The signature letters in LG Electronics Co. Ltd.’s name, back at the dawn of time when the company formed in 1958, stood for Lucky Goldstar. Whatever connotations that name might have once had undoubtedly would be lost on mobile-phone consumers in the United States today.
Thus the wisdom of the mobile-phone company’s shift to the corporate slogan, “Life is Good”-an effective rebranding that is emblematic of the shift the company has made in recent years as it established itself as the world’s fourth-largest handset maker. Last year the vendor sold nearly 55 million units worldwide, according to market research firm Gartner Inc. The greater LGE Electronics company (the original Lucky Goldstar, in the decades before wireless emerged in the 1990s) works in consumer electronics and durable goods; mobile handsets now represent about one-third of its business.
In the mobile handset business, LG is involved in both GSM and CDMA air interfaces and, in the United States it sports relationships with the top three carriers, with Verizon Wireless its main customer.
What differentiates LG from its competitors, in the vendor’s own look in the mirror?
Juno Cho, president of LG in North America, said recently that LG’s corporate differentiators are responsiveness to local markets and rapid time-to-market, two facets reflected in the company’s $100 million investment in research-and-development facilities in San Diego that are intended to drive its competitiveness in the U.S. market. Last year, the vendor briefly enjoyed the top position in CDMA-related sales and second-largest market share with a surge in sales in the first quarter, according to the company.
LG’s specialty, Cho said, is to merge an intuitive user interface with complex features to produce high- and mid-tier phones with an underlying theme of entertainment. LG releases products at high-end price points, then moves them to the mass market-a strategy it calls “mass premium.”
The vendor pursues co-branding in the U.S., though not necessarily in other parts of the world, according to Cho-a strategy apparently designed to leverage the vendor’s brand recognition in what is arguably the world’s premier consumer market.
All these efforts make LG the fastest-growing company in brand recognition and, in some cases, market share, Cho said. Its competition in the United States is Samsung Electronics Co. Ltd., which ranked third globally in Gartner’s 2005 year-end report on handset vendors; LG simply cannot aspire to compete with Nokia Corp. or Motorola Inc., which globally sell five and three times, respectively, the number of handsets that LG does.
Of course, analysts offer caveats and advice to this modest juggernaut-no single vendor can claim to have mastered more than a few market segments. LG’s focus on high-end and mid-tier phones has earned it its current position, but the vendor offers no smart phones for enterprise mobility, an increasing focus of U.S. carriers, according to Current Analysis’ latest report on the vendor. Moreover, to survive as Nokia and Motorola expand their market share requires that LG take “the low road,” according to analyst Jeffrey Wu of iSuppli.
“LG Electronics now faces a challenge,” Wu wrote in a recent report on the vendor. “While [LG] has several options, its best course of action is to engage with original design manufacturers for inexpensive phone manufacturing. This will allow LG to make a quick entry into the low end of the market while freeing it to pursue the high-end segment.”
Wu characterized LG’s first foray into entry-level phones priced at $50 to $60 in emerging markets as “only half baked.” The analyst pointed out that currently LG outsources the production of only 3 percent of its handsets to contract manufacturers. LG produces the bulk of its phones in so-called mid-range countries such as Korea, Singapore or Taiwan. In contrast, LG’s main rivals-Samsung, Sony Ericsson Mobile Communications L.P. and BenQ mobile-produce 75 percent, 100 percent and 74 percent, respectively, of their phones in low-cost countries such as China and Brazil.
Because low-cost phone manufacturing is highly automated, it is not just the modest cost of land and labor that makes low-cost countries attractive to volume production, but the proximity and access to competitively priced parts and components in the supply chain, according to Wu.
