[New Component Brand] ① LG under Koo Kwang-mo, Rising from Home Appliance Leader to New Component Brand Leader

Balanced Business Portfolio with Materials and Components Keywords
Electronics Sales Surpassed by Materials and Components Sector

[Asia Economy Reporter Park Sun-mi] LG Group is transforming from a representative global home appliance powerhouse into a new parts powerhouse. Sales in the materials and components sector have surpassed those of LG's traditional home appliance and electronics finished products such as TVs, air conditioners, and refrigerators. Amid a global economic downturn, there are complaints that home appliances are not selling. In the past, during LG's era as a home appliance powerhouse, the company had no choice but to be cautious. However, the situation has now changed. The group has laid the groundwork for overall growth through the supply of parts for future growth businesses such as electric vehicles. Unlike before, there is a sense of stability in the well-balanced overall business portfolio.

Last year, LG Group's major affiliates recorded sales of 79.993 trillion KRW in the materials and components sector, which includes LG Electronics' automotive parts (VS·vehicle components) business, LG Innotek, LG Display, and LG Energy Solution. This significantly exceeded the core LG Electronics' sales (excluding VS) of 56.06 trillion KRW. When Chairman Koo Bon-moo passed away suddenly in 2018 and Koo Kwang-mo took over management, electronics sales were 50.108 trillion KRW, higher than the materials and components sector's 43.126 trillion KRW. It was a time when LG Electronics largely dictated the overall atmosphere of the group.

As Chairman Koo focused on fostering B2B (business-to-business) operations, LG's materials and components business began to grow. The BS Business Division, responsible for B2B within LG Electronics, was newly established in the first year of Chairman Koo's tenure. Over the four years from 2018 to 2022, while electronics sales increased by about 6 trillion KRW, the materials and components sector grew by more than 36 trillion KRW. Including the chemical business, last year's total sales in the materials and components sector reached 106.259 trillion KRW, double that of electronics sales. This growth was largely due to the rapid expansion of LG Electronics' VS Business Division sales from the 4 trillion KRW range to the 8 trillion KRW range, LG Innotek's electronics components business from 7 trillion KRW to 19 trillion KRW, and LG Energy Solution's battery business from 6 trillion KRW to 25 trillion KRW.

Industry insiders expect that amid this year's global economic slowdown, growth in electronics sales will be challenging, further widening the sales gap with the materials and components sector. Chairman Koo's decision to expand the business portfolio evenly into materials and components, opening opportunities beyond electronics, has borne fruit. LG Corporation, where Chairman Koo serves as CEO, was established in March 2003 as Korea's first holding company, with key roles including strengthening the overall business portfolio, talent development, and brand management.

In fact, one of Chairman Koo's major achievements is the advancement of LG's business portfolio into high-potential future sectors. Following a 'selection and concentration' strategy, he boldly discontinued the smartphone business, which had been running at a loss. LG supplies displays to Apple. Although it was painful to exit the smartphone business, the result was turning Apple, the world's top smartphone company, into a loyal customer.

LG competes with Samsung for the top spot in smartphone display production. Samsung supplies displays to Apple while simultaneously competing with Apple in smartphone sales. From Apple's perspective, LG Display is the preferred choice when prices are equal. Taiwan's top foundry company TSMC criticizes Samsung Electronics by saying its founding principle has always been 'not to compete with customers.' In other words, LG has also shaped itself as a parts supplier that does not compete with its customers by decisively restructuring non-core and underperforming businesses.

Additionally, LG has balanced its portfolio, which was heavily skewed toward electronics, by vertically integrating electric vehicle charging, batteries, and parts (vehicle components). A representative example is the spin-off of LG Chem's electric vehicle battery division at the end of 2020 to grow the battery subsidiary LG Energy Solution. Although LG does not manufacture electric vehicles, it is said that electric vehicles cannot run without LG.

In the executive personnel reshuffle conducted in November last year for 2023, Chairman Koo expanded promotions in future growth businesses such as batteries and vehicle components, emphasizing future planning. Furthermore, 31 new executives were added in the research and development (R&D) sector, which leads new technology development and market leadership, increasing the total number of R&D executives to a record high of 196. LG plans to invest 106 trillion KRW domestically over the next five years until 2026, focusing on future growth sectors. Approximately 40% of domestic investment, about 43 trillion KRW, will be allocated to future growth areas. Nearly half of this, 21 trillion KRW, will be concentrated on R&D in batteries and battery materials, vehicle components, next-generation displays, AI and data, bio, and eco-friendly cleantech sectors. All these correspond to materials and components rather than electronic 'set' products.

Chairman Koo's global on-site activities also emphasize the materials and components sector. In his first overseas trip since the outbreak of COVID-19 in October last year, he focused on batteries. He visited LG Energy Solution's battery plant in Wroclaw, Poland, and the first plant of Ultium Cells, a battery joint venture between LG Energy Solution and General Motors (GM) in Ohio, USA, demonstrating his commitment to the rapidly growing core electric vehicle component, the 'battery' business.

This content was produced with the assistance of AI translation services.