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CONSUMER DURABLES: LG VERSUS THE COMPETITION
Does India have it to give LG the $10 bn?
With Arch-Rival Samsung Nipping at its heels, LG is Rewiring its Business Strategy to focus on new Categories like 3D TVs and Mobile Handsets. Will that help Strengthen its Market Share? B&E does a Quick review of LG’s India Story and asks The Company a few Questions
Issue Date - 12/05/2011
 
LG gets its name from Lucky Goldstar, the name with which it first entered India in early ’90s, albeit unsuccessfully. It then changed tack, re-entering the country again in 1997 with a roadmap in mind. Being in the right place at the right time, and with some luck — having the right kinds of people at right times — LG went on to script its leadership saga in the Rs 65 billion Indian consumer electronics and home appliances market, from almost zilch.

The first of the men to take LG to the top was the iconic Kwang Ro Kim, who was at the helm of affairs for nearly a decade, and made LG the totem pole of the industry with his clever marketing and distribution strategies. He took the brand to the masses, making LG a household name and a $2-billion entity in a decade. Taking over from Kim was his protégé Moon B Shin, whose mandate was to take LG from the masses to the classes. He did that with panache in his roughly five years stint as the head of LG India. He focused on a premium brand imagery and product line especially in the home appliances space.

Life has been good for LG so far. But times have changed and with it the competition in the consumer durables space. With the start of the new decade, the winds of change are again blowing at LG’s headquarters in Greater Noida on the outskirts of Delhi. Going back to horses for courses policy, LG recalled Moon B Shin, and brought in Soon Kwon as the new managing director of LGEIL starting January 2011.

As of today, things look evenly poised for LG. It has grown at a CAGR of roughly 24% since 2000. And according to the GFK-Nielsen data for 2010, LG had a 30% market share in refrigerators, 27.7% in washing machines, 35.2% in microwave ovens, 27.3% in CTVs and 28% in air conditioners.

The company recently reported a healthy turnover of Rs 16 billion for 2010-11 fiscal, with home appliances and home entertainment together contributing 70%. The rest 30% came from three other product verticals: air conditioners 15%, LG Mobile 10%, and business-to-business solutions 5%.

LG has set an ambitious revenue target of Rs. 20 billion for the current fiscal, banking on rising incomes and growing urban households. Besides, the company is aiming to double its revenue to $9 billion by 2015, by growing at more than 25% year-on-year. This is more than the industry growth rate, which hovers around the 15% mark. If it’s able to do so, LG India will overtake LG Korea, which has sales of $7 billion but has to operate in a saturated market.

All these years, LG has been quite bull-headed in its approach to achieving stated targets with accuracy, following its strategy with a razor sharp precision. Its next target is to double the contribution of its Indian operations in global revenue from the current 6% to 12% by 2015. The big question: how will it go about doing this? And given LG’s open call to make India a $10 billion market by 2015, does India have it to give LG that much?

The character of the consumer durables industry has changed dramatically. New technologies like mobile and computing devices have taken precedence over household goods. Around 2006-07, LG had started well in these segments. It was the third-largest mobile manufacturer in India after Nokia and Samsung. Things looked on course. But, probably due to its intense focus on its core home appliances business and a lack of hit products in the mobile space, it lost ground to domestic Indian manufacturers and to rival Samsung, which has over 20% market of mobile sales compared to sub-10% for LG.

 
As things stand today, Samsung’s revenues are on a par with LG, and is likely to surpass it by the current fiscal. A Capitaline Neo data says LG India’s total income grew from Rs 5.6 billion in 2004-05 to Rs 10 billion in 2009-10, with a CAGR of 13.76%. On the other hand, Samsung had a higher CAGR of over 20%, and with an income upwards of Rs 11 billion it has already exceeded that of LG.

Domestic durables players such as Videocon, Mirc Electronics (Onida brand), Godrej, have upped their ante too. They have technologically improved and expanded their product lines, and with competitive pricing and an aggressive marketing strategy are looking good to nibble away market share from international players like LG and Samsung.

Specialised players such as Voltas and Hitachi in ACs and Whirlpool in refrigerators are another deterrent to LG’s rapid growth. It’s because of them that LG even after having aggressively upped its market share across segments, has barely been able to keep its share of the market intact over the past five years. In fact, in the crucial colour TV space, Samsung and Sony have stolen a march in the high-end LCD and Plasma segments, according to Crisil Research data. In air conditioners too, LG’s market share has come down to about 28% today, from a high of 35% in 2006-07. In the refrigerator segment, it has flattened out — from 26.6% in 2006-07 to 26.4% in 2009-10 — with a marginal drop. The story with the washing machine segment is no different.

What is even more worrisome for LG is the fact that Samsung and Sony have been consistently gaining market share in all the segments they operate in. Add to it, Samsung’s glorious success in the mobile phones and tablet segment, which has helped it to improve its overall brand recall and consumer touch-points. So has Sony with its enviable digicams and Vaio laptops, not to forget the Bravia TVs and PlayStations. So, does it mean that after reaching the glorious highs in the K.R. Kim era, all that LG has been doing is fire-fighting to protect its turf over the past five years? And has Kim’s successor Moon B Shin’s ‘going premium’ strategy not worked to the plan? That probably could be the reason why LG promptly brought in fresh thinking in the person of Kwon. Kwon was earlier heading LG Electronics’ Business Solutions arm. With B2B supplies contributing only 5% to LG India sales, it could be the next focus area for LG, especially as India is poised to become a major global economy, which will spurt B2B demand.

Kwon tells B&E that he is “understanding the dynamics in detail and will look at expanding as per demand.” As per him, the enterprise segment will have a special emphasis. “We plan to capture 10% of the market share in this segment in 2011...We are number one in several categories but to maintain our leadership is a relatively difficult task than to catch up with our competitors,” he mentions.

As head honcho of LG India, Kwon has outlined rural and mobile devices as other key growth areas, besides entering new verticals like air purifiers, built-in kitchen offerings, vacuum cleaners, water purifiers, etc. Obviously, LG is not going to compromise with its premium positioning. Even the latest water purifier it launched early April were priced upwards of Rs 35,000 in a segment dominated by players plying Rs 2,000 products.

          

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