LG's Kim: Life definitely good in India

The Korean consumer electronics giant that has been creating ripples across the world in the past few years is Samsung. According to Interbrand, a global brand consultancy, Samsung's brand value shot up an astounding 186 per cent in the past five years to $14.9 billion (Rs 65,560 crore) in 2004. Samsung ranked 20th, well ahead of the venerable Japanese giant Sony (ranked at 28th) in Interbrand's top 100 global brand ranking for 2005. Samsung's compatriot and the main rival globally, LG, was at a distant 97th position, its brand being valued at a measly $2.6 billion (Rs 11,440 crore). Not only that, Samsung's global sales at $56 billion (Rs 2,46,400 crore) were also 47 per cent higher than LG's $38 billion (Rs 1,67,200 crore).

That's the global story. Zoom into the Indian market and it's a totally different tale. Here, it's LG that rules the roost. There is no Indian version of Interbrand's brand survey to validate the point, but if consumer preference and sales across product categories are any indication, LG is a clear market leader, accounting for around 26 per cent of the Rs 25,000-crore Indian consumer electronics industry. Besides, it leads each and every major category and sub-category of around half-a-dozen businesses, including refrigerators, televisions, washing machines and microwave ovens, that it operates in (see LG All The Way). "The aggression that LG India has unleashed in the past four to five years (it spends 5 per cent of its total turnover on advertising and promotions) on the brand communication front, has given it the ubiquity it lacks globally. LG is a much more relatable name in India now than any of its competitors," says Harish Bijoor, CEO, Harish Bijoor Consults, a Banglore-based marketing consultancy.

That's a feat LG has accomplished in a span of only eight years. When it first entered the Indian market in 1993, LG used to be known as Lucky Goldstar, a descendant of a 47-year-old Korean enterprise that began with the manufacture of cosmetics, with a flagship product called Lucky Cream. It formed a joint venture with a local electronics firm Bestavision as foreign investment norms then didn't allow independent foreign ventures. The company (the name was changed to LG in 1995) became a 100 per cent subsidiary of its Korean parent immediately after the restriction was lifted in 1997. There has been no looking back since then.

"India has been a success story for us. In the past eight years, we have grown not only in terms of turnover, but also in terms of our brand awareness, recall and acceptance," says Kwang Ro Kim, MD, LG Electronics India. Adds VP, sales, Girish Rao: "On an average, we have grown 30 per cent year-on-year in the past eight years against the industry average of 10 per cent."

On an overall basis, LG currently enjoys a 29.4 per cent share (by volume) in refrigerators, 26.5 per cent in colour TVs, 35.8 per cent in washing machines and 38 per cent in microwave ovens. After its state-of-the-art manufacturing facility at Greater Noida in up, which was built in 1998 with an investment of Rs 500 crore, it set up another factory in Ranjangaon near Pune last year where it will invest Rs 900 crore over the next three years. The new factory has been manufacturing mobile phones along with all other consumer electronics products since October 2004. The company has already eked out a 6 per cent share in the GSM handsets business.

LG's turnover has grown at a scorching 5,100 per cent from Rs 125 crore in 1997 to Rs 6,500 crore in 2004-something that even its competitors marvel at. "To LG goes the credit of bringing life back to a lacklustre consumer electronics sector in India. Besides growing itself, LG has grown the overall market," says T.K. Banerjee, CEO, Haier, the Chinese consumer electronics company.

Mass Market Leader

But, not all competitors acknowledge Kim and his team's business acumen. The Korean giant is most often accused by its rivals for having played the game the wrong way. "LG introduced unsustainable price points in the market. It owes it success to its mass-market strategy," says the chief executive of a top company. His argument finds an echo in Samsung India's Deputy MD Ravinder Zutshi's assertion. "LG is a leader only in mass categories, whereas all the premium segments are ruled by Samsung."

Some even lay the blame for the debacle of several established players on LG's aggressive pricing strategy. Indeed, companies like Voltas and BPL faced difficulties in the last couple of years; the latter slipped into heavy losses (Rs 268.3 crore for the 18-month ended March 31, 2005) after its TV-manufacturing business went bust even as LG's TV business was gathering pace. But LG refutes such allegations.

"Even today, there are more than half-a-dozen brands that are priced 15-25 per cent lower than our products," says Girish Bapat, VP, Marketing, LG, pointing to home-grown player Videocon's Sansui and Akai brands. Experts maintain that prices in Indian market were traditionally higher than other global markets and that deterred the growth of the industry to a large extent. "Consumer electronics products couldn't move beyond metros and class A towns because the masses simply couldn't afford them," says Arvind Singhal, chairman, KSA Technopak, a management consulting firm.

Samsung's Zutshi: Is not ready to give ground; says LG is leader only in mass categories

The scenario changed after LG, with its low-priced products, forced its way into rural markets. Some experts maintain that the premium product categories, which are still quite steeply priced, will also have to go the same way. "To ensure a consistent growth and a better penetration, players will have to scale down the prices of niche products and introduce new variants in mass categories at a much faster pace," says Ireena Vittal, Principal, McKinsey India.

Meanwhile, LG's go-rural strategy has paid off in many ways. "It helped the company in achieving economies of scale. Hence, it could afford to reduce its prices, and push the sales further," says Singhal.

According to Rao, LG, on an average, generates more than 50 per cent of its total turnover from rural markets, whereas the industry average still is 70:30 in favour of urban markets. In fact, the Korean chaebol has one of the biggest rural distribution networks in the country. It has 72 remote area offices reporting to 86 central area offices, who finally report to 47 branch offices. Each of these offices has independent customer servicing, marketing and sales teams, which offer consumers tailor-made solutions.

"Unlike other MNCs, who come to India because it is another happening market, LG has shown determination to be a long-term player," says Bijoor. "Its commitment is reflected in heavy investments made in state-of-the-art manufacturing facilities, distribution network, communications and the keenness to strike a direct rapport with consumers," adds Singhal.

Big Ticket Spender

LG hasn't skimped on advertising and marketing either and has invested heavily in cricket, despite the sport being one of the most expensive properties for marketers. LG spent around Rs 250 crore on buying the sponsorship rights of two World Cups and three Challenger Trophies in 2002 from the International Cricket Council. It also has an array of stars like Sourav Ganguly, Srikant, Sunil Gavaskar and Yuvraj Singh as its brand endorsers. "Cricket helps in cashing in on the emotional bond the sport has with Indian consumers," says Bapat.

Videocon's Dhoot: Attributes LG's success to lack of competition; is now ready to give it a run for its money

It certainly has been good going for the Korean giant so far, but now the competition is stirring alive. "LG thrived all this while because there was no serious competition in the market; some of the top brands were either lying dormant or were consolidating their position," says Venugopal Dhoot, Chairman and MD, Videocon. He asserts that his company, with renewed vigour gained from the recent deals with Thomson and Electrolux (see Business Today, dated July 31, 2005, The Great Gambler) and surplus cash from the group's oil business of Rs 700 crore, will soon give LG a run for its money.

Meanwhile, others like Mirc Electronics (which owns the Onida brand) and Whirlpool have also got their act together, while Samsung and Godrej are firming up their expansion plans. If BPL's proposed Rs 1,400-crore restructuring plan sees the light of the day, it will be another player to contend with. Is LG ready to take on the new challenges?

"More than ready," says the trio of Kim, Rao and Bapat. Unlike all the other players (Samsung is an exception), it has an extended presence in all product categories, which gives it a broader scale. It is also exploring new areas of growth. While Samsung is gradually entering the mass segment, LG is pursuing the premium route. It has set up 75 exclusive LG galleries for high-end products like Dios refrigerators (priced Rs 50,000 and above), Whisen range of wall-mounted acs (Rs 50,000 and above), X-Canvas plasma screens (Rs 1 lakh and above) and also aims to boost its it product portfolio. A DVD writer plant in Ranjangaon, with an investment of around Rs 300 crore, is already on its way. LG expects these categories to contribute 10 per cent to its total revenue soon.

It may have had to cut its 2005 projections (see Slowdown In Durable...), but Kim and his team say that they are well on their way to meet their 2010 target of becoming a $10 billion (Rs 44,000 crore) company in India. Rivals chortle that such an ambition is a pipe dream and cite projections that the entire Indian consumer electronics industry (now valued at Rs 25,000 crore) will probably be just Rs 40,000-45,000 crore by then. Would LG then become bigger than the industry itself? Kim and his team may well draw attention to its past-when LG India grew 52 times in eight years. Or they could point to the company's pithy slogan, "Life is Good", and simply say that it is getting better!