LG in India (A): Entry Into an Emerging Economy

Abstract

LG, a large multinational Korean company, decided to enter India employing a green field entry strategy as a wholly owned subsidiary in 1997. This case helps students analyse the reasons behind this decision, describing the external and internal environment which was prevalent at the time of entry. The case provides details of the various consumer electronics markets until 2005, and the key potential success factors identified by the then MD of LG India Ltd, Mr. Kim.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

All the tables in cases A, B and C which do not have references were provided by LG.

Table I: Unemployment Rate

Historic – % of economically active population

1997

1998

1999E

2000E

2001E

2002E

2003E

2004E

Unemployment rate

10.5

10.6

10.5

10.5

10.5

10

9.9

9.5

Source: International Labour Organisation/Euro Monitor International

Table II: GDP of India

Market Sizes - Historic - Rs Crore

1995

1996

1997

1998 E

1999 E

2000 E

2001 E

2002 E

2003E

2004E

Total GDP

1147801

1292609

1482563

1698011

1894183

2075911

2232126

2406249

2669483

3032504

Sources: Total GDP: Euro monitor International from International Monetary Fund (IMF), International Financial Statistics

Table III: Inflation

Historic – % growth

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Inflation

13.2

4.7

4

3.7

4.4

3.8

3.8

4.2

5.8

6.4

8.4

Sources: Euro monitor International from International Monetary Fund (IMF), International Financial Statistics and World Economic Outlook/UN/national statistics

Table IV: GNI India

Historic - Rs Crore

1996

1997

1998 E

1999 E

2000 E

2001E

2002 E

2003 E

2004E

Gross national income (GNI)

1365530

1513950

1736230

1936600

2079580

2258880

2437870

2733910

3127030

Source: International Monetary Fund (IMF), International Financial Statistics

Table V: GDP Measured at Purchasing Power Parity

Historic – International $ per capita

India

1997

1998

1999

2000

2001

2002

2003

2004

2005

GDP measured at purchasing power parity

1223.9

1288.3

1373.1

1457.4

1524.4

1595

1712.5

1883

2082.4

Source: GDP measured at purchasing power parity: Euro monitor International from IMF

Figure V: Disposable Income in India

Figure

Table VI: Indian Consumer Market

Table I

Estimated households by annual income

Table II

Structure of the Indian consumer market (1995–96)

Annual income (in Rupees) at 1994–95 prices

No. of households (in million)

Annual income (in Rupees) at 1994-95 prices

Classification

Number of households (in million)

Urban

Rural

Total

<25,000

80.7

<16,000

Destitute

5.3

27.7

33.0

25,001–50,000

50.4

16,001–22,000

Aspirants

7.1

36.9

44.0

50,001–77,000

19.7

22,001–45,000

Climbers

16.8

37.3

54.1

77,001–106,000

8.2

45,001–215,000

Consumers

16.6

15.9

32.5

>106,000

5.8

>215,000

The rich

0.8

0.4

1.2

Total no. Of households: 164.9 million

Total no. Of households

46.6

118.2

164.8

Source: National Council of Applied Economic Research (NCAER).

Table VII: Indian Demographic Profile

Age structure:

0–09 years:

23%

10–19 years:

22%

20–29 years:

17%

30–49 years:

24%

50+ years:

15%

House Hold Disposable Income Bracket

Total Households

Remarks

2005 E Million 100% = 206

2015 E Million 100% = 244

Globals

> USD 22,000

1

3

Just the strivers and globals will together exceed the entire population of Australia and 3/4th of Korea

Strivers

US$ 11,000 to 22,000

2

6

Seekers

USD 4000 to 11,000

11

55

The top three segments will exceed the size of Brazil, Japan, Russia Germany and UK

Aspires

USD 2000 to 4000

91

106

Deprived

< USD 2000

101

74

Source: The Great Indian Middle class: NCAER: MGI Consumer Demand Model

Table VIII: Income Groupings and Ownership (Ownership per Household 2001–02) (Estimated)

Annual Household Income (‘000)

Households (Million)

Two Wheeler

CTV

Ref

AC

Car

Deprived

<90

135.4

0.07

0.05

0.04

0.00

0.00

Aspirers

90–200

41.3

0.47

0.40

0.34

0.02

0.04

Middle Class

200–1000

10.7

0.70

0.73

0.62

0.15

0.32

Rich

>1000

0.8

0.20

0.17

0.14

0.01

0.03

Total

188.2

0.20

0.17

0.14

0.01

0.03

Table IX: Income Figures in ‘000 per Annum at 2001–02 (E) Prices, Households in ‘000 Numbers

Figure

Chart 1: Major Players in the Indian CDs Industry

CTV

Refrigerators

Washing Machines

RACs

B&W TVs

Aiwa

BPL

BPL

Blue Star

Videocon

Akai

Daewoo

Electrolux

Carrier

Onida

BPL

Electrolux

Godrej

Daikin Shriram

BPL

Daewoo

Godrej

IFB

ETA General

Oscar

LG

LG

Ken star

Hitachi

T-Series

Onida

Samsung

LG

Ken star

Unorganised Sector

Oscar

Videocon

National

LG

Panasonic

Whirlpool

Onida

National

Philips

Voltas

Samsung

Samsung

Samsung

Haier

Siemens

Videocon

Sansui

Videocon

Voltas

Sharp

Voltas

Whirlpool

Thomson

Whirlpool

Haier

Toshiba

Haier

Unorganised Sector

Videocon

Beltek

Haier

Table X A: Consumer Electronics Market (Retail Value)

Market Sizes - Historic - Retail Value RSP - Rs mn -

Geographies

Categories

1998

1999 E

2000E

2001E

2002 E

2003 E

India

In-home consumer electronics

111810.6

129275.5

124194.1

122190.3

140571.2

162938.5

India

Televisions and projectors

74382

90579.2

83376.8

80416.2

92549

105478.6

India

VCRs and DVD Players

2024.9

1690.7

1226.6

998.2

803.8

2921.7

India

TV and VCR/DVD combinations

-

-

-

29

27.2

30

India

Home audio and cinema

14056.2

15329.9

17565

18606.6

20721

22600.2

India

Personal computers

21347.6

21675.7

22025.7

22140.3

26470.3

31908

Source: Euro monitor from trade sources/national statistics

Table X B: Consumer Electronics Market (Retail Volume)

Market Sizes - Historic - Retail Volume - ‘000 units

Geographies

Categories

1998

1999 E

2000 E

2001 E

2002 E

2003 E

India

In-home consumer electronics

16524.9

17553

17021.6

17034.2

19979.7

23568

India

Televisions and projectors

7340

8306

7577.4

7406

8615.5

9874.9

India

VCRs and DVD Players

343.2

313.1

234

198.2

159.1

381.5

India

TV and VCR/DVD combinations

2.5

2.3

2.5

India

Home audio and cinema

6766.6

6703.8

6863.1

6991.3

7947.6

8655.8

India

Personal computers

2075.1

2230

2347.1

2436.2

3255.2

4653.3

Table XI: Psychographics Segments – Refrigerator

Psychographics

Behaviour

%

Premium seeking upgrades

Enhance capacity to satisfy evolving family requirements.

Are status conscious: perceive capacity up gradation as being tech savvy, stylish.

Skewed towards higher income (27% 15–25 K). Skewed towards females (50%).

10

Basic brand trusting follower

Focus on basic functions and features like good interior layout, keeping food fresh, odour free.

Very strong relation with brands – look for assurance and reliability of the product through the brand.

Tend to be middle income (50% 8 to 15 K).

Skewed towards mid size fridge (40% buy 180-250L).

24

Savvy package shopper

Carefully weigh all elements of complete package, product reliability, assurance through service, warrant a dealer recommendation.

Want basic functions like cooling, interior layout etc.

Three sub segments – with focus on service, warranty of all features.

37

Home enhancing basic buyer

Want products that make the house look attractive.

Seek functional features like good cooling interior space etc.

Skewed towards 6–10 K (50%).

Skewed towards women (65%).

Skewed towards small entry level fridge (85% own, 250L).

12

Personal budget buyer

Have a fixed price in mind (not necessarily the cheapest).

Look for the best bargain they can get within the budget.

Skewed toward experience/replacement buyers.

17

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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