LG Electronics Flourishing in Brazil, Mexico Despite Slump

Global companies making inroads into Brazil and Mexico are suffering from the double whammy of plummeting demand and the fall in the values of the two countries’ currencies.

LG Electronics is no exception. Sales of LG Electronics Brazil in the fourth quarter last year plummeted 20-25 percent year-on-year.

Decreased sales forced the company to lay off 500 workers at its cell phone and monitor plant in Taubate, a city near Sao Paulo, and 200 at a TV plant in Amazonia, Manaus.

The fourth quarter has long been the peak season for electronics, but the production figures of LG’s TV factory in Reynosa, Mexico, fell about 30 percent in the fourth quarter from the previous three last year.

LG employees, however, have shown strong confidence in turning this crisis into an opportunity to increase market share.

○ Rising brand power amid slump

Shopping Interlagos is a large shopping center near Sao Paulo. LG and Sony products last month were seen at the best spot of each store alongside those of the world’s best electronics brands.

Sony was no match for LG when it came to sales of major items.

“I sold 33 LG 40-inch plus flat-screen televisions last weekend alone,” said a sales clerk at an electronics shop in the mall. “(LG TVs) have sold nearly twice more than those of other brands.”

LG leads Brazil in the sale of many products including LCD and PDP TVs, LCD monitors, home theater systems and split air-conditioners.

The market shares of its LCD and CRT TVs, mobile phones and PC monitors have grown since last year, despite the economic slowdown.

LG’s brand power is also second to none in Brazil.

According to a brand awareness survey conducted by the daily Folha de Sao Paulo, LG topped all other electronics makers including Sony and Phillips in personal computers, IT and TVs.

○ ‘Never give up’

LG’s high reputation in Brazil is being attributed to “Korean DNA.”

When the company entered Brazil in 1998, the Brazilian economy was troubled enough that it had to seek a bailout from the International Monetary Fund. LG’s sales plunged 30 percent.

Japanese companies had dominated the Brazilian electronics market, but most of them left the country.

Hit by the Asian financial crisis, Korea was also having a hard time at home and abroad. LG stayed in the Brazilian market, however, and tightened its belt and made “bone-carving” efforts.

LG has achieved annual sales growth of more than 30 percent in Brazil since the South American country overcame its crisis in 2002. The company has also been a step ahead than others that later returned to the Brazilian market.

“Elyse (LG’s nickname in Brazil) has become a special brand to Brazilians since it withstood a severe ordeal,” said an employee of LG Electronics Brazil. “Looking back on the time as a lesson, we instead raised marketing investment in the second half of last year.”

LG has also solidified its market lead by keeping a firmer grip on the Brazilian distribution network, including provincial areas where its global rivals neglected.

Byeon Chang-beom, a managing director of LG Electronics Brazil, said, “I didn’t hesitate to go into areas with serious security problems to win a contract. Guns often appeared on the meeting table because drug trafficking is rampant in these areas. Businessmen from other countries called me insane.”

○ Production innovation

Mexico’s border town of Reynosa is LG’s major production base in South America. It is also where the company is striving to maximize productivity by dramatically reducing costs.

When LG purchased a factory from Zenith of the United States in 2000, it had 12,000 workers. That number has since fall to 2,600 and the factory site is now a 10th of its original size. Output, however, has increased.

The key to LG’s success was using elements of Korean corporate culture. For Mexican workers coming to a meeting half an hour late, they were sent to “innovation school.” A “hero academy” also honored outstanding employees. And the Korean practice of bonding with employees through drinks was also introduced.

“We have cut the cost of making a 40 to 50 inch LCD and PDP TVs manufactured here by 25-53 dollars,” said Seong Bo-Gyeong, a managing director of LG Electronics Reynosa. “We are gearing up for this year’s market, which is expected to see the fiercest competition ever, by maximizing productivity.”

nex@donga.com