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LG spots Chennai, Nasik for contract manufacture

Ratna Bhushan

Neha Kaushik

NEW DELHI, Nov. 6

THE Rs 1,782-crore LG Electronics, which claims to have bucked the recessionary trend plaguing the consumer electronics industry, has zeroed in on Chennai and Nasik to initiate contract manufacturing, with the objective of supplementing its capacity at G reater Noida (on the outskirts of Delhi).

In an interview to Business Line, Mr Kwang-Ro Kim, Managing Director, LGEIL, said, ``The new manufacturing bases will begin production from January. The Chennai factory will manufacture CTVs and air-conditioners, while the Nasik site will be involved in the manufacture of only CTVs.''

Since the company is taking the contract manufacturing route instead of setting up its own factories, the investments involved will not be too high.

LGEIL had recently commissioned similar contract manufacturing at Mohali, Kolkata and Bhopal for CTVs.

These plans are in line with LGEIL's overall strategy of turning India into an export hub for several South Asian countries in the long run.

The company hopes to achieve an exports target of $20 million the following year, up from this year's figure of $10 million. Apart from its existing exports markets of Sri Lanka, the UAE, Bangladesh and Philippines, LGEIL expects to tap the markets of Ho ng Kong, New Zealand and South Africa next year for exports.

Meanwhile, the company has set up areas offices in over 50 regions across 83 territories with the objective of broadbasing its reach and upping product penetration in markets other than the North. Currently, the northern region accounts for 37 per cent o f its sales turnover.

In another significant development, LGEIL is working towards implementing a `digital manufacturing system' (DMS) as a cost-cutting innovation. According to Mr Kim, the DMS process will lead to shorter assembly lines, which will lead to increase in produc tivity, and more significantly, reduce manufacturing costs by 30 per cent. The DMS exercise will be implemented at LGEIL's manufacturing base in Greater Noida for CTVs, and will subsequently be extended to refrigerators and washing machines.

``The implementation of DMS will lead to at least a 5 per cent reduction in prices across CTVs, refrigerators and washing machines,'' Mr Kim added.

The DMS exercise is a follow-up of the Six Sigma exercise LGEIL had initiated late last year, aimed at cutting costs across processes other than manufacturing. A cost-cutting team of professionals was set up for the same.

Future plans: Outlining future categories where the consumer electronics major proposes to foray in, Mr Kim added that dishwashers, laptops and mobile phones were on the agenda for next year. ``While no firm plans have been put in place for these three categories, we are studying these markets closely. However, these products will not be manufactured locally, at least in the early stages,'' Mr Kim said.

On the advertising front, the company officials are not ruling out reducing ad budgets in the forthcoming months. The company's current advertising and promotions spend hovers around Rs 100 crore.