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BW Businessworld

"We Are 95% Local"

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How the unpopular ‘Lucky Goldstar’ of the early 90s re-entered India as ‘LG’ in 1997 and — together with arch-rival Samsung — drove out most of the American and European brands as well as wiped out some of the domestic brands from the Indian market is a story that is told over and over at B-schools. But LG India managing director Soon Kwon says there is more to the company than just its success as a brand in India. In the seventeenth year of its India re-entry, the South Korean multinational, which is present in over 80 countries, attempts to penetrate deeper into the Indian market and use it as a springboard to other markets. Edited excerpts from a conversation:

How does LG India marry global with local?
In India, the width of the segments is large. Rural areas need small single-door refrigerators. In urbanised areas, a lot of customers are looking for bigger, twin-door refrigerators. Your success depends on how you can include these insights into your product development and channel strategy. We have been working  hard on this. In product categories such as TVs, cellphones, washing machines and air-conditioners, India may have the maximum variety as a country. 

Localisation of manpower, manufacturing and research and development (R&D) are very important. We are 95 per cent local in all our products. We also develop products here. We sell about 400 different models of LG products. About 90 per cent of our refrigerators, washing machines and air-conditioners are designed here. In TVs, about 50 per cent is local. We also have a 100 per cent-owned lab that focuses on future product developments.

Tense relations with China have forced many Japanese and Korean companies to balance India with China. What’s LG’s strategy?

Our initial plan was to set up facilities wherever there is market potential. Of course, we try to balance between countries such as China, India, Russia and Brazil. We do have some strategic allocation of resources. India is one of those countries where we have decided to put in more resources. Recently, the Chinese government has put lots of restrictions on foreign companies. But India is a very attractive market for any foreign company.

How often do you have products designed and made in India going to international markets?

We  export products such as refrigerators and washing machines, designed and manufactured in India, to Africa, the Middle East and other Asian countries. About 10 per cent of our revenue is from exports.         

About two years ago, it appeared that LG was not interested in the mobile phone and computer business. What has changed now?
Everywhere in the world, LG is coming back in the mobile segment. In the computer and laptop segment, we are doing well in some countries, but in others, we have decided to exit. We do not do laptops in India, but (sell) computer peripherals such as monitors and CD-ROM drives. The laptop business is very competitive and not brand-centric. So, we do not think it is viable in India. LG’s biggest strength is not IT or laptops. We would like to focus on mobile phones and other consumer durables. In the mobile business, the lifecycle is short. 

What’s the strategy most unique to LG India?
In the consumer durables segment, in some products, around 80 per cent of the business comes from rural and upcountry areas. We spend more time on product development than on designing marketing campaigns. This year, too, we have introduced a few India-specific products. We have an air-conditioner that repels mosquitoes through ultrasonic waves. It’s a very sophisticated product. Last year, we introduced a refrigerator — Power Cut Evercool. More than 50 per cent of Indian households have frequent power cuts. Tamil Nadu suffers for 12-13 hours a day. So, we designed a product that keeps food cool for a maximum of 10 hours.

Any India-specific distribution or marketing initiative?
Rural, upcountry distributors and small sub-dealers are big contributors to our business. To strengthen our reach in rural areas, we have put in extra resources. Providing customer service in those areas has always been a challenge. We are going to have franchisees in most rural areas of India. So, LG will be servicing those Indian customers.

Where do you draw the line between global standardisation and local customisation?
We import some global products here. We would like to introduce some global platform products to Indian customers, many of whom are very tech-savvy. We try a mixed strategy of Indian and global products. On the operations side, we try hard to run the Indian subsidiary with 99 per cent Indians. We have about 4,000 employees here, only about 40 of them are Korean expats.

Where do Indians stand in LG’s global hierarchy?
Most key stakeholders and position holders are already well known globally. Any time there is a need, we can send them to other subsidiaries. So far, we have not sent anyone.        

Customer preferences are converging and diverging at the same time. How does LG deal with that?
We have an R&D hub here that deals with local insights. The local teams have frequent interactions with our corporate R&D laboratory in Korea. We send many of the R&D engineers to Korea and let them work together. Seamless interaction between them is extremely important in understanding what is happening on the other side of the world and how we implement all that in our products. 

Is there any Indian strategy adapted by LG globally?
There are many. Our trade partners in Africa came here and tried to learn how we have set up our customer service. It is one area in which other markets would like to set us as the benchmark. Our success story in terms of branding and marketshare development is also a subject for them. In most consumer durable categories in India, LG has the largest marketshare — 37 per cent in refrigerators, 37 per cent in washing machines, 25 per cent in TVs and air-conditioners.

What is the biggest challenge you still face as an MNC in India?
For those who have almost 100 per cent of their manufacturing in India, the dependence on imported raw material is very high. Infrastructure has not been set up. The rupee’s value has come down by about 35-40 per cent in two and a half years. That’s a formidable challenge. 

What’s your internal assessment of when the market sentiment will improve?
We don’t see the consumer sentiment coming back soon. The government should put more focus on developing infrastructure. Business seems to be moving towards the service industry too quickly. From agriculture, it should move into industrialisation. But somehow it’s lacking there. For India to emerge as a more dynamic player in the global market, industrialisation is probably the most important development agenda for at least two decades. 

What’s preventing your vendors from setting up those facilities in India?
Scale. For anyone who sets up large semi-conductor or panel units, there is an opportunity. But look at China and how much effort its government has put in. Without a plan for it at the central government level, it cannot happen. They will need lots of tax subsidies at the initial stage. 

What is LG’s assessment of tax policies?
The tax policies are a little outside of global practices. They (the government) know that. But because of the fiscal deficit, they have to collect taxes. 

Have you cut production in your plants because of the slowdown?
I don’t think we have cut production at any plant. We took a strategic decision to get out of the CRT TV business. But that was said at the beginning of last year. LCD is completely gone. Other consumer durables (refrigerators, washing machines, etc.) have been stagnant.   

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(This story was published in BW | Businessworld Issue Dated 07-04-2014)