LG Mergers and Acquisitions (Ch 14)

Here is a short list of notable LG M&A Activity:

It should be noted that LG itself was created as a result of the 1958 merger of Goldstar (electronic products) and Lucky (home products).

In February of 2013, LG announced that they would acquire from HP their web operating system for use with its TV's. The idea is to have a web platform to make the TV's internet-enabled. This is a key competitive parity strategy, most easily achieved with an acquisition.

In December, 2008, LG Chemical acquired super-absorbet ploymer operations from a company called Kolon. This allowed LG Chemical to increase production of certain chemicals significantly.

LG and Strategic Alliances (Ch 13)

LG has long considered strategic alliances to be a key part of their overall approach. Here is one key example:

As I posted before, LG is making a new generation of smartphones featuring curved screens. They employed vertical integration, using their own chemical company to make the batteries and their own screen technology company to make the high-resolution screens. But software and operating systems are not within LG's core competencies, so LG entered into a strategic alliance with Microsoft for the phone operating systems.

This alliance is much more than LG simply purchasing Microsoft technology. The deal involves joint research and development efforts to achieve tighter integration between LG hardware and Microsoft software. It also encompasses an joint investment in marketing the phones. The benefits LG in that they get help marketing the phones and a name-brand operating system. And it benefits Microsoft in that their operating system gets on more phones and makes them at least a parity player with Samsung.

LG Corporate Organization Structure (Ch 12)

LG Is an M-form (Multidivisional) Organization

LG uses a two-dimensional M-form structure, with one dimension being the major functional organizations (i.e., Electronics, HVAC), and the other dimension geographical, where LG subsidiaries operate around the globe.

Figure 1 - LG Functional Organization 

Figure 2 - LG Geographic Organization

LG also uses a corporate organization structure for its core staff:

Figure 3 - LG Corporate Organization 

M-Form is the only logical structure that LG can use as it has numerous divisions that produce a variety of unrelated products. As a global company, it must also create subsidiaries for these companies to operate locally. Despite this independent structure, LG's corporate organization is very strong and is responsible for unifying key processes like supply chain management so that LG can leverage its size and limit the threat of suppliers, for example.

LG Diversification Strategies (Ch 11)

 Main LG Companies

• LG Electronics (LGE) is the main LG company. LGE makes TV's and a variety of electronics. LGE also makes home appliances, which is a diversification strategy
• LG Display is more of a vertical integration that makes displays for other LG companies (LGE, LGT)
• LG Telecom makes smart phones and is another diversification
• LG Chem is mostly a vertical integration. LG Chem makes batteries and other components for LGE and LGT

Here are two very distinct diversifications for LG:

• LG Life Sciences: This is a pharmaceutical company.

• LG Solar Energy: This is an HVAC solutions company, with emphasis on solar panel technology.

What are the possible rationales for these diversifications?

LG has global reach through many retailers and corporate relationships. Sharing customer service and marketing activity could represent a significant economy of scope to develop these lines of business.

As previously noted, LG manages all its suppliers and purchasing centrally. Putting these lines of business together, to the extent that many similar raw materials and logistics are needed, gives LG tremendous power over its suppliers. 

Leveraging this diversification requires a high level of organizational capability, which LG is known to have. So diversification may be a competitive advantage for LG due to their strength of organization.

LG and Vertical Integration (Ch 10)

Backward Vertical Integration          

LG owns several companies that make components that are used in LG products. In this example, we see LG producing a new smartphone using a battery developed by LG Chem (a chemical company that LG bought out). Other components like the screen were developed by their subsidiary, LG Display.

Interestingly, the processor for the new smartphone is being supplied by Qualcomm. So why has LG chosen to vertically integrate displays and batteries but not processors?

We need to look at several of the "rules" of vertical integration to understand this.

Proposition 3 says that when another firm has valuable, rare and costly-to-imitate resources but that are too costly to acquire, don't vertically integrate. On the other hand, Proposition 4 says that you should vertically integrate when the firm has business functions that are valuable and has resources and capabilities that are costly to imitate. 

It could be that integrating microprocessor manufacture is very costly. It may not add much value either as microprocessors are practically a commodity and LG only needs to achieve parity with competitors when it comes to processing power in their phones.

On the other hand, the most important ways to differentiate smartphones are around the things that users care the most about: Size and weight, display and battery life. Using three subsidiaries, LG Chem, LG Display and LG Innotek, LG has integrated the capabilities that will give their phones the most competitive advantage. To some extent, this is a implementation of Proposition 4.

LG and Collusion (Ch 9)

 

 

 

 

 

Introduction

While most of my posts have been pretty enthusiastic about LG's products, innovations, leadership and strategies, this one is not so flattering. Here is an instance where LG was caught illegally colluding with Samsung.

What is Collusion?

Generally, when firms are in the same business and they conspire to set supplies, prices, divide up customers, coordinate marketing activities or share information about bids and other customer marketing activities, they are colluding. Doing this explicitly and having direct discussions about these things can be a violation of anti-trust laws in many countries.

What is Tacit Collusion?

Rather than having explicit discussions, the firms try to find creative ways to signal one another in a way that would achieve some level of coordination about pricing or supply with the other firm.

Could LG and Samsung Tacitly Collude?

It would be hard because of both firms' product differentiation strategies, and the existence of a good number of other firms in their space. If they could pull it off, it might be hard to detect because of these considerations. I have not been able to find any allegations of tacit collusion, although these firms are big competitors and might conceivably benefit from some degree of collusion.

So what did LG and Samsung Do?

According to this article from BBC, the firms explicitly colluded to fix the price on certain appliances in 2008 and 2009. The firms were fined a total of $39M.

LG and Flexibility Strategy (Ch 8)

Strategic Flexibility

The strategic flexibility of a firm is its capability to adapt to changes in the external environment. The organization has to identify major changes in the environment, quickly change commitment of resources to new courses of action to counter the change, and to identify markers in order to restore to previous commitments when the external environment is back to the initial state.(Source)

One of the ways a firm can organize for flexibility is to enter into strategic alliances with other firms. This allows for more flexibility than would exist if the firm had to buy another firm, or commit to a large purchase. The strategic alliance allows the firms to execute against an agreed strategy if - at the time - it is mutually beneficial.

Here are results of a few selected strategic alliances that LG has engaged in:

Designer Smartphone with Prada:

 "LG Electronics worked together with the world famous luxury brand company PRADA
and signed an exclusive deal for cooperative marketing. The luxury brand "PRADA
Phone" was the result of the combined efforts of LG Electronics' advanced technology
the classic, luxurious design of PRADA. In addition, both companies agreed to cooper-
ate in more general areas such as manufacturing, advertising, and marketing."

 Technology-Enabled Solutions for HVAC Systems with Siemens

"LG Electronics and SIEMENS signed an MOU on joint development to build a technological and marketing partnership, and are collaborating to develop standard control solutions for commercial air conditioners."

Enhanced Audio for Smart Devices with Mark Levinson Audio System

 "LG Electronics and MLAS (Mark Levinson Audio System) are collaborating on a variety of products including music phones, home theater systems, and LCD TVs. Tuned by Mark Levinson, an audio master, these products feature superior balance of low, middle, and high sounds. The listeners will feel as if they are right in the middle of the venue where the music is being played."