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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About LG

Founded in 1947 as Lucky Chemical Industrial Corporation (LCIC), the company initially manufactured a cosmetic called Lucky Cream. . In 1952, LCIC became the first Korean company to enter the plastics industry to make cosmetics containers lids. As LCIC expanded its plastics business, it also established an electronic company, GoldStar in 1958.

In 1959, GoldStar produced Korea’s first radio which opened a new era for the electronics industry22 in Korea. (Exhibit IV). Until 1960 the sales volume was just tens of thousands but soon picked up to 1.34 million units in 1962 and by 1963, GoldStar was exported to the U.S. and Hong Kong.23 As sales began to improve, the company began to prepare for a more diversified business management and recruited proven business professionals to lead. It also began to establish mass production centers. In 1966, GoldStar introduced the first Korean-made black and white TV set. In 1969, when President Chul-hwui Koo of LCIC was appointed as the second Chairman of GoldStar, the GoldStar Group underwent a major management restructuring. In the same year, LCIC went public and GoldStar too followed the suit.

The Korean electronics industry with active support from the Government in the 1970s showed promising growth. GoldStar established large plants and secured a nationwide production base. The large plants helped the company to expand and sowed the seeds for globalization. In 1975, GoldStar established a central R&D centre to develop color TV, VCRs and computers. In 1976, the company produced the first Korean made color TV.

In 1977, GoldStar’s sales were over 100 billion. The export volume in 1978, reached US$ 100 million.24 After this the company laid the foundation for globalizing the Korean electronics industry.

In the early 1980s, GoldStar pursued profit-oriented operations and opted for a series of restructuring exercises to combat rising competition and to be effective in its efforts in globalization program. With the change in international trade scenario, it became essential for the company to establish overseas manufacturing bases to pursue international markets. GoldStar established a manufacturing subsidiary in Huntsville,25 U.S. in 1982 and other manufacturing and sales subsidiaries in Germany. The company established a subsidiary in UK (1988) and a manufacturing subsidiary in Mexico26 in1989. (Exhibit V)

The energy crisis and political unrest in the early 1980s had a negative effect on GoldStar’s growth. But the company was able to overcome the situation and by 1984, the total sales were exceeding 1.2956 trillion. 27 At this point of time GoldStar followed effective business strategies and focused on product diversification and strengthened its national sales channels in Korea. At the same time the company also focused on diversification of its export structure in international sales.

the late 1980s LG had adopted a new strategy focusing on quality of product and expanding marketing capabilities. When the South Korean government relaxed trade barriers, there was great penetration of foreign companies entered to compete with domestic firms including LGE. As a result, sales of LG products dropped by US$ 1 billion and profits deceased by 18% between 1986 and 1987. The company was able to challenge foreign companies by restructuring the organization and adopting a new management style with decentralized structure.28 From 1992 onwards the company focused on 'creating value for customers', highlighting its commitment to excellence for customers and internally helped employees to renew their devotion to customer satisfaction.

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22] Ibid
23]http://ca.lge.com/en/experience/story/story_beginning.jsp
24] In "Story of LG", http://ca.lge.com/en/experience/story/story_beginning.jsp
25] Huntsville was the county seat of Madison County, Alabama in the United States..
26] "LG Electronic Inc", https://210.18.104.227/cgi-bin/nph- 120025.cgi/010110A/http/dbic.datamonitor.com/companies/company/?pid=E81333A5-8192-426E-BB11-ED6D09B879EF, LG electronics Inc.
27] "Story of LG", http://ca.lge.com/en/experience/story/story_globalization.jsp
28] PR Bhatt, 'Global Strategy for Global Leadership: A Case of LG Electronics' 20 March 2005, www.bodhini.com/March%202005/prbhatt.htm,