LG Electronics - Business Unit Identification - Case Study Example

LG ELECTRONICS Name Professor (Tutor) University Course City and State Date LG Electronics Introduction First established in Korea in 1958, LG Electronics has grown into one of the largest electronic companies globally with over 120 subsidiaries. The company comprises of five major business units including home entertainment, home appliance and air conditioning, business solutions, mobile communications, and vehicle components. The company’s CEO as from December 2016 is known as Jo Seong Jin. The company has employed over 82,000 individuals that work in several departments in different countries. The company held several records for example in 2011 it was the second largest manufacturer of Televisions globally. This paper will focus on the home entertainment strategic business unit (SBU) of the company and its external environmental analysis. Further, its competitive advantage sustainability and strategic direction the company should take are provided. Corporation identification A corporation is an association made up of individuals that are often established and governed by law. The existence, liabilities, and powers of a corporation are separate from that of the individuals that make up the corporation (Drucker, 2009). The product portfolio is all the products in possession of the organization (Tillmann, 2008). The product portfolio is made up of the different product categories, product lines, and the specific product itself. Management is essential for all the levels of the product portfolios. Service portfolios are the complete listings of an organization’s services. It is also necessary to manage service portfolios including those retired, those being offered at present, and those that an organization plans to offer in the future. Most organizations have devised ways to diversify product and service portfolios to get a return on investments. Product development and innovation are one of the ways diversification of product portfolios has been achieved in most global organizations. Business Unit Research Business Unit Identification A strategic business unit (SBU) is a unit of a business that is fully functional with its values, mission, and vision (Adcock et al., 2001). An SBU often operates as a separate entity from an organization, but it has to report to the company's headquarters about its operational status. SBU operate as an independent entity, and it focuses on the defined target market, has its human resource department. It is essential for organizations that have a diverse product portfolio to have to have SBUs as it allows for effective and efficient organization of company functions. Management comes in handy when organizations create SBUs, as these functional business units need effective management for them to function properly and achieve the desired results. An efficient strategic management process requires a proper following of the return on investment or revenue of each of the SBUs. LG Electronics has five main strategic business units including home entertainment, home appliances, business solutions, mobile communications, and air conditioning (LG Electronics, 2014). All these SBUs are separate and perform their functions independently. The processes of decision-making and problem-solving are decentralized meaning that each SBU in the company can do these functions independently. The focus will be on the home entertainment strategic business unit of LG Electronics headed by Simon Kang. Identification of the products and service lines A product line is a collection of different products that form a certain group and are all made or sold by the same organization (Panda, 2008). An organization can be able to sell different product lines under the same brand. A service line, on the other hand, is all services and products that are sold by a particular strategic business unit in an organization with several divisions or business units (Rama Moahana Rao, 2011). In the home entertainment SBU, LG Electronics has product and service lines ranging from technologies on televisions, audio-video outputs, and PDP modules. These products are developed as both digital media and digital display (LG Electronics, 2014). Business Unit Revenue Revenue is an essential business term meaning the income a company receives from its normal activities including the sale of goods and services over a specified period. Revenue includes the deductions for products returned and all the discounts offered by the business (Wood, 2004). An easy way of calculating revenue is by multiplying the units of goods and services sold by the price of each unit. The total revenue generated by the home entertainment sector of LG Electronics in 2016 was 13.85 billion USD. This revenue is divided into four quarters. The first quarter revenue was 3.6 billion USD, 2nd quarter revenues were 3.45 billion USD, third quarter revenue was 3.44 billion USD, and the fourth quarter revenue was 3.36 billion USD. The graph below shows the different SBUs revenue returns for all the quarters in 2016. From the graph, it can be seen that home entertainment is the largest revenue earner for LG Electronics, followed by home appliances and air solutions. The third largest revenue earner CBU is the mobile communications sector. The company's revenue for the full year 2016 for the home entertainment SBU was the highest and this was helped by the sales of the award-winning LG Signature OLED TV W7 Series, which beat the competition as its competitors adopted OLED TV technology later in the year. Through the massive sale of this new technology TV through the first three-quarters, LG Electronics earned high revenue and the revenue posted for the full year was the highest ever posted by this strategic business unit of the company. However, the company has been posting nearly equal revenue returns over the last decade in this department of the company. External Business Analysis An organization’s external environment is otherwise known as the operational environment. These are the factors outside the organization that influences the functioning and operation of the organization. An organization, therefore, needs to deal with these external factors in the best way to ensure that its functions and operations continue to run smoothly. These outside factors can be grouped into six including political, economic, social, technological, legal, and environmental factors (Cadle et al., 2010). These external environment factors for the home entertainment SBU of LG electronics is discussed below. Economic factors The main aspects in this segment include interest rates, supply and demand, exchange rates, and government spending (Gaspar, 2017). For the home entertainment sector of LG electronics, some of the economic issues are the varying trends in the home entertainment industry, collective GDP growth in different nations, and the change in income structures of the customers. An increase in demand for high-tech home entertainment products provides an essential opportunity for LG Electronics to grow and utilize its product and development strategies. Competition from its rivals is another economic issue; some of LG's competitors in the home entertainment SBU include Sony and Samsung. It is, therefore, essential that the company put in measures to ensure that it maintains its competitive advantage in the global market. Social Factors Social factors mainly entail the behavior of the consumers and employees concerning the products and services of an organization (Mercer, 1998). Social factors have influenced operations in LG electronics especially its ability to penetrate the home entertainment industry. LG Electronics has always focused on the equal treatment of employees and promotion of several social rights in an attempt to deal with social factors that influence the home entertainment SBU. The company has also changed some of its products to meet the behavioral demands of its consumers. The company has recently been involved in the development of the global labor policy, which has been a major advantage in dealing with social factors in its external environment. The labor policy has allowed employees at LG electronics to perform their duties without fear of any pressures from external forces. The company, therefore, has been effective in dealing with a social and cultural issue that affect the electronics market industry. Technological factors Technology is dynamic in nature, and the technological factors are the innovation and developmental aspects in an organization application of technology in goods and service production. LG Electronics is focused on the acquisition of modern technologies in the home entertainment SBU as a driving force for its consumers. The improvement of technology has allowed LG Electronics to produce at low costs meaning that their product prices have decreased leading to more consumers as they can easily afford the products. Innovation and technology are also depicted in the company’s mission, which is to be a world leader in the electronics industry trough advance technology and information. Political factors These are the government policies that need to be followed in an organization. Since the government is the main body and policy maker in every state, it is important for all organizations to have strategies that are compatible with all regulations of the government and government related bodies (Ahonen & Moore, 2005). The set policies are different concerning import, export, business establishment, employment, and excise duties. The company was established in Korea and therefore followed all the establishment policies for businesses set by the Korean government. However, the company has grown into a global giant making inroads into several nations. This has brought the need for the company to follow all the import and export regulations set by the nations that LG Electronics is doing business. Since it is a mega company, LG Electronics pays all its taxes and has no major scandals as compared to its competitor Samsung. The government regulations of India were followed when the company recently set up in Pune and Noida. Legal factors These factors are determined by bodies set up to govern and regulate organizations to protect both the consumers and the organization against any legal issues. Some of the main legal factors that LG electronics home entertainment SBU face include dynamics on waste disposal, insurance, excise duties, the welfare of employees, trading restrictions, and consumer protection. New legal regulations are set each year since 2005 especially on the issue of going green through energy efficient home entertainment products. Environmental Factors These are issues of environmental protection. LG electronics just as any other organization needs to focus on protecting the environment and minimizing environmental degradation. The company has been educating its consumers on disposing of the home entertainment electronic products that are not still in use. Also, the company has continued to focus on producing environmentally friendly and energy efficient home entertainment devices as demanded by the consumers and environmental regulation bodies. The effort to follow the going green policy that is being implemented in almost all organizations globally as it provides the company with a competitive advantage in the electronics market. Source of Sustainable Competitive Advantage A competitive advantage is earned by an organization that puts in place strategies and attributes that gives it an opportunity to perform at levels higher than other organizations in the same industry (Sorger, 2012). Some of the major sources of a competitive advantage for LG electronics home entertainment include. a. Brand recognition- cumulative branding and marketing by LG over the many years that the company has been in existence gives the company a sustainable competitive advantage. The inability of its competitors to copy its unique brand reputation puts the company on top (Day, 2004). The brand name LG is associated with low prices, but still, the customer gets value for money. b. Customer loyalty and satisfaction- customers of LG Electronics have been loyal to the company, as the company has put up strategies including loyalty programs and effective positioning. Customers have become loyal with LG electronics because they are satisfied with the home entertainment products and services (Anderson & Sillivan, 1993). Customer loyalty has allowed the company to maintain a sustainable competitive advantage. c. Effective management- the management of LG Electronics has been top notch as the company has not been involved in scandals as compared to its rival Samsung that has had several management issues. The decentralization of functions to the several SBUs and promotion of innovation through strategies put in place by management is one of the major ways LG Electronics has been gaining a sustainable competitive advantage (Schlickel, 2013). d. Media and marketing- LG Electronics have maintained good media relations, which has been effective in marketing and advertising of the company's home entertainment products. With excellent innovation strategies for promoting products, the company has been able to gain an advantage competitively (Jain, 1999). Strategic Direction A strategic direction is an analysis that is done by an organization in consideration of the current position and where it wants to be in the future (Mckinsey & Company, 2012). The organization always aim at where they would be in the future; at the same time consider the strategies they would use to reach there (Kim & Mauborgne, 2015). Some of the major recommendations that LG electronics should put in place include: Mergers and acquisitions, LG Electronics should focus on merging with some of its major competitors to produce innovative home entertainment products that would capture the electronics market, therefore, increasing revenue. LG electronics could also acquire some of the smaller companies to increase its market share in the electronics market specifically the production of home entertainment devices and machines (Becker, 2003). Growth and expansion of new markets are another strategy LG electronics can use to increase its revenues (Hess & Liedtka, 2012). LG Electronics should conduct market researches and identify favorable markets that are untapped and have not been reached by its competitors for example Africa. Expanding to these markets will increase the company's revenue through increased sales from the acquisition of new customers. Conclusion In conclusion, since its inception, LG Electronics has been developing and is one of the leading electronic companies globally. The company has different SBUs that operate and function differently from the main company. The SBUs include home entertainment, home appliances, business solutions, mobile communications, and air conditioning. The largest SBU being home entertainment products as evident by the large percentage of revenue returns to the company. Success at LG electronics, however, does not come without challenges, and some of the challenges include the external environment factors namely political, economic, social, technological, environmental, and legal factors. Going forward the company needs to put in an effort to ensure it maintains its competitive advantage in the market. Some of the suggestions include merging and acquiring other companies and expansion to new markets. References Adcock, D., Halborg, A., & Ross, C., 2001. Marketing: principles and practice. 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