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Unlike other Korean firms, LG seems to have got China strategy wrong

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“Every time when I am short of money, I will go to China to make more,” Jang Nara told a South Korean talk show. The popular singer-actress is one of Seoul’s many entertainment exports to China.

Actresses like Kim Hee-seon, Jeon Ji-hyun and Song Hye Kyo have all landed roles in Chinese dramas. “To cast a South Korean actress is a commercial decision. Korean dramas have cultivated a huge fan base in China so South Korean actors can widen a film’s box-office appeal,” reports China Business View (see WiC144).

The popularity of the Korean stars has proven a boon for the country’s plastic surgeons too. During the Lunar New Year holiday it’s estimated that Chinese women accounted for 30% of Seoul’s cosmetic operations, with many seeking out a more Korean look.

In fact, South Korea’s businesses have largely made a success of China. KT&G, for example, dominates sales of ginseng (see WiC134). Last year we also reported how Samsung had grown its China sales from $1.81 billion to $39.6 billion in a decade (see WiC104). Samsung now leads the smartphone market in China with a share of 24.3%, trouncing Apple’s 7.5% share, according to a recent Gartner survey.

But one Korean firm is having a notably tougher time in China: LG. Although ‘Life’s Good’ is the company’s current motto, in almost every product category it has been losing ground.

LG’s air-conditioners, for example, were “once among the best known in the market, but are now hard to find,” reckons China Enterprise News. By the end of 2011 they accounted for just 0.11% of retail sales, with LG outflanked by local manufacturers Gree and Midea.

As at the end of last year, LG’s share of Chinese TV sales was less than 4%, far behind local producer Hisense with 14.77%. LG lags six local brands and three foreign TV manufacturers. Red ink led LG Display to drastically reduce its year-end bonuses for workers at its Nanjing panel plant. As reported in WiC133 this led to 8,000 workers walking out in a much-publicised strike. Video footage made it online of staff smashing up the factory canteen and offices. Management was forced to offer a higher bonus to entice workers back.

There has been bad news in LG’s mobile phone division too: its share has declined from a peak of 7% to 2%. Its ‘Chocolate’ phones (they were black in colour) have been hit by competition from cheaper handsets made by ZTE and Huawei. And its smartphone strategy made the error of using Microsoft WP rather than the Android operating system. The latter is proving much more popular with Chinese consumers, who are keen on downloading its Apps.

China Enterprise News quotes Hong Shibin, a local industry expert, as observing: “On the surface LG has lost ground because of its opponents’ price wars. But, in fact, LG has suffered fatigue in innovating and understanding user needs.”

21CN Business Herald also describes LG as facing “emergency” conditions as it tries to rejuvenate its China business, and highlighted that a newly installed China management team recently launched 50 new products in a bid to turn the flagging brand around.

How so? A big push will be made in 3D televisions, plus a groundbreaking 55-inch OLED TV goes on sale from September. In phones LG hopes to recover a top three position with its new L-Style Android 4.0 range – available from this month and likely to be more to local consumer tastes.

A ‘French Door’ fridge and a washing machine using six motion technology are also being lined up to reposition LG at the higher end of the white goods market. Additionally the Korean company hopes a new distribution partnership with leading retailer Suning will boost sales too.


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