The attempt to globalise South Korea’s chaebols is being pursued with conspicuous vigour by the LG Group, which in early July announced a $2.6 billion investment in Wales. The deal broke records all round. It is the biggest ever overseas investment by a Korean company and the biggest ever foreign investment in the UK.
The money will be spent over six years to create plants that will produce semiconductors and televisions.
The group has come a long way fast. LG started out making face creams and cosmetics in the late 1940s and has graduated through oil refining, petrochemicals and consumer electronics into company that is now bent on building up its multimedia capabilities. Despite the single-minded focus on electronics and overseas expansion, LG is still a diversified enterprise with about 33 different companies in the group.
The factory in Wales will be a bridgehead for LG sales in Europe, but may one day have implications for the Middle East, which executives at LG Information and Communications (LGIC) see as closely linked to Europe.
‘We call the Middle East the semi-European market,’ says T K Kim at LGIC. He sees US and European companies already entrenched in regional markets and Korean companies facing an uphill struggle to get established. LGIC is trying to sell switching and transmission systems for telecoms against companies such as Siemens, Ericsson and Alcatel with a regional presence running back over decades ‘Compared with other telecoms companies we are at an initial stage and it will take time to achieve performance in these markets,’ says Kim. LG is a leading equipment supplier and operator in the domestic mobile telecoms market, but uses CDMA rather than the global standard for mobiles (GSM), which has been adopted for Europe and the Middle East.
LG Chemical broke into the Middle East market at a much earlier stage as a founder shareholder in the National Plastics Company (Ibn Hayyan) in Saudi Arabia. LG took a 15 per cent stake when the company was established in 1984 to produce vinyl chloride monomer, polyvinyl chloride (PVC) and PVC paste. It is still the only South Korean company with a stake in one of the Saudi Basic Industries Company (Sabic) joint ventures.
Middle East sales are rising for LG Industrial in line with the division’s elevators.
Although the company is pushing its switch gear and power tools in the region, its elevators account for alI its business at the moment. The building boom in the UAE, where prestige high-rise buildings are proliferating, has turned it into the most active market and the company is planning to open its own representative office in Dubai rather than relying on the LG trading office.
A local joint venture to install, maintain and market products is also under consideration. The company has also started selling again in Iran and has picked up orders for about $1 million worth of elevators.
Such success in Iran is a boost to the company’s ambitions in the area, which is a definite target for product promotion as LG looks beyond established markets in east and southeast Asia at the global potential.