[Company analysis] LG Electronics (LG전자)

「LG Electronics (LG전자)」is a giant electronic product manufacturer, focusing on home appliances. This company is the pioneer of localization of electronic products such as vacuum tube radio, black and white TV, washing machine, refrigerator. Except for the smartphone business and semiconductor business,「LG Electronics」has almost equal level of scale with「Samsung Electronics」, their biggest rival. In addition「LG Electronics」has the world's highest market share in the home appliances such as washing machines, refrigerators and air conditioners.  It has a similar image to「Panasonic(パナソニック)」because they contributed to the localization of electronic products, they were No.1 electronic product manufacturer in each country, and their products are known for its excellent durability. The number of connected employees is approximately 37,698.

 

1. Company Profile

2. Summary and Features

3. Major Business

4. Financial Information

 

 

 

1. Company Profile

 

※Unit is KRW 10 million, as of 2019

Company name	LG Electronics Inc.
Company name (Japanese)	LGエレクトロニクス
Date of establishment	October 1958
Headquarters location	서울특별시 영등포구 여의대로 128
Capital	904,17
Consolidated sales	6,230,618
Consolidated operating profit	243,614
Consolidated total assets	4,485,988
Consolidated capital	1,683,834
Capital adequacy ratio	37.5%
Consolidated number of employees	37,698

 

 

 

2. Summary and Features

 

 

Establishment of 「LG Electronics」 

In 1947,  Koo In-hwoi(구인회), founded LG Group's parent company,「Lucky Chemical Co., Ltd. (락희화학공업사)」and initiated household goods business and plastic manufacturing business. Then, in October 1958, they established an electronic product manufacturing company called「Goldstar(금성사)」in Busan. This is the predecessor of the current「LG Electronics」. Immediately after its establishment, This company was actively engaged in localization of electronic products by releasing Korea's first vacuum tube radio "A-501", Korea's first transistor radio, electric fan, automatic telephone, black and white TV, refrigerator, washing machine, etc. 

 

And by 1969, the biggest rival,「Samsung Electronics」appeared. Prior to this, the relationship between Samsung and LG were not particularly bad, because their business areas were totally different. LG had chemicals and electronic products business. On the other hand, Samsung handled seasoning and woolen business. However, shortly after Samsung announced its entry into the electronic product market in collaboration with「SANYO Electrics(三洋電機)」, the relationship between the two companies sharply deteriorated.

In order to against「Samsung Electronics」which tried to introduce Sanyo's technology,「LG Electronics」realized they should improve their technology. Before that time, each factory of LG operated small-scale laboratory and of course, there was limitation. So, in 1976, they decided to establish the first company-wide central research institute as a Korean private company. Nevertheless, Samsung developed the first color TV in Korea faster than LG, and with the full-scale spread of color TV in the 1980s, the competition between both companies became harsh.

 

 

How 「LG Electronics」 became an industry giant

Since 1987, 「Samsung Electronics」has become the largest electronics manufacturer in Korea. However,「LG Electronics」did not accepted the lose easily. So, both companies continued competition by aggressively and rapidly introducing new technology in the 1990s and 2000s. And this kind of competition enhanced the ability of reading global trends, and eventually, this became the driving force that they overcome Japanese rivals. In fact, even until the era of CRT TV in the 90's, Japanese companies such as「Sony(ソニー)」,「Sharp(シャープ)」, and 「Panasonic(パナソニック)」had the highest market share in the world. Furthermore, in the LCD TV technology, the most advanced company in the world was「Sharp」and Japanese companies held 80% of the world's LCD production in 1997. 

However, at that time there was a definite difference between Japanese companies and「Samsung Electronics」and 「LG Electronics」, which was the investment decision strategy. In the case of Japanese companies, there was a high tendency to decide the investment scale for the next year, based on the results of the previous year. On the other hand, Korean companies tended to invest aggressively in anticipation of future market conditions, even though the results of the previous year were poor, in order to respond to new technologies as quickly as possible.

 

For example, if the market situation in 2001 was good, Japanese companies will decide to make a large investment in 2002. Then, in 2003, the market will be overproduced , and all the related companies become in the red. Then, the following 2004, Japanese companies will abandon their investment. On the other hand, Korean companies will invest in that timing. Then, in 2005, when the overproduction situation disappears and the economy is recovered, Korean companies will acheive significant profits. Then, Japanese companies will think market codition is good, they conducts invested in 2006. Then again, the market will be overproduced... This cycle was repeated. 

In fact, as for the business results of 6 Japanese companies and 2 Korean companies from 1998 to 2002, in the case of 6 Japanese companies, the sales are 41679 billion yen, which is a very high level, but the operating profit was in the red with 19.1 billion yen. On the other hand, in the case of two Korean companies, net sales are ¥ 211.2 billion, which is rather low, but operating income is extremely high at ¥ 439.3 billion. In this way, Japanese companies were unable to make a profit, so they became reluctant to invest in LCDs. And as soon as LCD TVs finally overwhelmed the CRT TVs,「Samsung」and「LG」dominated the global TV market. 

 

 

Strengths and weaknesses of 「LG Electronics」 

 

In consolidated sales compared to their rival「Samsung Electronics」, there is a huge gap. However, the difference between the two companies is not so large, except for the semiconductor and smartphone related businesses that are not handled by「LG Electronics」. In fact,「LG Electronics」also handled the semiconductor business in the past. However, during the 1997 East Asian economic crisis, LG's semiconductor business was handed over to 「Hyundai Electronics (현대 전자)」due to government policy. This former LG semiconductor business now become the current「SK Hynix (SK하이닉스)」.

In the case of LG's smartphone business, which is evaluated to be overwhelmingly weaker than「Samsung Electronics」, normally they are competing with「Apple」for second highest market share in Korea. On the other hand, they acheived the 8th highest market share in the world in 2019. However, this smartphone business is in the red. Although it is the red,「LG Electronics」is continuing the smartphone business, expecting the future expansion of the IoT market. And this is the similar case with the「Sony Corporation」. 

 

There is an image that products of LG have excellent durability. Currently,「LG Electronics」has the world's highest market share in the home appliances sector such as washing machines, refrigerators and air conditioners. In the case of home appliances except of TVs, they have maintained the top market share in the world since they exceeded the 「Whirlpool」in 2017. In addition,「Samsung Electronics」has high dependency on the semiconductor business and smartphone business, while「LG Electronics」has well balanced business results with low level of variableness in business performance.

However,「LG Electronics」has a typical top-down coporate culture with strict militaristic organization. Above all, rather than leading the market, and showing a unique strategy, 「LG Electronics」tends to copy the trends of their competitors, especially「Samsung」. This lack of originality in management, is considered a negative factor. Besides, although they have very high level of product quality, there is a image that the marketing ability is inferior than 「Samsung Electronics」.

 

 

 

3. Major Business

 

■ Home Appliance
Refrigerator, washing machine, microwave oven, vacuum cleaner, water purifier, etc.

■ Home Entertainment
TV, monitor, PC, Security device, Audio, Video, etc.

■ Air-Conditioning & Energy Solution
Home air conditioners, commercial air conditioners, etc.

■ Mobile Communications
Smartphone etc.

■ Vehicle component Solution
Automotive parts, parts design, battery packs, etc.

■ Innotek & other businesses
LED, Display & Network, substrate material, Optics Solution, Auto & Motor, etc.

 

 

 

4. Financial information

 

※Unit is KRW 10 million

		2017년	2018년	2019년
Consolidated sales		6,139,628	6,134,166	6,230,618
Consolidated operating profit		246,855	270,329	243,614
Consolidated total assets		4,122,096	4,432,844	4,485,988
Consolidated net assets		1,467,368	1,589,371	1,683,834
Breakdown of sales	H & A	1,847,078	1,931,734	2,146,599
		144,883	152,479	199,613
	HE	1,640,480	1,619,761	1,613,483
		133,655	151,851	98,002
	MC	1,115,771	797,876	596,389
		-73,684	-79,006	-100,976
	VC	333,857	428,764	546,537
		-10,695	-11,978	-19,494
	B2B	235,771	240,302	267,169
		15,190	16,785	24,690
	Innotek	674,702	727,829	771,152
		29,649	26,352	40,313
	Others	291,970	387,902	289,289
		7,858	13,847	1,467