LG stepping up efforts in localization
By Jia Hepeng (China Business Weekly)
Updated: 2004-07-19 14:05

Facing the dual threat of fiercely competitive pricing from Chinese rivals and the advanced technology from Japanese manufacturers, South Korean firm LG Electronics seeks to fight off both with a localization strategy in China.

"Our strategy is to surpass our (foreign) rivals with lower production cost and other competitors with higher technologies," said Jim Sohn, chairman of LG Electronics Chinese branch last Thursday.

Sohn made his remark on the sidelines of a product exhibition in which LG Electronics introduced its newest Excellent Digital Engine (XD) technology and 17 kinds of new plasma display panels (PDP) into the Chinese market.

PDP displays reproduce high-quality images on a thin, light screen.

K.P. Kwon, LG Electronics' chief research engineer of PDP department, boasted that the company's new PDP products have the world's highest contrast ratio. The 42-inch and 50-inch models show scenes with a contrast ratio of 5,000:1, the engineer said. The number indicates the TVs can produce the same colour with 5,000 different contrasts.

LG Electronics was in 2001 the first international giant to set up PDP production lines on the ground in China to feed its products into the Chinese market. Before 2001, China's total sales of imported PDP, mainly from Japan, were only around 1,000 units.

China's PDP market has seen tremendous growth since 2001. China's total sales of the expensive TV sets reached 15,000 units in 2002. In 2003, total sales of PDPs grew by 300 per cent nationwide. Beijing-based Zhongyikang Research, a leading market research company, predicted that more than 200,000 PDPs -- rising more than 200 per cent over 2003 -- will be sold this year.

Zhongyikang's survey also shows that between January and April, sales of PDPs have climbed to 10.4 per cent of total TV set market compared with last year's less than 5 per cent.

LG Electronics has been a major industry leader in the PDP market in China. By the end of April, it was the second-largest seller of PDP TV in the Chinese market, following Japan's Matsushita.

But the situation is changing.

Leading Chinese TV makers -- Guangdong-based TCL and Konka, Sichuan-based Changhong and Shandong-based Hisense -- produced PDP displays in 2002 after spotting the market potential.

Chinese producers in early 2003 cut the price of a 42-inch PDP from nearly 40,000 yuan (US$4,830.92) to 23,000 yuan (US$2,777.78) this May and their sales grow rapidly.

On the other hand, Japanese manufacturers, fuelled by the country's economic recovery, rapidly increased their investment in PDP sector to snatch their lost market shares from South Korean players including LG Electronics and Samsung.

Matsushita announced in May it planned to invest US$79.1 million to establish a PDP factory, which is scheduled for completion in 2005. The factory is scheduled to produce an output of 3 million 42-inch PDPs by 2006.

In December 2003, Shanghai Matsushita Plasma Display Co Ltd, a subordinate of Matsushita, poured US$98.7 million into its ambitious bid to increase its PDP production in 2003.

Japan's Fujitsu, the inventor of PDP technologies, also has decided to increase its production of PDP and plans to become the fourth foreign manufacturer to set up production base of PDP in China, after Matsushita, LG Electronics and Samsung.

Fujitsu in April launched intellectual property right (IPR) lawsuits against Samsung and LG Electronics.

Samsung and Fujitsu declared in June that the two companies reached a compromise on the IPR of PDP, but so far LG Electronics has not made a similar announcement.

"We will solve the problem by sharing our profits with Fujitsu," Sohn told China Business Weekly.

But he stressed that LG Electronics will increase its investment in China to lower its production cost of PDP to cast off Japanese manufacturers' competition.

Facing Chinese rivals, LG Electronics has much more confidence.

LG Electronics finished a factory of PDP modules this April, which is a major part of the high-end TV set, in Nanjing, capital of East China's Jiangsu Province, with an investment of US$70 million. The South Korean company is expanding the factory's output.

LG Electronics has now become the largest production material supplier of PDP in China. The position will allow the company to easily face price wars launched by its Chinese rivals for end products while maximizing its profits by supplying the materials its competitors use.

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