[Opinion] LG and GE

The history of GE traces back to Edison General Electric that was founded by Thomas Edison in 1878. Though it started as an electronics company, now it has become one of the largest companies in the world covering all businesses including finance, generator products, medical devices, and airplane engines. There was a time when Korean companies tried to follow the case of GE after retired GE Chairman Jack Welch led a successful innovation in the 1990s. LG Electronics executives visited GE’s Crotonville management training center to benchmark such GE innovation strategies as “Six Sigma.”

As GE has decided to sell off its home appliance division, LG is growing more concerned. GE reaped 7 billion dollars in revenue (the world’s 10th largest) in appliances such as refrigerators, washing machines, air conditioners and dishwashers. It has 20 percent of market share, the second largest in the United States following Whirlpool. If LG, the world’s third largest home appliance maker (12.6 billion dollars in revenues), buys GE, it can outpace no.1 Whirlpool (19.4 billion dollars). Taking over GE can enhance its brand reputation among American consumers.

When LG Electronics Vice President Nam Yong said on Tuesday, “We are keeping an eye on GE’s sell-off,” General Electric Chairman Jeffrey Immelt said the next day, “(Among the bidders) LG Electronics is leading.” However, LG cannot readily accept the offer because takeover fees are expected to reach from between 5 to 8 billion dollars, and synergy effects would be lacking considering there are many overlapping products between the two companies. Even so, the thought of its competitors does not stop LG from giving up the bid.

GE decided to sell the home appliance division because the share of the division in total revenue is small and the U.S. economic recession could erode its profits. GE’s management style is to sell off divisions that show no signs of becoming no.1 or 2 and focus on areas with high growth potential. LG Electronics is also concerned about spending too much money on home appliances, which could hinder starting new promising businesses. The decision should be made based on profitability and growth potential. LG cannot just jump in because its former teacher, GE, beckons.

Editorial Writer Park Won-jae (parkwj@donga.com)