LG Electronics., generally known as LG, is a South Korean multinational conglomerate based in Seoul. It was founded as the GoldStar in 1958. The company is the subsidiary of the LG Corporation. LG Electronics consists of five business divisions: Home Appliance and Air Solution, Home Entertainment, Mobile Communications, Vehicle Components and B2B. It has a diversified product line (LG, 2021).
Home Entertainment business area provides televisions, monitors, personal computers for IT, Car Infotainment. Mobile Communications business area offers products such as handsets and tablets. The Home Appliance business area provides refrigerators, washing machines, cooking and cleaning and health care appliances (Forbes, 2021). Porter’s five forces model is a valuable tool for analyzing the opportunities LG Electronics can avail and the threats it is exposed to.
LG Electronics – Competitive Rivalry in The Market
The market competitiveness varies from industry to industry. The consumer electronics and digital health market spheres are both highly competitive. The consumer electronic market is expected to be valued at $1.06 trillion in 2021 (EPT, 2021). LG’s significant competitors are Samsung, Sony, and Philips.
LG Electronics is placed at 207th place in Fortune Global 500 companies list; the company reported $53 billion in revenues with profits of $1.6 billion in 2020 (Fortune, 2021). In 2020, Philips earned $22.3 billion in revenues and a profit of $1.4 billion (Forbes, 2021). In 2020, Samsung reported a profit of $20.8 billion (Forbes, 2021). In the same fiscal year, Sony earned a profit of $8.6 billion (Fortune, 2021). There is tough competition in the market.
LG Electronics – Threat of Substitutes
The threat of substitutes is high in the presence of better alternatives, the consumers’ acceptance of the alternative product, and the product targeting needs of the users. Technology is evolving the electric appliance industry. Intelligent, interconnected appliances with IoT is playing a crucial part in it (Quillere, 2018). Competitors and startups are offering better products by incorporating intelligent devices and making products more environmentally friendly.
These established incumbents are trying to fend off the competition by innovating and taking advantage of their established position and resources. They need to innovate new products to compete with the ones available in the market. It can decrease their profit margin but can keep them ahead in the industry. The threat of substitution is moderate in the near future, but Chinese companies can pose a higher-level threat in the long run.
LG Electronics – Threat of New Entrants
Threat of new entrants is gauged by the level of interest in the industry, the regulatory framework governing the sector, and the need for financing. The threat of new entrants is moderate in the industry. They can easily penetrate the market if it can bring a good quality product with better client costs. It can force the existing member to decrease their profit to keep their clientele intact.
The aspirants can even acquire decent get-go funding through accelerators (Adams, 2020). The venture capitals and early-stage investors can provide financial and legal support to startups if they find their product market worthy. On the other hand, the current environment pushes the incumbents to evolve, leverage the technology, or leave behind. Therefore, the threat of new entrants in the industry is moderate to high.
LG Electronics – Bargaining Power of Buyers
Buyers have higher bargaining power when there are better alternatives available; they can influence the price due to competition in the market. There are plenty of electric appliances companies, and you can find alternative products very easily. It increases the competition between the industries and decreases the price for the buyer. There is low switching cost and a lack of brand loyalty.
There is no switching cost, and buyers are aware of their impotence and impact its bottom line. Low switching cost increases the risk of customer exit (Pereira, 2004). In digital health, the same situation persists owing to lots of available options. Considering the above, consumers can exercise higher bargaining power.
LG Electronics – Bargaining Power of Suppliers
Suppliers’ bargaining power depends upon the underlying factors, suppliers’ concentration, the importance for the buyers, and the supply chain risk. The most important supplies are the electronic parts and silicon chips used in manufacturing the product; these suppliers are concentrated in few countries, especially in Southeast Asia. Therefore, they have the supply chain oligopoly, and they sell the products at the desired rates.
The over-dependence on the supplier and their concentration can cause business disruptions due to supply chain risk (Khan & Burnes, 2007). The risk of forwarding interaction is low, but it is not negligible; suppliers can try to forward integrate into manufacturing if they assume higher returns in the buyers’ business. Therefore, suppliers have moderate to increased bargaining power.
References
Adams, P. (2020). Financing Your Digital Health Venture. In Digital Health Entrepreneurship (pp. 59-70). Springer, Cham.
EPT. (2021). Growth anticipated for global consumer electronics revenues. Available at: https://www.ept.ca/2021/03/growth-anticipated-for-global-consumer-electronics-revenues/
Forbes. (2021). LG. Available at: https://www.forbes.com/companies/lg/?sh=93b4f627deab
Forbes. (2021). Philips (PHG). Available at: https://www.forbes.com/companies/philips/?sh=1b14322d55ce
Fortune. (2021). LG Electronics. Available at: https://fortune.com/company/lg-electronics/global500/
Fortune. (2021). Samsung Electronics. Available at: https://fortune.com/company/samsung-electronics/global500/
Fortune. (2021). Sony. Available at: https://fortune.com/company/sony/global500/
Khan, O., & Burnes, B. (2007). Risk and supply chain management: creating a research agenda. The international journal of logistics management.
LG. (2021). Affiliated companies. Available at: https://www.lgcorp.com/about/companies
PEREIRA, P. (2004). Some implications of search and switching costs for the price dynamics of electronic markets. International Journal of the Economics of Business, 11(3), 303-327.
Quillere, M. (2018). The Future of Consumer Electronics and Appliances. Available at: https://blog.euromonitor.com/the-future-of-consumer-electronics-and-appliances/