[Asia Economy Reporter Kim Heung-soon] Koo Kwang-mo, chairman of LG Group, emphasized the keyword "customer delight" this year. The intention is to satisfy customers' desires and turn them into fans. Based on this message, LG is accelerating selection and concentration by strengthening investments in future businesses while reconsidering the direction of businesses with declining customer satisfaction. The recent announcement by LG Electronics to review its smartphone business, which has been running at a loss for several years, is also evaluated as being closely related to Chairman Koo's emphasis on customer satisfaction.
LG mobile phones have lagged significantly behind competitors in preference. According to market research firm Consumer Insight, as of the second half of 2019, among about 40,000 domestic mobile phone owners, only 10% expressed an intention to purchase LG products as their first choice. The gap was large compared to Samsung (56%) and Apple (22%). This figure has remained around 10% since the survey began in 2007. Even limited to smartphones, product satisfaction scored 612 points out of 1000, lower than Apple (706 points) and Samsung (661 points).
In response to this market reaction, LG Electronics' Mobile Communications (MC) Business Division, which oversees smartphones, recorded 23 consecutive quarters of operating losses since the second quarter of 2015. The cumulative operating loss reached about 5 trillion won by the end of last year. LG Electronics stated, "Competition in the global market for mobile businesses, including smartphones, is becoming increasingly fierce," and added, "It is time to coldly assess the current and future competitiveness of the mobile business and make the best choice."
This view is shared within LG Group, including Chairman Koo. The group immediately drew a line by stating, "Specific directions such as business withdrawal, sale, or downsizing will be designed by LG Electronics." However, it is highly likely that LG will follow the precedent set since Chairman Koo's inauguration in June 2018, where non-core or unprofitable businesses were boldly reorganized by each affiliate, and investments in future businesses were strengthened.
Under Chairman Koo's leadership, non-core businesses were either reorganized or sold. LG Chem sold its LCD polarizer business to a Chinese company in June last year, and LG Electronics sold its water treatment management and operation company High En Tech and environmental facility design and construction company LG Hitachi Water Solutions in July 2019. On the other hand, core future businesses such as robotics, artificial intelligence (AI), and future vehicles saw increased investment. A representative example is the establishment of a joint venture (JV) with Magna International, the world's third-largest auto parts manufacturer, in December last year. Earlier this month, LG launched the 'LG AI Research Institute,' an AI-dedicated organization involving 16 affiliates, demonstrating its intention to strengthen the AI business.
Chairman Koo emphasized, for customer delight, "Utilize digital technologies such as AI and big data and consider how to reflect customer insights in products and services." An LG Electronics official said, "Based on accumulated customer data, we are steadily integrating AI technology that considers consumer convenience and characteristics into home appliances and enterprise products, and the scope of utilization will be much broader in the future."
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