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LG, South Korea’s cuddliest chaebol, wants a sharper edge

by Ace Damon
LG, South Korea’s cuddliest chaebol, wants a sharper edge

January 2, 2020

BEFORE LG EXECUTIVES reflect on a new product, corporate types in South Korea like to joke, they ask themselves, "Has Samsung ever done this?" Only if the answer is "yes," the fourth largest conglomerate in the country, which produces everything from consumer electronics and cosmetics to chemicals and healthcare products, go ahead with the plan.

The subject says a lot about how LG is perceived in its territory. Unlike Samsung, South Korea's biggest chase, involved in scandals, LG exudes reliability and compliance with the laws. When the government urged large groups to relax their complicated cross-ownership structures, LG was one of the first to do so. But affection may have hindered LG's innovative advantage. After years of profit growth, the group's performance began to show cracks. LG Electronics, its main affiliate, is struggling with gains in its mobile division, where it faces stiff competition from Samsung as well as Apple and Huawei from China. Many are wondering if the “follower” strategy that served LG well is still fit for purpose.

Koo Kwang-mo, group chairman, may be among them. The 41-year-old man took over in 2018 following the sudden death of his adoptive father, a descendant of the conglomerate's founder. Although it maintains an equally low profile compared to its predecessor, Koo is testing a more aggressive approach.

In November, he named Brian Kwon, who previously ran LG Electronics' mobile and home entertainment business, as head of the entire branch. Kwon's battle with Samsung on flat-screen TVs involved advertising explicitly mocking Samsung's QLED technology. Such boldness would be unthinkable under the old guard, says Park Ju-Gun of CEOScore, a corporate watchdog in Seoul. LG Display, which manufactures rival OLED technology used on LG TVs, is also under review. In September, its boss resigned unexpectedly and since then the company has laid off dozens of executives and offered redundancy packages to many workers. To maintain its leadership in large OLED panels, it has increased the capacity of its factories in South Korea and China. He also sacrificed margins by investing money in research and development, hoping to reach Samsung on smaller, more cost-effective screens used in cell phones.

LG Chem's new boss, Shin Hak-cheol, also has a reputation for taking risks. Last month, the chemicals arm (which, like most parts of LG, is listed but controlled by holding Koo chiefs) announced a joint venture with General Motors to produce batteries for its electric vehicles at a new factory in Ohio While demand for batteries is set to grow, LG will be exposed to the fortunes of a single automaker. These developments can be test balloons for a plan to adopt a less risk-averse strategy for the group as a whole. So far, investors seem impressed. Shares of LG's largest companies have fallen over the past two years; Despite all its scandals and well-deserved criticism of its governance, Samsung fared better (see chart). LG's efforts to differentiate itself from Samsung addictions are commendable. Koo may need to do more to mimic his groundbreaking virtues. ■

This article appeared in the Business section of the print edition, under the title "LG, South Korea's cutest chaebol wants a sharper margin"

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