LG Electronics India, the electronics conglomerate that recently carried out a reshuffle in the top management in order to drive efficiencies, is looking at a turnover growth of not less than 50% this calendar year. The company is aiming its domestic business to reach $10 billion in revenues by 2015 from $2.75 billion last year. Moon B Shin, managing director, LG Electronics India, spoke to DNA about the company’s plans. Excerpts from the interview:
You recently reshuffled the top management. How has this changed things for the organisation and the employees?
It has been three years since I took over this position. The areas that I witnessed during first three years and have spent most of my time understanding are - Indian culture, how our trade partners rate LG products, interest of our internal stakeholders and what the issues are. And I witnessed after LG became No. 1 was that our spirit had collapsed. It is important for any organisation to maintain the same spirit that existed at its start. The organisation had become a bit arrogant, instead of being humble.
So, the immediate challenge was to reset the organisational culture. Second was to improve discipline and third was to bring out the product leadership. Our product leadership wasn’t at par with that of our competitors. Thanks to entire teamwork and everybody to have understood what the MD (himself) was saying.
A lot of work has gone into changing things. My predecessor did an excellent job of creating LG from scratch to No. 1 in a short span. The key driver that makes any company promising is the organisational culture and discipline. These things are more important than numbers. There has been a big improvement in this area. Last year our achievement was the best in last five years, especially the second half where we have increased our growth as much as 40%. This year are aiming at Rs 17,000 crore turnover from Rs 12,500 crore last year.
Can you list some important steps that you undertook to drive efficiencies?
To improve our product leadership, through our lifestyle research team, we surveyed the Indian consumer for six months. We came out with qualitative and quantitative research, product-wise consumer pain points. We implemented the solution to those pain points in our product development. We also launched India-specific products with Star of India campaign.
For example, we came out with new design of refrigerators keeping in mind that India has more vegetarians. We increased the vegetable component in them. We are continuing our efforts to come up with products that meet the Indian taste and requirements.
Now, in order to make workplace more vibrant we have launched many new HR initiatives for employees. If the company achieves better than last year in terms of growth rate, brand equity, and profitability, we are giving additional 400% bonus to all those who’ve finished two years in the company.
It’s interesting how you have increased your ad spends by roping in celebrities, the way you are sponsoring employees’ vacations...What do you think has worked for you?
Again, if quality of organisational culture and discipline improves, the harder results come very naturally. That is profit, revenue and brand equity. Damage to these can be treated as external, but if organisational culture collapses, then it would be our internal damage. There are clear-cut roles and responsibilities that people at LG have. We believe in self-management system.
We are collecting employees’ voices, what they want. Company’s performance will follow automatically. India was in recession last year, but our growth was the best here. We didn’t see any signs of slowdown. Consumer confidence level was quite okay. And our ad spends this year will be Rs 750 crore.
What did consumers buy during the downturn? Which categories have done well for you?
Home appliances did fairly okay. The demand for LCDs is nascent, so even as base is small, growth rate is high. In GSM, our presence at the moment is small. Across all categories we have enjoyed growth, other than monitors since desktop users are shifting to netbooks. Penetration levels in most categories are fairly low and India is making very sound and robust growth. For next two decades, I think India will really grow very fast.
How much is LG’s India business contributing to the parent company?
At the moment it contributes 5-6% but by 2015, we are likely to contribute 12% to the global revenues of the company. First two months of this calendar year we are right on track, enjoying 40% growth. Even in the first 10 days of this month, we have grown by 60%. By 2015, we are going to become a $10 billion company.
To what extent will LG hike prices across product categories, following the Union budget proposals?
Post the budget, most companies are not going to be able to absorb the costs 100%. Some of it will have to be passed on the consumers. LG is also one of them. We are going to increase prices in the second half of March in the range of 1-5% across product categories since excise duties have increased and material costs compared to last year have risen. Input costs have gone up dramatically due to demand and supply gap. This phenomenon will continue for a couple of years.
Which new technologies are we likely to see in products like refrigerators, televisions and mobile phones?
Many companies are now looking beyond the device, into non-device areas like solutions. A TV is not just a TV. There’s thinking on how to make TVs intelligent. So Smart TV as a concept has arrived, where you can make a TV function like a PC. LG is working on this concept and in the middle of deciding what additional features to incorporate within the ‘stupid box’. We are thinking of creating concepts of wellness and eco-friendly products.
For women who are overweight, weight management is a critical agenda and if the refrigerator functions as a mentor guiding on how many calories to consume per day or per week, then we have innovated something for the women to maintain their health. We will do this by putting information on the chips. When women open their fridges, it would tell them what kind of food to fill in, what to shop for. We are looking to develop detergent-free washing machines. These innovations will reach India in two-three years.
We will launch water purifiers. In mobile phones too, we are in the middle of working with many partners. There is a need to collaborate with other companies working in similar areas. LG is strong in device; we are looking to collaborate in non-device solutions like app stores.
Are you working in the areas of netbooks, hand-held devices?
We are working in that space. The PC market is not profitable. Price erosion is very high and competition is stiff. In case we make a re-entry in netbooks, we have to make sure it is profitable.
Are you looking at opening new facilities or expanding capacities?
In Pune we are going to expand facility for home appliances and LCD TVs. We should be able to sustain manufacturing from Pune and unit in Noida till 2012. 2013 onwards, if the existing units are not sufficient to meet the Indian demand, then we may look at opening another factory in either South India or expand the Pune facility. In next three years, in R&D and manufacturing expansion we will spend $300 million.
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