Type: Public Company
Address: LG Twin Towers, 20 Yoido-dong, Yongdungpo-gu, Seoul, 150-010, Republic of Korea
Telephone: (82 02) 3773 2292
Fax: (82 02) 3773 5114
Web: http://www.lg.net
Employees: 160,000
Sales: $70.9 billion (2006)
Stock Exchanges: Korea
Ticker Symbol: 003550
Incorporated: 1947 as Lucky Chemical Industrial Company
NAIC: 551120 Offices of Other Holding Companies
LG Corporation is a holding company that operates worldwide through more than 30 companies in the electronics, chemical, and telecom fields. Its electronics subsidiaries manufacture and sell products ranging from electronic and digital home appliances to televisions and mobile telephones, from thin film transistor-liquid crystal displays to security devices and semiconductors. In the chemical industry, subsidiaries manufacture and sell products including cosmetics, industrial textiles, rechargeable batteries and toner products, polycarbonates, medicines, and surface decorative materials. Its telecom products include long-distance and international phone services, mobile and broadband telecommunications services, as well as consulting and telemarketing services. LG also operates the Coca-Cola Korea Bottling Company, manages real estate, offers management consulting, and operates professional sports clubs.
Cosmetics and Chemicals 1947-57
The earliest predecessor of LG was the Lak Hui (Lucky) Chemical Company, founded in Korea by the Koo and Huh families in 1947. The company's first product was a line of cosmetic creams. It then expanded into other petroleum products, including caps for the cream jars and other plastic molds.
The business remained small through its early years. Korea had suffered severe economic disruption during World War II, and virtual ruin by its partition and subsequent invasion by Soviet-backed armies from North Korea. The U.S. government, however, had a strong interest in seeing both Japan and Korea transformed into large industrial economies in order to check the advance of communism in the East. With substantial foreign aid, industrial programs were created that helped companies such as Lucky to succeed and grow.
Lucky was regarded as a strategic industrial resource; it was Korea's only plastics manufacturer, and held great foreign exchange earnings potential. To that end, Lucky created an export agency in 1953. The following year, the company developed the first domestic toothpaste in Korea, Luk Hui Dental Cream, and a year later began producing the first PVC pipe in the country.
Adding Consumer Electronics 1958-65
Observing the success of Japanese consumer goods exporters such as Matsushita and Mitsubishi, Koo decided that Lucky was ready for diversification into electronics. Lucky created an electrical appliance manufacturer in 1958 called Goldstar Company, Ltd., whose first product was a simple electric fan.
The following year, with a new factory located at Pusan, Goldstar introduced the country's first line of domestically produced radios. These products were unsophisticated and generally unfit for sale abroad. In addition, Goldstar lacked marketing arms in foreign markets. Parallel to Matsushita's experience, Goldstar's products would first satisfy domestic demand (and thereby substitute for more expensive imports) until design changes and improvements could be incorporated. Goldstar would then enter the international market with more thoroughly tested, modern, and competitive products.
Protected from foreign competitors by rigid import restrictions, Lucky Chemical and Goldstar continued to prosper during the early 1960s. Much of the companies' profits were dedicated to the acquisition of new petrochemical technologies and the establishment of a wider market presence. New product development was delayed, hampered by limited engineering resources and expensive patent licensing. Despite these disadvantages, Goldstar managed to successfully market a refrigerator in 1965 and a television a year later. Both were the first domestically manufactured appliances of their kind. Goldstar was the first Korean manufacturer to establish a solid toehold in electronics export markets, for example, supplying televisions to various U.S. companies, such as Sears and J.C. Penney. Those buyers sold the units under their own brand names. Goldstar gradually earned a reputation as a supplier of low-cost, high-quality electronic components and appliances.
South Korean Business Group Structure
Lucky and Goldstar were divisions of a chaebol, or business group. Chaebol were massive groups of interrelated companies that dominated South Korean industry. Rising to prominence after the Korean War, South Korean chaebol were founded and operated by prominent, or "royal," families. Different chaebol generally concentrated on separate markets, such as those for chemicals or automobiles. Throughout the middle 1900s, chaebol were characterized by hierarchical, centralized control, which was usually exerted by members of the founding family. Chaebol traditionally had a central planning division, or secretary's office, which was directly subordinate to the chaebol chairman. The office would oversee all of the group's activities and was responsible for strategic management.
Park Chung Hee, a general who had seized power in South Korea in 1962, approached the chaebol in an effort to improve living standards in Korea. Since many government officials held financial stakes in the conglomerates (a Lucky-Goldstar director even served in Park's cabinet), the chaebol were often afforded special privileges. Lucky Chemical and Goldstar proposed that South Korea's export earnings could be increased if the chaebol had better engineers. The company asked for, and got, government funds to sponsor students at leading Western universities. It was a heavy investment whose benefits would not be realized for years, but the education scheme was essential to maintaining the company's position.
Rapid Growth 1966-79
During this period, Lucky Chemical established joint ventures with foreign firms, gaining access to new technology. In 1966, Lucky teamed with Continental Carbon. The company, called Lucky Continental Carbon, became the largest Korean manufacturer of carbon black, a basic raw material in rubber products. Lucky entered into a far more significant joint venture the following year when it established the Honam Oil Refinery in conjunction with Caltex Petroleum. Honam was Korea's first privately owned, as well as its largest, refinery. The complex eliminated Korea's dependence on more expensive imported oil products and even permitted substantial export earnings.
When Koo In Hwoi died in 1969, the chairmanship of Lucky and Goldstar went to his eldest son, Koo Cha Kyung. Nepotism, far from being regarded as dishonorable or unfair, was widely practiced in the company, as in many Asian companies. Members of the Koo and Huh families occupied top management positions within both companies and their subsidiaries, although as the company grew, professional managers came to dominate. During the 1970s, the chaebol created 20 subsidiaries and established new plant space for them, mostly in extreme southern Korea, where land is flatter and there are more deepwater ports.
Goldstar's revenues continued to swell as it extended its reach into new industries and marketing channels. For example, it introduced its first product bearing the Goldstar name brand in the United States in 1977. The success of that 19-inch black-and-white television prompted it to export several lines of low-cost electronics during the late 1970s and 1980s that were sold under the Goldstar label. Importantly, Goldstar also began to advance into high-tech industry segments during the 1970s. For instance, it invested massive amounts of capital to establish its own semiconductor manufacturing division. Its initial goal was to produce microchips for use in its own electronic components. However, Goldstar's long-term strategy was to use the semiconductor division to position the company to compete in the much more advanced electronics and telecommunications industries that were emerging.
Political Change Forces Reorganization 1980-85
Park, who had eventually been elected as a civilian president, was assassinated in 1979. With his death, much government favoritism was eliminated. All the chaebol had to become more self-reliant, drawing upon their own resources to guarantee markets, seal deals, and cover risks.
These new conditions precipitated an industrial reorganization for Lucky and Goldstar. Lucky Chemical and Goldstar Electronics were made subsidiaries of a larger parent company, officially referred to as Lucky-Goldstar. The company maintained a very positive public image, owing to its gentle character and ability to avoid scandal. In 1980, the Lucky-Goldstar group had sales of more than $4 billion annually.
Various chemical-related businesses still accounted for the majority of that revenue. Encouraged by the success of its electronics and appliance businesses, though, the chaebol decided to shift its focus away from chemicals. To that end, Lucky-Goldstar invested heavily in Goldstar Co. during the early and mid-1980s, boosting production capacity with both domestic and foreign production facilities. Goldstar even became the first Korean manufacturer to set up a manufacturing plant in the United States. Built in 1983, its Huntsville, Alabama, television plant was churning out more than one million color televisions and microwave ovens annually by the late 1980s. Goldstar augmented production efforts with a boost in advertising expenditures from $2 million in 1983 to $12 million in 1984.
In addition to overseas efforts, Goldstar launched an aggressive growth program at home. It expanded production capacity for virtually every one of its major products during the early and mid-1980s and broadened its product lines to include a number of high-tech goods. Most notable was Goldstar's construction of a new factory south of Seoul, in Pyongtaek. The plant, which opened in 1984, represented Goldstar's intent to become a leading global supplier of VCRs, personal computers, facsimile machines, and other relatively high-tech consumer and business devices. In fact, the company publicly announced a goal of deriving a full 40 percent of its sales by the mid-1980s from high-margin, advanced technology products, rather than from its traditional core of relatively low-tech, low-priced commodity goods.
Summing up Goldstar's basic tactic during the 1980s was one of its advertising slogans: "Expensive electronics without the expense." The strategy seemed to benefit the chaebol during the decade. Goldstar established a solid presence in domestic and international markets for microwave ovens and televisions, as well as for refrigerators, washing machines, and other major appliances. As a result, Lucky-Goldstar's revenues rocketed more than fivefold to $22 billion between 1980 and 1989. Much of that gain was attributable to electronics, which was supplying more than 30 percent of Lucky-Goldstar's revenue by the end of the decade, while 25 percent came from chemicals and 33 percent from various trade and financial services companies.
Major Problems at Goldstar 1985-89
Although Goldstar's sales gains during the 1980s may have seemed impressive to the casual observer, its financial performance began to wane in the mid-1980s and the company experienced a series of setbacks. Goldstar's woes were the result of a variety of factors, including shifting global economies, labor strife, and greater domestic competition. For example, Goldstar's dominance of Korea's domestic electronics industry, which it had enjoyed since the 1960s, was challenged by the Samsung chaebol, particularly beginning in the early 1980s. Samsung's electronics division surpassed Goldstar in both sales and profits by 1984 and continued to widen its lead throughout the decade. By the late 1980s, Goldstar's domestic market share had fallen from 45 percent early in the decade to just 36 percent.
Illustrative of Goldstar's difficulties during the 1980s were its reversals in the semiconductor business. In an effort to compete with rival Samsung, Goldstar had invested heavily to develop more sophisticated chip technology. Unfortunately, the semiconductors it developed had limited market applications and Goldstar had trouble mastering the production technology. The end result was that Goldstar was unable to achieve savings by producing its chips in-house, and it also failed to establish itself as a significant global chip manufacturer. Meanwhile, Samsung successfully transitioned into new semiconductor technology and eroded Goldstar's market share.
Adding to Goldstar's technology and competition woes in the 1980s were labor and economic setbacks. Because the Korean government restricted access to overseas financing sources, Goldstar was forced to fund much of its growth during the early and mid-1980s with loans from short-term domestic financiers. The unfortunate result by the late 1980s was that Goldstar was paying out more than 85 percent of its operating income to cover interest on its massive debt load. At the same time, Goldstar's primary export market, the United States, was maturing. Ongoing competition from Japanese producers exacerbated the export dilemma. To make matters worse, Goldstar lost much of its important low-cost labor advantage in the late 1980s when its workers rebelled. Frustrated union members went on strike, which ultimately cost the company $600 million between 1988 and 1990. They forced Goldstar to greatly boost wages, and as a result the company had to raise prices an average of 8 percent.
Losing Ground on Quality and Market Share
Goldstar's greatest problem by the end of the 1980s, however, was that it was losing its reputation for quality. By 1990, for example, Consumer Reports ranked Goldstar's VCRs last in a comparison with 18 other brands. Part of Goldstar's quality problems stemmed from its reliance on outside suppliers--a faulty chip imported from Japan in 1987, for instance, nearly terminated Goldstar's American VCR operations. Nonetheless, it was also the result of Lucky-Goldstar's unwieldy organizational structure. By the late 1980s the chaebol was comprised of more than 30 different companies operating without cooperation. Research and development efforts were being duplicated in different divisions, and managers had lost touch with overall organizational objectives.
Quality and management problems, combined with a stronger won (the Korean currency unit), caused Goldstar's exports to the United States to crumble from $834 million in 1988 to just $535 million in 1990. That decline, along with plummeting domestic market share, caused Goldstar's net profit margins to drop by more than 100 percent during the period. The company was befuddled and had lost its focus. In 1984, for instance, management predicted that U.S. sales would top $1 billion by 1986. By 1990 that goal seemed like a foggy dream. Furthermore, Goldstar had fallen well short of its objective of generating 40 percent of its revenues from high-tech products--by 1990 only 12 percent of sales came from such goods.
The origin of many of Goldstar's problems in the late 1980s was the chaebol structure. Early in Lucky-Goldstar's history, the centralized, hierarchical structure of the chaebol had been an asset. The Koo family had made virtually all major decisions, and directives were regularly dispatched to executives from breakfast meetings over which the family presided. As the chaebol mushroomed in size, however, the authoritative nature of the organization became a liability. Importantly, the slow hierarchical decision-making process had become obsolete in the fast-moving global economy of the 1980s.
Management Innovations and Global Vision 1990-94
Recognizing the urgency of the situation, the 62-year-old Koo took drastic measures beginning in 1989 to turn the ailing Lucky-Goldstar around. Most importantly, he handed control of Goldstar to Lee Hun Jo, a 27-year Lucky-Goldstar veteran.
Koo cemented Lee's independence when, in 1991, he gave a written guarantee of autonomy to Lee in a public ceremony. In a remarkable departure from chaebol tradition, Lee was allowed to run the company as he liked and was only required to report to Koo twice each year. Lee quickly reorganized Goldstar into two major groups: consumer electronics, and personal computers and office equipment. Products that did not fit into those divisions were spun off, distributed to contractors, or absorbed by other Lucky-Goldstar electronics companies.
During the early 1990s Lee virtually transformed Goldstar from a lagging electronics producer to a leading, global high-tech contender. Lee, who spoke both English and Japanese fluently, integrated proven Western and Japanese management techniques. His efforts permeated Goldstar's management and work force. Lee jettisoned entire layers of management and successfully forged an amiable working relationship between top management and labor. He also increased promotional spending in an effort to woo former customers, and reasserted Goldstar's plan to assume a lead role in high-technology markets.
Largely as a result of Lee's efforts, Goldstar staged a major comeback. Sales vaulted from $4 billion in 1990 to more than $6 billion in 1994, and net income rose to a record $120 million after slumping to around $12 million. More importantly, by 1994 Goldstar had regained its number one position in the South Korean market for color televisions, refrigerators, and washing machines, and it had suddenly resumed its contention for global semiconductor market share.
Among the company's pivotal breakthroughs was a unique new refrigerator, introduced in the early 1990s, which was designed to keep Korea's national dish, kimchi, fresh and odorless for a long time. Likewise, Goldstar was achieving marked gains overseas by focusing on emerging markets like Russia and Vietnam while at the same time increasing North American sales through overseas manufacturing and partnerships with U.S. companies. In fact, Goldstar's U.S. sales jumped 17 percent in 1994 to around $1.2 billion.
Growth through Diversification
Lucky-Goldstar was reorganizing and expanding in other areas as well. It combined Lucky Pharm and other of its companies into a single chemical arm, Lucky Ltd. In 1990 Lucky Ltd. formed a new manufacturing joint venture with Owens Corning Fiberglass Corp. to make products for reinforced plastics sold in various Korean markets. The following year, taking advantage of a new Korean law that allowed chaebol to become openly involved in national banking, Lucky-Goldstar became the leading shareholder in the Goldstar Investment and Finance Company.
At the same time, Goldstar Information and Communications was producing telecommunications systems and products for developing nations. Lucky Securities Company Ltd, a brokerage and underwriting provider, operated 55 offices in Korea with a subsidiary in London and branches in New York, Hong Kong, and Tokyo. As well, Lucky-Goldstar's company CD-1 was producing CDs of pop music.
Also in 1994, Goldstar invested heavily to develop technology related to advanced liquid crystal displays (LCDs), which are used in notebook computers and other applications. The Dutch electronics firm Philips invested $1.6 billion in a 50-50 joint venture to make LCDs using Philips' proprietary technology. That year, Goldstar captured about 35 percent of its sales from home appliances, 25 percent from televisions, 13 percent from computer and office equipment, and the remainder from miscellaneous audio and video gear.
Corporate Overhaul
In 1995, Koo Bon Moo, the founder's grandson, took over as the third chairman of the conglomerate. He changed the chaebol's name to LG Group, eliminated seven management levels, and paid $351 million for 58 percent of Zenith Electronics Corp., the largest electronics company and last domestic TV manufacturer in the U.S. LG's agenda for the acquisition was not only to command a significant segment of the U.S. television market, but also to have its executives learn American management techniques. By 1996, LG, the third largest chaebol, behind Hyundai and Samsung, had sales of $55 billion.
The Asian economic crisis in 1997-98 hit LG and the other big chaebol hard. With its large chaebol facing bankruptcy because of huge debts, the Korean government pushed them to consolidate duplicative and unprofitable operations and become more efficient. LG responded by trying to get rid of 90 operations. Further, in 1999, after much government pressure, LG Group agreed to sell its semiconductor business, LG Semicon Co. Ltd., to Hyundai Electronics Industries.
Later that year, LG merged LG Securities Co. with LG Merchant Banking Corp. and moved into the telecommunications field, purchasing and offering wired and wireless services to complement its own mobile telecom operations and telecom equipment manufacturing businesses. Koo used one of LG's major telecom acquisitions, Dacom Corporation, as a model for corporate transparency. Independent directors made up half of the board, and controlled the audit process. Additionally, in 2000 LG Group merged LG Electronics Co. and LG Information & Communications Co., to expand its capacity to develop and produce next generation mobile telephones.
Growing into the 21st Century
In 2001, the LG Group, with some 50 affiliates worldwide, had revenues of $81 billion; for 2002, revenues rose to $95 billion. In 2003, LG completed a 5-year radical restructuring, shifting from the chaebol model to become LG Corporation, a Western-style holding company for the LG Group. Even with the new structure, the Koo and Huh families owned enough shares to keep control of the corporation. In addition, the families also acquired several LG companies that were spun off as separate entities during the reorganization.
LG Group further restructured in 2004, splitting its components into two holding companies. LG Corporation, under the Koo family, became the holding company for the manufacturing companies, including LG Chem and LG Electronics. GS Holdings, under the Huh family assumed responsibility for LG's retail units, including LG-Caltex Oil, LG Mart and LG Home Shopping.
The year 2005 was difficult for LG, as it adjusted to the loss of the cash-generating retail divisions as well as to greater competition, higher prices, and sluggish domestic market conditions. However, the LG corporate "smiley" logo was becoming one of the most recognizable brands in the world. LG Electronics was the number one maker of home air conditioners, a top producer of other home appliances, and had 7.5 percent of the global market share of cellular handsets, making it number five in the world.
By 2008, LG, particularly its LG Electronics division, was gaining notice for its design-centered products. LG offered a touch-screen cell phone before Apple's iPhone did, built the Venus music cell phone for Verizon, and developed new designs for large-screen plasma TVs in hopes of gaining market share in the competitive U.S. market. LG aimed to be the third largest brand for consumer electronics by 2010.
Principal Subsidiaries
LG Electronics; LG Philips LCD; LG Chem; LG Household & Health Care; LG Life Sciences; LG TeleCom; LG Dacom.
Principal Competitors
ASHAI KASEI Corporation; Electrolux AB; Matsushita Electric Industrial Co. Ltd.; Whirlpool Corporation; Samsung; Sony Corporation.
Further Reading
"Adapting to New Environments," Business Korea, September 1992, p. 54.
"Bringing in the Big Boys," Economist (U.S.), February 9, 1991, p. 86.
Bulik, Beth Snyder, "LG's $100 Mil Charge Apes Samsung Tack," Advertising Age, June 21, 2004, pp. 1-33.
Byung Hoo Suh, "S. Korea Conglomerates Move In on Record Biz," Billboard, April 30, 1994, p. 56.
Carson, Phil, "LG's 'Mass Premium' Phones Bring Success," RCR Wireless News, April 17, 2006, p. 4.
Chang, Sue, "High Tech and Meaner," Business Korea, January 1992, p. 35.
Clifford, Mark, "Electronic Leapfrog," Far Eastern Economic Review, November 1987, pp. 80-83.
------, "Seoul-Mates Again," Far Eastern Economic Review, March 1990, pp. 46-47.
Clifford, Mark, and Jennifer Veale, "So Much for Reform," Business Week, July 26, 1999, p. 46.
Crane, Geoff, "Ailing Goldstar Needs Strong Medicine," Electronic Business, August 20, 1990, pp. 67-69.
Darlin, Damon, "Eager to Learn," Forbes, August 12, 1996, p. 92.
Doebele, Justin, "Ends and Means," Forbes, February 17, 2003.
"Domestic Electronics Industry: Backbone of Korean Exports," Business Korea, October 1993, pp. 34-36.
Fitzgerald, Robert, and Young Chan Kim, "Business Strategy, Government and Globalization: Policy and Miscalculation in the Korean Electronics Industry," Asia Pacific Business Review, Spring/Summer 2004, pp. 441-62.
"The Giants Stumble," Economist, October 18, 1997, p. 67.
"Goldstar Information and Communications: Reaching Out and Touching the World," Business Korea, February 1992, p. 43.
Gutierrez, Carl, "Netflix Teams with LG on Streaming Video," Forbes.com, January 3, 2008.
Hur Nam-Il, "A Starry-Eyed Vision," Business Korea, April 1997, p. 52.
Ihlwan, Moon, Cliff Edwards, and Roger Crockett, "Korea's LG: The Next Samsung?" Business Week Online, January 13, 2005.
------, "LG Bets Big on TV Design," BusinessWeek, January 16, 2008.
Kennedy, Kristen, "LG Spreads Its Wings," Digital Connect, January 1, 2005, p. 20.
Kharif, Olga, "Verizon's Venus Is a Beauty," Business Week Online, December 7, 2007.
"Koo Bon Moo," Business Week, July 3, 2000, p. 36.
Kraar, Louis, "Korea's Comeback ... Don't Expect a Miracle," Fortune, May 25, 1998, p. 120.
Lee, B. J., "Out of the Box: LG Electronics Is Killer in TV Chips, but Not TVs," Newsweek International, June 6, 2005, p. 66.
"LG Corp.," Company Insight Center, BusinessWeek, http://investing.businessweek.com.
"LG Electronics: Suddenly Top Tier," Chief Executive (U.S.), March 2005, p. S8.
"LG Launches $13 Billion North American Product Push," InformationWeek, January 9, 2008.
"LG Poised to Acquire Dacom," Network Briefing, October 5, 1999.
"LG's 60 Years of Unstoppable Progress," Business Korea, January 2007, p. 68.
"Lightening the Load at the Top," Business Korea, April 1991, pp. 26-28.
"Making Waves," SPC Asia, March 2005, pp. 14-18.
Manners, David, "The Chasing Pack," Electronics Weekly, October 19, 1994, p. 28.
Mi Young, Ahn, "Merger to Get LGE Back on Track," Electronic News, June 19, 2000, p. 16.
Nakarmi, Laxmi, "At Lucky-Goldstar, the Koos Loosen the Reins," Business Week, February 18, 1991, pp. 72-73.
------, "Goldstar Is Burning Bright," Business Week, September 26, 1994, pp. 129-30.
"Owens-Corning Participate in Korean Joint Venture," Pacific Business News, May 21, 1990, p. 26.
Robertson, Jack, "Hyundai Out on Top--Will Acquire LG Semicon," Electronic Buyers' News, January 11, 1999, p. 1.
Schuman, Michael, "Outward Bound: With Plenty of Cool Gadgets, LG's Kim Ssang Su Is Building a Global Brand," Time, June 21, 2004, p. A4.
Shin, Yoo Keun, Richard Steer, and Gerardo R. Ungson, The Chaebol, New York: Harper & Row, 1989.
"South Korea's Lucky Pharm to Consolidate," SCRIP World Pharmaceutical News, September 20, 1991, p. 12.
Tarr, Greg, "LG Says Network Key to Firm's Future," TWICE: This Week in Consumer Electronics, July 25, 2004, pp. 1-12.
Tong, Alfred, "LG Chem Changes Direction," Asian Chemical News, June 7, 2004, p. 8.
------, "LG Group to Split Business," Asian Chemical News, May 3, 2004, p. 7.
------, "LG: Lots of Possibilities ... and Hope," Asian Chemical News, August 8, 2005, p. 9.
"Unfinished Business," Economist, April 19, 2003, pp. 8-10.
Verespej, Michael A., "Can Goldstar Earn Its Gold Star," Industry Week, November 30, 1987, pp. 33-36.
"War of the Suds," Business Korea, January 1993, pp. 32-33.
— Dave Mote; Updated by Ellen Wernick
