LG’s Environmental Threats (Ch 3)

Industry Structure

LG makes a large variety of consumer entertainment products (most notably, TV’s), appliances, and other technology enabled devices. Most recently, LG has produced smart appliances for the connected home, telecommunication equipment and wearable technology. The structure that LG finds itself in is somewhere between monopolistic competition and perfect competition. To compete with LG in the several areas that LG operates in, a firm would need large capitalization, manufacturing capabilities, global reach and well-developed distribution. But this does not limit firms with such capabilities. In fact, LG has a good number of competitors including Samsung, Hitachi, The SK Group, Panasonic and Sony. So it’s not exactly a large number of firms, but there are enough competitors making each type of LG’s products that the industry attributes include some degree of product differentiation and a focus on competitive advantage.

Much of the competitive advantage comes from innovation, or at least being first to market with new products and features. As an example of this, LG is coming out with curved smart phones.

  

Other strategies revolve around product differentiation. As an example, LG is coming out with a line of wearable fitness technology that is similar to that of firms such as Fitbit, but whose connected software interface appears to have features beyond what Fitbit currently offers. Most of these efforts at competitive advantage will make up short-term advantage at best, and LG will have to continue to innovate and differentiate to remain competitive.

Five Forces Model

Let's take a look at three of the five forces: Threats of entry, rivalry and substitutes:

 

Threat of Entry

There have not been many new companies that have entered all the markets for product categories that LG operates in. However, there are new entrants in any of the individual areas, and these entrants can grow and cover more areas over time. For example, there are many appliance makers (LG is perhaps a relatively more recent appliance maker when companies like Sears or Maytag are considered).  

While it takes large capitalization to compete with LG, economies of scale are not - strictly speaking - a barrier to entry here because LG's competitors can stimulate more demand with innovation, pricing and reach. In addition, cost of production continues to go down with scale (i.e., it does not arc back up beyond a certain point).

Nor is product differentiation a barrier to entry. LG and its main competitors do not generally enjoy brand identification, in that no one has a big advantage in this area (like Nike does in the athletic shoe space).

The electronics industry as a whole does not appear to have significant barriers to entry. There are a few pockets of cost advantage that LG or its competitors might have (technology or know-how), but these amount to relatively minor parts of the space overall.

 

Threat of Rivalry

Rivalry is very common within these industries. As I mentioned above, the space is somewhere between a monopolistic and perfect competition. The competition among LG and Samsung, Panasonic, Sony and others is significant. In other LG areas (smart phones, appliances), there are even more competitors.

LG, like its competitors, has to invest significant effort in innovation, speed to market, advertising and marketing due to rivalry.

 

Threat of Substitutes

Rather than substitute products being a threat, new product versions constitute a constant threat, and in this space, is related to rivalry. LG and its competitors are constantly having to offer newer versions of their products, which must contain new features (e.g., ability to manage appliances with a smart phone) and new characteristics (bigger and flatter TV's).

 

Summary

LG finds itself in a strongly competitive environment where its biggest threats are rivalry and the need to compete with several firms in the various spaces it occupies. Powerful buyers also represent something of a threat.

LG deals with these threats primarily by innovation, speed to market and by trying to develop strategic relationships with key large buyers.

News Items Related to Dealing with Rivalry (Innovation):

Here is a new intelligent monitor:
LG Releases New IPS Monitor



Here is their flex screen technology:
LG G-Flex to More Countries