Thinking Locally, Succeeding Globally
A fridge for Korean kimchi? A microwave for Iranian kebabs? LG stands out in emerging markets by catering to national lifestyles.
By Elizabeth Esfahani

(Business 2.0) – If you've got kimchi in your fridge, it's hard to keep it a secret. Kimchi, made from fermented cabbage seasoned with garlic and chili, is served with most meals in Korea, but when it's stored inside a normal refrigerator, its pungent odor taints nearby foods. That's why, two decades ago, South Korean appliance manufacturer LG Electronics introduced the kimchi refrigerator, a product specifically designed to address the odor problem. Featuring a dedicated compartment that isolates smelly kimchi from other foods, the fridge gradually became a must-have in Korean homes, inspiring rivals such as Samsung to offer similar models. Kimchi refrigerators have become a fixture in 65 percent of Korean homes, and after facing down the competition, LG is the country's top-selling manufacturer, according to GfK, an international market research firm.

The kimchi fridge has become a model for the approach LG uses to expand into new global markets. A $38 billion powerhouse in global electronics and appliances, LG says it is the world's top producer of air conditioners and one of the top three players in washing machines, microwaves, and refrigerators. Critical to this success has been LG's focus on in-depth localization--an approach that emphasizes understanding the idiosyncrasies of key local markets by opening in-country research, manufacturing, and marketing facilities. "Localization has been a key element of LG's successful global expansion, especially in non-U.S. markets," says analyst Michael Bertz of WR Hambrecht.

"Gone are the days where you could just roll out one product for the global market," explains Hamad Malik, LG's Middle East marketing director. "We speak to consumers individually."

Nowhere is the success of LG's approach more evident than in India, where GfK says the company is now the clear leader in virtually every appliance and electronics category--from microwaves to televisions--despite having entered the market in 1997, two years after Samsung. LG initially differentiated itself by introducing a line of health-oriented products, like televisions that reduced eyestrain. By 1999, however, it had set up local research and design facilities, manufacturing plants, and a network of service centers. With a population of more than 1 billion that spans several religions and languages, says Sandeep Tiwari, LG's home appliances marketing head in India, the country functions like dozens of smaller regional markets.

To meet the needs of Indian consumers, LG rolled out refrigerators with larger vegetable- and water-storage compartments, surge-resistant power supplies, and brightly colored finishes that reflect local preferences (red in the south, green in Kashmir). Some of LG's Indian microwaves have dark-colored interiors to hide masala stains. In 1999, LG introduced a television for cricket fans that came with a built-in cricket videogame. Its Ballad television was offered with extraloud sound after research showed that many Indians use their TVs to listen to music as well. Over time, these efforts have paid off. LG enjoys unprecedented dominance in India, with sales that are projected to reach $1.8 billion this year. In some categories, such as washing machines, LG says its market share is more than twice that of its nearest competitor.

Localization helps LG gain traction in emerging markets, where consumers have few preexisting brand loyalties. In Iran, LG offers a microwave oven with a preset button for reheating shish kebabs--a favorite dish. LG now claims to command roughly 40 percent of the Iranian microwave market. Meanwhile, LG's Primian refrigerator includes a special compartment for storing dates; the fruit, a Middle Eastern staple, spoils easily.

While not always huge sellers, LG's localized products clearly generate buzz. In September the company made headlines throughout the Middle East by unveiling a gold-plated 71-inch flat-screen television that sells for $80,000--a tribute to the region's famous affinity for gilded opulence. In Russia, LG's research revealed that many people entertain at home during the country's long winters, prompting the company to develop a karaoke phone that can be programmed with the top 100 Russian songs, whose lyrics scroll across the screen when they're played. Introduced in late 2004, the phone has been a hit, selling more than 220,000 handsets, LG says.

All this experience will be put to the test as LG moves to make its presence felt in China, the world's biggest consumer market, where major international brands must compete against domestic rivals such as Haier, the Qingdao-based white-goods manufacturer. Just as it did in India, LG is establishing extensive in-country facilities in China--from manufacturing to product marketing. LG opened an R&D operation in Beijing in 2002 and has since ramped up its staff to more than 1,500. The company also reached out to local consumers by creating an "LG village," a high-profile initiative that transformed a decrepit agricultural community into a showcase for LG technologies. The efforts seem to be paying off: With help from such simple touches as making the exteriors of products red--a lucky color in China--LG raked in sales of $8 billion on the mainland last year.