LG sets vision to be world's best firm
With a new name for its electronics division and an ambitious plan to be one of the world's best, South Korea's LG Group is a conglomerate to be reckoned with. Johannes Simbolon of The Jakarta Post joined a group of Southeast Asian and Australian journalists on a visit to the company's Korean facilities.
SEOUL (JP): At all the manufacturing plants of South Korea's LG Electronics (LGE), signs plastered on the walls read "LG the Best Global Company". This may be wishful thinking at present, or a grand vision as LGE calls it, but the company has set its sights firmly on fulfilling the goal.
"The company aims to become a world class electronics company by 2005," LGE brands management team manager, Paul Chung, confirmed to a group of reporters from Indonesia, Australia, Malaysia, Singapore last week.
LGE, formerly known as Goldstar Co. Ltd., is the flagship of LG Group, South Korea's third largest chaebol (conglomerate) after Hyundai and Samsung.
Aside from electronics, the LG Group, previously Lucky Goldstar, is also involved in chemicals, energy, machinery, metals, trade, services, finance, sports and other sectors through its 114 subsidiaries and 169 branch offices in 171 countries.
The plan to become one of the best global companies was drawn up early last year in Bali at a gathering of the LG Group's 500 senior managers, including 40 presidents of LG affiliates.
The landmark meeting formulated a long-term plan called Quantum Leap 2005, which projects the group to break into the ranks of the top 10 international companies.
If all runs according to plan, LG Group will achieve annual revenues of US$385 billion in 2005, a sixfold increase over its 1995 revenues of $64 billion, with an average growth rate of 20 percent per year.
The group, which selected LGE as the prime mover in reaching the goal, booked total assets of $50.456 billion as of Dec. 1995
The 41-year-old LGE, Korea's pioneer consumer electronics company, is a global manufacturer of electric and electronics products with 52 branches, 25 sales subsidiaries and 23 manufacturing subsidiaries outside Korea.
LGE produces multimedia products like TVs, CD-ROM drives, computers, and home appliances of washing machines, refrigerators, air conditioners and microwave ovens.
In Indonesia, it has a set up a wholly owned company, PT LG Electronics Display Devices Indonesia, with a $250 million plant in Bekasi, West Java. The company produces video cassette recorders (VCR); television tubes, technically known as color picture tube (CPT), and computer monitors, technically known as color display tube (CDT).
It has also set up a joint venture with Indonesia's conglomerate Astra International called PT LG Astra Electronics. It now operates two manufacturing plants worth Rp 150 billion ($62.5 million) in Tangerang, West Java producing TVs, refrigerators, freezers, air conditioners, washing machines and microwave ovens.
LGE also produces pumps in Indonesia in a joint venture with Bangunindo Group.
LGE achieved worldwide sales of $8.9 billion in 1996 and plans to generate $11.3 billion this year. It targets gross sales of $78 billion and a return on investment of 15 percent by 2005.
The LG group is also involved in a wide range of business activities in Indonesia through different business divisions. LG Chemicals established a plastic plant in cooperation with Sinarmas Group. LG Engineering also operates a construction company in cooperation with PT Lukindo Technics.
Expansion
Like other South Korean chaebol, the LG Group's initial focus was on its own market. It began looking for manufacturing bases overseas in the 1980s as wages climbed rapidly at home in tandem with domestic economic growth.
The Quantum Leap 2005 identifies its future of LG outside Korea. By 2005, 50 percent of the group's sales will come from outside Korea, up from 30 percent at present. LGE estimates 70 percent of its products will be manufactured at its overseas plants that year, up from 17 percent now.
The group is committed to considerable investment in strategic markets around the world.
In 1995, LG announced a $4.5 billion investment plan in Southeast Asia and India by 2000 for several sectors, including electronics and multimedia. Last year, it announced plans to invest $10 billion in China by 2005 for different business sectors; $2.6 billion to build a semiconductor and electronics complex in Wales, and $2.5 billion investment for other parts of Europe.
In Asia, LGE sees China and Indonesia as two prime markets and manufacturing bases. It has three production plants in Indonesia, the most in Asia outside Korea and China. It plans to invest in Indonesia another $200 million by 2000.
Due to the big investment LGE has made in Indonesia, the company is considering moving its representative office from Singapore to Jakarta, "The plan has yet to be confirmed by (LGE chairman) John Koo," LGE public relations managing director Kun- Young Ha said.
Chung said LG was committed to transferring technology to its foreign partners.
LGE routinely sends its foreign workers to South Korea for training to improve their skills and technical knowledge. LG Astra alone has sent more than 100 of its 600 workers to Korea under this program since the establishment of the company in 1991, LG Astra plant manager Dong-Ho Song said.
LG estimates 20 percent of its workers will be non-Korean. The company has prepared a program, called localization, to anticipate this development. The program gives opportunities to talented local people to reach the top ranks of the company, said Chung.
"The new LG is not a Korean multinational company," company chairman Bon Moo Koo says in the company profile. "It is a global company with regional headquarters in key locations around the world and a home office that happens to be in Seoul, Korea."
Technology
LGE is aware that the key to succeeding amid tighter competition with world-class brands is technology.
The U.S. Gallop Research, in a worldwide consumer survey funded by LGE, found the GoldStar TV brand ranked third together with Samsung, Sanyo, Toshiba and Mitsubishi. Sony ranked first, followed by Phillips and Panasonic in second.
According to the survey, people prefer buying Sony, Phillips and Panasonic to GoldStar, but they said many consumers underestimate Goldstar's quality.
"The public is not aware that we have good quality products," said Chung.
LGE opened its first Research & Development (R&D) center in 1975, the first South Korean R&D center. Now, it operates 20 domestic and eight overseas research centers.
According to Chung, the research centers have developed some "world-first" products. These include the world's first handheld PC with a built-in wireless data communication module, launched on the market last year, and the world's smallest personal data assistant (PDA), called the Multi-X PDA, also launched last year. The latter is a handphone with additional functions as a pager and facsimile.
LGE has also forged a strategic alliance with key multimedia industry leaders such as IBM, Oracle, Motorola, Phillips and Sony, said Chung.
To reach its goals for 2005, LGE has also increased its budget for R&D to 8 percent of its revenues starting this year, up from 6 percent last year. Electronics industries on average allocate 4 percent of their budget on R&D, said Chung.