LGEIN to shift to premium products in three years: CEO

Consumer electronics producer PT LG Electronics Indonesia (LGEIN) earlier revealed that it would invest up to US$15 million in the country this year, bringing its total investment in Indonesia to $90 million from 15 years ago. In a recent visit to LGEIN's factories in Legok, Tangerang, Banten, The Jakarta Post's Zakki P. Hakim interviewed LGEIN's new president director Kee Ju-lee on how he will lead the company and use the investment to help its principal South Korean firm LG Electronics Inc. becomes a leading global player. The following is an excerpt of the interview.

Question: What is LGEIN's plan for 2005?

Answer: This year, our focus is to extend our products ranging from commodity items such as conventional items such as televisions, refrigerators, air-conditioners and washing machines to premium items including flat panel television with plasma (PDP TV) and liquid crystal (LCD TV) technologies, as well as advanced refrigerators and new mobile phone handsets.

Why are you going to move from basic consumer electronics to premium items?

One is to shift the image of the LG brand from commodity products. We need to do that because in Indonesia, we have now low rate of premium products, while if you see in South Korea, the United States and Europe, the rate is quite high. Thus, if we shift to premium products, we will upgrade our LG brand in the country.

Are you aware that most Indonesians might not be able to afford your premium products?

Yes, therefore we cannot move 100 percent to premium products. We are doing it step by step. Within this year we plan to shift more than 50 percent of our basic items to premium products and to shift it altogether in three years. We are introducing our PDP TV and LCD TV, that way we will show our technology to the local market. The process includes switching from conventional CRT (Cathode Ray Tube) TVs to flat screen tubes, as well as shifting from one door refrigerators to two door refrigerators, before we eventually move to premium products. We are not directly moving 100 percent to PDP TV and LCD TV. The Indonesian market is still in the introduction stage for our premium products.

Along with moving toward premium products, what is your sales target?

This year we set our target for LGEIN to have sales of US$450 million, or up about 40 percent compared to last year.

What kind of new expansion or investment will you do to achieve that goal?

We expect to have new product lines for PDP Plasma TVs and LCD TVs. That is our main investment for this year. The investment will depend on the expansion of our current existing facility. We are still making all the calculations. We cannot provide detailed figures as yet.

Probably in the third quarter, we will be producing PDP TV in our new production line here, using PDP modules we import from China and South Korea.

Our strategy at the moment is to aim more for the commercial market such as shopping malls, office buildings and hotels rather than individual customers because of the price.

(Currently a 42-inch plasma television costs around $3,500, while LCD technology which provides a smaller, more affordable flat panel TV option-offers a 17-inch model at around $800).

Another part of the plan is to boost our handset sales. In CDMA handsets, we already have a business deal with fixed- wireless operator Mobile-8 Telecom. Maybe in March or April you will see Mobile-8 selling its service using our handsets.

This year we have a sales target of 400,000 CDMA handsets, while last year it was only 200,000 units. So we intend to double the sales.

As you may already know, our CDMA handsets sales are number one around the world, but our GSM is number six or seven or something like that. But, as globally we invest in our research and development and in our employees in developing both CDMA and GSM handsets, we have plans to launch our GSM units in the Indonesian market in the near future.

What have your superiors in Seoul told you to do prior to your arrival here? They must have briefed you, that you must watch this and that. What are they telling you to do?

How do you know that? (Laughing) Yes, there are several things that they told me to do. One thing we discussed was our production and operation. The Indonesian operation is not so active. They said when I move to the country, I have to make it more active.

The second thing is that even though the Indonesian market is for the low products right now, but that is not our direction. LG Electronics is now moving to premium products, so LGEIN must also follow that direction.

What is your impression of Indonesia then?

Indonesia is the fourth biggest population we have as a market. So compared to Thailand, Malaysia and the Philippines, Indonesia is much bigger, but here the consumer electronic market is for low products, not as established as its neighbors that have an established market structure for top, middle and low categories.

So we expect the Indonesian market potential to be as huge. This is the first time I have an been on overseas service in Indonesia, after five years in the U.S., two years in Hong Kong and six years in China. Compared to other countries, Indonesia is very good and challenging. Indonesia's market has great potential. I am very happy to live and work here.

Smuggling has been said to hamper the consumer electronics industry in the country. What action do you take regarding smuggled goods?

Yes, it is very hard for our company. It is very difficult for our products to compete against smuggled goods that are often sold at very low price. If I may ask the Indonesian government, please handle these kind of things. This is a disadvantage for us. We want proper competition in the local market.

Moreover, our concern is in the taxation policy. The higher the import tax is, the more difficult it is for us to compete with low price smuggled goods. Lowering the import tax is OK, however, on the other hand we still have to pay luxury tax for certain products.