LG Electronics: The Blue Ocean Strategy

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Digital Appliance The Digital Appliance SBU was a leader and pioneer in home appliance products, like air conditioner, refrigerator, vacuum cleaner, washing machine, microwave oven, and other home appliances. LGE had developed the world's inbuilt TV refrigerator, ARTCOOL57 air conditioners, steam washing machines and many more core technologies for home appliance parts and products. Building on successful home appliance operations, the company was also expanding their business scope to have a greater emphasis on new product sectors such as commercial air conditioners, built-in kitchen appliances and home networks. Air Conditioners "We reported over 10 % operating margin from air-conditioner business last year, and profitability will improve further this year thanks to growing sales of premium products." 58 Lee Young-ha, CEO, Home appliances unit, LG

With an aim to create a niche market under blue ocean strategy LGE focused on system air conditioners and on high value-added large-capacity commercial air conditioners. The R&D investment was 10% of sales. LGE planned to increase its R&D manpower from the current 1,100 people to 2,000 people by 2008⁵⁹. Also, the company planned to expand air conditioner system production capacity at its Changwon Plant⁶⁰, and in the long term, build air conditioner production lines in Turkey, China, India, and Brazil to strengthen market accessibility⁶¹.

The global air-conditioner market was U.S. $2.6 billion in 2005, and total world sales of the product reached 51 million sets in 2004⁶². (Exhibit XIV) Air-conditioner sales returned profit margins above 10%, higher than other products such as washing machines and ovens for LGE⁶³. LGE estimated the air conditioner market to expand from US$ 21.2 billion in 2005 to US$ 29 billion by 2010, and hoped to garner US$ 3.5 billion in sales by 2010 to seize the world's top position.⁶⁴

Digital Media

With the global sales of $5.7 billion the digital media segment generated synergy with its audio and video (home theater, DVD recorder), digital storage (super multi DVD rewriter) and personal computer (desktop and notebook PC) divisions⁶⁵. Through continued technology innovation, the company had developed the world's first Satellite DMB notebook⁶⁶ in 2005. In particular, the company was actively penetrating multimedia product markets with mobile technologies, such as PDAs and MP3 players, and with composite products, such as super-multi drives and super-multi DVD recorders. This segment was also focusing on its Car Infotainment business.

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58] "LG Electronics Aims to Raise Air-Conditioner Sales," 12 January, 2006, www.appliancemagazine.com/news.php?article=9651&zone=0&first=1
59]Ibid.
60]First Changwon Plant was established in republic of Korea in the 1976 and other was in 1987 which produced household appliances like air-conditioner, washing machine, and refrigerator.
61]Ibid.
62]"LG leads global air conditioner market," 13 January, 2005, www.appliancemagazine.com/news.php?article=9651&zone=0&first=1
63]Press release, 13 October 2005, www.lge.com/about/press_release/detail/PRO%7CNEWS%5EPRE%7CMENU_10166_PRE%7CMENU.jhtml
64]Ibid
65]www.lge.com/about us
66]Digital media Broadcasting notebook, which was the notebook PC