1External Environment Analysis of LG Electronics Viet Nam

TABLE OF CONTENT

Executive Summary...........................................................................................................ii

1. Introduction.................................................................................................................2

2. Literature review.........................................................................................................3

3. Company Issues - External Analysis..........................................................................4

3.1..................................................................................................................................Opp

ortunities.................................................................................................................4

3.2..................................................................................................................................Thre

ats............................................................................................................................5

4. Recommendation.........................................................................................................7

5. Conclusion....................................................................................................................8

References...........................................................................................................................9

Appendix.............................................................................................................................10

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2External Environment Analysis of LG Electronics Viet Nam

1. Introduction of LG Electronics Inc.

The LG Electronics Inc. was originally established in 1958 as Goldstar, producing radios,

TVs, refrigerators, washing machines, and air conditioners. This group, a merger of two

Korean companies Lucky and Goldstar, is the second largest producer of television and

third largest producer of mobile phones employing workforce of 83,000 people working

in 119 locations around the world (LG, 2016). In addition, Vietnam is one of those

country where produces L.G products. Founded in Vietnam in 1995, L.G electronics

becomes a familiar brand with Vietnamese consumers. As well as business activities, L.G

electronics Vietnam with a motto “human is the first priority”, has continuously organized

social programs. In that, “Duong len dinh Olympia” has been a very famous program of

LG for 15 years, showing LG’s care to education development and talent training in

Vietnam. Over the past few years, Vietnam’s electronics sector has grown by 78 percent,

becoming the country’s number one export in 2013. With pro-foreign investment policies

and a competitive labor force, Vietnamese electronics production has also quickly

surpassed regional rivals such as Thailand and the Philippines and is expected to grow at a

modest five percent over the next few years, positioning Vietnam to surpass Singapore as

the region’s fifth largest electronics exporter

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3External Environment Analysis of LG Electronics Viet Nam

2. Literature Review

LG Vietnam in specific organization or LG

global firm is a successful example of

taking advantage of the external

environmental factors. Understanding the

way firm take actions by changing its

behavior to follow the main streams of the

market that plays a crucial awareness that

everybody need to study as an economic

learners. At first, it is more easily for us to

understand the diagram below by Michael.

Porter’s five forces of an organization and

the general outside environment (Michael,

1979). There are five aspects as mentioned

above in micro

economy including rivalry, suppliers,

customers, new entrants and substitutes

from different industry; however, inside

micro world there is also a battle field of

them by the second image. The second

analysis used in report is “SWOT analysis –

Strengths, weakness for internal environment and opportunities, threats for external

environment”, but we only concern about external analysis. This report will illustrate a

clear analysis of external environments of LG Vietnam and its affecting to the company’

behaviors in order to meet the best solution for helping LG performing better in their

market.

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B

4External Environment Analysis of LG Electronics Viet Nam

3. External Environment Analysis for LG Electronics Vietnam

3.1. Opportunities

Regarding to economic factor, being one of the most biggest multinational electronics

company with high level outcomes for both quantity and quality of products, LG must

corporate with a number of supplier in order to adapt the demand of manufacturing

products in factories. When interviewed Mr. Minh, the manager of LG warranty center in

Vietnam, there are normally five countries that LG purchases electronic components from

suppliers including Korea, China, Thailand, Malaysia and Indonesia – all of them in Asia,

which there is low-payment and beneficial policies for importing taxes. Importing from

these countries brings benefits for production due to the price and the quality of electronic

components. The commitment between LG and Korean suppliers is easily successful and

long-lasting because of stability while the company can purchase a great number of

components from the others in low price. On the other hand, LG can exploit its advantages

in having a substantial inputs for production such that reduce the price of products –

making more competitive with opponents in market of Vietnam.

Another outstanding opportunities for LG Electronics Vietnam is labor. Located in Trang

Due industrial estate, belonging to Dinh Vu – Cat Hai economic zone, Hai Phong City, LG

Display Factory creates benefits of human resources, especially local employees and

people from nearby areas (Anon., 2016). If in some countries like Thailand, China or

Singapore, LG must pay a higher salaries and wages expenses, the company may lower

capital for these expenses resulting in the decrease of production cost (Ngọc, 2016).

Otherwise, the improvement in quality and skills of employee can bring more chances for

LG in finding workers who can adapt the requirements of recruitment or be appropriate for

each department in company and factory.

About demographic factor, the fast growth of home appliances, electronics goods market in

emerging industry accompanies with the high level demand of customers all around the

world. Vietnam is a potential market for LG Inc. with a wide range of products categories,

which meet the needs of customer. “There are two types of target customers that LG

focuses on: families and organizations”, Mr. Minh said. The income of people in Vietnam

has risen for recent years, and standards of livings increases rapidly leading to the demand

for using smart home appliances such as smart TV (OLED TV, 4K, 3D TV) or sound-bar,

refrigerator, horizontal cage washer, or air – conditioners and so on. Now products of LG

Inc. can adapt the different demands of customer, based on the function and usage and

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5External Environment Analysis of LG Electronics Viet Nam

their income – from middle to high wages. Beside families, organizations and offices are

big customers. There are more and more buildings and offices, apartments, which make

opportunities for LG to become a supplier of devices such as air-conditioners, water

purifiers. It may bring a huge revenue for the company and the long-lasting usage.

Currently, LG Vietnam has built a distribution network sale and display products with

more than 100 dealers and display products stores that creates a great chance to cover

widely across the country to maintain its images and ready in all markets.

3.2. Threats

Although LG had some outstanding advantages in the market, it also faces several

challenges and obstacles that could bring the company out of their expectations. In term of

political factor, the Vietnamese government has established a pro-foreign investment

stance and has been working to improve its legal framework. With regard to electronics,

those companies who invest in software manufacturing or high technology factories will

qualify for reduced corporate tax rates of 17 percent – down from the standard rate of 20

percent. Although the benefits of doing business in Vietnam are considerable, it creates

many new entrants. Therefore, such companies like LG will likely to confront with new

competitors, such as Samsung, Panasonic, Sony.

In terms of proprietary, losing patent can be a colossal issue for all industry, but “LG’s all

products produced have legal patents, complying with the regulation of Vietnam

government which is named as Directorate for Standards, Metrology and Quality”, said

Mr. Minh. That is why LG in Vietnam is protected by that patent, ensuring no other

corporation can carry out business of LG as a subsidiary company. Interestingly, on May 6,

LG Display Group, a subsidiary of South Korea’s LG Electronics, pledged US $1.5 billion

to establish a screen factory in Hai Phong (Anon., 2016). Launching next year, the factory

will produce high-tech digital displays using LG’s organic light emitting diodes. This

investment comes just a year after LG opened a US $1.5 billion factory in Hai Phong,

Vietnam. This shows LG in Vietnam now has high profit margins that have been widely

known. Thus it indicates that this subsidiary is quite large industry to its rivals to compete

in electronic industry. Furthermore, LG electronics has been growing rapidly in current

years especially in producing TV and housewares.

As one of the common industry, LG has many substitute products with its large number of

competitors, for example Samsung, Sony, Panasonic, Philips. LG’s most of the products

are commodity which makes its market become quite competitive. As economic rule, when

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the fall in price of one good reduces the demand for another substitute good. Therefore,

increasing the price of its products in order to make more profit is questionable because of

huge amount of substitutes. In additional, LG often sells its products directly to official

distributers, which sells many different brand electronics at one place such as Nguyen

Kim, Tran Anh, Pico and The Gioi Di Dong and so forth. It means they sell their products

in the same location as their competitors’ product making customers have more choice to

choose from various electronics. Although it benefits buyers to have more option,

likelihood of buying LG products could be reduced. However, they have a unique selling

proposition. This company has some dramatic differences compared to rivals. To take

some example, they have different kinds of technology for TV which are 3D TV, OLED,

Smart phones with outstanding new function.

Beside some threats above, one of the most noticeable point worth mentioning is

technology. Due to the features of global advanced technology in which it could change in

exponential rate and continuously. In specific, we are clearly experiencing the same

direction in IT’s branch. This trend results in repeated failures for LG gigantic projects of

the smartphone in Vietnam between 2014 and 2015, hence a big question raising about

whether or not the management Board of LG Corporations missed to catch up with new

technology. The fact is that because of both external environment as mentioned below and

its low speed to catch up with the high tech, LG missed its profit in mobile phone sector.

As a result, a huge reform and improvements were made to strengthen its strategic plans,

especially in 2016 when every major activity on that field was cut down or shut down in

order to save the cost of production (Hieu, 2016). However, LG is not listed in to see the

real situation (Brand Vietnam, 2016). Furthermore, according to cafe biz.vn, LG actually

had seen similar issues in 2008 and 2010 when a boom in smartphone becoming the hot

topic and the first iPhone was introducing to the public, respectively. At that time, LG also

failed to catch their customer’s attractions and new tastes. At present, with a small segment

of global market share at nearly 4% and ranked as 7th mobile phone best seller, there is a

necessary need to study this area and find out the better solutions for their pathway in

telecommunication field.

On the other side, the problem nowadays for LG is a highly competitive market in which

they are trying to convince consumers buying more and more from them. An easy example

could be electrical appliances. The first reason of that fact could be understood like if

people have a similar amount of budget to spend on purchasing a product, they are more

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7External Environment Analysis of LG Electronics Viet Nam

likely to switch to other better goods. For example, the trend of exchanging TV is

increasing annually because of no barriers and low or free adopting fee between LG and

Sony having the same price of 12 million VND during the first 30 days in Media Mart by

mediamark.com. At that case, if we lose our customers’ loyalty and their beliefs by

providing poor quality of products or inefficient goods with low performance or regular

having technical problems, there is no chance for us to meet their demand anymore.

Everything must be done smoothly to satisfy the customers ranging from products to

customer services after selling.

4. Recommendation

As presented below LG still obtains many positive points which are in need to reinforce

and keep doing for a long time like core values of this firm. Focusing on the analysis of

the external factors that strongly affect LG Vietnam, in this section, some major

recommendations will be listed in order to better LG Vietnam’s performance in the local

market and also by studying its weaknesses. The first urgent thing is about keeping pace

with the technology, why they do not create an innovative world with a unique or

differentiated techniques or methods of communication or entertainment instead of

chasing to the other dominant ideas. We saw an immense impact of 1 st iPhone 2G in 2007

to the global taste of mobile phone and every aspect of lives on the cellphone and its flood

engulfing traditionally tapped buttons such as Nokia, BlackBerry, Motorolla. If LG

modernizes their techniques and line of production, success like Apple is likely to be

possible. Secondly, regarding to a higher demand of customers for their products in terms

of quality and quantity result in more complainants occurring, they should keep an eye on

their first line- offices where every customer going to meet initially before or after a deal

was signed to have a close view of what their customers’ needs or complaints in order to

retain potential users. The third point worth mentioning is about key advantaged

competition could be made by introducing and producing more long-lasting and high-

quality electrical devices, we mean more vertical integrations are in need to obtain its

highest benefits. In detail, trying to achieve international awards or certificates of saving

energy power or reducing noise by 50% on its current Led- TV or curved TV is a great

advance step that could better off LG reputation, LG had done a succeed job in receiving

an energy Star partner certificate by United States Environmental Protection Agency

(EPA) and gaining much consumers’ interests (LG, 2014). Lastly, expanding the market

by merging with others firms in different locations ranging from rural to urban areas- this

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decision could reduce highly competitive market- should be taken into account hence an

outstanding profit coming by selling maximized volume of goods to a wide variety of

consumers’ income. To make it into reality, many mini parts should be in charge in terms

of making attractive and creative advertisements, storing abundant of the budget,

recruiting more skillful employees and casual employees to work in extra places and more

strategic plans to manage.

5. Conclusion

Organizations are tightly bounded by its external environment. LG in Vietnam is in low

price importing its product from Korea, and its benefits for reducing the cost. One of the

opportunities of LG is contributing a number of labor force in parts of Vietnam which

increase their brand name in a whole country. In current years, people’s income has been

rising, leading to a high demand of new technology among citizens. Moreover, Vietnam’s

economy is going well in this decade so that advanced technology is necessary for its

demand. By having many opportunities it also has threats including new entrants and

substitutes. Nowadays electronic industry in Vietnam has many rivals and new entrants

have been increasing more and more. Thus they have right to have a differentiated

products. However, a number of substitutes are being existed can be a core threat to that

industry. In order to keep their business, LG should be more creative on their new products

distinguishing from others, and provide good first line managers. Lastly, it is vital to have

qualified and advanced technology to consumers in order to attract them as well as to

increase their sale.

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9External Environment Analysis of LG Electronics Viet Nam

REFERENCES

Bigthink editors, 2015. “Technology grows exponentially”, [online] Available at:

http://bigthink.com/think-tank/big-idea-technology-grows-exponentially (Accessed 30

November 2016)

Lam, D., 2016. “Vì sao LG không đấu được với Samsung trên mặt trận smartphone”,

[online] Available at: http://cafebiz.vn/vi-sao-lg-khong-dau-duoc-voi-samsung-tren-mat-

tran-smartphone-20160820193237941.chn (Accessed 30 November 2016)

“LG Display to invest $1.5b in Hai Phong”. [online] Available at:

http://vietnamconstruction.vn/lg-display-invest-1-5b-hai-phong/ [Accessed 30 November

2016]

LG, 2016. [online] Available at: http://www.lg.com/global [Accessed 30 November 2016]

Media-mart official website, 2016. Available at http://mediamart.vn/tin-tuc/tin-khuyen-

mai/khuyen-mai-giam-gia-tv-2014.htm (Accessed 30 November 2016)

Michael. Porter (1979), How competitive Forces Shape Strategy, Harvard Business Review. Available at http://faculty.bcitbusiness.ca/KevinW/4800/porter79.pdf

(Accessed 31 November 2016)

Ngọc, T., 2016. “Lợi thế nhân công giá rẻ dần về tay các nước Đông Nam Á”, [online]

Available at: http://vov.vn/kinh-te/loi-the-nhan-cong-gia-re-dan-ve-tay-cac-nuoc-dong-

nam-a-504162.vov [Accessed 30 November 2016]

Tin, D., 2016. “Thị trường di động Việt Nam đầu 2016: kẻ cười người khóc”, Available

at:http://www.brandsvietnam.com/10077-Thi-truong-di-dong-Viet-Nam-dau-2016-Ke-cuoi-nguoi-khoc (Accessed 30 November 2016)

Hieu, T., 2016. “LG đang dần đánh mất mình trên thị trường smart phone” Available at:

http://vnreview.vn/tin-tuc-xa-hoi-so/-/view_content/content/1887328/lg-dang-dan-danh-

mat-minh-tren-thi-truong-smartphone (Accessed 29 November 2016).

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APPENDIX

1. Can you tell me about your company? What are your company’s main kinds of

products?

2. What does customers your company often focus on?

3. Where does your company buy inputs? Why does company buy from these

supplier?

4. Is government regulation for your company high?

5. Do your company have proprietary techniques or patents?

6. Do you have high profit margins that are widely known?

7. Is your industry growing rapidly?

8. Do you consider your product or service commodity?

9. Are there a large number of competitors for your specific product?

10. Are your competitors selling the same location as you?

11. Do your products have dramatic differences compared to competitors?

12. Does your company have a unique selling proposition that is well known?

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