Getting Religion

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It may seem odd that at this crucial time LG has turned over its top job to a farm boy from a tiny village in eastern South Korea. Kim Ssang Su spent his childhood knee-deep in the family's rice paddies. Kim has never worked outside Korea or, before becoming ceo, even at LG's glitzy Seoul headquarters, known locally as the Twin Towers. He had spent his entire career buried in LG's stuffy bureaucracy at the company's main appliance factory in the industrial city of Changwon. He admits to being more comfortable in the field visiting factory floors and design centers than in his spacious office overlooking Seoul's Han River.

It would be wrong, though, to underestimate Kim, who has become a near legend in Seoul for the turnaround he engineered at LG's appliance business. When he took over in 1996, LG was making washing machines and refrigerators that seemed little more than cannon fodder for low-cost Chinese companies like Haier. Kim sliced costs by moving production of low-end products to China. He proved there is room for innovation in basic white goods, introducing, for example, appliances like air conditioners that can be controlled from the Internet. The result: sales reached $4.7 billion last year, more than twice the number when Kim took control.

Kim is infusing LG's other businesses with the same vigor. Called a "commander in the field" by executives, he storms about LG's factories and offices poring over details, issuing commands and spurring on the staff by giving them what he terms "stretch goals," or aggressive targets. Awake at 5:30 each morning for a brisk walk, he openly prefers "morning people" and holds 7 a.m. breakfast meetings with top executives. "I don't like the expression 'nice,'" Kim says. "I don't want LG to be perceived as nice. None of the great companies in the world are nice." Kim's relentless nature has put some executives on the defensive. "He likes to be heavily involved," complains a top manager. "I would prefer that he delegate a bit more."

Kim is backing up his tough talk with a strategy to augment the company's design and technology prowess. For instance, LG.Philips announced in March it would invest $22 billion with its suppliers in new flat-screen production facilities over the next 10 years. Kim is recruiting engineers at a furious pace, aiming to increase research-and-development teams to 60% of LG's total payroll by 2005, from 40% today. One recent afternoon at the LG Electronics Corporate Design Center in Seoul, young Koreans in jeans and hip black sweaters were packing up plastic models of computer monitors and microwaves to move to new offices. With the number of designers up 15% in the past year, to 390, the center has added an entire new floor. "As we emphasize our brand, design becomes more critical," says the center's president, Lee Hee Gook. "We're making ourselves more competitive."

Can Kim build LG into a global titan? Hurdles abound. LG still sometimes cuts prices to drive sales, softening both profit margins and its brand image. For example, LG sees 5% profit margins on its mobile phones; Samsung earns in excess of 20%. Nor does it help that LG Electronics is a member of one of South Korea's mammoth, family-controlled conglomerates, called chaebols, which are infamous for mysterious and convoluted business practices. In February the company broke a promise to investors by pledging $130 million to buy bonds of a nearly bankrupt affiliate, credit-card issuer LG Card. Kim says his company joined in because a failure at LG Card would have damaged LG's image. Michael Lee, an executive vice president at LG Corp., the conglomerate's holding company, says affiliates had a "moral obligation" to help out and calls the LG Card case an exception. The LG chaebol, he says, has reorganized its shareholding structure to allow affiliates to be managed more independently. Because of concerns relating to its being a chaebol, LG — like many other Korean companies — is valued more cheaply than many of its international competitors.

Still, in Asia, LG has taken on the world's best and proved it can hold its own. In China and India, LG has become a preferred brand. In China, which Kim calls the "toughest marketplace in the world," sales last year rose 40%, to $2.8 billion. In India, LG has beaten out Sony and Samsung to claim the No. 1 market share in everything from TV sets to refrigerators to CDMA phones.

And in just a few months, LG is making inroads into the U.S. Its increasingly popular mobile phones hold fourth place in market share. Lisa Smith, general manager for appliances at U.S. retailer Best Buy Co., began carrying LG refrigerators and washers and dryers in July, 2003, and their jazzy designs, such as lights on dryer control panels that look like car dashboards, have made them a hit with younger shoppers. "[LG has] done a fantastic job of raising the bar in the U.S. market," Smith says. "The products are popular, and they continue to gain momentum." In the end, Kim can take LG to the top only if he manages to solve that pesky branding problem. Its rival did it: four years ago, few in the electronics industry could have predicted the growing dominance of Samsung, despite its solid technology and financial clout. Samsung's surprise was its savvy at brand building. "In terms of the ingredients, LG has everything — the quality, the packaging, the global marketing reach," says Nam Park, an analyst at HSBC Securities in Hong Kong. "What's missing is the magic. It's missing that je ne sais quoi." If Kim finds it, he'll probably pour himself a glass of soju and let go a very, very loud cheer.