Case Study 3

LG Electronics: Global strategy in emerging markets

Suggested case discussion questions

Q1 Explain how LG’s experience within its domestic market (South Korea) influenced how it expanded into the BRIC emerging economies

All MNCs are shaped, to some degree, by their domestic markets. In LG’s case, its emergence in Korea during the decades following the Second World War strongly affected its ability to expand into the BRIC economies. The domestic Korean market was highly competitive, which helped hone its ability to enact “come from behind” approaches in other locations as it was used to having to fight its way to the top. The Korean Government placed strong emphasis on R&D within LG’s home economy, which had a double-effect on it. First, the importance of high quality R&D enabling quick and effective localization of products and services was always central to its approach to expanding its presence within the emerging economies – this runs counter to much perceived wisdom that suggests emerging economies do not have infrastructure to support such a policy. Second, it built on its experience of working with governments, which it then displayed most effectively in Brazil. The Korean Government encouraged foreign direct investment which saw LG partner with Hitachi of Japan, again, allowing it to develop valuable partnership experience that would be brought to bear on joint ventures within emerging economies. Lastly, emerging within an economically disadvantaged South Korean economy gave LG an awareness of its social responsibility, which it displayed most effectively in India.

Q2 Compare and contrast how LG developed its presence in the Brazilian and Indian markets

There are several similarities in how LG expanded into the Brazilian and Indian economies. First, in both countries LG appears to be combining a ‘taking brands from local to global’ strategy, by ‘turning local engineering excellence into innovation on a global scale.’ Second, it utilized the incentives governments offered and the changes in government policy to maximize the benefits it was able to access. In India, a change in policy meant that it could launch a fully owned subsidiary, rather that joint venture with an Indian firm. While in Brazil, tax incentives and subsidized land were optioned to establish manufacturing plants. Third, it marketed itself in both countries through sponsoring national sporting events raising its brand recognition. Fourth, LG’s experience in Brazil directly influenced its strategy in India when it launched a fleet of repair vans to reach geographically remote areas at short notice. And last, localization of product and services provides a cornerstone of LG’s strategies in both India and Brazil. One area of possible divergence is in the employment of local staff to top management positions. We are informed that in India local employees occupy most of the top management positions within LGEIL and that this even resulted in some Indian staff being recruited back to Korea to manage parts of its niche analogue television business. Whereas, no mention is made of the percentage of local Brazilians occupying similar top management positions.

Q3 Looking to the future, explain the challenges ahead LG faces

The first main challenge facing LG is that in the emerging economies, where it had worked hard to establish itself, competition is increasing rapidly from both new entrants and revitalized old-timers. How LG responds to this, particularly in India and China, will be vital. The second major challenge that LG needs to address is its position in the developed economies, where established Japanese, European and U.S. companies have consolidated their positions while LG had its focus on the emerging markets. Therefore, in the future, LG has to successfully hold off local competition in the emerging economies, while simultaneously, coming up with new dimensions to its emerging market prowess enabling it to stake a claim in the developed markets as well. Analysts are divided on whether the capabilities it has built up in the emerging economies are transferable to the developed economies. However, maybe there is a third way. There are still large areas of Africa, the Middle East and Latin America that remain to be fully exploited by the LG machine. The experience and expertise LG has developed in the BRIC countries may find a more ‘natural’ outlet in these emerging, or yet-to-emerge economies.