LG

SUBMITTED BY
SUBHAM CHAKRABORTY
PGDM

Porter’s Five Forces

Rivalry among Competitive Firms

The enduring conflict with Sony and Samsung for the purpose of gaining customer share is
too high. The competition is more intense as these firms pursue strategies that give
competitive advantage over the strategies pursued by its rivals.

Potential Entrants

Potential entry of new competitors is an important factor to intensify competition in the

industry. Larger the band of new entrants, more intense will be the competition. Considering
the trait of product differentiation,

Development of Substitute Products

LG faces stiff competition by substitute products producers firms especially when the
switching cost of the customer is lower, and when the functionality and quality of the
substitute product is better. On account of this reason, LG has to monitor its trend for the
purpose of tracking those strategies as it may face competition not only from similar industry
but also from different industry. But LG, Sony and Samsung have penetrated into the
industry for a long time and they have created economies of scale, product differentiation,
strong familiar brands, that will make it difficult for new brands to enter the industry.

Bargaining Power of Suppliers

The bargaining powers of suppliers affect the intensity of competition for LG on account of a
large number of suppliers, and less availability of raw materials. Based on these attributes,
the suppliers of LG have the power to enforce certain terms and conditions on manufacturers
by charging a high cost of raw material.

Bargaining Power of Buyers

A buyer group is powerful if it purchases in large volumes. The bargaining power of
consumers of LG is more, as products are not differentiated and widely available. In this case
consumers of LG can ask for more discounts, extended warranty and services. As the
satisfaction level of consumer goes up, the intensity level of competition increases. As a
result, LG has to monitor the strategies of its competitors by taking into consideration the
likes and dislikes of its customers.

PESTEL analysis

 Political:
 The role of the political factors has grown more important in the 21 st century.
Government and political regulation of businesses can have a deep effect on business
and profitability. Moreover, the political environment of a nation bears a direct
relationship with the economic environment of the country and in this way gets to
effect businesses by influencing consumer confidence. It is especially true about
countries in Asia where a large part of consumer electronics companies like LG’s
supply chain is located.
 The Chinese suppliers are a large part of consumer electronics companies’ supply
chain and China itself is developed and fast growing market. So, the political
environment in countries like China and India gets to influence the sales of these
companies in these markets. Political disruption in these countries can disrupt the
supply chain and operations of the companies in this market. Moreover, for an
international company like LG, the geopolitical changes and other threats like
terrorism also pose big risks. Political relationships and trade pacts between nations
also have a major influence on international businesses. It is easier for LG to conduct
its business in countries with which South Korea has friendly relations or a trade
agreement. In this way, the political factors can have a deep impact on the
profitability of international brands like LG.
 Economic:
 Economic factors can always have a direct impact on the profitability of international
businesses. Apart from the recession we have seen major fluctuations in the global
economy in the last ten to 15 years.  While economic slow-down affects consumer
confidence and brings down spending, it can affect the productivity and profitability
of businesses too. Several thousands of businesses saw their profits being badly
affected during the recession. People were laid off in millions and overall, the
scenario was very poor for large international businesses. With economic activity back
on track, the situation has kept growing better with time.  Now that the recession has
 passed and economic activity has gone high in several nations, the level of
employment has also gone up. In return this has led to higher spending on consumer
electronics and mobile communications. This situation is profitable for LG but the
situation is not the same in all countries and economic fluctuations from time to time
can have a detrimental effect on its business. In this way, you can see that the
economic factors can affect an international business in several ways.
 Social:
 Socio-cultural factors also have an important relevance in the context of business.
Social trends impact business and profitability of brands. Changing trends can make
the demand for certain products go up or down. It is why most brands focus on
innovation to remain ahead of the competitors and to make the best of changing
trends. The recent trends have led to an increase in sales of smart phones and flat
Televisions which are both beneficial for LG. Apart from it, socio-cultural trends also
matter in terms of marketing. In the area of marketing and advertising too, brands
must take care of societies and their cultures and market their products and brands
accordingly to be successful. Socio-cultural factors matter and they can make a
difference in terms of business strategy too since brands are often required to have
different strategies for different markets and regions.
 Technological:
 Technological innovation has become important for business success in the
21st century. Everywhere from marketing and sales to customer service and all the
aspects of business, technology has become indispensable if a business wants to
remain competitive. Technological changes affect businesses in other ways too and
technology is changing at a very fast pace. New technologies come and make the old
ones obsolete. Every brand is in a race to keep ahead of the competitors
technologically. LG has also invested in innovation and therefore is ahead of several
others on several fronts. Its flat panel televisions have been a hit. Apart from
technological innovation and quality, the brand has also been able to offer its
customers great products at affordable prices. Technology has become an important
determinant of profitability and competitiveness and apart from operations, in the
area of marketing too, LG has made extensive use of technology to reach its
customers and followers.
 Environmental:
 Sustainability is not just a passing fad but something that has got associated with
brand image and brand equity. The brands that have focused on sustainability and
sustainable growth have been able to achieve faster growth and a better image. LG
has also invested in environment and environmental awareness as a part of its
sustainability and CSR program. Apart from sustainable business operation, the brand
has also invested in promoting sustainable economic growth of the communities. It
also provides its employees training in sustainable business practices.
 Legal:
 Law is also an important factor affecting businesses globally. From taxes and other
business and labor related laws to environmental laws, there are several that can
affect businesses. It is why compliance is an important focus area and can lead to
higher operational costs in case of any major global brand including LG. Any tussle
with law can prove costly as has happened with some technological giants in EU.
 While in US, the legal environment is generally favorable, still there are areas where
any brand would not want to be face to face with law. It is why big brands like LG
especially focus on compliance so that tussles with law can be avoided.

)STRATEGIES

Regional channel strategy and wide distribution network: • LG has adopted the regional
distribution model in India. All the distributors work directly with the company. • This has
resulted in quicker rotation of stocks and better penetration into B, C and D class markets. •
LG also follows the strategy of stock rotation, rather than dumping stock on channel
partners. • LG has over 46 branch offices and other 110 areas offices across the country. C

Innovative marketing strategies: • To make itself a known brand in the consumer

electronics sector, LG has taken innovative marketing and promotional initiatives: • Launch
of new technologies in consumer electronics and home appliances. • LG was the first brand
to in cricket in a big way, by sponsoring the 1999 World cup and followed it up in 2003 • LG
brought in four captains of the Indian cricket team to endorse its products. LG invested
more than US$8 million on advertising and marketing in the sport.

Local and efficient manufacturing to reduce cost • To overcome high import duties,
LG manufactures PC monitors and refrigerators in India at its manufacturing facility at
Noida, Delhi • LGEIL had already commissioned contract manufacturing at Mohali, Kolkata
and Bhopal for CTVs. This helped to reduce LGEI cost • LGEIL is implementing a ‘digital
manufacturing system’ as a cost cutting innovation. • This system is a follow up to the Six
Sigma exercise LGEIL had initiated earlier.

Product Life Cycle

Introduction Stage: The flat televisions launched by LG towards the beginning of 2000 have
made it a market leader in television category. Following the innovations in technology, LG
redefined its products and launched high definition, ultra high definition, smart and 4k
televisions. The HDTV was introduced to replace the flat televisions based on old
technology.

Growth Stage: LG HDTV has already satisfied the market with its features and price and is
in the growth stage and moving towards the maturity. LG has already sold millions of units of
this product and it is at the top spot from the last 8 years in terms of sales. The HDTV
attracted the early adopters because of its cutting edge technology and features. Because of
favorable word of mouth, this product was purchased by later buyers. LG HDTV has already
recovered its manufacturing costs besides leaving the company with a huge profit margin.

Maturity stage: Most of the HDTV’s launched by LG are approaching the maturity stage.
Their technology has become relatively obsolete and company has already launched the new
age smart, 4k , and quantum dot display. In this stage, the marketer tries to maintain the
market share that has already been built.

Decline stage: The flat televisions launched by the company as well the first generation high
definition televisions are in the decline stage. When the market starts to decline, even price
reduction is ineffective and the product is said to be in the decline stage. Marketing managers
may reposition these products to appeal to a new market segment.