Taking life s good to the masses

By Jayashree Maji Mar 27 2011 , New Delhi

Two banquet halls in the New Delhi Park Royale hotel (now Park Intercontinental) as office, one table with half a dozen people around it, a handful of computers and two failed attempts to establish itself in India. That s how Korean white goods giant LG began its journey in India in March 1997. Thirteen years down the line, LG is the top brand in India s Rs 65,000 crore consumer electronics and home appliances market comprising refrigerators, washing machines, airconditioners, colour TVs, mobile handsets, computer monitors, laptops and much more. The market is growing at an average 15 per cent annually. LG Electronics India Limited today has a dominant presence in India s consumer goods market. It had only 18 branch offices in its first year. Today it has 47. It has 2,200 direct dealers and distributors and 21,000 sub-dealers. It has two factories in Noida and Pune, rolling out television sets, refrigerators, washing machines and air-conditioners. The company, however, refuses to share its overall production capacity and sales number. LG India began selling colour TVs (CTVs), washing machines and refrigerators imported from Korea within five months of setting up office here. It also launched air-conditioners and microwave ovens in quick succession. Brand LG clocked revenues of Rs 125 crore (company data) in nine months of operation in 1997. By 2010, it had scripted a phenomenal success story with a turnover of Rs 16,000 crore, of which two product verticals, home appliances and home entertainment, contributed 35 per cent each, and balance came from three other product verticals 15 per cent from air conditioners, 10 per cent from mobile communication and five per cent from business solutions. While the company refused data about the initial investments made, it said it has so far pumped in Rs 1,500 crore and plans to bring in up to Rs 2,250 crore more in the next three to five years. LG India stands out for its growth surge in the past decade: It had a CAGR of 23.73 per cent from a company-stated turnover of Rs 1,903 crore in 2000 to Rs 16,000 crore in 2010. The company quotes GFK-Nielsen data to say that between January and December last year it had 30 per cent of the market for refrigerators, 27.7 per cent for washing machines, 35.2 per cent for microwave ovens, 27.3 per cent for colour TVs and 28 per cent for air- conditioners. According to the latest data of the Consumer Electronics Manufacturing Association (CEAMA), the digital display market for flat panels, which was 2.8 million units last year, is set to increase to 4.5 million in 2011. The refrigerator segment is expected to grow from 9

million units to 12 million. The market for washing machines, five million units last year, will grow by another one million. The room air- conditioner market is 3.4 million units and will reach 4.4 million by December. The latest Capitaline Neo data on product-wise sales pertaining to 2007-08 showed that LG India was ahead of its immediate rival, Samsung India, in most products common to both. In that year LG India sold 3.8 million CTVs while Samsung India sold 1.82 million. The number of refrigerators, air-conditioners, washing machines and microwave ovens sold by LG India were higher at 1.66 million, 7,44,000, 7.58 lakh and 2,42,000, respectively, than Samsung India s figures of 9,85,000, 3,62,000, 5,12,000 and 1,49,000. LG had made two failed attempts through joint ventures to enter India during early 90s. Government policy of the day did not allow MNCs to set up wholly-owned subsidiaries. LG s first attempt was with Bestavision in 1993-94, to import colour televisions (then called Lucky Goldstar), and second was with CK Birla company in 1995, which also closed within a year. As soon as the policy changed in January 1997, LG was the first to set up a 100 per cent subsidiary in India. KR Kim, then posted in Panama, was sent to India to head the subsidiary. But it got negative media attention. Industry experts then felt that it was not the right time to enter the consumer durables market in India because it was crowded with a number of domestic and international players like Videocon, BPL, Sony, Onida, Samsung, IFB and Godrej. The negative publicity created some unusual problems. When the company was moving aggressively to recruit people, it faced a deluge of calls from candidates who thought it was all a hoax. Stay back in your homes, and you will get your salaries this is how we used to give confidence, recalled COO of LG India Y V Verma, who was then vice-president (HR & MS) at LG India. Undeterred, LG bought a 47-acre plot in Greater Noida in August 1997 and within nine months set up a factory and head office. Till then all its products sold in India were Korean. By April 1998 LG India s first CTV line began rolling. The factory had an initial capacity to turn out 500,000 CTVs, 100,000 semi-automatic washing machines and 100,000 airconditioners, said Verma. Kim, the first boss of LG India, had moved around quite a bit. He had worked in the UAE, the US, Germany and South America. India was not an alien land as he had worked with many Indians in his earlier assignments. This helped. I built LG from scratch. It was unlike my next company, Videocon, which was 20 years old when I took over and I could only do a repair job. For me, the culture of a company is most important. I ensured LG became Rs 10,000 crore company within 10 years we did Rs 10,730 crore in 2008. I strongly believe that if you trust people 100 per cent, their dedication will be 100 per cent, said Kim, who left LG in 2007 to join Videocon, which he left December, and has just joined a credit rating firm, Onicra, promoted by Sonu Mirchandani, a former promoter of Onida.

While at LG India, Kim ensured good infrastructure for his employees. It was the first company to provide not just cellphones but also personal cars to all Indian branch managers. This helped them make frequent rounds of the market to understand the pulse of the consumer. Trust and empowerment is my language. If we trust and give power to take decisions, the performance will more than double, said Kim. LG India rode on what Kim calls foot marketing . He himself travelled three days a week to all parts of the country to meet his staff and dealers. India is a vast country. So the challenge was to understand and then reach the market. I chose to be aggressive and set up an office in each state. Everybody warned me but I strongly believe in foot marketing and not in table or mouse marketing from the comforts of office, he said. In the nineties, BPL, Videocon, Onida and Godrej dominated the market. When LG entered, foreign firms as well as Indian brands sought to create entry barriers and stopped trade partners from stocking LG products. But they couldn t stop a good brand for long. Initially, we had no option but to rope in smaller dealers as our main competition was preventing the bigger ones from accepting LG products, Verma recalled. LG India, which began with just CTVs, refrigerators and washing machines, had to beat competing brands in other segments as well. The CTV market was then mainly dominated by BPL, refrigerator by Godrej and washing machine by IFB. LG India was the last to enter the market. Its current chief competitor, Samsung and Sony, had come in before in 1995. Soon LG India managed to become extremely successful mainly because it embraced the Indian market fully, bringing the best products and moving quickly to smaller towns, often before its Indian competitors, Future Brands CEO Santosh Desai said. LG s Indian foray coincided with its felt need to be seen as a premium brand worldwide. In a way, India is where it displayed a new technological muscle. It was the combination of products at the top end, a steady and always updated pipeline and high-decibel marketing and advertising that brought in the dividends. Quickly understanding the local nuances and reaching the hinterland were major factors, Desai explained. On his experience as head of salwes and marketing of LG India in 1997, Rajeev Karwal, who went on to found Milagrow Business and Knowledge Solutions, said, We did a lot of research on products. We could roll out all our products within five months even before others realised what we were doing. A lot of the success came from the operational freedom LG India gave to local heads. Honest pricing was another factor. No discount was allowed to consumers. Initially, we were seen as a premium brand, said Karwal. Strong advertising and shrewd pricing drove growth. In the first four years LG products were costlier than the competition s. In 1999, when England hosted the cricket World Cup,

LG India became the first official sponsor. Cricket was considered a good vehicle to carry the brand across households, said chief marketing officer LK Gupta. In 2002-03, LG India unleashed a new set of marketing campaigns with health as the platform and making emotional pulls. Till then, it had only advertised its products, their technology and features. This is when the popular campaign Golden Eye around CTVs came into being. It highlighted eye protection. The LG refrigerator was positioned as a machine that not only prevented food from decaying but also preserved its nutritional value. Similarly, air-conditioners focused on healthy air, washing machines on fabric care and microwave ovens on healthy cooking. All this bore fruit. By 2004, LG India s annual turnover touched Rs 6,500 crore. By then LG had established itself as a mega brand. We spent Rs 700 crore in 2010 on advertising; were the biggest spender. On an average, we spend close to 5 per cent of our annual turnover on advertising, Gupta said. Under the leadership of Moon Bum Shin, who came to India as deputy managing director in 2005 and became managing director after Kim s exit in 2007, LG India again changed tack. From being a mass-market, value-for- money player it reinvented itself as a brand that gives happiness and enriches life. This followed lifestyle research after our trade partners complained that LG products are not up-to-date and needed to be improved, said Shin, now head of global sales and marketing of home appliances of LG Corp, Korea. The research also led in 2009 to several innovative products labelled Stars of India that included an LCD television set with 500 watt sound, a microwave oven with an auto-cook menu for 56 Indian dishes, a top-loading washing machine with audio assistance, and an air-conditioner whose remote control could regulate both the machine and a ceiling fan. The competition has watched and admired LG s success. The COO of Voltas, Pradeep Bakshi, said, In air-conditioners LG leads with close to 21 per cent market share. It is largely because LG is a multi-product company and a consumer, once hooked to an LG product, will likely buy the same brand as it enjoys trust and reliability. LG India s closest competitor has been its fellow Korean chaebol, Samsung India, whose deputy managing director, R Zutshi, refused to comment on the competition. But the company, in an email response, said Samsung India has clocked a $3.5 billion (Rs 15,760 crore) turnover in 2010 and was looking at a growth of 40 per cent in 2011. In recent years, Samsung India has been recording a higher CAGR. As per latest Capitaline Neo data, LG India s total income grew from Rs 5,611 crore in 2004-05 to Rs 10,691 crore in 2009-10, recording a five-year CAGR of 13.76 per cent. Samsung had a higher CAGR of 20.49 per cent with its total income rising from Rs 4,592 crore (Capitaline data) to Rs 11,663 crore (company data filed with the registrar of companies). In fact, in the mobiles, Samsung has a clear edge over LG India. According to Karwal, When

LG got into telecom and IT products, it did not focus on health and also offered discounted prices. This led a loss of market share and premium sheen.But LG India is fighting back. New market research was conducted last year. You will see a whole range of new products both for rural and urban consumers this year, said Gupta. It is aware that premium products are the future growth drivers, with the Indian consumer having refined his buying behaviour. According to Shin, LG is looking at investing between $300 million and $500 million (or between Rs 1,351 crore and Rs 2,252 crore) in the next five years in India. The Indian operation is doing very good and currently contributes 6 per cent to LG s global turnover. This contribution is expected to double by 2015. Globally, LG s turnover in 2009 was $43.4 billion (Rs 1,95,500 crore). The company said that the data for 2010 was still under compilation. LG India is looking at maintaining the momentum and the high ground under its new managing director Soon H Kwon. I am understanding the dynamics in detail, we will look at expanding as per demand. The enterprise segment will have a special emphasis. We plan to capture 10 per cent of the market share in this segment in 2011, Kwon said. LG is optimistic of a huge demand arising for smart appliances as consumers look for products that enhance their lifestyle. For example, a refrigerator is not only meant for keeping food fresh but is becoming a lifestyle product. Consumers are placing their premium refrigerators in the living room instead of the kitchen. We will be launching products which suit the lifestyle of Indian consumers, Kwon said.