With increased local sourcing, LG hopes to cut cost and time to market

The country’s largest white goods maker LG finds itself in a sweet spot. Today, 90 per cent of its household goods are made in India. Better still, by increasing the use of locally sourced components by 5 per cent year on year, it has already reached a localisation level of 90 per cent. Given that, LG India appears to have a clear advantage over competitors as many of them are still working their way upwards with localisation levels of anywhere between 50 and 80 per cent. As things stand, the company manufactures products like air conditioners (ACs), washing machines, and ovens from scratch here in India. Televisions (TVs) and smartphones are the only two product categories where import and localisation ratios are to the tune of 50:50.
 
Amit Gujral, chief marketing officer, LG Electronics India, says, “We are building capacities to increase local sourcing. To produce locally, one needs to strengthen R&D. Our teams are working towards bringing learnings from one product to another and from global markets to India.”
 
The company has two R&D facilities in the country — in Bengaluru and Delhi. The total team strength at these two facilities is about 1,700. In a crowded white goods market like India, the level of localisation coupled with product innovation will determine a player's ability to move ahead of the completion. The durables market in the country stands at Rs 700 billion (up from Rs 250 billion in 2008) and is estimated to grow at 10-12 per cent per annum. India is expected to rank fifth globally in this space by 2025, according to a joint report by Consumer Electronics and Appliances Manufacturers Association (CEAMA) and consultancy firm EY.

 
The industry growth rate slipped to 4-5 per cent in financial year 2016-17 as sales were hit in the months following the demonetisation announcement in November 2016. The South Korean major posted sales of Rs 161 billion in India for the year through March 2017, compared with Rs 144 billion the year before.
 
According to business coach Rajiv Talreja, a lot of businesses go in for localisation with a view to save costs. To be able to deliver a real impact, organisations must see localisation as a means to fulfill the local needs of consumers through product innovation.
 
“To sharpen their focus on localisation, organisations need to focus on two areas — R&D and marketing. Global companies that aim to innovate ignore local know-how and bring only technical know-how,” he says.
 
LG has been in India for 20 years. Gujral points out that the company has always been big on meeting local needs by offering them products geared to serve Indian conditions. It is continuously scouting for use cases to drive product innovation.
 
For example, the company’s focus on localisation saw it launching microwaves that help consumers prepare delicacies such as dosa and roti, consumed regularly in Indian homes. Similarly, in-depth research of urban markets which are dominated by working couples led the company to design refrigerators that promise to keep food, vegetables and fruits fresh up to 15 days. Taking into account the fact that most Indians buy products in bulk and store — the company has redesigned its refrigerators so that they able to store more. The same philosophy is applied to other products as well.

 
In a nutshell LG India is experimenting with both size and format of the products to cater to the needs of Indian buyers. LG’s Golden Eye TV is one such product that targets rural consumers and addresses their concerns regarding small spaces etc. It has also launched innovations/solutions such as the mosquito-away technology to offer products that mitigate weather-related health risks. LG also claims to be the first white goods player to commercially power household products with artificial intelligence and internet of things technology.
 
Talreja suggests that one of the challenges impacting the localisation plans of multinational companies could arise from the global leadership’s reluctance in giving local leaders full freedom to take decisions. Companies may have to also deal with challenges like product and technology know-how or functional issues related to R&D. But all these can be addressed effectively with the help of in-house capabilities or by reaching out to consultants.
 
While its localisation strategy will help it offer more relevant products, experts say it will also help in cutting cost to market. The impact of its recent localisation efforts will be felt in the coming quarters.

POWERING INNOVATION

• LG is building capacities to increase local sourcing. To produce locally, it is strengthening its R&D team
• The company is working towards bringing learnings from one product to another and from global markets to India
• LG India is experimenting with both size and format of the products to cater to the needs of Indian buyers
• Even as LG goes for higher localisation, it may have to deal with challenges like product and technology know-how or functional issues