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70 year-old LG seeks innovation for growth, sustainability

Sustainability is what has driven LG Group to become South Korea’s fourth-largest conglomerate for the past 70 years.

Facing ruthless competition in global markets, the manufacturing titan prides itself on prioritizing its legacy and customer trust over hasty and aggressive moves.

With its 70th anniversary this year, LG appears to be taking a renewed approach with innovation as the key word for its growth.

What began as a chemical firm in 1947, is now a company which sells a wide range of products from home appliances to electricity storage system with an annual revenue of 150 trillion won ($131 billion). However, since 2013, its revenue stopped growing, remaining around the 150 trillion mark. This has raised questions that the group’s growth may have reached its peak.

LG Twin Tower in Seoul (Park Hyun-koo/The Korea Herald)
LG Twin Tower in Seoul (Park Hyun-koo/The Korea Herald)


Amid lingering uncertainty and concerns, LG Group Chairman Koo Bon-moo has been stepping up efforts to spread the message of innovation and change, in order to survive as a sustainable performer over the next 30 years. In 2047, the group turns 100.

“Technologies of the fourth industrial revolution, such as artificial intelligence, are the game changers, completely changing rules into a new form,” he said in a New Year’s speech last month.

“We have to adopt new technologies with ideas that break the mold.”

During a 20-hour marathon meeting with heads of LG units held last month, Koo Bon-joon, vice chairman of LG Corp. a holding company of the LG empire, also urged CEOs to seek ways to innovate themselves and ditch business strategies of the past that have brought the group this far.

“The business environment in and out of the country, particularly the state of (market) competition has been changing, putting (us) in a more difficult situation than ever before,” said the vice chairman.

“If fettered by the success of the past and remain unchanged, we won’t be able to grow sustainably.”

The group has been giving more weight to the vice chairman, the younger brother to the chairman. In a management reshuffle late last year, Koo was given more authority to spearhead overall group operations, while the chairman takes more ceremonial roles. Some say that the aging chairman wants to see a change in management and also wants his younger brother to fill the leadership vacuum until his son Koo Kwang-mo is ready to take over.

Unlike other chaebol families, LG has strictly kept its tradition of inheriting the leadership to the firstborn son, avoiding an unnecessary feud.

Gearing for a change, LG has been seeking to secure a new growth engine by selling underperforming business units and finding ways to maximize synergies between affiliates.

LG selling its controlling stake in LG Siltron, a wafer manufacturing unit, to SK Group last month was significant. The 620 billion won deal puts an end to LG’s chip business, opening ways for the group to seek new opportunities.

By 2020, the group plans to create an R&D cluster named “LG Science Park” to bring its 11 affiliates including, LG Electronics, Display, Innotek, Chemical and CNS, together to seek the group’s future growth engine. The project, expected to cost around 4 trillion won, is likely to boost synergy between affiliates.

A merger between LG Chem, a major battery maker, and Life & Science, a pharmaceutical unit, last year is likely to boost the group‘s strategy to tap into biosimilar market while LG Electronics and LG Innotek are expected to work together to converge technologies and functions of devices. LG U+, the nation’s third-largest mobile carrier and LG CNS, a solution provider, also plan to develop platforms for devices and services operated by Internet of Things.

A vehicle component division under LG Electronics appears to be promising, according to a market insider, referring to its contract with General Motors on supplying parts to its electric vehicle Chevloret Bolt. LG Electronics also signed a memorandum of understanding with Volkswagen Group for a joint study on connected car service platform.

Observers note that in the years to come, LG would need a drastic turn of its business strategy that has often been criticized for being ambiguous or not aggressive enough.

“LG appears to have sought for an internal change to secure future growth engine, rather than expanding its business aggressively,” said Yang Hyung-mo, an analyst at eBest Investment and Securities, in a recent report.

“Its direction and strategy have become more clear now,” he said, adding that the group may seek new opportunities as an eco-friendly energy solution provider, not just remaining as a tech device manufacturer and a battery provider.

LG has been expanding its presence in the renewable energy sector by aligning products and services developed and commercialized by its affiliates.

The group has brought together LG Chem’s batteries that store power generated from LG Electronics’ solar panels and an energy monitoring system by LG CNS to create an integrated business project called a “total energy solution.”

By Cho Chung-un (christory@heraldcorp.com)





LG Twin Tower in Yeouido, Seoul

(Park Hyun-koo/The Korea Herald)
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