Monday, March 08, 2010

“No schemes! No gimmicks!!”

LG finally had it right the third time in india. now it is decisively upping the stakes

“Our determination for walking the full distance is unwavering. We would like to move faster but we won’t be impatient. A broad consensus in favour of industrialisation (in India) is gradually emerging and we trust that the respective Governments are doing their best...”

Yes, this is a comment from a Korean company on its commitment towards India. But while you may be tempted to think this is LG, it is actually a comment from Posco, when we asked them how, despite the problems with the steel plant, the company continues to stubbornly invest time and money in its India plans. While making steel and making consumer durables are like chalk and cheese, Posco’s determination may be due in part, to the inspiring forays of other Korean MNCs in India; LG in particular.

LG had earlier tested the waters with two unsuccessful attempts (in the form of JVs with Bestavision and Birla group). In March 1997, K. R. Kim (who was then working in Panama) was bought on board to spearhead the Indian subsidiary of the Korean consumer durable giant. Moreover, the market, which was led by the likes of BPL, Onida, Videocon, Weston, Philips, et al, was now changing. LG, along with the other Korean giant Samsung, proved more than a handful for the incumbents, with their aggressive pricing, promotion and distribution strategies.

Cut to 2009, the company has not only clocked a mind boggling turnover of Rs.107.93 billion in 2008 (with a growth rate of 18%) but is also aiming high for its next big fix – the $6-billion revenue target by 2010. But the initial experience of LG in India has not been a cakewalk as the key challenge for the company at the time was not of growth but of survival. From cultural conundrums to corruption, from office space hiccups to high attrition rates, the company had it all. In fact, there was a time when the durable giant had to bear the wrath of the local land mafia and criminal elements at its manufacturing base at Greater Noida in Uttar Pradesh.

But what came to the company’s rescue was their will to learn from their own mistakes and set out new rules of their own. For instance, in the late 1990s, when the competitors lured the dealers by giving them credit periods of 45 to 90 days, LG in fact asked dealers to pay in advance for its products. This helped them pick the right kind of partners from the crowd. Among the few initial strategies, which the company adopted, was a change in the management structure to suit the local requirements and backed by an understanding of Indian work culture. They vested the power in the hands of Indian employees in a big way with their own Foreign Service Employees (FSE’s) confined to just being facilitators. Interestingly, LG did not initially get into price wars, which was the vogue at that time in the segment. Their slogan was ‘No scheme, no gimmick, great products and honest prices’. But LG had to also deal with the image of ‘inferior products’ in some categories.

So, as the company realised it had greater potential in the lower segments, it went on the rampage with fierce price wars and sorted out penetration issues. Moon B. Shin, in an exclusive interaction with B&E, elucidated, “To increase brand awareness, LG sent vans across India, covering a distance of 5000 km every month and focused on building a strong dealer network.” These strategies gave it market leadership in many categories. As per 2008 figures (ORG-gfk), LG was commanding a share of 24% in ACs, 24% in microwaves, 27% in DVD players, and 23.1% in LCD TVs. Interestingly, LG later saw that the low end was becoming increasingly crowded and therefore launched its Blue Ocean Strategy. Now LG is consciously trying to play on the ‘best-in-quality’ positioning and deliberately commanding premium on price; knowing well that the ‘inferior’ perception is not a problem any more. The only problem is that key categories have seen decline in market share in India for 2008 (see B&E Corporation on LG in the issue dated February 6, 2009). Could LG’s second repositioning lead to confusion in Indian customers and decline in its fortunes? Indeed, it’s a sword that could cut both ways. They must use it very, very carefully.
For Complete IIPM Article, Click on IIPM Article

Source :
IIPM Editorial, 2009

An IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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