New Delhi: June has been a difficult month for Moon Bum Shin, the 57-year-old managing director of LG Electronics India Pvt. Ltd. He’s been saddled with household chores with the staff having taken the month off. Then South Korea lost to Argentina in the football World Cup. And on top of all that, he’s worried about the company’s profit margins which are increasingly under pressure. Shin, who has been leading the Korean consumer durables company in India for five years, spoke about the local market and his plans to boost market share in an interview. Edited excerpts:
How has the Indian consumer changed in the last five years?
Education has changed a lot of things… leadership, politicians. New jobs are being created. Companies are doing the right things… (creating) the need to spend money. Consumers are spending and the base is becoming larger thanks to a sound and robust economic growth of 7.3-9%. Besides, the number of Indians travelling overseas increases every year. They are exposed to new international technologies and high-tech products. The younger generation is very different from its parents’ generation. Thanks to all these things in the last five years, we could achieve almost 20% growth year-on-year.
Boosting share: LG’s Shin says the firm is expecting a turnover of Rs19,000 crore this year and will target Rs45,000 crore by 2015. Pradeep Gaur/Mint
In the first five months this year, we enjoyed as much as 30% growth. The younger generation is ready to take anything that has not been experienced before.
Has this growth come from any specific product category?
Majority of it is from LCD (televisions) and GSM (mobiles). In the LCD category, we are aiming to be No. 1 by the end of this year. At the moment Samsung is the market leader but Sony, Samsung and LG are really close according to our internal survey.
In terms of design and technology, we are at par with Samsung and we will launch 3D in the next couple of months.
In which product categories do you lead?
In all the product categories except LCD TVs and mobiles. In LCDs, we have a 25% share while in mobiles we have a 5% share.
In the rest of the other product categories we have over 27% market share. In the regular TV category, we have more than 30% share. In refrigerators and washing machines and ACs, it is around 27-28% and in microwaves it is 36%.
But LG lags in the mobile handset space.
We were latecomers in the GSM handset market. We launched in 2004. Nokia has been here for more than 15 years. We have been strong in CDMA, but that is mostly low-end. Our image is like that. It will take some more years to build our image in the premium segment.
But even in the low-end segment, aren’t the local manufacturers squeezing you?
Four years ago, none of these guys were present. In the low-end segment, they are really very strong but I don’t know how long they can sustain. Selling is one thing, but after-sales service is another. At LG, before we go for expansion, the first job is to expand the service network. That is very critical. Even the rural customers are very sensitive to after-sales service. We are going to set up 100 service points (for mobile) before the end of this year.
We are going to address all segments, since we are latecomers, we cannot play only one segment of the market. Our main target audience is youth in urban areas, but we will also be launching a very attractive range of dual SIM card handsets in August for the rural market.
Where is the demand for your products coming from?
We have LCDs even in rural areas. For example, in the cities we buy ACs as per our room size—the 1 tonne or 1.5 tonne AC. For very small rooms, the rural customers buy 2 tonne ACs as a status symbol. Farmers are getting good prices for their land. As government accelerates improving the infrastructure, the growth is coming from every corner of India—urban, semi-urban and rural. But the rate of growth in rural India is higher.
Are you planning to increase plant capacity?
That’s right. We have come up with a manufacturing footprint. The first extension (after Greater Noida) will be Pune. For the second extension, either we purchase more land in Pune and put more lines or we find another state in the southern part of India—maybe Hyderabad or Chennai.
We are comparing strengths and weaknesses, pros and cons and we are going to decide before the end of this year.
Secondly, going forward, the company has decided to utilize India as a global manufacturing hub. As a first step, very soon we are going to open a research and development centre to develop products for the global market as well.
Experts in the durables business say you have brought transparency to the company.
I would say, after LG became No. 1, it started becoming arrogant.
So back to basics was very critical. When I came what I saw was that teamwork had started to collapse. Individualism and factionalism became strong so the attrition rate was rising. In the last five years, attrition rate has declined substantially—from 20% to 5% last year, which is the lowest in the industry.
But this year there is more demand for the executive cadre so we may end up with 7% attrition.
When I came in 2005, I travelled for the first three years and visited nearly 100 cities. There were many things that were wrong. LG was pushing material—it was all push and no pull. The marketing quality was bad, the service was terrible. I tried to correct them one by one.
What impact will your recent price hike have on sales?
There is a very marginal increase in price of 0.7%. We try to lower prices through cost innovation, but sometimes we just can’t as the exchange rate is volatile or the international raw material prices are high. So every year we try to improve productivity. The company needs profits for future investment.
What do the profits look like?
At the moment the company’s profit is not in a good shape. In the last couple of years, new guys have entered the Indian market and the Japanese have been putting up manufacturing units. The Japanese are going to address not just the high-end but also the low-end segments. So competition is going up, price erosion is taking place and we are bleeding one another. This year the profits are very bad. So we are going to mobilize all ways and means to win.
We are expecting a turnover of Rs19,000 crore this year and will target Rs45,000 crore by 2015.
Is there a product from a rival brand that you think LG should have made?
That is very confidential. But we are launching an investigation through the India Lifestyle Research. From 2 July, I am going to put teams in place. They are going to conduct a very wide and in-depth survey over six months to find out what the real pain points of the Indian consumers are. The research will help us develop new products. But first we should get the Indian insights.
How long do you expect to be in India considering you have completed five years?
I am already 57 years old. Retirement is at 60. I don’t know how long I am here. The company will decide. If the company wants me to stay beyond 60 years...
What do you do in your free time?
I play golf. But that’s more like networking for business.