LG Group Porter Five Forces Analysis
What will I learn in this LG Group Porter Five Forces analysis? You’ll gain a deeper understanding of the various forces that call the shots in the industries LG operates in. We’ll use Michael Porter’s Five Forces analysis to dissect LG. You’ll get a glimpse into the company’s competitiveness and attractiveness (or lack of it).
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Let’s dive right in and look at LG a little more closely.
What Does LG Do?
Before we launch this LG Group Porter Five Forces analysis, let’s learn a bit of the company’s history. We’ll also briefly talk about LG’s business and products.
The LG story starts way back to 1947.That’s when the LG Corp set up shop as Lak Hui Chemical Industrial Corp in South Korea.Later on, Lak Hui entered the plastics industry. Afterward, the company expanded into the electronics space.LG Chem is the modern-day Lak Hui.
In 1958, the company founded GoldStar Co. Ltd which later became LG electronics. Mr. Koo Bon-Moo, the company’s founder, changed GoldStar’s name to LG in 1995. The company uses a particularly catchy tagline— Life’s Good. It’s easy to think LG is abbreviation for Life’s Good.
4 Major Business Units
LG comprises four major business units namely:
- Mobile Communications
- Home Entertainment
- Vehicle Components
- Home Appliances & Air Solutions
The company offers a diversity of products including TV sets, digital cameras, washing machines and wearable devices. It also produces smartphones, storage devices, refrigerators, tablets, smart appliances, and computer monitor.
LG is best known for its LCD TVs. The company has remained the second-largest LCD TV manufacturer since 2008. LG sells way more than just consumer electronics. However, this LG Group Porter Five Forces analysis will focus on LG’s electronics business.
What’s Porter Five Forces Analysis?
Before we start performing our LG Group Porter Five Forces analysis, let’s first grasp Porter Five Forces analysis. In 1979, Michael Porter wrote an article that was chock-full of great insights. Unsurprisingly, the article got published in the Harvard Business Review.
Then, the article attracted truckloads of attention from the business world. Today— 40 years later — Porter’s work continues to reverberate throughout academia and business. His ideas are as relevant and valuable as they were when he first shared them with the world.
Porter’s Five Forces amount to a framework that helps businesses understand the competitive forces that define a given industry. Porter believed that it was these competitive forces that decided who got how much of an industry’s total value.
Application of Porter’s Five Forces Analysis
Today’s world is complex. And things aren’t getting any easier. New businesses are getting established at an unprecedented rate. For entrepreneurs, cutthroat competition has now become a fact of life.
A thorough Five Forces analysis helps investors assess a company’s attractiveness. It also enables them to gauge how emerging trends may affect competition in a particular industry.
Also, the analysis helps develop a clear understanding of which industries a business should consider entering. In addition, the analysis empowers decision-makers to devise better strategies for positioning a company for success.
Let’s now examine how each of Porter’s Five Forces work in LG. But before that, let’s quickly list down Porter’s Five Forces.
Porter’s Five Forces Analysis of LG
- Threat of Substitute Products
- Bargaining power of suppliers
- Bargaining power of buyers
- Threat of new entrants
- Competitive Rivalry
This LG Group Porter Five Forces Analysis will examine how each forceis working for or against LG. But before we embark on the analysis, let’s take a peek at the consumer electronics market.
How big is the market? How is it performing? Is it expanding? What does the future look like?
A Peek at the Consumer Electronics Market: Industry Analysis
At this point in this LG Group Porter Five Forces analysis, we need to focus on industry competition. How big is the consumer electronics market? How low or high are the barriers to entry?
According to Zion Market Research, the value of the global consumer electronics market was $1.172 trillion in 2017. It’s a vast market, evidently.
The consumer electronics market in 2018 grew by 6 percent to 138 billion Euros or about $123 billion. TV equipment sales dominated consumer electronics market (75%).
LG happens to be the second largest manufacturer of LCD TVs worldwide. Growth from Knowledge predicts that the market will expand 4 percent in 2019. Of the revenue expected, LG will grab about 45% going by past numbers.
The Industry is Expanding, but it’s Quite Competitive
The industry is growing, but the growth rate isn’t encouraging. Consumers nowadays seem eager to own fewer, sleeker devices. Actually, global smartphone sales have continued to slump since 2016.
One would think consumers should be willing to pay higher prices for the added value they keep demanding. But that’s not happening. Instead, consumers want and more and more value at lower and lower prices.
The consumer electronics space is doubtless a high competition arena. And with new companies entering the industry continually, competition can only worsen.
Are you ready for LG Group Porter Five Forces analysis now?
Let’s roll.
LG Group Porter Five Forces Analysis: Threat of Substitutes
If a company’s competitors are stronger than it, suppliers often start wooing them (competitors) for business.
In a low-competition industry, companies wield much power. They can usually command higher prices for their products. And they can easily design deals that work in their favor.
In this section of the LG Group Porter Five Forces analysis, we’ll identify the company’s main competitors. We’ll also cast a glance at some of the products facing the threat of substation in the market.
Will Personal Computers Replace TV Sets?
People can use personal computers to watch their favorite programs instead of watching LG’s LCD TVs. Pretty much anyone with internet access can do that.
But how many people really watch TV via their laptop or desktop? Very few. Preferences may shift in the future. But as things stand, LG TVs are here to stay.
But Smartphones are a Huge Threat to Digital Cameras
How many people today hesitate to buy expensive digital cameras because they can use their smartphones? It’s lots of people all over the world.
Smartphones are increasingly substituting for digital cameras. The high-quality in-built cameras that most affordable smartphones feature are the culprit. Luckily, LG’s revenues don’t lean heavily on camera sales. But there’s clear threat right there.
Consumers continue to demand LG’s TVs, smartphones and other products. Demand may slow down the road, as it often does. But it’s unlikely LG’s main products will get eliminated completely by substitutes.
One may safely conclude that LG doesn’t face a high threat of substitutes. The company should probably carry on riding the smart devices wave for the foreseeable future.
What about Storage Devices?
LG manufactures storage hardware drives. But what are the threats here? Google Drive and Dropbox are inventions that should worry LG. These two are emerging as worthy substitutes for storage hardware drives.
However, it’s likely that storage devices will get pushed out of the market gradually. There’s no Google Drive or Dropbox revolution to talk of currently. LG probably has sufficient time to think up new products or services to counter the onslaught.
Threat of New Entrants: Low Barriers to Entry Compounded by Crowdfunding
What are the barriers to entry like into the consumer electronics market? Admittedly, a new business would require a huge capital outlay to establish itself in the business. But a little research reveals that the entry barriers are generally low.
It’s relatively easy for a little-known company to set up shop today, market hard, and shootto global recognition tomorrow.
The cost of components is plummeting. Manufacturing is becoming less expensive. Throw crowdfunding into the equation. And it’s easy to see why competition in the consumer electronics market stays stiff throughout.
It’s Tough for New Entrants to Wrestle LG, Though
In this LG Group Porter Five Forces analysis, it’s important to mention that LG enjoys certain advantages over new entrants.
First, its products are well-known all over the world, especially in South Korea, Europe, and North America. Generally, it’s easier to push a good popular product than a new one which has yet to prove itself.
Second, LG has established systems and processes and is familiar with the challenges facedin the electronics market. Besides, the company is deep-pocketed. It can hire the best engineers, technicians, and innovators on the planet. However, history is replete with accounts of underdogs who eventually overpowered monstrous opponents.
Third, owing to its size, LG can always leverage economies of scale and suppress its production costs. That can allow the company to push down prices, giving LG tremendous power.
Competitive Rivalry: LG Battles Many“Serious” Competitors
Best known for its top-notch electronics, LG battles legions of competitors. In our LG Group Porter Five Forces analysis, we found that LG contends with 19 major companies.
Some of LG’s worthiest competitors includeSamsung, Panasonic, Sony, Whirlpool, Philips, and Electrolux. There’s also Toshiba, Huawei, Dell, Apple, Vivo, Oppo, Xiaomi, Haier, Midea & Carrier Midea, and Canon. And don’t forget Lenovo, HP, and Sony Vaio.
Competitors Do the Same Business as LG, Reducing its Power
Most of these competitors are in the same business as LG. Some like Apple and Dell focus on PCs. Others like Sony and Samsung are huge players in the TV and smartphone markets. And Canon competes with LG in the cameras space.
These companies are well-known global brands. Some of them such as Apple, Sony, and Samsung sell products that enjoy widespread acceptance.
But it’s not just thehard-charging competitors that worry LG. Legions of small consumer electronics manufacturersare sprouting all over. These two factors are a threat to LG’s power. The only way LG can stay ahead of the pack is to hire the best innovators it can afford. But the fact that LG’s competitors sell similar products to it reduces LG’s power enormously.
LG Group Porter Five Forces Analysis: Power of Suppliers
No business ever wants to be at the mercy of large, power-wielding suppliers. It’s best when there are many suppliers of the same materials in the market.
If a supplier dominates the market, they can easily negotiate better prices with businesses such as LG. And if they supply a unique input, they can negotiate deals that can win them serious economic advantages.
So who supplies to LG?
LG works with bothdirect suppliers and indirect suppliers. Direct suppliers provide components and raw materials. In contrast, indirect suppliers provide mostly services including IT and advertisement. This LG Group Porter Five Forces analysis will focus on LG’s direct suppliers, though.
LG’s Direct Suppliers
LG workedwith more than 2,600 direct suppliers in 2015. And the company keeps attracting new partners.
The majority of these suppliers (about 75%) are based in Asia while the rest come from other regions. About 1,000 of all LG’s suppliers are in South Korea. LG purchases roughly 32 percent of the components it needs in South Korea.
Chinese suppliers provide about 25 percent of mechanical parts while Europe supplies approximately 7 percent of raw materials. The Americas ship in about 22 percent of electronic parts. The company obtains about 15 percent of semiconductors from Asia.
Thousands of Suppliers Continually Seek to Clinch LG’s Business
Thousands of eligible companies from around the world keep pestering LG for approval to become its suppliers. LG is a humongous buyer. It’s relatively easy for the company to swap to a new supplier in case of problems with an existing supplier.
Most suppliers would love to win this big account. While LG needs these suppliers, most of them need the company more. And that does erode their power considerably. It’s not hard for LG to approach its suppliers and say, “Look, we can get a better deal elsewhere.”
How Much Power Do Buyers of LG’s Products Wield?
Consumers are a fascinating lot.
One time they’re demanding a product with certain amazing features. Another time they don’t want the product at all. They want something better. And at lower prices. That inescapable reality incessantly piles pressure on manufacturers such as LG.
LG isn’t a Monopoly, Unfortunately
LG can’t behave like Henry Ford once did. Henry Fordonce said, “You can have any color you want, as long as it is black.” Ford gave consumers what he thought they needed rather than what they’d have said they needed.
But that was many years ago in a country where most people relied on horses for transportation. A lot has changed since then. In the 21st century, holding such commercial beliefsis pretty much self-sabotage. There are many companies doing what LG does. And if LG won’t do a great job, consumers have numerous options.
LG’s Smartphones and TV Sets
LG sells lots of high-end TV sets and smartphones. Frankly, though, LG’s smartphones aren’t the most popular on the planet. But as mentioned elsewhere in this LG Group Porter Five Forces, LCD TVs are seeing high and growing demand.
About 50% of the TV setsLG sells are high-end and their display screen is at least 50 inches wide. It does seem like high-income and middle-income consumers want bigger, better things. But will that preference last? Only consumers can decide that. They have enormous power. And they’ll continue to wield it over LG.
LG Group Porter Five Forces Analysis: Final Thoughts
This LG Group Porter Five Forces analysis concludes that LG is an attractive investment in many ways.
Lots of large suppliers from across the world would love to have LG as their client. And that gives LG serious advantages.
New entrants have a chance in this business. But LG can leverage its systems, processes, people, and brand recognition to protect itself against competition.
Competitive rivalry in the consumer electronics space is alive and well. LG battles a bunch of huge competitors including Samsung, Sony, Philips, Apple, and many others. Also, there’s a lot of competition in the industry. And growth numbers don’t look that rosy. Fortunately, LG controls a sizable portion of the smart TV market.
But consumers of electronic goods wield considerable power over LG. If the company won’t satisfy their ever-changing needs, they’ll look elsewhere. Given LG’s ability to continually innovate, LG is likely to remain a dominant player in the market.
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