LG Electronics SWOT & PESTLE Analysis

Strengths

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Weaknesses

1. Muted Overall Sales with Mobile Communications Business Unit acting as a drag factor: The company reported sales of 55.37 trillion KRW (USD 49.61 billion) for the year ending December of 2016. When we compare it to the data of 2015, there is decrease of 2.0%. In 2015, company’s sale stood at 56.51 trillion KRW. In fact, the sales level of 2016 is close to the sales level of 2011: in 2011, LG Electronics reported a sale 54.26 trillion KRW. Contributing to this drop in overall sales was the 18.7% decline in Mobile Communications Business Unit from 14.40 trillion KRW to 11.71 trillion KRW. Also, Innotek - an aerospace division of LG Electronics reported a decrease in sales (down 3.0% to 4.67 trillion KRW). Also, Mobile Communications Division constitute 23.03% of the overall revenues.

2. In BCG Matrix Analysis, Cell Phone Business is in the Dog Category and Smartwatch Segment is in Question Mark Category: LCD TVs and Home Appliances come under the category of Cash Cows and hence will keep generating the revenues in bulk. But, the cell phone business with its meagre 3.2% market share is pulling the ship. Also, the Smartwatch business is in the Question Mark Category and investments in the same can have higher risks involved.

3. Exposure to Exchange Risks: LG generates a chunk of its revenue from export model and thus, there is always an exposure to exchange related risks. Debt/Equity Ratio: With total liabilities being 24499 KRW (bn), Total Assets (2016) equivalent to 37855 KRW (bn) and the Debt/Equity Ratio (2016) being 24499/13356 = 183.43%, it is seen that the company has been heavily taking on debt and thus has high risk.

Opportunities

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Threats

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Political

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Economical

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Social

1. Enhanced customer needs, desire to attain social status and an increase in the number of nuclear family across the globe: With the rapid development of technologies, consumers have become more demanding. They are putting a lot of stress on the companies for innovative features that can satisfy their desire to attain social status. LG Electronics is doing the same with the launch of cell phone models like V20 which has dual screen and dual camera setup or G6 which has an insane screen to body ratio. The demand for newer technologies is also fuelled by a rise in the disposable income and increase in the number of nuclear family across the globe.

2. Millennials (or Gen Y) and Gen X: Millennials constitute 23.46% of the USA’s population – 75.4 million out of the total population of 321.4 million – with annual spending power approaching $200 billion. Also, Gen X population is around 66 million in the USA. The numbers are important because this is the segment that is targeted by companies like LG Electronics.

Technological

1. Increasing technology has helped to enhance the manufacturing process and deliver more on quality front: We have seen that “Robotization” has helped in the cancellation of repetitive process and deliver more on quality front. Similarly, Artificial Intelligence will be the next big thing. Recently, LG unveiled Hub Robot with its in house AI assistant to compete with Amazon Echo and Google Home. AI will accelerate technological fusion of mind and machine and companies like LG Electronics should be prepared for it.

2. Computer Convergence: The idea here is that processing capabilities of mobile devices be increased to such an extent that it can match the performance level of personal computers. It will act as a driving force in the field of “Internet of Things” and companies like LG Electronics should be ready to make the most out of it.

Legal

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Environmental

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