LG Operations strategy Final Report
Founded in 1947 as Lucky Chemical Industrial Corporation, they established their electronics arm, called GoldStar in 1958. It did a sizeable business in manufacturing radio sets and went on to make one of the first and highly selling color TVs in Asia. Domestic competition led them to restructure their operations in early 90s, merging the two major business heads under a new name – LG Electronics. In 2006, they launched the now popular “Blue Ocean Strategy” to become one of the top 3 in the mobile handset market. However, their strategic alliance with Microsoft did not give the dividends they expected. In other segments of the consumer electronics industry, they stand in the top 4 globally. LG’s consistent revenue patterns can be attributed to their operational strategy, by means of which they have been able to keep costs down. In 2010 LG entered the smartphone industry. Following is a division wise breakup and the financial performance of the smartphone division of LGE.
Fig. 1 Division wise breakup
Fig. 2 Financial Performance of smartphone division of LGE
Final report for Prof. Kihoon Kim
Most of all, LG Electronics has as many global network in sales and manufactures as Samsung Electronics. Its brand awareness can stand even with Samsung Electronics. For research and development, LG Electronics maintains one of the most advanced technologies in smartphone and home appliance. Its smartphone and home appliance can compete against Samsung Electronics. Namely, strength in technology stems from robust research and development activity. 2. Weakness
Due to huge spending in marketing promotion, its profits can plummets significantly in case sales amount is not sufficient. More importantly, because of inappropriate management philosophy towards smartphone industry – consulted by McKinsey - LG Electronics has small shares in global smartphone market. And we can speculate that inappropriate management direction had been caused by high turnover in management.
Increasing demand of high technology products, being lowered entry barriers to new regions, FTA, and fast growth of emerging economies are a critical chance for LG Electronics to thrive in the future. But, those opportunities can be applied to other competitors, too. 4. Threat
Severe competitions for new technology will be one of biggest burden to LG Electronics in smartphone and home appliance. For examples, during a few years, we cannot find innovative advances in smartphone. On top of that, LG Electronics should catch up two giant players: Apple and Samsung as soon as possible in smartphone industry. If LG Electronics cannot overtake them in a few years, its future might be very similar to Sony. In addition, LG Electronics needs to consider China’s chase, for example Xiaomi. With cheaper price, Chinese competitors are pushing LG Electronics in order to make LG Electronics a loser in smartphone industry.
Final report for Prof. Kihoon Kim
Evolution of Supply Chain from Mobile phone to Smart phone
For studying the past changes in operational strategy of LGE we chose one of the factories in the Shandong province of China and compared the change of operation strategy from the days of mobile phone to smart phones.
LGE, in 2001~2003, built two mobile phone factories in Shandong, the coastal province of China. 90% of its products were for export. The mobile phone factories in China could accomplish the end-toend process of mobile phone production, with the following process:
Fig.3 Pre smartphone operational flow
LGE used the most cost-efficient way to purchase the components. For high value-added components like chips LG imported from Korea and other countries; for the general components like shell or battery LG purchased from China’s local providers and for the packaging materials like box or...
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