New Delhi: South Korea’s LG Electronics had a dream run in India until 2010, backed by strong retailing and aggressive marketing. The pace of growth has since then slowed considerably. From an average 15-20% annual increase in revenue since it entered India in 1995 till March 2010, LG’s annual revenue growth rate slowed to about 3-4% over the next five years.
To reverse this trend, the Korean parent named Ki Wan Kim, 55, as managing director of LG Electronics India Pvt. Ltd to revitalize the company’s India business. After taking over in August, Kim restructured the way LG operated in the country by giving more power to Indians to lead regions and categories and removed the top-down approach.
In an interview, Kim explains what went wrong and how LG plans to reclaim its leadership position in India. Edited excerpts:
Both LG and Samsung entered India in 1995. Since the beginning, LG was ahead in India unlike in many other global markets, where Samsung led. But things changed after 2010. What went wrong?
Since the beginning, we enjoyed leadership with our strong product offering and technology. We had an amazing journey. Unfortunately, in case of mobile phones, we have not been so successful yet. Since 2010, LG was not growing. We made mistakes, and we neglected the fact that consumer taste is changing.
The reason Samsung’s sales numbers are high is that they are good marketer. They invest a lot of money in marketing, to influence consumers’ minds. It’s poor marketing that impacted us. Because of poor marketing we failed to convey the real value of our products to consumers. Our products are much better across segments.
One of my responsibilities as the new managing director is to identify reasons for poor performance in mobile phones. We needed to understand why Indian consumers don’t like LG’s mobile phones. And, what I found is that LG’s mobile phones are not India specific products. We tried to sell products from our global portfolio. So, we studied and figured out some, and our new products that would be launched in April will reflect all of them. We hope to revitalize LG’s mobile business in India from April. Other products are doing fine.
But, LG has always seen as an aggressive marketer in India? Why do you say marketing was poor?
LG’s marketing was very poor because we have no money to invest in marketing. Samsung made huge money from semiconductors and now they make huge money from mobile phones and they invest in other things. We need to improve that (marketing). From now on, we’ll increase percentage of revenue spent in marketing (last year LG spent about ₹ 500 crore). We would like to stay flexible, reduce waste, strategic and result oriented. As long we get results, there won’t be any limit on marketing spend.
We have limited resources, so we’ll have to do it smart. We have figured out some tools that would help. India is not just a country, there are many countries in it and everyone is different. So, now we don’t have one India policy for marketing. We have a Gujarat policy, Bengal policy (region specific plans). Marketing should be done that way.
If other products are doing fine, then why did you reshuffle the company’s operational structure? Was that the mandate you came with?
I had to restructure to increase efficiency. Changes won’t have immediate impact. It takes time. India is incredible, and to be successful we need to be an Indian company. I came, I’ll go back. What stays back is the company. My strategy is to follow outside in—start from consumers. Restructuring is an ongoing process. I want to transform our organization into a more empowered and more dedicated one with more autonomy, and it should be less controlled by me. I have transformed the organization. Now, LG India is divided into 12 regions and there are 12 regional heads who operate like CEOs. This was not the case earlier.
There should be fewer layers and salaries are getting more linked with performance (I want to make it 100%). It’s better to follow the Germans—Make it lean, clean and efficient enough that improves productivity. There should not be duplications. But, I can’t create a chaos by doing it at one go. See, ‘Roma’ was not made in a day. Results will come.
Did you also manage to change the way it was doing business?
Up to 2010, we did not mind profit, quality or anything. We played the typical volume game. It has changed now. The market and competition became very different from what it was up to 2010. The Chinese came, so did the local ones, and they were many in number. And market is not growing, consumers are not spending money. Naturally, volume game does not work anymore.
See, Apple sells a phone for hundreds of dollars, and Nokia used to sell at below $20, and Nokia disappeared. We had to find our sweet spot. We can’t pursue Apple, we cannot pursue Nokia. We would be pursuing the technology and product leadership like Apple does. But, at the same time, we have to accommodate a larger coverage of consumers than Apple. This is the basic direction we are following. Our ultimate goal is to bring technologically advanced products at price points affordable for a larger section of consumers.
I can’t change the market. I can only try to do business better than our competitors. I focus on gaining market share. I would be happy if we grow at more than a single digit rate, but we need to boost profitability. If we stay in the cost competition, there’s a limit how long you can sustain. I would prefer to stay out of it even if I don’t grow.
Are you looking at entering new product segments?
Yes, we are looking at more health conscious products. Water purifier, air purifier and ceiling fans are the ones we are considering. We must create, develop and customise products based on consumer insight.
But, things are changing fast. TV is not just a device any more. Content now plays a key role. Keeping this in mind, we got into arrangements with Netflix to ensure better quality content for LG TVs in India. We don’t follow. We lead. On the other hand, we are targeting more of replacement market. People who have used LG products before, we want them to migrate to the next level. It’s easier to get them buy our advanced products because they have experienced the quality.
What’s your growth target?
Growth will be influenced by mobile phones. Unless, we manage to crack that growth will be slow. We don’t want to make projections. Strategically, we are focusing in India, not just for India market, but for exports. It is one of the top five strategic markets—America, Europe, Russia, Brazil and India.
However, the biggest challenge in India is that Indians don’t fulfil what they say or commit. Over commitment is an issue. Human resource is the biggest attractive thing here, but we need to maximize the productivity.