The Hindu Business Line : LG may outsource low-end durables

Influenced by the shift in the preference for high-end consumer electronics and durables in recent times, the Rs 10,000-crore consumer electronics and durables giant LG Electronics India plans to restructure its manufacturing strategy. It is also planning another greenfield facility.

The company intends upgrading its 47-acre Noida facility to manufacture premium products.

“We may resort to contract manufacturing for our low-end products over a period of time, to create space for the purpose,” says Mr Moon B. Shin, Managing Director of the company, in an interview to Business Line. It also plans to scale up its investments in research and development, learning and designing facilities in India. Going by this blueprint, LG will invest at least another Rs 1,500-2,000 crore in the next three to five years.

Thanks to lower prices, newer technology and greater awareness among consumers, not to mention a propensity to spend, the durables industry is witnessing a “healthy growth” in demand for products in the premium category.

According to Mr Amitabh Tiwari, Business Head (Home Entertainment Business), LG Electronics, top-end products such as flat panel TVs, 350-litre-plus refrigerators, top- and front-loading models of fully-automatic washing machines contribute close to 32 per cent of the company’s total turnover. If the trend continues, this will breach 40 per cent next year, he said.

LG is currently importing majority of its top-end products from its facilities in Korea and China. As it has almost achieved critical volumes in the Indian market, the company feels that it would be cheaper to manufacture them here rather than importing. Set up in 1998, the Noida facility is manufacturing refrigerators (two million units), washing machines (0.8 million), air-conditioners (one million), colour TVs (1.4 million) and refrigerator compressors (4.6 million).

In 2004, LG set up another facility at Pune to manufacture mobile phones, optical storage devices, colour TVs, LCD TVs, air-conditioners, refrigerators, washing machines and microwave ovens.

As both the facilities are fully utilised, the company recently added capacity at both the plants. “As even the expanded capacity cannot cater to demand beyond 2011, we are in the process of identifying the right place for our third facility. It could either be Chennai or Hyderabad,” said Mr Shin.

While Chennai is the best place in terms of availability of talent pool, supporting component industries and logistics, “labour problems seem to be a hitch,” he said. However, according to him, the company is conducting a feasibility study for the purpose.

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