The once-stodgy Korean company has hired a team of Western managers to boost its image—and its profits
LG Electronics Chief Executive Nam Yong and his chief marketing officer, Dermot Boden, had just wrapped up a stormy strategy meeting. Tempers had flared—a rarity in a Korean company, where consensus and "face" are paramount. After the meeting this autumn, Nam said: "You know, we argue a lot." Boden was worried that he might have crossed a line that, as an Irishman working in Seoul, he hadn't recognized. Nam then took a few steps, turned back toward Boden, and added: "Why don't we argue more often?"
The contretemps illustrates the cultural shift under way at LG. The company, once among the most Korean of Korea's chaebol, or conglomerates, is pushing to diversify its management and become truly global. Boden is one of five Western veterans of IBM (IBM), Hewlett-Packard (HPQ), Procter & Gamble (PG), Unilever (UL), and elsewhere that Nam has lured into the executive suite. The foreigners now represent a quarter of LG's leadership and have taken over key positions including purchasing, supply-chain management, and human resources.
Nam didn't necessarily intend to hire a bunch of back-talking cranks, but he knew LG needed change. The company's Korean management team had built an engineering powerhouse that excelled at manufacturing and selling good-quality, inexpensive TVs, cell phones, refrigerators, and scores of other products: Since 1976, when Nam started as a trainee in LG's export department, sales had soared 300-fold, to $44 billion last year. And in many respects, LG has long been global: By last year, more than four-fifths of its revenues came from overseas, and nearly 60% of its manufacturing was outside Korea.
But by the time Nam took over the top job in January 2007, LG was coasting. It had become a top-five consumer-electronics player globally but had few hits. Nam believed the company needed to be a trendsetter if it wanted to prosper in the Digital Age. To shake things up, he asked headhunters to find top talent from multinationals worldwide, regardless of nationality. "It's usually through debate that great ideas arise," says the 59-year-old CEO.
The foreigners have been asked to standardize the hodgepodge of processes and systems that LG has developed around the world. Its purchasing, for instance, was done by four different business units and was split among factories and subsidiaries in 110 countries. "I'm like a conductor, getting [2,000 purchasing officers] to work in concert to make good music," says Tom Linton, a 20-year veteran of IBM who joined LG as its first chief procurement officer in January. Nam says Linton's efforts to reshape the purchasing system have already saved the company hundreds of millions of dollars.
LG's supply chain was just as chaotic. Didier Chenneveau, a Swiss who in March quit HP to become LG's chief supply-chain officer, inherited more than 10 warehouse-management systems, five transportation operations, and four computer systems to monitor the movement of parts and finished products. His goal is to merge them into a single global system by 2010. Until now, "a lot of things were driven by pure dedication and commitment of the people," says Chenneveau.
The foreigners haven't been entirely welcomed by Korean managers. "The biggest worry was the prospect of Western executives imposing a way of thinking that might not work in our Confucian culture," says marketing manager Choi Seung Hun. "The prospect of communicating with my boss in English gave me a headache," adds Lee Kyo Weon, a purchasing manager. Both Choi and Lee, though, say the newcomers have made an effort to bridge the cultural gap; and it helps that an interpreter is always on hand.
Boden was the first foreign change agent. A year ago, Nam hired the veteran of Pfizer (PFE) and Johnson & Johnson (JNJ) to help turn LG into a premium brand. The problem, Boden says, was that LG's marketing was uninspiring. So he's aiming to give the brand a more sophisticated image with high-end products such as a cell phone co-branded with fashion house Prada and washers costing $1,500-plus. He's also taking a more organized approach to marketing by hiring a single agency—London's Bartle, Bogle, Hegarty—to handle advertising worldwide.
Early evidence suggests Nam's globalizing push is paying off. Despite a drop in consumer spending in the wake of the Wall Street meltdown, analysts say LG should report record results this year. Its operating profit jumped 138%, to $2 billion, in the first nine months of 2008 on sales of $36 billion, up 20%. It's unclear, though, whether LG's upmarket brand strategy will work in increasingly troubled times. "The big test will be how LG copes with the risks posed by the global slowdown," says Park Kyung Min, chief executive at fund manager Hangaram Investment Management.
Nam's foreign executives predict the company will prosper even as the economy slows. Nam, they say, is willing to spend what it will take to break into the top tier of global brands. In November, for instance, the company announced a five-year deal to plaster Formula 1 racetracks with the LG logo. Although it will cost LG tens of millions of dollars annually (Boden declined to give details), he vows to press ahead. "We are making a statement," Boden says, "even though things will be tough."