Global Strategy in Emerging Markets Essay Example

the digital age, including Bill Gates of Microsoft and Craig Barrett of Intel, showcased digital convergence at the Consumer Electronics Show (SEC) in 2005 using equipment from Korea. In 2007, LAG presented the world's first dual-system DVD. LAG also desires assistance from local managers to foster growth. The information in this case study was prepared by Professor Keenan Ramsey for classroom discussion purposes only and does not imply effective or ineffective management. ; 2007 Thunderbird School of Global Management. All rights reserved.

The authors express their gratitude to Mr. Name Woo, President of LAG Electronics, for his active support. Mr. Jinn Gang, also from LAG Electronics, provided research assistance. This document is only authorized for use by Justine Ala in the Korean business and management in the global context course (BUSBIES_2013) taught by Martin Hemmers from March 2013 to September 2013. It is intended exclusively for the use of ALA player, which is compatible with both Blue Ray and HAD-DVD standards. Korean manufacturers have indeed gained attention in the industry.

Over the past two decades, LAG Electronics has witnessed significant growth in its market value. It started at $200 million in the mid-asses and reached $1 billion by the same period, eventually soaring to nearly $11 billion by early 2005. Compared to Sony, Samsung had twice the market capitalization of its competitor. This impressive accomplishment was a result of meticulous planning, strategic thinking, and leveraging various advantages that Korea was developing domestically. LAG Electronics has an intriguing history as it originated from Lack Huh Chemical Industrial Co., founded by Mr. Len-hoi Kook in 1947 with the aim of producing cosmetic creams.

Lack Huh Chemical

discovered that there were no independent manufacturers capable of supplying the necessary bottle caps for packaging their cream. As a result, they decided to establish their own facilities and use their excess capacity for injection-molding machines to produce small consumer products made of plastic. This expansion into plastic component manufacturing for telecommunication and electrical companies eventually led to Lag's entry into the telecommunications business. To ensure a steady supply of materials for plastics production, the company ventured into oil refining and shipping to transport crude oil. In 1958, the Goldwater Co. (currently known as LAG Electronics) was established as a means to consolidate their expansion in the growing plastics industry. LAG Electronics soon became a pioneer in the Korean electronics and appliances industry, being the first Korean company to manufacture vacuum tube radios, electric fans, black and white televisions, washing machines, and automated telephone switching systems.

During the mid-asses, the company diversified its operations into multiple industries including oil refining, cables, heavy manufacturing, and energy. This expansion led to substantial growth in sectors such as electronics, refining, and chemicals which generated record-breaking revenues and made a significant contribution to the overall growth of the group. Furthermore, the company entered the financial services industry by acquiring an insurance company and a securities trading firm.

LAG initially concentrated on exporting to developing countries during internationalization. However, it later extended its reach to include markets in developed countries. The company partnered with established players from the West, such as Caltech and DEEDS, and started exploring the U.S. market for electronics products. Simultaneously, LAG had already established a significant presence across various industry sectors in developing markets like China,

India, and Vietnam.

In 2007, the company commenced its refinancing and restructuring program to streamline its business holdings into core and non-core groups. It outlined electronics, chemicals, and telecommunications as its main focus areas. To promote transparency and autonomy in subsidiary operations, the company implemented a holding company structure. It had already established a strong presence in the United States, where its CDMA phones outperformed competitors for two consecutive years.

Through its partnership with Philips, the organization had achieved great success in the flat screen television market. LAG-Philips emerged as the leading player in flat screen manufacturing, surpassing other competitors. By 2006, sales revenues reached around $23 billion and profits amounted to $500 million. To establish itself as a key global competitor across various industries, it was crucial for the organization to strengthen its position in developed-country markets.

Betting on Electronics LAG Electronics played a key role in globalizing the LAG brand. With a range of consumer products including home appliances and mobile telephones, LAG was a leader in the group's efforts to expand worldwide. It generated around 47% of the group's total revenues. The company adopted an unconventional strategy by targeting niche markets and developed a distinctive set of management principles and practices to establish itself as a top player in the consumer electronics and appliances industry.

The origins of Koreans' economic rise can be largely attributed to the competitive context within which it evolved. This rise is largely thanks to the cacheable business groups that have driven the economy forward in various industries, including petrochemical, textiles, semiconductors, and shipbuilding. Working in tandem with the government's industrial policy and growth initiatives, Samsung, Deadwood, and

LAG have played a leading role in the consumer electronics sector.

President Park Chunk He is regarded as the founder of modern Korea for implementing the Economic Development Plan, which emphasized the electronics industry as a crucial sector for national growth. The government promoted foreign direct investment and the establishment of joint ventures with prominent global electronics companies. LAG collaborated with Hitachi, Deadwood with GE, and Samsung with Sandy and NECK. As a result, these joint ventures enabled the exportation of nearly 70% of all electronic products from Korea.

During this period, the focus was on labor-intensive, low value-added products that lacked significant technological aspects. Foreign companies played a key role in driving the industry's prominence by emphasizing genealogy and indigenous research. Firms were urged to invest in local research and development (R;D), and the government established a research infrastructure to support this effort. As a result, Korea had 120 private research institutes and 18 research consortia by the mid-asses. Industry promotion councils and cooperative institutions were also established to ensure technology access for all Korean firms. Additionally, a national education policy prioritizing science and technology education was implemented. Vocational schools saw an increase in students pursuing technical education, while universities were encouraged to cultivate a group of experts in science and technology. These initiatives led to a significant growth in the number of people employed in R;D positions in the consumer electronics sector, multiplying approximately five times between 1975 and 1995.

Many companies, including Samsung and LAG, were encouraged by technological investments to venture into export markets with their own branded products in an attempt to move away from the MOM (manufacturing-only mode).

However, they were surprised to discover that their products did not receive a warm reception in these markets. Instead, retailers placed their products in the back rooms where they gathered dust.

The significance of differentiated products, innovative design, and superior product quality became evident in this experience. The companies involved learned a valuable lesson and subsequently put more effort into creating a range of world-class products. Due to the small domestic market, Korean companies had to establish a strong presence in international markets. This early exposure to demanding foreign markets compelled Korean companies to distinguish their previous-generation products from those of established global leaders.

Korean firms had surpassed their global competitors by aggressively exploiting technological innovations, improving internal avalanching arrangements and organizational structures, and reducing costs. This required audacious investments in R;D, anticipatory internationalization, a focus on process innovation, and careful cost control. The big three Korean electronics manufacturers leveraged their relationships with main buyers served, proving that if you are not hungry, you cannot find food.

The MOM relationship provided a thorough perspective on the markets where experienced professionals from Japan were engaging in competitive conflicts. LAG and others, facing restrictions from the economically challenged domestic market and the MOM relationship, could only envision a global future. While the MOM relationships offered assistance in various ways, it was evident that it would not result in global competitiveness.

After studying the developed-country markets through their joint venture partners, LAG and others felt confident enough to introduce their own branded lines in these challenging markets. In the U.S., LAG utilized the Goldwater brand to offer various home appliances like microwave ovens and toaster ovens. However, it

encountered significant difficulties in securing shelf space in retail stores. Due to limited brand recognition and concerns regarding product reliability and quality, its products were not effectively displayed for sale.

The shop floor reserved the best spots for the sophisticated Japanese and European reduced lines, while Goldwater appliances were given less prominence, placed in corners or hidden away in unused rooms. LAG recognized the need to improve its products' appeal to buyers in developed countries, a challenging task. To overcome these obstacles, LAG decided to take a different approach and focus on anticipatory globalization. This involved making bold investments in emerging markets, which became a central part of the LAG strategy.

Kiang-Or Kim, the current President of LAG Southeast Asia and the leader behind Lag's successful expansion in India, expressed that while many Japanese and Chinese companies have entered the Indian market, they often approach it cautiously, testing its temperature before fully committing. They have doubts and lack determination. However, Lag's key to success lies in its ability to envision the long-term potential of markets. Unlike its competitors who prioritize short-term profits, Lag is willing to enter a market if it believes in its long-term potential.

In the early asses, LAG entered India but faced challenges with local regulations and market structures. It took over a decade for the company to establish a significant presence. Although LAG initially focused on Europe and North America, its success largely came from emerging markets like Brazil, Russia, India, and China. In the mid-asses, LAG expanded into Brazil and started manufacturing televisions and Vicars at its Unmans factory. The Brazilian government actively encouraged investment in the underdeveloped P.R. Sinai

throughout 2005.

In an interview with the Managing Director of LAG Electronics Indian, the topic of premium marketing to the masses was discussed. The conversation took place in The McKinney Quarterly Special Edition: Fulfilling Indian's Promise. In order to attract investors and promote growth, tax incentives and subsidized land were offered in the rainforest's region around the headwaters of the Amazon. Additionally, a factory was established in Debate, located between the major Brazilian cities of SAA Paulo and ROI De Jeanine. The Unmans factory focused on audio/video products and related equipment, while the other plant specialized in communications products like cellular telephones and monitors.

During the late asses, the Brazilian market encountered obstacles such as elevated import tariffs, competition from the gray goods market, and limited brand recognition. Prominent companies like Sony and Philips were present in Brazil but experienced varying levels of success. However, in 1999, the local currency became volatile which posed challenges for managers in overseeing operations. Exchange rates drastically dropped, creating heightened uncertainty and rendering planning nearly impractical. Consequently, numerous international players opted to either downsize their activities or temporarily withdraw from the market.

Despite facing significant exchange losses, Lag's decision to remain in Brazil and expand its operations proved to be a turning point in their strategy. They developed a plan to utilize Brazil as a regional manufacturing hub for both South American and U.S. markets. This was made possible by the devaluation of the local currency, the real, which allowed Lag to maintain its low-cost advantages for exporting. Additionally, they were able to manage their accounts receivables and payable effectively, creating a reliable hedge against exchange rate fluctuations.

LAG

quickly became a major exporter of electronics in Brazil, earning the recognition of the local government as a preferred partner in national growth. The company achieved this by strategically leveraging government incentives such as preferential land access and lower tax rates in underdeveloped areas. To address the issue of smuggled goods, LAG prioritized cooperation with the government to combat this problem.

Due to the cheaper prices of imported gray goods, manufacturers faced difficulties in generating a strong revenue base as their prices were relatively higher due to local taxes, which smugglers did not have to deal with. Marketing and financial management posed significant challenges, particularly as the LAG brand was not well known in Brazil when the company initially entered the market. To build consumer awareness, LAG capitalized on the country's widespread love for soccer by incorporating its branding campaign into sports events sponsorship.

The company also sponsored a football club in Sao Paulo, which was considered one of the best clubs in the country. This sponsorship helped generate tangible revenues and required careful customization of its product offerings. To achieve this, the company decided to position its displays, televisions, and home appliances as premium products in the market. This approach to product quality was innovative in Brazil, although it came with a higher price. Additionally, the company stood out by offering a three-year warranty and guaranteeing almost immediate service for product failures and breakdowns.

It utilized a fleet of service vehicles that could be sent to a customer's location quickly. This ensured that consumers could anticipate an unprecedented level of reliability. It entered into agreements with local distribution chains to obtain swift market access.

Additionally, it established its own preferred/authorized dealership network in addition to third party distribution arrangements. Furthermore, it heavily emphasized relationship development by organizing regular product events, social gatherings, and educational opportunities for its network of dealers.

The portfolio of products sold by LAG was customized to address local market ileitis. However, LAG took a unique approach to customization. While other companies reduced their offerings to cater to the lower budgets of customers in emerging markets, LAG expanded its range of products. It added customized options at suitable price points, mainly targeting the lower end of the market. The customization strategy focused on the distinct cultural and social aspects of its consumers' lives.

The local market acknowledged that LAG had established a strong presence in Brazil and was determined to overcome challenging economic circumstances. This strengthened the company's brand among consumers and allowed it to fill the gap left by other departing competitors. LAG also leveraged this sentiment when interacting with the Brazilian government and used it as a foundation for further growth. The company expanded its manufacturing facilities in Unmans and Debate, resulting in the production of air conditioners, PDP televisions, and audio equipment in addition to its initial line of televisions and Vicars. As of 2007, these products were being manufactured at the Unmans plant.

The Debate plant diversified its production to include GSM phones, CDMA phones, and monitors. In 2006, the company achieved sales of approximately $1.8 billion, marking a 35% growth compared to the previous year. In 1993, the Passage to India LAG began its journey in India and formed a joint venture for consumer products. Simultaneously, they established a manufacturing facility

to cater to the market. Sadly, this endeavor turned out to be unsuccessful as the partner failed to secure additional funds for financing the manufacturing operation.

LAG had learned a valuable lesson regarding the difficulties of managing joint ventures in emerging markets. Initially, the Indian government mandated that all foreign companies could only enter India by forming local partnerships. In response, LAG began negotiating with one of India's top business groups for a potential joint venture. However, during this negotiation period, the Indian government introduced notable market reforms and permitted foreign companies to establish their own wholly owned subsidiaries in India.

LAG chose to put a hold on the partnership discussions and instead establish LOGIC (LEG India Ltd.), a wholly owned subsidiary. LEGIBLE was founded in 1997 and, for one year, brought in all of its products through imports while simultaneously constructing its own local manufacturing facilities. In the vicinity of New Delhi, the capital of India, LEGIBLE erected manufacturing operations in Greater Oneida to produce televisions, washing machines, air conditioners, and refrigerators. From the very beginning, LEGIBLE concentrated on tailoring specific components of its product offerings to cater to the demands of the local market.

Even though the core product platforms stayed the same in all countries, local teams of researchers and developers were engaged in creating product variations that would cater to the specific needs of each local market. One example of this is the launch of a cricket television set that included a built-in cricket video game, which was aimed at satisfying the large number of cricket enthusiasts in the country. Additionally, its television sets were equipped with "golden eye" technology that

could detect the amount of ambient lighting and automatically adjust the brightness and contrast of the picture accordingly.

This feature was significant in the local market as it addressed the fluctuating lighting intensity caused by power supply imbalances. Additionally, Lag developed a distinctive air filtration system for its air conditioners to combat the high levels of particulate pollution in Indian metropolitan cities. Its home appliances were equipped with circuits capable of withstanding drastic voltage fluctuations, a common occurrence in the country. Lag also offered its standard product range, including high-end appliances, which were sold in developed markets.

LEGIBLE believed that adopting a balanced approach to developing product portfolios was imperative to succeed in the Indian market. Kiang-Or Kim, Legal's Managing Director at the time, emphasized the significance of treating the Indian market with equal importance as any developed market. This entailed formulating a comprehensive strategy that focused on delivering high-quality products, advanced technology, a reliable network, and access to top talent.

Furthermore, LEGIBLE recognized the immense potential in catering to the lower economic segments in India and devised a strategy to target rural markets. Unlike common practice, price reductions were not implemented for existing products when introducing them to rural areas. Instead, new versions of products were designed with features that had a greater impact and were manufactured using cost-effective materials, enabling lower production costs.

The company prioritized value engineering and design rather than compromising on the quality of its appliances. As a result, LEGIBLE introduced smaller television sets with scaled-down sound systems, leading to a price reduction of approximately 40% for entry-level models. Similarly, efforts were made to create rural versions of washing machines and

air conditioners, making these luxury products accessible to the majority of India's rural population. These customization approaches demonstrated a considerate understanding of India's cultural and linguistic diversity.

The company LAG implemented a unique approach in comparison to other competitors in the market. They sold television sets in rural markets and provided menus in local languages, a feature that was not offered by most local manufacturers. As a result, LAG started generating a significant portion of their sales revenues from the rural segment, accounting for over a third, and close to 60% from non-urban areas. The geographical diversity of India, coupled with the inadequate infrastructure, posed challenges for distribution. While most larger companies focused on establishing themselves in metropolitan areas, LAG opted for a different strategy.

Understanding the importance of a well-established distribution system in smaller towns and villages, where a significant portion of India's population resides, the company adopted a tiered approach. Initially relying on four national distributors, it later transitioned to a regional distribution system. This system was centered around Regional Distributors, who provided support to smaller channel partners in tier 2 and tier 3 cities. Additionally, the company established remote area offices in small towns that were unable to sustain larger channels.

The company rapidly covered the entire country with a distribution network that included approximately 4,000 access points, ensuring that customers from all areas were reached. In addition to this physical distribution strategy, the company also established an online channel called legible.com. This online platform provided customers with detailed product information and allowed them to compare prices across different regions. Moreover, it allowed individual buyers to place orders online. Being the first

consumer durables manufacturer in the country to adopt such an approach, LAG quickly established a unique position in the market.

Customer service was an essential aspect that distinguished LAG from its rivals. Following its Brazilian operations, the company introduced a fleet of repair vans that could promptly reach remote areas.