LG Electronics bids to conquer Europe

Korean giant LG Electronics has ambitious plans for European growth, with the $50bn company dropping its GoldStar branding in an attempt to steal share from Sanyo and Hitachi. But can it succeed?

The wisdom of any player entering a mature consumer market is always questioned. Two years ago the Korean car maker Daewoo announced its ambitions to, not just launch into the UK, but to grab one per cent of the market.

Rival manufacturers dismissed its ambitions. But within one year Daewoo, which has the support of a 31bn turnover conglomerate parent, hit its target. Now one of its fellow Korean companies, LG Electronics, is embarking on a plan to “do a Daewoo” in the electronics market.

Although it has had a presence in the UK since the mid-Eighties it is still only a minor player. A permanent office in the UK was created in 1990 and initial profits of 20m in 1991 rose to 65m last year, according to Mintel statistics.

But the appointment of Kelly Weedon Shute to handle its 5m account (MW July 26) heralds greater activity from the conglomerate, with a net worldwide value of $50bn (38bn). The plan is to take the brand and make it as well known in the UK as Hitachi and Sanyo, which each hold four per cent of the market, within five years.

The UK is seen as a beachhead for the brand’s development across Europe. It is to build a 1.7bn manufacturing plant in Wales to complement a video recorder manu- facturing plant outside Naples, Italy; a third that produces fridges on the outskirts of Worms in Germany; and a 26m washing machine and TV manufacturing site in Washington, Tyne-and-Wear.

By far its heaviest European investment has been in the UK, emphasising the importance of the market.

The company plans to achieve its ambitions with a twin-track approach. First there will be the advertising campaign but the company is also planning to reposition the brand by introducing new products over the next 12 to 18 months.

“There is over-capacity in the market,” says one senior industry source. “The only place to go in is at the top end where there is room for innovation. That is where LG will have to come in.”

Accordingly, LG will concentrate on technology products like computer monitors and printers. It also plans to launch high-quality consumer goods, one of which is thought to be a range of telephones. Its current product list in the UK ranges from microwaves to TVs, hi-fi and fridges.

LG marketing manager Bob Monk says: “Many of our new products will be more upmarket than our previous range. We want a different position for the LG brand name. And we will be looking for an increase in our performance in the next 12 months or so.”

The first move the company made to strengthen its brand image was to simplify its name. In June it announced that all its consumer electronic products under the GoldStar brand would be rebranded as LG. The official reason given was to erase the discrepancy between the parent company and the subsidiary.

The move will cost 247.5m worldwide and will result in the GoldStar name disappearing completely by January 1998.

In June Monk told Marketing Week: “The new name gives us the chance to launch the brand in this country as a mass-market player.” He added that the previous year’s advertising budget of 1.5m would rise “significantly”. It is now set at 5m. Kelly Weedon Shute partner James Kelly says: “Consumers don’t know how big LG is or how much it spends on research and development a year. We will be telling people how established a company it really is.”

The conglomerate employs 35,000 people in over 100 countries and manufactures in a vast array of sectors ranging from telecommunications to petrochemicals and electrical goods like washing machines and radios. The LG Group is made up of over 38 wholly owned subsidiaries, and a further 52 other joint ventures.

The group, set up by the Koo family of textile wholesalers in South Korea in 1947, saw that its predominantly female customers wanted cosmetics so it moved into the market under the name Lucky Chemicals. Customer complaints about some of the bottles the company used led the family to experiment with using different types of plastic and so began 49 years of expansion and acquisition.

In 1958 the group founded the GoldStar Company to manufacture electrical appliances. During the Sixties the company manufactured the first telephones, TVs and fridges in Korea.

Having exported products since 1962 it began to establish plants abroad in the Eighties. Its research and development labs in Korea, Ireland and the US spend $1m (750,000) a day between them. It is literally a rags to riches story. But LG Electronics is a worldwide company with minimal brand awareness in Europe.

Monk says: “At the moment awareness of our brand is relatively low, but in three to five years we want the same sort of recognition as Sanyo or Hitachi.”

The task is a large one and will not be easy – LG, which has spent almost ten years securing one and a half per cent of the UK market will have to make up two and a half per cent to catch Hitachi and Sanyo in half that time. The markets for appliances like TVs, radios and other household electrical goods are mature – to make headway LG will have to steal share from other players.

Monk admits this but says that the hi-tech fields are much more open. Its full-blown entry into the UK and other European markets over the next five years will be a test of whether he is right.

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