LG Electronics: The Blue Ocean Strategy

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Themes: Strategy
Pub Date : 2006
Countries : South Korea
Industry : Home Appliances and Personal Care Products

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Case Code : BOS0010A
Case Length : 31 Pages
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LG Electronics: The Blue Ocean Strategy


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The strategy was successful and GoldStar's exports crossed US$ 2.56 billion in 1992.

In 1995, the company changed its name to LG Electronics and embarked on its journey to become the world's leading company. In the same year, the company also acquired Zenith Electronic Corporation. 29

Globalization and innovation along with the new product development was the major strategy adopted by LGE to grow and penetrate global markets. It had strengthened its R & D activities by setting up 25 domestic and 13 foreign-based technology institutes and a research centre. The research network supported all LGE operations in the development of production technologies, core electronic parts, design concepts and next generator product lines. It had 7200 researchers (23% of total LGE's staff) at home and abroad. In 1998, Jahong Ku, the President of LG electronics proclaimed "Digital-LG Vision" under which drives like Six Sigma, TL2005 and Super A were launched to improve and maintain competitive edge and profitability through innovation30

In 2000, LGE and LG Information and Communication (LGIC) were merged to take advantage of LGIC's expertise in telecommunication systems and LGE's core competency31. In the same year it adopted a strategy of e-business to facilitate innovative practices such as e-R&D, e-procurement, e-Supply Chain Management (e-SCM), e-Customer Relations Management (e-CRM) and emanagement. The company formed strategic alliances in the digital television sector. (Exhibit VI) It partnered with GE for LWO (optical wave microwave), JBL32 for next generation audio and PBS33 for digital data broadcasting services. In collaboration with Philips, LGE formed LG Philips Display in 2001 which established a home appliance plant in Mexico.34 During the same period, the company focused on developing new types of networks for mobile phones.

In 2001, LGE reorganized into four separate companies to create a new corporate structure. The four companies were Digital Display, Digital Media, Digital Appliance, and mobile communication. (Exhibit VII) In 2002, LG Electronics was reorganized into a holding company structure in which business operation and equity investment were separated in order to enhance shareholder value. The holding company was named LGEI (LG Electronics Investment) while the business operating company continued to be known as LG Electronics Inc. (Exhibit VIII). The holding company focused on managing investment assets with surveillance on operating company's management. The operating company comprised business divisions, joint ventures and overseas & domestic subsidiaries while the holding company took care of affiliated companies in telecommunication service area and other related companies. The de-merger completely relieved LGE from the investment burden of its affiliates so that it could devote itself wholly to business operations.

LGE's long term strategy was "to maximize cash flow through sustained growth of cash cow business" such as digital appliances and telecommunication devices and to focus its resources on strategic businesses like organic EL, PDP and digital TV.

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29] Zenith Electronics Corporation was an American manufacturer of televisions founded in 1918 and had headquartered in Chicago. It was inventor of modern remote control. LG group had acquired controlling share in 1995 and rest of shares in 1999.
30]"Story of LG", http://ca.lge.com/en/experience/story/story_firstinnovation.jsp
31] "Annual report 2003" www.lge.com/annual report/2003
32] JBL is an American audio company founded in 1946 by James Bullough Lansing..
33] The Public Broadcasting Service (PBS) is a non-profit public broadcasting television service with TV stations in the United States
34] Royal Philips Electronics of the Netherlands is one of the world's biggest electronics companies, as well as the largest in Europe, founded in 1891 which manufactured incandescent lamps and other electrical products. In August 1999, LG had formed strategic alliance with Phillips.