Applying Porters Five Forces Framework & VRIO Framework To LG Electronics

- Business Strategy Assignment

Submitted By Samrat Guha 126 Sandeep Reddy 128 Sankalp Gupta - 130

PORTERS FIVE FORCES ANALYSIS Consumer Electronics: An Analysis

Bargaining power of suppliers is not considered to be a specific issue which is evidenced by ODM, CEM, EMS etc. who have not yet tried to bypass manufacturers, as the market is characterized by squeezed margins and growth decline.

Bargaining power of buyers: Bargaining power of consumers is high, due to low switching costs. Bargaining power of operators and other sales channels is high, however, the internet can be seen as an opportunity to sell online and overcome operators dependence on sales.

Threat of potential entrants is high. Decreases in market growth and marginal revenues due to market saturation allows for new entrants to compete on price. Competing on price opens market opportunities in the low-end segment in developed markets and emerging markets. This trend has been emphasized through consumers demand of cheap commoditized handsets.

Threat of substitutes is low as mobiles play an ever increasing role in consumers life and convergence is likely to sustain this trend in the future. In terms of rivalry among existing firms one observes that this is affected particularly by consumers bargaining power and the threat of new entrants. Shorter product life cycles, convergence and price are main elements characterizing global industry rivalry.

Applying the VRIO Framework to LG Electronics

The VRIO Analysis was developed by Jay B. Barney as a way of evaluating the resources of an organization. The VRIO Analysis is an analytical technique which for each type of resource considers the following questions (evaluation dimension) for an organization as well as for its competitors. VRIO is an acronym from the first letters of the names of the dimensions: Valuable. A resource is valuable if it can be used, for example, to increase market share, achieve a cost advantage or charge a premium price (these features of a resource are not mutually exclusive, and hence a resource may have multiple attributes). Barney suggests that this question has to be answered first because a resource that is not valuable or is irrelevant cannot be a source of competitive advantage. Rare. If a valuable resource is not available to all competitors it is rare and therefore a potential source of competitive advantage. Rarity is important because if competitors possess the same resources, there is no inherent advantage in those resources. Of course different businesses can configure the same resources differently to achieve competitive advantage, but this is not the focus of the resource-based view of the firm. Imitable. If a resource is not readily copied or imitable, then the resource is a potential source of competitive advantage. To be advantageous the resource must be difficult or expensive for competitors to imitate or acquire, such as brand recognition/perception. If a resource is easy to imitate it offers only a temporary advantage, not a sustainable one. Organization. A business must be capable of taking advantage of the resources at its disposal. If a resource is available, rare and difficult to imitate, a business must be able to exploit it, otherwise it is of little use. This may require reorganizing the business.

Use of the VRIO Analysis in practice: Evaluation with the help of a VRIO analysis is used to assess the situation of the organization (enterprise), its resources and possible competitive potential or potential for improvement in the given area or for a given resource. Such an assessment is then used for example in the strategic management of development in

various areas or for decision making about the advantage of an external or internal process and the securing service (e.g. outsourcing decision). In practice, the VRIO analysis is also used in combination with other analytical techniques to help organizational management evaluate business resources in a more detailed view. For financial resources, there are many detailed financial indicators that evaluate the financial condition or performance of the business from different perspectives. Likewise, human resources, property or information are other detailed indicators of their performance, efficiency or quality. The advantage of a VRIO analysis is its simplicity and clarity.

VRIO Framework For LG Electronics

Resource/Capability Valuable Rare Costly to imitate? Exploited Competitive Implication

Organizational capabilities Research and Development Financial Support Human Resources and Talent Management Process Innovation

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes Yes

No Yes

No No

Yes Yes

Yes

Yes

Yes

Yes

Temporary competitive advantage Sustained competitive advantage Competitive parity Temporary competitive advantage Sustained competitive advantage

Our VRIO analysis indicates that LG Electronics has core competencies in Product Designing capabilities and differentiation. The companies have leveraged these competencies in order to pursue a three-pronged strategy of balancing growth, profitability.

Organizational Capabilities:
Representing LGs unique corporate culture, the LG Way articulates their belief in attaining the vision of becoming No.1 LG through Customer-Value Creation and People-Oriented Management as we orient our business practices with Jeong-Do Management.

No.1 LG No.1 LG is the ultimate goal towards which all LG businesses should strive. It expresses their commitment to become a dominant leader in the global market by consistently providing customers with differentiated value in each and every market segment.

Jeong-Do Management In order to gain the complete trust of thier customers and achieve sustainable growth, Customer-Value Creation and People-Oriented Management must be facilitated by Jeong-Do Management. LG Electronics believes that it is possible to compete fairly and produce results with integrity by continuously strengthening our fundamentals. Customer-Value Creation Customer-Value Creation is the very reason for their existence and the core principle of LG Electronics. They are in business because customers buy their products and services, and it is only natural that they strive to provide greater value to their customers and create new value for them. People-Oriented Management People-Oriented Management expresses their belief that each and every employee is an integral part of their effort to create value for customers. Based on this tenet, they are committed to creating an environment where their employees can reach their full potential and utilize their abilities to the fullest extent, thereby fostering a spirited workforce that is prepared to tackle any challenges. This will ultimately guarantee a strong and competitive LG.

Research and Development

Design has an important role to play in product innovation. It also allows products to be effectively differentiated. LG Electronics was set up in 1958 in Korea were it broke new ground in that country by hiring as industrial designer and one year later set up a product design department. It spends some 1.5 billion on R&D in its twenty five R&D laboratories around the world. Its strategy of global localization has led to become the worlds leading manufacturer of Plasma TVs and number five for mobile phones. LG has many technological firsts to its credit. It developed the first ever disk player to support both Blu-ray disk and HD DVD content; the industrys first ever steam w asher; the most energy efficient side-by-side refrigerator; the ultra-responsive LCD monitor as well as premium mobile phone handsets the A Cappella Music Phone and the LG Shine phone. LG aims to integrate technological developments with design and design is key part of LGs culture. In 1999 it defined design as one of its four key skills and in 2006 it announced its design management strategy. Between 2005 and 2007it won fifty prestigious Red Dot design awards. The company sees design as playing a crucial role in harmonizing the very latest in technological developments with human needs. It strives for design that is at once minimalist and seductive. Designers are encouraged to experiment in a playful manner with fresh ideas and unusual combinations to predict emerging needs, design new worlds and lifestyle concepts, and handover their inventions to the public. Researchers, designers and trend scouts predict the future by examining and identifying consumer needs,

observing the publics interest in products, and finally developing design concepts and solutions. In this way LG try to keep One step ahead of the game. LG encourages designers to do town-watching- visiting the chic streets of Hongdae or Cheongdam-dong to spot new design trends. It was one of these trips that tend towards more natural shapes was identified that eventually was incorporated into their KG800 mobile phone- the Chocolate Phone, which won a Red Dot award. The phone has nothing to do with chocolate; it was just thought that name was memorable. This was the first mobile phone in the world to have a touch sensitive key pad. LG believes it has integrated design into its business thinking. Many innovations are design led, but responsive to market needs. LG believes it must design its technologies for the way people actually behave, not the way you would like them to behave. That means designers have to meet people, hear what they have to say and see how they use electronic products. Usability tests are important, and should not be confused with market research or the inherent falsity of focus groups. LG are keen to make their designs playful and fun -to-use.

Financial Support
LG Electronics makes continuous efforts to ensure the financial stability of their suppliers by providing direct/indirect funding support and improving payment schedule/period. Direct Funding Support LG Electronics provides direct funding support to suppliers for improving productivity and quality, expanding capacity and facility, establishing overseas operations for LGE projects, and developing advanced technologies. They provided a total of KRW 170.9 billion in direct funding between 2004 and 2012. Combination/Indirect Funding Support In partnership with financial institutions, LG Electronics provides low interest funding to suppliers to ensure financial stability of their suppliers and to lay the foundation for sustainable win-win partnerships. In 2012, LG Electronics, in association with the Industrial Bank of Korea (IBK), established the Win-win Growth Fund totaling KRW 125 billion and provided KRW 106.6 billion to our suppliers. In 2013, they plan to allocate additional KRW 32.5 billion to set up a Win-Win Growth fund dedicated to our 2nd and 3rd tier suppliers. Additionally, they allocated KRW 150 for the Network Loan, a low interest loan (production expenses/working capital) for small and medium sized enterprises, through the IBK. In 2012, they partnered with the Korea Export and Import bank to expand the benefits to suppliers who have established overseas operations for LGE projects.

Improvement of Payment Conditions LG Electronics processes invoices from subcontractors twice a month and makes payments in cash within 10 days of invoice processing. They also adjust the payment schedule (increase the frequency of payment processing or shortens payment period) to relive their suppliers of financial constraints. Additionally, they make payment to suppliers earlier than

schedule before national holidays (New Years Day and Thanksgiving) to improve suppliers financial management and employee welfare.

Human Resource and Talent Management

Union Social Responsibility, A New Paradigm in Labor -Management Relations In order to build up on their labor-management relations that create differentiated value and present a new direction for the labor union of a global corporation, the LGE Labor Union declared Union Social Responsibility (USR) in January 2010 as a pledge for social responsibility and customer respect. Since the USR declaration, the LGE Labor Union has been continuously carrying out social contribution initiatives that demonstrate shared commitment of labor and management towards corporate social responsibility. The LGE Labor Union established a vision for USR as part of its efforts toward goal-oriented and effective USR activities. In order to achieve the vision of "Socially Responsible Labor Union that Provides Innovative Value" the Labor Union focuses on fulfilling USR, improving the quality of employees lives and making contributions to the global community as its key role and responsibility. The USR system is constructed based on ISO 26000 - Social responsibility (Standards established by the International Organization for Standardization to provide guidance on how businesses and organizations can operate in a socially responsible manner) and organized into the seven core subject areas of Governance, Human Rights, Labor, the Environment, Fair Operating Practices, Consumer Issues, Community Involvement & Development. the LGE Labor Union develops action plans for each core subject and carries out systematic USR activities. LGEs Efforts to Secure Quality Talent Based on the conviction that the driving force behind the companys growth is its people, LG Electronics continuously works to find and acquire quality talent with a wide range of recruiting activities. As part of their efforts, they tour universities to host recruitment events and provide career counselling to students, while pursuing industry-academia cooperation programs with numerous universities to create a talent recruitment process that benefits students, universities and LGE alike. They also have diverse open recruiting programs in place to discover quality talent on an ongoing basis. Their talent acquisition efforts extend to overseas as well; every spring, top executives from LG Electronics participate in the Techno Conference hosted by LG Corp. to introduce their business operations and latest technologies to potential employees and make recruitment efforts to secure quality talent based on mid to long term HR requirements. In 2013, they plan to further strengthen our talent acquisition efforts with diverse recruitment activities.

Process Innovation
LG Electronics intensified its drive for Win-Win Growth through internal process innovation and established a wide range of programs to promote communication with suppliers. The

process innovation in the operations of LG electronics has led to immense success in the output, value creation and customer satisfaction.