DUBAI, 17 August — LG Electronics announced plans for a quantum business shift in its Middle East and Africa (MEA) operations after posting record first-half regional sales. LG experienced a 19 percent increase in its first-half MEA sales for this year, compared with the same period in 2001. Regional sales turnover for the first six months of this year amounted to $581.67 million, putting LG well on course to break its sales target of $1.3 billion by the end of this year.
“Growth is coming from the digital products sector,” said M. B. Shin, president, LG Electronics, MEA.
Over the past six months, LG has consolidated its standing as regional leader in the TV, split AC, monitor and optical storage sectors. Regional sales of TVs rose 11 percent to $143 million; sales of split air-conditioners and monitors both increased 29 percent. Split A/C turnover totaled $148 million, while that of monitors amounted to $66 million. In the optical storage sector, sales grew 69 percent to deliver turnover of $22 million. The first-half also saw LG achieve huge growth in the plasma display panel (PDP) sector.
“Here regional sales soared by 266 percent with turnover amounting to $11 million,” said Shin. “Whilst we do not yet have market-leading control over this sector, it will not be long before we do. We have a revitalized PDP strategy that will see us strive to make this technologically-advanced product more affordable at the retail level.”
Geographically, LG’s first-half sales gains were made across the Middle East and Africa, with the exception of Turkey, where macro-economic troubles impacted results.
With sales booming and profits rising, LG’s new policy to cease OEM product supplies to secondary manufacturers, in a bid to boost its brand business further, came as a surprise. An Original Equipment Manufacturer is a producer that provides a product to its customers, who then proceed to modify or bundle it before distributing it to their customers.
“To date we have been supplying OEMs in the region. We have decided to pull back from this business because we want to have total control over our valuable brand and better support our regional distribution partners,” said Shin. “LG will engage in OEM business only in certain closed markets.”
In the first six months of this year, 90 percent of LG’s MEA turnover was from LG-branded products, an increase of 38 percent on the first half of 2001.
“We have made our strategy shift away from OEM supply to transform our organization from an equipment manufacturer to a brand supplier,” explained Shin. “This fundamental change in business direction underlines our brand strength in the market. In the future we will compete at the higher-end of the market, leaving others to be pre-occupied with price-sensitivity and brand-diluting promotions.”
Such bold statements may sound feasible in the boardroom, but in reality how does LG hope to continue high growth, now as a premium product, in a market such as Saudi Arabia which is known to be extremely price sensitive?
“Price sensitivity is an interesting issue because perceptions are changing. ‘You get what you pay for’‚ is becoming more recognized as a maxim in this part of the world,” said Shin. “This applies not just to the product, but also to the after sales service a customer receives. By positioning LG as a premium brand, the initial perception is of a quality product. That quality product has to perform to expectations and if perchance the customer has any cause for complaint, our premium brand status denotes the level of after sales service they can expect. Our positioning is to be the brand customers can trust.”
The company feels that its regional partners are “solidly committed” to the premium brand vision and have clearly demonstrated this with substantial investment in new dedicated showrooms and service centers. While the company does have an overall regional marketing and product strategy, Shin said that LG had made modifications in these areas to suit Saudi Arabia as a unique market.
“KSA is one of our most important markets due to its population size,” he commented. “We also see the Kingdom as an early adopter of technology. Taking into consideration the unusually large percentage of the population being in their teens or younger, Saudi Arabia is an exciting, progressive market.” One area where LG has yet to compete in the Kingdom is in the mobile phone sector. But the company hopes that the Saudi youth’s love of mobile technology will award LG rapidly growing market share when its mobile phones are introduced in the Kingdom in the next two or three months. LG has set an ambitious regional target in mobile sales of one million units in 2003 and strong adoption of LG mobile products in Saudi Arabia will be essential if this goal is to be achieved.
Shin was confident however, that LG mobile phones would be well received in the Kingdom. He supported his claim by describing LG’s market research efforts.
“In-depth market research forms a very large part of the decision making process when considering the introduction of new products to any country in the region,” he pointed out. “We take into account information gained from end-customers, comments from channel partners and listening to what our distributors have to say about their market. We hold business association memberships that also allow networking opportunities with like-minded professionals who have formed considered opinions about their country of operation.”
Looking even further forward, Shin hinted at major LG infrastructure investment in the region before the end of this year.
“We will see a number of important infrastructure developments,” he said. “These are needed because over the longer term, we are targeting a 30 percent year-on-year regional sales growth from the end of 2002 until 2005.”