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JANUARY 13, 2005
Korea's LG: The Next Samsung? [Page 3 of 3]
CRITICAL RAPPORT. The vanguard of Kim's assault will be the handset division. Like Samsung, LG believes it can prosper by making mobile phones the anchor of its global brand-building campaign. Since 1999, Samsung has churned out a constant stream of well-designed, feature-packed handsets that have bolstered its image as a top-tier gizmo maker. At LG, the theory is that once consumers have an LG phone in hand, they're more likely to turn to the brand when buying a TV, video recorder, or refrigerator. "LG's brand image is significantly better among those who have used LG products," says Lee Hye Woong, vice-president for global brand management. But unlike Samsung, which has spent hundreds of millions of dollars annually on ads to promote its brand alone, LG is concentrating its efforts on selling phones. This year the company plans to spend $200 million to market handsets in the U.S. -- double its spending last year -- largely in conjunction with carriers that are LG customers. LG knows the importance of working closely with phone companies. Two years ago, Verizon Wireless was looking for a partner in its launch of a multimedia messaging service. LG jumped at the chance and set up an office near Verizon's headquarters. "The most critical task was creating a good rapport with our client," says Warren Yun, senior manager in charge of LG's North American business. SPEEDY ROLL-OUT. Those ties paid off when Verizon chose LG's $149 VX6000 camera phone to roll out the service in July, 2003. Then in January, Verizon selected LG's $200 VX8000 as the featured handset for the announcement of its new vcast service, which sends video clips to cell phones. In the cutthroat mobile-phone business, speed is essential. And that's where LG execs believe they have an edge. To make sure Verizon's new multimedia service was a success, LG flew 50 elite engineers, marketers, and product-development specialists to five sites across the U.S. to iron out glitches that inevitably pop up when synchronizing phones with new servers and networks. "We had noise and call cutoff problems at a Dallas test in March, and all of our hardware engineers in Korea worked day and night for four days to resolve the problem," recalls Lim Joo Eung, the chief research engineer who led a 48-person-team for the VX6000. By applying that kind of manpower, LG was able to cut the time it normally takes to roll out a new service by 25%, to nine months. EYECATCHERS. To promote LG's image as an innovator, Kim also wants the company to offer more attention-getting products. In Las Vegas it rolled out a $15,000, 60-inch plasma TV with a built-in digital video recorder. And it showed a stand-alone digital video recorder with a 160-gigabyte hard drive that offers an electronic program guide and can connect to a PC. Last year it was the first company to introduce a mobile phone that can receive digital TV broadcasts, and it launched a refrigerator with a built-in LCD TV. And, of course, there's the gold-plated 71-incher LG pitched as the "world's biggest production plasma TV." Unfortunately for LG, it had to add the word "production" to the description at the last minute after Samsung showed up with a working prototype of a 102-inch plasma model. Still, LG fared well: It got 16 innovation awards at the show -- more than any other company. LG's technical prowess is supplemented by a growing team of world-class designers. In the past year, LG has increased its design team by 40%, to 500. At the design center in Kangnam, a Seoul neighborhood of galleries, nightclubs, and cafes, designers clad in jeans, turtleneck shirts, and sneakers are in the forefront of LG's pursuit of must-have products for hip young consumers. LG's L20 LCD monitor, with a sleek black frame atop a chrome-coated base, has won prestigious design awards, and the company has sold more than 20,000 of them in North America since the product's launch last April. KOREA'S MATSUSHITA? "Increasingly, designers are seen as creators of value," says Yang Jung Min, a 28-year-old color artist who helped design a ruby-red air conditioner LG introduced in 2003. The machine, which sports a glass front panel, has been a hit, selling 40,000 units in the first year. Can LG repeat the success of Samsung? Skeptics note that the company's projected 2004 profit of $1.5 billion pales beside Samsung's $10 billion -- though about half of Samsung's earnings came from its chip division. And LG's margins for handsets, at 7%, are less than half Samsung's -- a shortfall LG attributes to smaller production volumes and high spending on R&D. Some say LG may end up being a strong No.2 in Korea, the role Japan's Matsushita Electric Industrial -- maker of Panasonic products -- plays to Sony. "Being Korea's Matsushita isn't such a bad place to be," says Choi Dong June, vice-president at SK Teletech, Korea's fourth-biggest handset maker. No.2? That's not the kind of talk Kim wants to hear. But whether LG ends up higher or lower in the rankings, global rivals have another fast-moving Korean player to contend with.
 By Moon Ihlwan in Seoul, with Cliff Edwards in Las Vegas and Roger Crockett in Chicago
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