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Getting Religion
With plenty of cool gadgets, LG's Kim Ssang Su is building a global brand
BY MICHAEL SCHUMAN / SEOUL

PAUL HU / ASSIGNMENT ASIA FOR TIME
Called “a commander in the field,” CEO Kim rises at 5:30 every morning, often for a brisk walk in a nearby park


Monday, Jun. 21, 2004
Call Kim Ssang Su a man of the people. On a chilly night in the picturesque mountains south of Seoul, Kim, CEO of LG Electronics Inc., holds aloft a paper cup filled to the rim with soju, a clear, sweet potato-based Korean alcohol with a vicious bite. Surrounding him are a dozen of the 300 LG suppliers' managers whom Kim has spent the day lecturing and rallying. They have also been hiking up a snow-covered mountainside—necessary training, he says, for the grand plans he has for South Korea's second largest electronics firm. At the end of the day, he treats a group of LG Electronics employees to an outdoor barbecue of grilled pork and bowls of fiery red kimchi. "Great people! Great company!" he barks. "Great company! Great company!" they chant back, pumping their fists in perfect unison. Kim downs the soju in one gulp, then marches off to another table for another round of soju and another cheer. Then another, and another.

Eight tables and countless cups later, he is red faced, still screaming chants and bear-hugging an unfortunate reporter. When dancing girls in short skirts and blond wigs start jiggling to ear-numbing Korean pop music, the tireless Kim, 59, cavorts in a mosh pit of drunken workers near a makeshift stage. Later he ascends the stage himself, microphone in hand, to croon out a popular oldie called Nui (Sister). "We love our CEO," says Kim Young Kee, an LG executive vice president. "He shows us a good time."

CEOs rarely stoop to carouse with the common man in an Asia dominated by secretive business clans and élite old-boy networks. But Kim is no ordinary Asian boss. He began his career 35 years ago as a nondescript engineer at an LG refrigerator factory, climbed the ranks, and claimed the CEO post in October. Now he aims to duplicate the same feat with LG—lifting a consumer-electronics company little known outside Asia into the stratosphere of global brands with Sony, Panasonic and Samsung. "I want to go down in LG history," says Kim. "After death, a tiger leaves its skin. A man leaves his name."

LG seems well on its way. While most of the electronics industry, including Sony, suffered sagging growth and profits in recent years, LG's market presence surged. Revenues jumped 18% last year, to $17 billion, and net profits rose 33%, to $556 million. LG has the electronics world bracketed. At the commodity end, low-cost plants in China make the firm a power in developing markets. At the big-bucks, high-tech end, LG's home in broadband-rich South Korea has fostered a focus at LG on design and function that fits perfectly into the emerging digital home. Last year LG was the world's largest seller of mobile phones operating on the CDMA standard (a type of mobile-phone technology). It makes dazzling flat-screen televisions and other leading-edge gadgets. LG.Philips LCD, a joint venture formed in 1999 with Royal Philips Electronics, became the world's biggest maker of the LCD panels used in flat-screen TVs and monitors in 2003, with 22% of the global market. The unit's operating profit soared 307% last year, to $935 million.

The growth has brought LG to the cusp of greatness but not quite into the industry's aristocracy. Still missing is the global brand name crucial for commanding high premiums and outpacing low-cost manufacturers in China. It is an accomplishment hardly any Asian corporations have managed to achieve. "We've had success at the foothills," says Woo Nam Kyun, president of LG's digital-TV operation. "Now we have to climb the mountain."

The climb LG has chosen is Mount U.S.A. This year LG is making its biggest thrust ever into the U.S. market, with a $100 million budget for advertising alone. Last year LG spent $10 million refurbishing a billboard in New York City's Times Square into a giant flat-screen TV, and it helped renovate a Los Angeles concert hall. LG is also buffing up its U.S. product line. Last July, LG began introducing its first LG-branded flat LCD and plasma TVs in the U.S., and next year it will launch its first high-definition TVs with built-in hard-disc drives that can record movies. An LG refrigerator with an LCD TV set in the door is already on the market.

LG faces plenty of competition. Its biggest rival at home and abroad, Samsung Electronics, whose revenues of $36.4 billion are two times as large as LG's, has already hit the U.S.—and scored big successes. Samsung is also ahead of LG in developing a truly global brand. LG executives hope that competition from Samsung will make their company stronger. "Their presence as a very strong competitor in our neighborhood has always kept us alert and awake," says LG's Woo. "This has helped us compete in overseas markets as well. I can be more successful with Samsung's success."

LG's first crack at the U.S. market ended in disappointment. Beginning in the 1980s, LG sold cheap TVs under the brand Goldstar, after the company's former name, Lucky-Goldstar. In 1995, LG purchased American TV maker Zenith Electronics Corp. and began using that moniker on its products. But four years later, Zenith filed for bankruptcy, a victim of cutthroat competition. To avoid a repeat of that failure, LG was content until recently to supply other companies with appliances that sell in the U.S. under their own brands. Chances are, the average American may own an LG-made product but not know it. LG says it sells 43% of all room air-conditioners in the U.S., for example, but many under brand names like GE and Kenmore.

These days, however, a monumental transition is taking place in U.S. living rooms, and LG smells opportunity. Consumers are tossing aside boxy TVs and clunky VCRs in favor of wide, flat screens, DVD players and, eventually, computer-like systems with digitized video and music recorders and Internet services. With this emerging gadgetry, LG is surprisingly well positioned. LG.Philips has been a leader in developing large, flat displays, and LG makes 70% of all set-top boxes for receiving digital satellite TV sold in the U.S.

In this new digital world, LG has a distinct advantage in its ultra-wired South Korean home base. The demanding Korean market, where an amazing 84% of households using the Internet have high-speed access, propels LG to develop more advanced products and provides a testing ground for new technologies. LG has outpaced Nokia and Motorola in cramming the hottest new features into a mobile phone. One of its latest models, the SC8000, which came out in Korea in April, combines a PDA, an MP3 player, a digital camera and a camcorder. The advantage is paying off. In May, LG launched a new mobile phone in Korea with a 2-megapixel color screen simultaneously with Samsung. In the past, LG lagged at least several months behind its competitor's phone launches, missing out on higher prices and margins. LG became the largest supplier of mobile phones last year to service provider Verizon Communications.

It may seem odd that at this crucial time LG has turned over its top job to a farm boy from a tiny village in eastern South Korea. Kim Ssang Su spent his childhood knee-deep in the family's rice paddies. Even now, Kim is a bit of a fish out of water. He took over from the debonair John Koo, a senior member of LG's prestigious founding family. Kim has never worked outside Korea or, before becoming CEO, even at LG's glitzy Seoul headquarters, known locally as the "Twin Towers." He had spent his entire career buried in LG's stuffy bureaucracy at the company's main appliance factory in the industrial city of Changwon. He admits to being more comfortable in the field visiting factory floors and design centers than in his spacious office overlooking Seoul's Han River.

It would be wrong, though, to underestimate Kim, who has become near legend in Seoul for the turnaround he engineered at LG's appliance business. When he took over in 1996, LG was making washing machines and refrigerators that seemed little more than cannon fodder for low-cost Chinese companies like Haier. Kim sliced costs by moving production of low-end products to China. He proved there is room for innovation in basic white goods, introducing, for example, appliances like air-conditioners that can be controlled from the Internet. The result: sales reached $4.7 billion last year, more than twice the number when Kim took control.

Kim is infusing LG's other businesses with the same vigor. Called a "commander in the field" by executives, he storms about LG's factories and offices poring over details, issuing commands and spurring on the staff by giving them what he terms "stretch goals," or aggressive targets. Awake at 5:30 each morning for a brisk walk, he openly prefers "morning people" and holds 7 a.m. breakfast meetings with top executives. "I don't like the expression 'nice,'" Kim says. "I don't want LG to be perceived as nice. None of the great companies in the world are nice." Kim's relentless nature has put some executives on the defensive. "He likes to be heavily involved," complains a top manager. "I would prefer that he delegate a bit more."

Kim is backing up his tough talk with a strategy to augment the company's design and technology prowess. For instance, LG.Philips announced in March it would invest $22 billion with its suppliers in new flat-screen production facilities over the next 10 years. Kim is recruiting engineers at a furious pace, aiming to increase research-and-development teams to 60% of LG's total payroll by 2005, from 40% today. One recent afternoon at the LG Electronics Corporate Design Center in Seoul, young Koreans in jeans and hip black sweaters were packing up plastic models of computer monitors and microwaves to move to new offices. With the number of designers up 15% in the past year, to 390, the center has added an entire new floor. "As we emphasize our brand, design becomes more critical," says the center's president, Lee Hee Gook. "We're making ourselves more competitive."

Can Kim build LG into a global titan? Hurdles abound. LG still sometimes cuts prices to drive sales, softening both profit margins and its brand image. For example, LG sees 5% profit margins on its mobile phones; Samsung earns in excess of 20%. Nor does it help that LG Electronics is a member of one of South Korea's mammoth, family-controlled conglomerates, called chaebols, which are infamous for mysterious and convoluted business practices. In February the company broke a promise to investors by pledging $130 million to buy bonds of a nearly bankrupt affiliate, credit-card issuer LG Card. Kim says his company joined in because a failure at LG Card would have damaged LG's image. Michael Lee, an executive vice president at LG Corp., the conglomerate's holding company, says affiliates had a "moral obligation" to help out and calls the LG Card case an exception. The LG chaebol, he says, has reorganized its shareholding structure to allow affiliates to be managed more independently. Because of concerns relating to its being a chaebol, LG—like many other Korean companies—is valued more cheaply than many of its international competitors.

Still, in Asia, LG has taken on the world's best and proved it can hold its own. In China and India, LG has become a preferred brand. In China, which Kim calls the "toughest marketplace in the world," sales last year rose 40%, to $2.8 billion. In India, LG has beaten out Sony and Samsung to claim the No. 1 market share in everything from TV sets to refrigerators to CDMA phones.

And in just a few months, LG is making inroads into the U.S. Its increasingly popular mobile phones hold fourth place in market share. Lisa Smith, general manager for appliances at U.S. retailer Best Buy Co., began carrying LG refrigerators and washers and dryers last July, and their jazzy designs, such as yellow and blue lights on dryer control panels that look like car dashboards, have made them a hit with younger shoppers. "[LG has] done a fantastic job of raising the bar in the U.S. market," Smith says. "The products are popular, and they continue to gain momentum."

In the end, Kim can take LG to the top only if he manages to solve that pesky branding problem. Its rival did it: four years ago, few in the electronics industry could have predicted the growing dominance of Samsung, despite its solid technology and financial clout. Samsung's surprise was its savvy at brand building. "In terms of the ingredients, LG has everything—the quality, the packaging, the global marketing reach," says Nam Park, an analyst at HSBC Securities in Hong Kong. "What's missing is the magic. It's missing that je ne sais quoi." If Kim finds it, he'll probably pour himself a glass of soju and let go a very, very loud cheer.

—With reporting by Juliane Han/Seoul


From the Jun. 28, 2004 issue of TIME Asia Magazine

http://www.time.com/time/asia/magazine/article/0,13673,501040628-655464,00.html