K.W. Kim

'Last year was a tough year for LG in the Middle East and for the electronics industry globally,' said Mr. K.W. Kim, President of LG Electronics, Middle East and Africa operations since this February.

'Korean manufacturers were particularly hit by the strengthening of the won against the dollar, and rising raw material costs. Oversupply and competition, particularly from China, have also affected profitability.'

But in the Middle East LG faced some regional challenges, and sales grew by 8% in 2005 to $2.7 billion, down sharply on the 34% jump in sales to $2.5 billion in 2004.

'Sales decreased in Iran and the UAE,' said Mr. Kim. 'In Iran the decrease was due to government restrictions on imports of Korean manufactured products which were later reversed. The UAE sales decrease was due to changes in internal accounting procedures.

'Political uncertainty contributed to the sales drop in Algeria and Iraq. And the sales decrease in Amman was due to the fact that the Lebanon and Syria markets previously under its control are now being managed out of Beirut.'

Saudi problem

Mr. Kim also explained that in Saudi Arabia LG suffered from a distributor that only operated in a very limited area with showrooms in two cities. He is about to leave on a business trip to finalize new arrangements that will make a 'big difference' in Saudi Arabia for 2006.

This is not the usual story of booming sales that LG Electronics normally presents to journalists at this time of year. What about the strategy for 2006? Will sales improve?

'Our sales turnover target for 2006 is $2.7 billion, which is 20% growth,' said Mr. Kim. 'We will pursue a 'Blue Ocean Strategy' which is to move away from ordinary products to create genuine differentiation.

'For example, in GSM mobile phones we are going to launch some high-end models in May that will be luxurious like jewelry. And last year we introduced the 71-inch Gold Plasma TV, made especially for the Middle East.

'This is the sort of product we mean. It is not the sort of product that Chinese competition can copy easily and gives us clear product differentiation and a higher profit margin.'

New marketing strategy

At the same time Mr. Kim agrees that LG Electronics is therefore going to have to direct its marketing campaign away from the mass media and into more niche segment advertising. 'What we really want to do is to change what is a 5% niche segment into 10% or 15%,' he added.

But with total sales of $795 million in the digital display division, LG is still a market leader in colour TVs, plasma and LCD screens and monitors, while appliances and air conditioning unit sales totaled $970 million in 2005 thanks to the construction boom. So LG is hardly on the brink of extinction. But expect some interesting new high-end products this year.