LGEIN to shift to premium products in three years: CEO

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.