LG is a multinational electronics manufacturer based in Seoul, South Korea. It was found in 1958 by Koo In-Hwoi with the name of Gold Star. Renamed as LG Electronics in 1995, it manufactures a number of electronic systems including mobile communication, home entertainment, home appliances, air solutions, and components of vehicles. It has more than 119 local subsidiaries worldwide and employees 82,000 people. In 2015, the revenue of LG Electronics was 56.50 trillion South Korean Won. During its growth, LG acquired Zenith, an American TV manufacturer in1994. LG is well renowned for its smart phones, Plasma TV, smart watches, and other home appliances. In different regions it has entered into agreements with local electronic vendors such as Starion India for the Indian sub-continent region.
Following is a detailed Porter Five Forces Model Analysis of LG:
Competitive Rivalry – High
As there are a large number of players in the consumer electronics industry, the competition is intense. The market share of LG Electronics was 26.4% in 2009. The demand for the consumer electronics products especially LED and Plasma Screens is on the rise leading to strong competition in the industry. The prime competitors of LG are Samsung, Sony, Haier, and others. There is no product differentiation. The development in the manufacturing and the electronics technologies has led to increased price competition as well. It is a race of being the first in bringing innovation and cutting-edge technology to the marketplace. Second competitive aspect is the availability of warranties of the products. Another is coming up with the most creative and eye-catching advertisements and marketing gimmicks (Hemat, 2014). The competition amongst the rivals never stops. Thus, the competitive rivalry is high for LG.
Threat of New Entrants – Medium
The technology being used in the consumer electronics industry is continuously evolving making it difficult for new entrants. Other entry barriers include large capital investments, brand equity, retaliation from the established players of the industry, economies of scale, access to distribution channels, and intense competition. The existing manufacturers have developed strong supply chains for products and raw materials and their learning curve advantage. Another factor is strong government and safety regulations for consumer electronics. New technologies are also patented. However, besides these entry barriers, many companies have been successful in entering the industry and capturing small market shares from Taiwan and China such as Changhong Ruba and Ecostar. The threat of new entrants is, therefore, of a medium level.
Bargaining Power of Suppliers – Low
LG Electronics has entered into cooperate relationships with its suppliers through becoming their shareholders. The suppliers of LG include the suppliers of equipment parts it needs for the manufacture of its products. The agreement provides LG with a continuous supply of quality but low-cost parts as it keeps its suppliers onboard during product development. There are a large number of suppliers of these components and parts and since LG purchases in bulk, suppliers in an agreement do not have any bargaining powers. The supplier switching cost is not high for LG. Therefore, the bargaining power of the suppliers is low against LG.
Bargaining Power of Buyers – High
There are a number of companies that make the exact products that LG makes. The buyers of these products, therefore, have a wide array of options to choose from when purchasing consumer electronics. The switching cost is low for the buyers. Lack of product differentiation is also an advantage for the buyers. The recent war on providing products with the maximum number of features and the longest warranty has also increased the buyer power (Sarthak, 2013). However, brand loyalty exists in buyers as a result of a good experience with a brand. Therefore, the bargaining power of the buyers against LG is high.
Threat of Substitutes – Low
Some of the products of LG such as televisions and plasma screens can be substituted by computers with internet access to watch television channels. However, the majority of its products such as washing machines, air conditioners, sound system are not substitutable. They do not have alternates in the market making the threat of substitutes low for LG. It does not have to worry about its products being substituted.
References
Hemat, N., 2014. LG Introduction, products and related issues. [Online] Available at: www.slideshare.net/mobile/najeebhemat1/lg-products [Accessed 13 July 2017].
Sarthak, 2013. LG strategy analysis. [Online] Available at: slideshare.net/mobile/sarthak8/lg-strategy-analysis-under-given-environmental-situations [Accessed 13 July 2017].