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LG is one of Korea's largest business groups. Westerners know the company mainly as Korea's #2 electronics manufacturer, sitting behind the mighty Samsung. It suffered a dip in performance in the early 2010s as a result of its late entry into the smartphone sector. Yet LG is firmly established as the global #2 in televisions behind its country-mate and has a broad public profile in the domestic Korean market where - perhaps surprisingly - it is also the leading household and personal care marketer, and has a finger in numerous other pies including soft drinks (it is the local Coca-Cola licensee), telecoms, industrial manufacturing and property development. In fact, it is regarded by many as the model for modern Korean businesses, having undergone a painful restructuring from a labyrinthine "chaebol" to Western-style diversified conglomerate without the financial or political scandals which dogged several of its competitors, including Samsung. The group network now embraces more than 40 separate companies with offices and subsidiaries in over 120 countries. Like Samsung, it is still firmly controlled by its founding family, in this case the Koo brothers, grandsons of the man who launched the business in the late 1940s making face cream.
Until the late 2000s LG was shaping up as a strong global competitor in electronics to Samsung as well as to Japanese manufacturers, even if much of its strategy was borrowed unashamedly from its country-mate. However, in what was perhaps an ill-timed attempt to stop being seen as a Samsung copyist, it failed to follow its larger rival's determined move into the smartphone sector, and paid the price with steep declines in its own mobile market share. At the same time, the group's household and personal products division has attempted to develop a more significant presence in the international sector, although it is still little known outside Asia.
LG was the first of Korea's chaebols to complete the transition to a modern holding company, eliminating the maze of cross-holdings between its different operating businesses to form a single linear structure. The restructuring process came to its conclusion in 2004 with the spin-off the various retail and services businesses into a separate entity, GS Holdings. As a result, LG Corporation is now focused on three areas of Chemicals (in their widest sense), Electronics and Telecommunications & Services, each of which in turn houses several operating companies. The largest of these are publicly quoted, but are controlled by holding company LG Corporation, in most cases through shareholdings of 30% to 35%. The parent company also charges each subsidiary a licensing fee for use of the LG brand. The two most significant businesses in the marketing environment are LG Electronics and LG Household & Healthcare.
LG Electronics is a major global player in electronics & telecommunications, operating 120 subsidiaries around the world with around 75,000 employees worldwide. It is publicly quoted but controlled by LG Corp through a 33% shareholding. The company reinvented itself in the late 1990s, in the wake of a similar transformation by Samsung, as a manufacturer of premium electronics products, competing head-on with its country-mate as well as with Sony, Panasonic and others. In 2004, LG moved up to become the #3 worldwide in household appliances behind Whirlpool and Electrolux, and it briefly snatched the #3 position in mobile handsets in the late 2000s (although it was not able to hold onto that rank and now sits some way further down the list).
There are four main areas of operations: home appliances & air conditioning, home entertainment, mobile communications and, from 2015 onwards, vehicle components.
The biggest of these businesses is LG Home Entertainment, which makes makes flat panel LCD and plasma TVs, DVD players and recorders and home cinema systems. These are sold mostly under the LG name, but in the US the group still markets some lower end models under the Zenith Electronics brand, after a local television monitor manufacturer acquired in 1995. In 2010, LG overtook Sony to become the global #2 behind Samsung, and has continued to widen its lead over all its Japanese rivals. By the end of 2014, global share had risen to 16.7% (IHS DisplaySearch), just over half Samsung, but more than double Sony. The group is the #4 in PC monitors behind Dell, Samsung and HP. However, sales have been slipping in this division as a result of the relentless competition in the sector. Combined external sales for 2016 were KWon 17,416bn ($15.0bn), but operating profit more than doubled to KWon 1,237bn ($1.1m).
The Home Appliances & Air Solution division makes a range of white goods devices including refrigerators, cooking and washing appliances, vacuum cleaners and other products. Although these products have mostly been marketed in Asia, LG began introducing its more upmarket kitchen appliances into the US in 2003 with considerable success. Front-loading washing machines were introduced for the first time in the US from 2003 under the LG Tromm sub-brand, sold exclusively through Best Buy. It began selling its products through Sears in 2007, and will in Home Depot from 2014. The company is also a pioneer in energy-efficient steam washing machines. As a result, it has ranked as the global #1 in washing machines every year since 2007. In 2006 it introduced the world's first internet and TV refrigerator incorporating a display screen and wireless broadband connection. LG was regarded as one of the frontrunners to acquire the home appliances division of General Electric in 2008. However no deal was agreed. Instead, LG negotiated a strategic alliance with the US giant to supply washing machines, refrigerators and other products on an OEM basis for resale under the GE name. LG has been the global #1 in residential air conditioners since 2000, with a global footprint, and also manufactures a variety of industrial and commercial systems. Combined external sales reached KWon 17,229bn ($14.8bn) in 2016, and the division overtook Home Entertainment with an operating profit of KWon 1,334bn ($1.2bn).
Until recently, the fastest-growing unit within LG Electronics had been the mobile handsets division. LG and arch-rival Samsung between them dominate the Korean handset market, which was for years more or less closed to foreign competitors because of government controls on local wireless technology. The group also built up a commanding presence in the global market, overtaking Motorola to become the global #3 in 2008. Among LG's most successful handsets during that period were premium "feature phone" models under the Black Label umbrella such as the LG Chocolate, a huge seller in 2006 and 2007, and LG Shine, with a polished steel reflective case. The LG Prada, launched in 2007, was a joint venture with the Prada fashion group and was at the time the world's first all-touchscreen phone. A new high end camera phone, the Viewty, was launched in 2007, and other key models include the Secret and Arena.
The group introduced its first mobile netbook laptop computer in 2009, but a key misstep was a delay in entering the smartphone segment. LG misread developments in the market, concentrating its attention on the development of luxury or multi-feature handsets, instead of the burgeoning smartphone sector. As a result, it fell well behind Samsung in this area, only releasing its first smartphone, the Android-powered Optimus, in September 2010. Although that performed well, it was to a large extent overshadowed by iPhone and later by Samsung's Galaxy range. As a result, LG's total volumes fell from highs of almost 120m handsets in 2009 to around 55.9m units in 2012. It fell back to #5 for 2012 (IDC figures) behind ZTE of China. In the latter year alone, the company's shipment volumes plunged by almost 37%, and its global market share plunged to just 3.2%. The model range has since undergone a complete overhaul, with most of the old featurephones discontinued. Top of the range is the G-series smartphone and tablet. Its newest model, the G4, launched in 2015 with an integrated leather case. The group also makes smartwatches and fitness bands. Despite the competition from low-cost Chinese rivals, LG was still the #5 smartphone manufacturer for full-year 2014, with 4.6% share (IDC). In the whole mobile market (including "dumbphones") it also ranked #5 overall with 4.0% share (Gartner) and shipments of 76m devices. The division's strongest performance by far has been in tablets, where it has grown from virtually zero at the beginning of 2014 to one of the top five globally by 1Q 2015 with 3.1% global share. However, sales have been in steep decline since then. In 2016, external sales in the Mobile Communications division slumped by 16% to KWon 11,709bn ($10.0bn) and operating losses soared tenfold to KWon 1,259bn ($1.1bn).
Vehicle components is a new operating unit, spun out at the beginning of 2015. It uses LG proprietary technology to make components specifically for the automotive sector, including in-car entertainment systems. Sales are still modest compared to the other divisions, at kust KWon 2,773bn in 2016. LG Innotek is the umbrella for a variety of other companies making components, with combined sales in 2016 of KWon 5,754bn.
Combined revenues for the consolidated LG Electronics business peaked in 2014 at KWon 59,040bn ($56.1bn) in 2014, but has slipped back from that level in each of the following years. The figure for 2016 was KWon 55,367bn ($47.7bn). Net income for 2014 was KWon 501bn ($476m), more than double the year before, but it too has steadily declined, partly as a result of one-off or exceptional charges. In 2016, for example, a steep tax charge almost halved net profit to KWon 126bn ($109m) despite a solid increase in profitability at operating level. The group generated just under 30% of its revenues in North America, and 26% in Korea.
The company is a major worldwide sponsor of sporting events and teams, including the Russian, Greek, Hungarian and Iraqi national soccer teams as well as UK Premier League side Fulham FC and Olympic Lyon of France. It also supports several global extreme sports championships, and cricket tournaments in Asia.
Affiliated company LG Display makes a wide range of LCD and OLED components for TVs and monitors as well as other screen-based devices. Originally a joint venture with Dutch company Philips it is now wholly controlled by LG. In 1999, the company joined forces with Philips in both the plasma and developing LCD markets. In 2005, LG was the first electronics manufacturer to introduce a massive 71-inch display followed a year later by the first ever 106-inch plasma screen. The plasma business was spun off as a separate company in 2007, and instead LG focussed on LED technology. It is now the world's leading manufacturer of LCD display components, with around 28% share of the global market (ahead of Samsung which has 20%). Customers include LG Electronics, inevitably, but also Dell, Apple and HP for computers, and Apple and Amazon among others for tablets and other mobile devices.
LG Display reported sales of KWon 26,504bn ($22.8bn) in 2016. Almost a quarter of sales were to sister company LG Electronics or other group affiliates. Several other business units produce electronics components including silicon wafers for semiconductors, power units and LEDs. In 2012, Philips and LG were found guilty by European regulators of conspiring with other manufacturers to rig the market in old-style cathode ray tube manufacturing. The two companies were fined a combined total of €1bn.
Despite its international presence in the electronics sector, LG is just as well-known at home as a manufacturer of personal care products, and a rival to the likes of Procter & Gamble or L'Oreal. LG Household & Healthcare (LGHH) is the main consumer-facing division of LG's chemicals division. Personal care products such as cold cream and toothpaste were among LG's first commercial goods back in the 1950s, but for many years they were bundled in among the company's industrial services. LGHH was spun out as a separate company for the first time in 2001, and is now publicly owned, although LG Corporation retains a controlling 30% stake. It is the country's biggest household products and cosmetics company - and also the main Coca-Cola bottler.
LGHH borrows more than a little from US giant Procter & Gamble. It is structured as six divisions producing oral care, skin care and cosmetics, hair care, laundry, paper and household cleaning products. Although it currently operates primarily in its domestic market, LGHH has operations in several other territories in Asia, and has set itself the goal of becoming one of the world's top 10 household goods companies. It dominates the domestic market in several sectors. Its Lucky Star, Perioe, ClinX and traditional Bamboo Salt toothpastes have around a 51% combined share of the oral care sector. In soaps also, DeBon, Say and other brands have around 38% share, ahead of all rivals. LG's Double Rich, Curair, ReEn and Elastine shampoos have 29% of the haircare sector ahead of P&G and others. Soap and personal wash products include On The Body. The group also leads the market in laundry detergents, dishwashing detergents, household cleaners, air fresheners and fabric softeners, with brands including Tech, Super Ti, Jayonpong, HomeStar, Parterre and Brestle. It established a presence in the baby and feminine care sectors in 2008 with an alliance with Japanese manufacturer UniCharm to market diapers and sanitary protection products in China and Korea, and has a joint venture with green detergent manufacturer Ecover to market the Ecover and Method brands in Korea. In 2016, LG H&H acquired regional rights in Asia Pacific to the Reach oral care brand from Johnson & Johnson.
The group is also the #2 cosmetics company in Korea (behind AmorePacific), with around 15% share, mainly in the skincare and cleansing sector. Its top-selling brand is Whoo, with sales topping KWon 1,200bn (or $1.0bn) in 2016. Another key brand is Su:m skincare, an especially strong seller in China. Other brands include O Hui, Belif, Isa Knox and LacVert, all for women, and men's cosmetics brands Sooryehan and Vonin. In 2009, the group acquired leading cosmetics manufacturer and retailer TheFaceShop, which has 880 outlets in South Korea and another 315 in other Asian markets. LG has greatly strengthened its presence elsewhere in Asia since 2002, and operates joint ventures or local operations in many other markets including China, Vietnam, Indonesia and India. For the time being the company derives around 80% of revenues from Korea.
In a slightly surprising development, the company also acquired the local Coca-Cola bottler for South Korea in 2007 from Australia group Coca-Cola Amatil. This has local rights to the full Coca-Cola portfolio, comprising the main carbonated brands as well as Powerade, Vitaminwater and Georgia canned coffees. At the end of 2010 the group also acquired local manufacturer Haitai Beverage, previously owned by Asahi Breweries of Japan, adding significantly to its distribution network, and bolstering its position as the local #2 in soft drinks behind market leader Lotte Chilsung. Other drinks brands include Sunkist and Sunny-10 juices, Diamond bottled water and Seagram's sparkling water.
LGHH's consolidated sales for 2016 were KWon 6,094bn ($5.2bn), up over 14% year-on-year, while net profits jumped 23% to KWon 579bn ($499m). Cosmetics products accounted for 52% of revenues, and essentially all profits.
LG Chem was originally the core of the whole group, but is now merely one of its many subsidiary businesses. It is the leader in its sector in Korea, manufacturing a wide range of products from petrochemicals to high-value plastics, flooring and automotive parts. In the latter area it is rapidly establishing a strong position in rechargeable lithium ion batteries for vehicles, and is one of the main suppliers to General Motors' Chevrolet Volt electric vehicle, which launched in 2010. Sales for 2016 were KWon 20.7 trillion (approx $18bn). A separate unit, LG Life Sciences, develops pharmaceutical products.
Telecommunications & Services serves as a catch-all grouping to house the remaining units of the main LG group. LG U+ was formed in 2011 from the merger of what was previously LG TeleCom, with affiliated or acquired companies Dacom and Powercom. It is controlled by LG Corp via a 36% holding. It offers a full range of mobile, broadband and fixed line communications services, as well as HD television broadcasting, all under the U+ brand, and launched a 4G LTE service in 2012. Combined subscriber numbers were 12.5m by the end of 2016. It is the main challenger to Korea's two biggest telecoms companies KT and SK Telecom. Revenues were KWon 11,451bn ($9.9bn) in 2016.
The services division also acts as the umbrella for GIIR, a leading marketing services group in Korea part-owned by WPP, as well as LG Sports, which controls a number of professional sports teams including the LG Twins baseball club and LG Sakers basketball team.
Separately, LG's founding Koo family also control general trading company LG International and clothing company LG Fashion. The group's finance division was forcibly separated from the group at the start of 2004 after it came close to bankruptcy. Its main business was LG Credit Card, a leading member of the international MasterCard network then offering more than 100 different card services and brands. However the collapse of the Korean consumer spending bubble in 2003 left the business with more than $7.5bn of bad debts from defaulting borrowers. LG Card narrowly escaped bankruptcy when creditors led by the state-owned Korea Development Bank took control of the business at the start of 2004 and agreed to provide emergency funding until a trade buyer could be found. Eventually the business was acquired in 2007 by Shinhan Financial Group, already one of LG's main creditors, and now the country's #2 financial services company. Shinhan continues to use the LG Card brand, although it is gradually phasing the name in favour of its own branding. The creditors committee also took control of LG's investment and securities business. It was eventually acquired by another creditor, Woori Investment & Securities.
Several other non-core businesses within the former LG Group were spun off in 2004 into a separate conglomerate, GS Holdings Corp, which is controlled by the Huh family, long established allies of the Koo dynasty. This business now houses various retail and services businesses. Its biggest unit is GS Caltex, a joint venture with ChevronTexaco, and one of the largest oil and petrochemical companies in Asia. Other subsidiaries include a large engineering and construction division, healthy & beauty retail chain GS Watsons (a partnership with CK Hutchison), TV shopping channel GS Homeshopping, and FC Seoul football club.
The LG empire is controlled by two brothers, grandsons of original founder In-Hoi Koo. The eldest brother Bon-Moo Koo is chairman of LG Corporation. His younger brother Bon-Joon Koo is vice chairman. Two other brothers run separate businesses that are among the group's biggest suppliers and the family controls around 65% of the equity of the parent company LG Corporation.
Group founder In Hoi Koo formed the Lak Hui Chemical Co in 1947 to develop a range of personal care products for the domestic Korean market as well as servicing Korea's growing requirement for industrial chemicals, based around a shared refining operation. Its first product was a face cream, initially marketed under the name Dong Dong Goo Ri Moo Cream. It quickly became known as Lucky, inspired by the company name Lak Hui. When the supplier producing jars for the cream encountered manufacturing problems, Koo set up his own packaging business, quickly becoming Korea's biggest manufacturer of plastics, later vinyl and other synthetic chemicals. As a result it began to manufacture small plastic items like the country's first combs and toothbrushes. At the same time, the company developed its own range of cosmetic products. The most important of these was Lak Hui dental cream. Launched in 1954, it was the first domestically produced toothpaste and proved enormously successful, outselling expensive US imports. This gave Lak Hui a strong foundation for further household and personal care products including Hai Tai soap, the country's first synthetic detergent Hi-Ti New Hit, and first non-imported shampoo.
At the same time, Koo established a sister company, Goldstar, to exploit Korea's growing demand for domestic household appliances. Cheap Korean labour also meant that the company was able to exploit the fast-growing export market established by Japanese appliance makers. Goldstar started by producing electric fans in the late 1950s, and quickly expanded to fridges, washing machines, radios and televisions during the course of the 1960s, selling both to domestic consumers and exporting to the United States and Europe. Other affiliated companies sprang up during the 1960s; one key development was the 1966 joint venture deal with US oil company Caltex to build the huge Honam Oil refinery in Korea. Financial services and insurance businesses joined the group early in the 1970s. The chemicals business officially changed its name to the Lucky Group in 1974, and moved into petrochemicals in the late 1970s. Following In-Hoi Koo's death in 1962, this expansion was overseen by his eldest son, Cha-Kyung Koo.
Goldstar had also begun to produce semiconductors to satisfy its own consumer electronics requirements, but the company's cheap labour and manufacturing costs led to a number of joint venture deals with Western partners such as NEC and Siemens. Goldstar learned from the process and the quality of its own products improved significantly during the decade, as the company set out to supply all aspects of home and office automation. In 1995, the company formally changed its name from Lucky Goldstar to LG Group, and at the same time a new generation took over management of the business with the appointment of Cha-Kyung Koo's eldest son Bon-Moo Koo as chairman.
Like all other Asian businesses, LG was hit hard by the region's economic turmoil in the second half of the 1990s, and it was forced by the Korean government to begin streamlining operations. At the tail-end of 1998, LG finally agreed to sell its semiconductor business LG Semicon to rival Hyundai. In 1999, LG sold a 50% stake in its liquid crystal display division to Philips Electronics for $1.6bn, what was then the biggest acquisition of equity in a Korean company by a foreign investor. It was followed by another joint venture with Philips, combining the two companies' television tube businesses. Less successful was an aggressive push into telecommunications services, just as the market was reaching its peak. While rival Samsung focused on the more glamorous side of the business - handsets - LG pushed into network systems and infrastructure, just in time to catch the downturn which eviscerated the likes of Ericsson.
The group underwent a complex restructuring process between 2000 and 2004, designed to streamline ownership of its the huge collection of assets. Various businesses were spun out and then recombined to create a single corporate structure. Several holdings were sold off altogether, including leading Korean advertising agency LG Ad, control of which was sold to WPP. What remained of LG Group was then carved in half in 2004 to form two largely separate entities. The more valuable businesses in electronics, telecoms, household products and chemicals were grouped together to form LG Corporation, controlled by the Koo family. Descendants of Joon-koo Huh, for many years the right-hand man to LG's founder, acquired control of various other businesses, hived off in 2004 into a separate group, GS Holdings Corporation. The GS name was chosen in honour of the group's former Goldstar brand.
Last full revision 21st June 2017
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