Trendy concept
The ability of Koreans to learn new things is truly amazing. In February of this year, Harvard Business School published "Blue Ocean Strategy". In May, nearly identical to the Korean version of the book, LG Electronics launched a new plan for the so-called "Blue Ocean Strategy."
In this strategy, LG Electronics is determined to shed its long-standing strategy of relying on low-cost production to improve its operational efficiency to gain a competitive advantage, and is trying to re-plan the search for profitable growth in emerging markets and even untouched blank markets.
The "Blue Ocean Strategy" is the latest research result of two professors, W. Qian Jin and Rennie Mobigné of the European Business School. They believe that the Red Sea strategy is mainly based on the known market space to carry out competition. Here, the rules of the game are already in place, and companies only need to follow the business rules to start tit-for-tat competition.
The Blue Ocean strategy is not limited to the boundaries of existing industries, but is trying to break such boundary conditions. Specifically, "Blue Ocean" is usually opened up in a brand new market, but more often "Blue Ocean" can be opened up in the Red Sea. According to a sample survey of the above two professors, 86% of the newly launched services of multinational corporations in the world are invested in the Red Sea business (ie, bloody competition), and only 14% are blue ocean services (ie, continued profitable growth).
Is LG Electronics implementing the "Blue Ocean Strategy" just to catch up with a fashionable concept? In fact, this concept is similar to the “GlobalTop3” strategy announced by LG Electronics in 2004.
In early 2004, LG Electronics officially announced the reversal of its low-price competition strategy, bringing high-end products such as home appliances, IT digital and communications equipment to the high end, and proposed to increase the brand tension and occupy the high-end market as the development objective of LG Electronics in the next 10 years.
Since 2004, LG has begun to adjust the price structure. Take the Chinese market as an example, the price increase of LG's entire line of products is between 6% and 7%, of which similar products are 100%-120% higher than the prices of local competitors.
“Although market share is decreasing slightly, this is not our concern because sales revenue and profits are still growing,” said an insider at LG Electronics.
Mobile phone for "Blue Ocean"
Before 2004, in order to open up the market, LG Electronics chose a low-cost manufacturing-driven market expansion route in the global market (especially in emerging markets such as China and India) and actively participated in the bloody Red Sea competition.
Although this Red Sea competition strategy has achieved a certain market share, over the past two years, the profit growth of LG Electronics has shown a declining trend. The most obvious is the mobile phone business.
The latest statistics show that LG mobile phone sales were 12.1 million units in the second quarter of this year, but the profit margin was -0.2%, and there was an operating loss for the first time (a loss of 4 billion won). In the third quarter of this year, LG mobile phone sales hit a record of 15.5 million units, and profit margins also rebounded to 5.4%, but still far below the same-term profit margins of Motorola (11%) and Samsung (12%).
Based on a variety of factors, LG Electronics lowered its 2005 full-year handset sales target from 62 million units to 55 million units. In terms of the speed and number of new product releases, LG phones are similar to Samsung mobile phones. The key to the loss of LG mobile phones is not the drop in sales, but the sharp decline in profit margins.
Analysts believe that LG should cut the promotion cost of the primary market (ie, the Red Sea competition market) and strengthen R&D. According to LG insiders, if profit growth of 0.05% is achieved in the fiercely competitive first-tier cities (Beijing, Shanghai, Guangzhou, and Shenzhen), LG Electronics needs to put nearly half of its sales revenue into market development.
LG Electronics Global CEO Jin Shuangxiu agrees with the concept of Blue Ocean Strategy. He believes that LG mobile phones must get rid of bloody Red Sea competition as soon as possible, and identify emerging and blank markets as the main market for LG mobile phone business transformation to high-end profits.
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