New Delhi: South Korea’s consumer electronics firm, LG Electronics, expects India to become the second largest market for the company (by sales) after the US by 2013. In the background of a sharp economic slowdown in the US and Europe, the company says it has identified India as a strategic market for investment. LG Electronics India Pvt. Ltd’s (LGEIL) managing director Moon B. Shin spoke to Mint on what’s in store for India. Edited excerpts:
How important is India for LG Electronics, especially when demand in developed countries such as the US is slowing?
Profit-conscious: Moon B. Shin says if the cost structure puts too high a burden on the company, it may hike prices 3-5% post-Diwali.
The strategic development team at the headquarters has recently identified India as one of the top five countries to deploy resources on the basis of profitability, location, and economic stability. Considering the future potential, (our) Indian operations could become No. 2 after the US in the next five years. Going forward, there will be strong support from our headquarters to enhance our brand image and “cater” right product to the customer. In the mind of the top management, India is really very important.
What is LGEIL’s current contribution to the global turnover? How will this change over the next five years?
LGEIL contributes 6% to the global turnover and in the next five years I expect this (proportion) to touch 10%. Currently, in terms of turnover, India’s position is fourth after the US, Russia and Brazil. My belief is that India could be second after the US in the next five years. In 2007, LGEIL posted a total turnover of Rs9,500 crore and this year it is expected to touch Rs11,000 crore, a growth of around 20%.
So, how does LG India become No. 2 after LG US?
We will invest in enhancing manufacturing capabilities, R&D and in nurturing talent. Currently, we manufacture products such as television sets, mobile phones, washing machines and other electronic items at two units located in Pune and Greater Noida. Since manufacturing competitiveness is very crucial in this industry, we might look at setting up a third facility in India very soon. However, we are yet to fully utilize the facility in Pune. We are also setting up a learning centre for our employees, suppliers and vendors. Strengthening design capability is another important task. We will employ more people in our design team.
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For R&D—next year, we would need an additional 150 people and the number will keep growing over the next five year so that we can meet the demand from India as well as global markets. Currently, LGEIL employs around 700 people in the R&D division.
How many of the products you sell here are made here?
We make almost 85% of the products sold in India, and we import the high-end products in all categories. Eventually, we are looking at making high-end products here.
Next year, around October, we should be able to start manufacturing front-loading washing machines in India. We could also consider local manufacturing of side-by-side refrigerators (two-door refrigerators that open side-by-side). In 2009, LGEIL will invest Rs160-170 crore in manufacturing, launching new models and enhancing productivity.
How has the increase in the prices of raw material impacted your profitability. Are you considering price hikes in the near future?
The hike in raw material costs has definitely made it difficult for manufacturers to sustain profitability. During June-July this year, input costs went up substantially and beyond control. LG was at (the) forefront to increase prices and pass on the burden to the customers.
Fortunately, in India, the demand for white goods (consumer appliances such as washing machines, microwave ovens and refrigerators) has not come down.
Our profitability has been hit more because of the weakening rupee in the recent past since we depend on imports for the high-end and premium products...and we import key components.
So, post-Diwali, we are going to check our profit structure product by product and revisit the cost structure. If we find the burden too much, then we will ask our customers to bear the burden and may go for price hikes between 3-5%.
You talked about nurturing talent in India. Are you looking at exporting talent from here? We have only seen Korean chiefs at LGEIL. Can we expect to see an Indian managing LGEIL in the near future?
I have to nurture an Indian managing director, that is part of my plan. My successor’s successor would be an Indian, definitely. The idea is to overcome communication and cultural gaps.