LG: Defying Gravity

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CHOI BU-SEOK / REUTERS

Look at me LG aims to boost its share of the TV market. Viewers watch a 3-D demo in Seoul

For hours on that day in December, Dermot Boden and his fellow managers at South Korea's LG Electronics fretted about the future. The same exercise had been taking place in companies around the world. It was 2008, and it was becoming grimly clear just how severe the coming global downturn would be. Boden, LG's chief marketing officer, and the rest of the senior-executive team gathered at the firm's Seoul headquarters to plan how to respond. The outlook for the company's TV and mobile-phone businesses was frightening. They talked of the need to cut costs; one executive recommended using less toilet paper.

But then, says Boden, the atmosphere began to change. The conversation turned to gaining share and building the LG brand around the world. "The rest of the time, we only focused on one thing," he says. "How do we take advantage of the opportunities now being presented?"

That gutsy, counterintuitive strategy paid off. While many of its competitors reeled, LG expanded in key sectors and markets. In mobile phones, LG jumped from fifth in the global market in 2007 to No. 3 by 2009, with a more than 10% share, according to consulting firm IDC, bypassing old-guard Motorola and Sony Ericsson. In LCD TVs it extended its lead over stalwarts like Sony and Panasonic. In fact, the LCD-TV market is becoming increasingly dominated not by Japanese firms but by the fierce rivalry between Korea's LG and Samsung. "It's really fighting each other that is the key driver right now," says Paul Semenza, a senior vice president at research outfit DisplaySearch in Santa Clara, Calif.

The gains propelled LG to surprisingly strong results. It posted record sales of $43.4 billion in 2009, up 12.5% from 2008, while net profits surged 325%, to $1.6 billion, also an all-time best. In the first quarter of 2010, profit swung to $590 million, from a loss of $142 million during the same period a year earlier. "The only difference between the company that is doing well and not doing well [in the recession] is how they view the situation," says Nam Yong, LG's CEO. "I personally feel a downturn is a blessing. If we do the right thing, I think the return is going to be much, much higher than the average time."

The emergence of LG on the world stage is part of an important trend reshaping global business: the rise of the non-Japanese Asian brand. For the past 60 years, Asian manufacturers proved highly adept at producing consumer products with great efficiency but were not nearly as good at designing and marketing them under their own brand names. Aside from Japanese powerhouses such as Sony and Honda, most Asian firms toiled in anonymity as contract manufacturers for companies in the U.S. and Europe, which then slapped their brand names onto the goods and captured a greater share of the profits.

Asian companies are now ascending the value chain, developing expertise in innovation, marketing and design. They are building brands in addition to products. In automobiles, Korea's Hyundai, once an industry laughingstock, is elbowing into the ranks of the world's best-known nameplates, while Samsung, not Nokia, is the top mobile-phone brand in the U.S. In computers, Taiwan's Acer has become the world's No. 2 PC brand, ahead of Dell, according to research firm Gartner.

For much of its history, LG was a bottom feeder, known to Americans as a purveyor of cheapie TV sets and microwave ovens under the Goldstar label, after its former corporate name, Lucky Goldstar. The firm rebranded as LG in 1995 with the goal of upgrading its image and repositioning itself on par with Sony and Nokia. The new brand met with some success in emerging markets like China and India, but the company moved cautiously in the highly competitive U.S. The LG brand arrived on American shores in 2001 via its mobile phones, with distribution all but guaranteed by wireless-phone-service retailers. LG didn't launch a major marketing campaign in the U.S. until 2003. Since then, LG's presence has grown with remarkable speed. The company grabbed consumers' attention with nifty innovations to stodgy products, like the addition of a steaming function in its washing machines, and neat designs, like the sleek Chocolate mobile phones.

LG's blunt-talking CEO has since made the company even more competitive. Nam, 62, has spent his entire career within the giant LG empire — an almost traditional Korean chaebol controlled by the Koo family, with interests in telecommunications, chemicals and other industries. Nam first signed on as a young recruit in the planning department of LG Electronics in 1976. After stints as an aide to the founding-family managers and top executive at the group's mobile-phone-service provider, among other posts, he returned to the electronics company as CEO in 2007.

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