US and Japanese firms. It was a success thanks to AI38 washing machines (1994). Nevertheless, the most important results were obtained in Brazil, the largest market. In response to the high customs duties, LGE established two production plants in Manaus (September 1995), then in Sao Paolo (April 1996): it was respectively the origin of LGE AZ 39 and LGESP 40 . Consequently, LGEAZ seized, since 2001, the n 1 spot in the DVD player market and the n 3 in the TV and VCR market share; from 1998, LGESP captured the n 1 spot in monitor market share, the, in 2001, the n 2 in mobile phone market share. Pursuing an aggressive marketing, LG Electronics sponsored for instance the Sao Paolo FC and the FIFA World Club in Japan. LGE was also strengthening its partnership with the clients, particularly with Vico, the largest telecommunication Company in Brazil. In spite of the price competition, LGE was widening its gal with its competitors: for plasma TV, LGE dominated with 75% of the market share. LG Electronics also was very active in Chile, thanks LGE Inc. Chili Ltda. Located in Santiago, this subsidiary furnished, in 2007, 70% of the entire air conditioner. LGE Peru SA was main products tank n 1 in market share. Since 2000, LGE Colombia Ltda. was going in the same way, thanks to a spectacular demand increase (+60% in average from 2000 to 2007). Established in June 2000, LGE Argentina SA knew initial difficulties in 2001 and 2002, because the IMF foreign exchange crisis, but, from 2005, the mobile phone market began to grow rapidly. In January 2002, Ecuador branch was opened: six years after, LGE became n 2 on this market. In South and Central America, LGE was continuously developing region-adoptable products, increasing the brand image with premium products and closely managing clients by establishing branches in strategic areas. 4/ Middle East and Africa
GoldStar Electronics Panama SA, then LGEPS Artificial intelligence 39 LGE of Amazonia Ltda 40 LGE of Sao Paolo Ltda
37 38

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The breakthrough in Middle East was relatively tardive. In spite of the establishment of a branch in Kuwait, during the year 1979, the most important event was, in 1985, the constitution of a Turkish branch, in order to sell in Middle East thanks the local production subsidiary VestelGoldStar (V-GS). A joint venture with Vestel permitted the opening of a production plant in Mamsa, with the support of the Turkish government and in order to furnish TV components. It was the beginning of a first sales growth:
Table 19. Establishments of LG Electronics in Middle East and Africa during the 1980s and 1990s Name GoldStar GoldStar GoldStar GoldStar GSEE41 GoldStar GoldStar GSME42 Source: LG Electronics. Date 1988 1988 1989 1989 1989 1989 1990 October 1991 Site Dubai Cairo Teheran Jeddah Egypt Johannesburg Abidjan United Arabia Emirates Comments Sales branch Sales branch Sales branch Sales branch Production plant Sales branches Sales branch

In June 8, 1996, the company changed its brand from GoldStar to LG, with the purpose to matching Japanese brands. Another reason to changing the brand name was that competitors, including Japanese companies, were expanding their businesses in Middle East and Africa. LG Electronics divided this region into four: 1/ South African 2/ North African 3/ GCC (including Saudi Arabia, UAE) 4/ Others Middle Eastern Markets. Consequently, LGE was able to increase its name recognition in the vast Middle East and Africa (sponsoring of the Africa Nations Cup, LG Digital Music Festival in cooperation with BBC, medical services in Jordan, Kenya and Morocco, etc.). LGE was particularly interested by the great potential of South Africa. In October 1990, LGE SA Pty Ltd was created. In spite of the foreign exchange crisis in June 1998, LGSEA turned the crisis into an opportunity through cost reduction, building management infrastructure and unique marketing. In 2001, LGSEA was become n 1 market share in South Africa (38% of washing machines, 28% of air conditioners, 20% TVs). At the same period, LGE was very active in other countries:
Table 20. New subsidiaries created in 2000s by LG Electronics Name LGE AF43 LGE ATIL44 LGE MC45 LGE SR46 LGE LGE GF47 Source: LG Electronics. Date 1997 1997 2007 2007 2007 2007 Site Nigeria Turkey Morocco Saudi Arabia Iraqi United Arabia Emirates Comments Sales subsidiary Production plant Sales subsidiary Sales subsidiary Sales brands Sales subsidiary

GoldStar Electronics Egypt SAE GoldStar Electronics Middle East Co., then LGME 43 LGE Africa 44 LGE Turkey M. Arcelik 45 LGE Morocco 46 LGE Saudi Arabia 47 LGE Gulf FZE
41 42

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With the good results obtained, in Nigeria (55% of the plasma TVs market, 40% of air conditioners) and in Morocco (mobile handsets), the major event was the breakthrough of LGE ATIL, n 1 since 2004 in Turkey and exporter to 41 countries (Africa, Middle East and Europe). LGE succeeded in its marketing strategy. In 2007, LGE GF supplied approximately 10,000 units of home appliances to the Bavaria Hotel, the largest hotel chain in the Middle East, North America and Europe. LGEGF also supplied 15,000 units to 23 hotels of Dubais 37 majors 5 star hotels. Lastly, LGEGF succeeded with the mobile handsets market, firstly with the launching of the Chocolate Phone. In Middle East, LGE was become the number one for LCD TVs, plasma TVs and monitors. 5/ Opportunity in Ex-USSRs market opening LGE started to operate in Ex-USSR in 1990. If the company had established a Moscows branch in March, the most important operations were the agreement with Kirgiz Republic in October 30, 1990, concerning production facilities and export products, and the establishment, always in Moscow, of the CSI (i.e. Ex-USSR) region department head office. In 1994, the Almaty branch was opened in Kazakhstan, n 2 market of the region after Russia: LGE chose Kazakhstan as bridge head for advancing to the Central Asia. 1997 saw a sensible reinforcement of this presence in CIS. At this date, LGE began to publicize the LG brand (Korea-Russia Culture Festival in the Kremlin Palace). In October, the company established its subsidiary LG Electronics Almaty Kazakhstan (LGEAK), capturing n 1 spot in Kazakhstan market shares (around 30% in TVs, VCR vacuum cleaners). In LG Electronics expanded its business in creating the service subsidiary LGE Ukraine Inc. In 2007, LG Electronics had established an oligopolistic position in the Ukraine market, with the first market share, in concentrating its marketing on the top 10% of the Ukrainian people. Remained the leader in Kazakhstan, LGE also was interested in the two Baltic countries (Estonia, Latvia and Lithuania): in 2006, it created LGEV, in Riga (20% of the Baltic countries market). Nevertheless, the major investment was realized in Russia. In 1998, LG Electronics divided the Russian territory in six region (Far East, Siberia, Moscow, Vicinities, Saint Petersburg, Volga, North West), sponsored the Russia national team from 2002 to 2006, opened the LG Digital Library in the National Library of Moscow (July 2005) and, above all, opened, in September 2006, the Ruza plant. This one annually produced 1 million of LCD, PDP TVs, 600,000 washing machines, 250,000 refrigerators and 250,000 home theater units supplied to Russia, Belorussia, Ukraine, Kazakhstan and Uzbekistan. C/ To reinforce LG Electronics in South Korea LG Electronics was also strongly present in South Korea. To the end of 1970s, GoldStar knew a period of pioneering, characterized by the first attempt of marketing (1963), the opening of a sales department and a service center, established in the Seoul office. During this period, the number of electronic companies jumped from 27 in 1963 to 145 in 1968. But the major change was consecutive to the second oil crisis in late 1978. Indeed, from the revision of Act in 1981, the Hyundai Group entered in the electronics industry and the Daewoo Group acquired the electronics unit of Taihan Electric Wire Co. GoldStar responded by reinforcing its sales strength to increase sales growth, the opening of the first customer service (March 1981), the constitution of GoldStar Manufacturing Corp. (December 1981), the creation of the Gumi Training Institute to educate staff (1983). During the early 1990s, LG Electronics passed to a customer-based quality growth. Facing to the revision, by the Korean government, of the existing Consumer protection Law to further protect the rights of consumers, LGR introduced a reform of technology, service and image). In January 1995, Korea entered in WTO: GoldStar was uncertain of its survival on the 21

domestic market, where multinational corporations entered with their goods manufactured abroad. From April, LGE opened its first Hi Plaza store and increased to 14 the number of its stores48 preparing for the opening of the distribution market. More, in 1997, the IMF financial crisis caused massive industry-wide restructuring: with a sharp decrease in its exports and a stagnant domestic performance, LGE did not constitute an exception. From May 1998, LG attempted to improve productivity in the sales division. In April 2000, every agency and service center in the country changed their signs from the existing, LG Electronics Plaza to Digital LG. At the same time, Daekyung Distribution49 and Daenam distribution50 became a subsidiary of LG Electronics in 2002, names Hi Plaza Corp.. Lastly, marketing organizations of each division were integrated in the Korea marketing organization. In January 2008, LG electronics redistributed three previous local directors (North America, Europe, China), six local representatives (South-East Asia, South West Asia, CIS, Latin America, Brazil, Middle East & Africa) and on business system (Korea marketing) to light regional headquarters. Consequently the Korean marketing office became LGR Korea (LGE KR), a regional business operation that manages the Korean market. Thanks these efforts, since 2007, over 90% of the Korean electronics market is dominated by LGE and Samsung Electronics. Indeed, LGE is pushing ahead with Marketing mix differentiation and all-round CS (customer satisfaction activities based on STP (Segment, Target, and Positioning). In this context, B2B (Business to Business) strategy was expected to relatively accelerate compared to B2C (Business to Consumer). Profitability was to be worse due a slowdown in market growth and the price competitiveness of competitors. Consequently, LGE KR set a mid-long term goal to achieve stable profitability through products improvement, customer satisfaction increase and strengthening cost competitiveness.

Conclusion The international economic crisis of 2008-2011 was changing both general environment and the LG Electronics growth. The consequence was a fall of the financial results:
Table 21. LG Electronics in 2011: a crisis of the profitability (in % of total) Ratio 1= Net income Revenue Ratio 2= Net income Total assets Ratio 3= Net income Total equity Source: LG Electronics. -0.9% -1.5% -3.8%

But with around 91,000 employees en 2011, LGE remained the worlds second largest television manufacture and the fifth largest mobile phone maker. In spite of the world economic crisis, LG Electronics aims to make the company one global top 3 in terms of shareholder return, profitability, growth, sales and market share. In this way, the LG Group adopted, in 2007, three specific values and, consecutively, six strategies:

Organized in two brands, Hi Mart and ET Land Daekyung distribution was a company founded in 1997 and operating around metropolitan regions. 50 Daenam distribution had business operations in local regions.
48 49

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Table 22. LG Electronics strategy task Vision Three values Global Top 3 in Electronics & IT Industries 1/ Creating customer values through innovations and differential designs 2/ maximizing shareholder values 3/ Building an organization worth benchmarking Six strategies 1/ Focusing on boosting ROIC51 instead of simple growth 2/ Optimizing the portfolio 3/ Counter measuring the market bipolarization 4/ Technology innovation and design differentiation 5/ Strengthening brand investments 6/ Reinforcing global competencies Source: LG Electronics, 5 years history, vol. 4, Seoul, 2008, p. 199.

Indeed, the LG Group remains a strong economic actor. It controls very profitable subsidiaries. It is the case concerning LG Chem, LG display and, above all, LG Corp., the LG Groups holding:
Table 23. The profitability of the most important LG Groups companies in 2011 (in %) LG Chem. Ratio 1= Net income Revenue Raito 2= Net income Total Assets Source: Annual reports of LG Chem., LG Display and LG Corp. 4.0 9.4 11.3 LG display 3.1 LG Corp. 6.5

51

Return On Invested Capital

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BIBLIOGRAPHY

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