麦肯锡天津LG发展战略咨询报告英文

010326SH_120703_085v5i,CONFIDENTIAL,DevelopingaWinningStrategyfortheMicrowaveOvenBusinessinChina,LGElectronicsTianjinAppliancesCo.,Ltd,Finalprogressreview,April9,2001,Thisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinseyitisnotacompleterecordofthediscussion.,010326SH_120703_085v5i,1,THEJOINTLG/McKINSEYTEAMHASCOMPLETEDTHEPROJECTWITHIN5WEEKS,Modules,Keyactivities,MarketDemand/Forecast,Forecastpotentialmarketbysegmentthroughrefiningmarketsegmentation,understandingkeygrowthdrivers,andmodelingmarketgrowth,LGEperformanceassessment,ConductinternaldatacollectionwithinLGEDevelopsoundunderstandingofvaluepropositionbasedonavailablemarketresearchincludingbrandingandconsumersurvey,AnalyzedifferentproductmixoptionsGatherinformationonbrandingandmarketingConductchanneldiagnosisAnalyzevaluechaincosts,DevelopcompetitiveassessmentformicrowaveovencompetitorsConductinterviewswithdistributors,retailers,governmentagencies,competitorstocollectcompetitorinformation,Conductconsumersurveyviaexternalresearchhousein6specifiedcitiesand1ruralareatounderstandconsumerpurchasingbehavior,Endproducts,Marketdemandforecastbyareasandproducttype,CurrentorganizationsstrengthsandweaknessesCurrentprocessesandincentivesystemsstrengthsandweaknessesLGEaspirationsforfuturegrowth,HighlevelrecommendationonproductmixBrandpositioningstatusandrecommendationsChannelmixdiagnosisandhighlevelchannelprioritizationDetailedbreakdowncomparisononcosts,COGSinparticular,AnalysisonoverallcompetitiveenvironmentDetailedinformationoncompetitorperformanceincludingsales,branding,pricing,channelmixandincentivesKeycompetitorsCOGSanalysisStrengthsandweaknessesofeachcompetitorgroupandtheimplications,Detailedanalysisonconsumerpurchasingpattern,010326SH_120703_085v5i,2,TODAYsDISCUSSION,TheMicrowaveovenmarketinChinawillcontinueitsstronggrowthandshouldreach7.5millionunitsin2003.PrimaryregionswillbeCentralChina,followedbySouthandSouthwestChina.Otherregionsshoulddevelopasincomegrows.Computergrillandmechanicalgrillshouldfurtherincreasetheirshareaspricesdecline.Fourcustomersegmentsarefoundfrommarketresearch:Premiumbuyers,basicbrandbuyers,rationaltechnophile,andgenericbuyers.Allsegments,exceptpremiumbuyers,arehighlyprice-sensitive,thusskewingmarketdemandtowardslow-endproducts.Atthesametime,reliableperformance,easeofuse,andgoodafter-serviceareimportantacrosssegments.ThecompetitioninChinaisalreadyintenseandwillcontinuetoincrease,asGalanzandMideahavehugeambitionsinthemarket.Inaddition,thesevereovercapacity(about45%)willcontinuetoforcepricesdownwardsthusthreateningprofitabilityforallbutthelowestcostplayers.LGhasbuiltasuccessfulplatformforgrowth,becoming#2inChina,althoughfarbehindGalanz,byfocusingonpremiumproductsandintheBeijingarea.Facedwiththeissueoffurthergrowthandimprovingprofitability,LGnowneedstochoosebetweenahighgrowthstrategy,withtheobjectiveofbecomingtheleadingplayerandtoreachbreakevenin2005,ortoremainapremiumnicheplayerfortheforeseeablefuture.Toachievetheaspirationofbecomingaprofitable#1PlayerinChina,LGneedstolaunch5strategicinitiatives:(1)launchathreestepregionalexpansion,firstfromBeijingtoWuhan,(2)introduceentryproductstocoverallpricepointswhilecontinuingtointroducehighendproductstocreatemargins,(3)improvechannelcoveragebyincreasingthedistributornetworkandthesalesforceresources,(4)increasesignificantlyadvertisingspendingwhileoptimizingmediamix,(5)reduceaggressivelycostbyleveragingeconomiesofscale.,010326SH_120703_085v5i,3,TODAYsDISCUSSION,TheMicrowaveovenmarketinChinawillcontinueitsstronggrowthandshouldreach7.5millionunitsin2003.PrimaryregionswillbecentralChina,followedbySouthandSouthwestChina.Otherregionsshoulddevelopasincomegrows.Computergrillandmechanicalgrillshouldfurtherincreasetheirshareaspricesdecline.Fourcustomersegmentsarefoundfrommarketresearch:Premiumbuyers,basicbrandbuyers,rationaltechnophile,andgenericbuyers.Allsegments,exceptpremiumbuyers,arehighlyprice-sensitive,thusskewingmarketdemandtowardslow-endproducts.Atthesametime,reliableperformance,easeofuse,andgoodafter-serviceareimportantacrosssegments.ThecompetitioninChinaisalreadyintenseandwillcontinuetoincrease,asGalanzandMideahavehugeambitionsinthemarket.Inaddition,thesevereovercapacity(about45%)willcontinuetoforcepricesdownwardsthusthreateningprofitabilityforallbutthelowestcostplayers.LGhasbuiltasuccessfulplatformforgrowth,becoming#2inChina,althoughfarbehindGalanz,byfocusingonpremiumproductsandintheBeijingarea.Facedwiththeissueoffurthergrowthandimprovingprofitability,LGnowneedstochoosebetweenahighgrowthstrategy,withtheobjectiveofbecomingtheleadingplayerandtoreachbreakevenin2005,ortoremainapremiumnicheplayerfortheforeseeablefuture.Toachievetheaspirationofbecomingaprofitable#1PlayerinChina,LGneedstolaunch5strategicinitiatives:(1)launchathreestepregionalexpansion,firstfromBeijingtoWuhan,(2)introduceentryproductstocoverallpricepointswhilecontinuingtointroducehighendproductstocreatemargins,(3)improvechannelcoveragebyincreasingthedistributornetworkandthesalesforceresources,(4)increasesignificantlyadvertisingspendingwhileoptimizingmediamix,(5)reduceaggressivelycostbyleveragingeconomiesofscale.,010326SH_120703_085v5i,4,THEMWOMARKETINCHINAHASGROWNTO4.4MILLIONSETS,1997-2000ChinaMWOretailsalesvolumeThousandsets,1997,1998,1999,2000,CAGR=32%,source:LightIndustryInformationCenter,componentmanufacturers,Galanz,LG,teamanalysis,SIC,TeamestimationbasedoncomponentpurchasesminusinventoryandexportvolumeforGalanz,MWOmanagementestimationbasedonsalesvolumeofGalanz20largestdistributors,3,800,010326SH_120703_085v5i,5,PENETRATIONISDRIVENBYINCOMEINCREASE,2000penetrationratebyregionRMB,percent,PenetrationratePercent,AnnualdisposableincomeRMB,1991-1999SHpenetrationrateRMB,percent,PenetrationratePercent,AnnualdisposableincomeRMB,Shanghai,Beijing,Guangdong,Chongqing,Source:ChinaStatisticYearbook,010326SH_120703_085v5i,6,BASEDONTHEEXPECTEDINCOMEGROWTH,18%ANNUALGROWTHRATEISEXPECTEDFORTOTALCHINAMICROWAVEOVENMARKETINTHENEXT5YEARS,Keyassumptions,Increaseofpenetrationrateinurbanareasfrom14%in2000to30%in2005Increaseofurbanhouseholdnumbersfrom99millionin2000to114millionin2005,TotalChinamicrowaveovenmarketforecastThousandunits,Source:Teamanalysis,2000,2001E,2002E,2003E,2004E,2005E,CAGR=18%,Lowestimate=3,800,Lowestimate=8,464,010326SH_120703_085v5i,7,HUABEI(NORTHERNCHINA)REGIONHASBEENTHELARGESTMARKETFORMWOINCHINA,*EstimatedbyLGsalesbranchesSource:SIC,TotalChinasalesvolumeYYSCThousandsets,percent,HuaBeiandHuaDongstillaccountformorethan60%ofthewholemarketHowever,salesinXi-Nan,DongBei,andHuaChunghasgrownevenmorerapidly,100%=,652,847,760,1,032,Beijing,Shanghai,Guangzhou,Shenyang,1997,1998,1999,2000,2000totalChinasalesrevenueYYSCRMBthousands,percent,762,591,779,450,667,818,753,679,1997,1998,1999,2000,Chengdu,Wuhan,3.0,5.2,2.3,7.2,47.7,34.6%,29.5,42.1,6.7,7.8,8.3,5.6,7.8,13.0,9.5,4.0,35.4,30.5,34.1,27.5,4.7,11.2,12.3,10.2,3.6,7.0,Beijing,Shanghai,Shenyang,Wuhan,Chengdu,Guangzhou,3.0,100%=,9.0,9.0,12.0,11.0,28.0,31.0,1,584,2000plusselectedhypermarkets*,010326SH_120703_085v5i,8,BASEDONTHEINCOMEDEVELOPMENT,DEMANDFORECASTANALYSISSHOWEDTHATCENTRALANDSOUTHERNREGIONWILLHAVETHEHIGHESTGROWTH,Chinatotalurbanhouseholdnumberincreaseby30%perannumfrom2001-2005DisposableincomepercapitaintotalChinaurbanareasincreaseby6%perannumfrom2001-2005,MarketsizeforecastbyregionThousandsets;percent,100%=,1997,2005E,2000,CAGRPercent,Keyassumptions,Source:Teamanalysis,ChinaStatisticYearbook,Beijing,Shanghai,Guangzhou,Shenyang,Wuhan,Chengdu,1,930,9,800,4,400,18,17,12,23,19,34,20,HIGHESTIMATE,010326SH_120703_085v5i,9,MarketsizeofeachregionThousandsets,BEIJING,SHANGHAIANDWUHANWILLBETHELARGESTMARKETSIN2005,465,1,028,2000,2005,Chengduregion,453,1,983,2000,2005,Wuhanregion,236,561,2000,2005,Shenyangregion,1,055,2,233,2000,2005,Beijingregion,754,1,853,2000,2005,Guangzhouregion,1,399,2,177,2000,2005,Shanghairegion,HIGHESTIMATE,010326SH_120703_085v5i,10,ALTHOUGHREGIONSOTHERTHANBEIJINGONLYACCOUNTFORSMALLSHARECURRENTLY,TREMENDOUSGROWTHANDHEALTHIERMARGINAREEXPECTEDTHERE,2001-2005growthpotentialCAGR,ProfitabilityLG2000grossmarginpercent,Marketsizetoday,Shanghai,Beijing,Guang-zhou,Chengdu,Shenyang,Wuhan,HIGHESTIMATE,Source:LG,teamanalysis,010326SH_120703_085v5i,11,SALESFROMSINGLEFUNCTIONPRODUCTSHASSHIFTEDTOWARDSMECHANICALGRILLPRODUCTS,*EstimatedbyLGsalesbranchesSource:SIC,TotalChinasalesYYSCThousandsets,percent,100%=,633,847,775,1,032,Sensor,Computergrill,Mechanicalgrill,Single,1997,1998,1999,2000,SalesrevenueYYSCRMBthousands,percent,100%=,629,680,728,891,592,880,707,582,Sensor,Computergrill,Mechanicalgrill,Singlefunction,1997,1998,1999,2000,22.0,1,584,31.0,47.0,2000plusselectedhypermarkets*,010326SH_120703_085v5i,12,RECENTBUYERSTENDTOBUYMOREMECHANICALGRILLPRODUCTSTHANBEFORE,TypeofMWOboughtPercent,Singlefunction,Mechanicalgrill,Computergrill,Temperature*control,Dontknow,Allowners,Recentbuyers*,*Thosewhopurchasedinpast12months*PartissubsetofcomputergrillSource:AMIcustomersurvey,010326SH_120703_085v5i,13,PRODUCTTYPEMIGRATIONRELATESMORETOTHEPRICEDROP,1997-2000productevolution,RMB,Percent,Salesofmechanicalgrillproductshasincreasedalotduetothepricedrop.Computergrillproductsareexpectedtogrowquicklyforthesamereasoninnearfuture,PriceofmechanicalgrillproductinYYSC,PriceofsinglefunctionproductsinYYSC,PercentofmechanicalgrilltosinglefunctionproductsinYYSC,Source:SIC,010326SH_120703_085v5i,14,DEMANDFORECASTANALYSISSHOWEDTHATCOMPUTERGRILLPRODUCTSWILLHAVETHEHIGHESTGROWTHRATEFORTHENEXTFIVEYEARS,PriceofcomputergrillproductswillgodowntoRMB540-560in2005PriceofmechanicalgrillwillgodowntoRMB470-490in2005PriceofsinglefunctionwillgodowntoRMB360-380in2005,MarketsizeforecastbyproducttypeThousandsets,100%=,1997,2000,2005E,2004E,2003E,2002E,2001E,Keyassumptions,CAGRPercent,Computergrill,Mechani-calgrill,Singlefunction,1,900,4,400,9,800,8,600,7,500,6,400,5,400,18,20,19,14,Source:Teamanalysis,ChinaStatisticYearbook,HIGHESTIMATE,010326SH_120703_085v5i,15,WITHTHEOVERALLPRICESDROP,MECHANICALGRILLPRODUCTSAREGOINGTOGAINMOREIMPORTANCEOVERTIME,2001-2005growthpotentialCAGR,ProfitabilityLGmarginalprofitinpercentofsales,Marketsizetoday,Singlefunction,Mechanicalgrill,Computergrill,HIGHESTIMATE,Marketsizein2005,Singlefunctionproductshavelittleroomforfurtherpricereduction,withmaterialcostreducedby5%p.a.,thushavingimprovingprofitability,010326SH_120703_085v5i,16,TODAYsDISCUSSION,TheMicrowaveovenmarketinChinawillcontinueitsstronggrowthandshouldreach7.5millionunitsin2003.PrimaryregionswillbeCentralChina,followedbySouthandSouthwestChina.Otherregionsshoulddevelopasincomegrows.Computergrillandmechanicalgrillshouldfurtherincreasetheirshareaspricesdecline.Fourcustomersegmentsarefoundfrommarketresearch:Premiumbuyers,basicbrandbuyers,rationaltechnophile,andgenericbuyers.Allsegments,exceptpremiumbuyers,arehighlyprice-sensitive,thusskewingmarketdemandtowardslow-endproducts.Atthesametime,reliableperformance,easeofuse,andgoodafter-serviceareimportantacrosssegments.ThecompetitioninChinaisalreadyintenseandwillcontinuetoincrease,asGalanzandMideahavehugeambitionsinthemarket.Inaddition,thesevereovercapacity(about45%)willcontinuetoforcepricesdownwardsthusthreateningprofitabilityforallbutthelowestcostplayers.LGhasbuiltasuccessfulplatformforgrowth,becoming#2inChina,althoughfarbehindGalanz,byfocusingonpremiumproductsandintheBeijingarea.Facedwiththeissueoffurthergrowthandimprovingprofitability,LGnowneedstochoosebetweenahighgrowthstrategy,withtheobjectiveofbecomingtheleadingplayerandtoreachbreakevenin2005,ortoremainapremiumnicheplayerfortheforeseeablefuture.Toachievetheaspirationofbecomingaprofitable#1PlayerinChina,LGneedstolaunch5strategicinitiatives:(1)launchathreestepregionalexpansion,firstfromBeijingtoWuhan,(2)introduceentryproductstocoverallpricepointswhilecontinuingtointroducehighendproductstocreatemargins,(3)improvechannelcoveragebyincreasingthedistributornetworkandthesalesforceresources,(4)increasesignificantlyadvertisingspendingwhileoptimizingmediamix,(5)reduceaggressivelycostbyleveragingeconomiesofscale.,010326SH_120703_085v5i,17,MICROWAVECONSUMERSURVEYDESIGN,UrbanareaofBeijing,Shanghai,Guangzhou,Tianjin,Shenyang,Chengdu,Wuhan,Total875samplesinurbanareawhoaredecisionmakersinmicrowaveIneachlocationInBeijing,Shanghai,Tianjin:100MWOowners,50MWOpotentialbuyers(innext12months)eachInGuangzhou,Shenyang,Chengdu,Wuhan:60MWOowners,40MWOpotentialbuyers(innext12months)each,Door-to-doorrandomsamplingFace-to-faceinterview,March9-16,2001,Detailedexplanation,010326SH_120703_085v5i,18,FOURDISTINCTIVECUSTOMERSEGMENTSAREDERIVEDFROMTHEIRRESPECTIVEKEYBUYINGFACTORS,100%=875microwaveovenownerspluspotentialbuyers,PremiumbuyersMostcareofperformance,designandqualityLeastpricesensitiveandhashighestincidenceofusingpremiumbrands,e.g.,Nationalandsophisticatedmodels,e.g.,computergrill,1,BasicbrandbuyersLookingforreliablebrandforqualityassurance,2,RationaltechnophilesKnowledgeablebuyerswhounderstandwhattheyneedfromamicrowaveovenCarelessaboutbrand,morepricesensitive,requiringalotofproductinformationtomakethepurchasedecision,3,Source:AMIcustomersurvey,010326SH_120703_085v5i,19,WHILEPRICESENSITIVITYDIFFERSACROSSSEGMENTS,RELIABLEPERORMACE,EASEOFUSE,ANDGOODAFTER-SALESSERVICEAREKEYFOREACHSEGMENT,RankingofKBFs,Reliableperformance,Lowprice,Easeofuse,Goodafter-salesservice,Famousbrand,Lotsoffeatures,Niceappearance,Advancedtechnology,Wordofmouth,Productpromotion,Premiumbuyers,Basicbrandbuyers,Rationaltechnophiles,Genericbuyers,Top5KBFs,Source:AMIcustomersurvey,Totalurban,010326SH_120703_085v5i,20,CUSTOMERDEMANDISSKEWEDTOWARDSLOW-ENDPRODUCTSEXCEPTFORPREMIUMBUYERS,MWOboughtbycurrentowners,Producttype,Singlefunction,Totalurban,Premiumbuyer,Basicbrand,Rationaltechnophiles,Genericbuyer,Mechanicalgrill,Computergrill,Temperaturecontrol*,Dontknow,*PartissubsetofcomputergrillSource:AMIcustomersurvey,010326SH_120703_085v5i,21,TODAYsDISCUSSION,TheMicrowaveovenmarketinChinawillcontinueitsstronggrowthandshouldreach7.5millionunitsin2003.PrimaryregionswillbeCentralChina,followedbySouthandSouthwestChina.Otherregionsshoulddevelopasincomegrows.Computergrillandmechanicalgrillshouldfurtherincreasetheirshareaspricesdecline.Fourcustomersegmentsarefoundfrommarketresearch:Premiumbuyers,basicbrandbuyers,rationaltechnophile,andgenericbuyers.Allsegments,exceptpremiumbuyers,arehighlyprice-sensitive,thusskewingmarketdemandtowardslow-endproducts.Atthesametime,reliableperformance,easeofuse,andgoodafter-serviceareimportantacrosssegments.ThecompetitioninChinaisalreadyintenseandwillcontinuetoincrease,asGalanzandMideahavehugeambitionsinthemarket.Inaddition,thesevereovercapacity(about45%)willcontinuetoforcepricesdownwardsthusthreateningprofitabilityforallbutthelowestcostplayers.LGhasbuiltasuccessfulplatformforgrowth,becoming#2inChina,althoughfarbehindGalanz,byfocusingonpremiumproductsandintheBeijingarea.Facedwiththeissueoffurthergrowthandimprovingprofitability,LGnowneedstochoosebetweenahighgrowthstrategy,withtheobjectiveofbecomingtheleadingplayerandtoreachbreakevenin2005,ortoremainapremiumnicheplayerfortheforeseeablefuture.Toachievetheaspirationofbecomingaprofitable#1PlayerinChina,LGneedstolaunch5strategicinitiatives:(1)launchathreestepregionalexpansion,firstfromBeijingtoWuhan,(2)introduceentryproductstocoverallpricepointswhilecontinuingtointroducehighendproductstocreatemargins,(3)improvechannelcoveragebyincreasingthedistributornetworkandthesalesforceresources,(4)increasesignificantlyadvertisingspendingwhileoptimizingmediamix,(5)reduceaggressivelycostbyleveragingeconomiesofscale.,010326SH_120703_085v5i,22,GALANZISTHELEADINGCOMPETITOR,Companyname:GuangdongGalanzEnterprise(Group)Co.Mainproducts:microwaveovens,electronicricecookers,airconditionersYearofestablishment:Galanzwasestablishedin1978underthename“GuizhouFeatherstakingintoconsiderationoneshiftonlySource:LG,Literaturesearch,ChinaLightIndustryInformationCenter,ChinaHomeApplianceAssociation,Galanz,teamanalysis,componentmanufacturer,Players,Galanz,LG,Midea,Whirlpool,Samsung,Daewoo,Panasonic/National,Haier,Sharp,Mitsubishi,Total,Thousandsets,2000capacity*,2000domesticsales,2000overcapacity,12,000,2,400-3,000,3,000,700,1,000,100,2,000,1,000,1,000,1,000,600,550,500,22,650,5,700-6,300,1,076,900,3,800-4,400,2000export,3,300,1,224,N/A,N/A,N/A,159,1,600,500,850,199,7,832,10,418-11,018,600,2,742,010326SH_120703_085v5i,27,ASARESULT,THEPRICEHASBEENDECLINING,TRIGGEREDBYMARKETLEADER,GALANZ,Singlefunction,IndustryCAGR=-18%,Mechanicalgrill,IndustryCAGR=-17%,Computergrill,IndustryCAGR=-18%,SinglefunctionproductpricehasreachedthevariablecostofGalanzplus10%channelmark-upMechanicalgrillandcomputergrillproductpriceareexpectedtofollowsuitandthusincreaseshareandreduceprofitabilityatthesametime,AverageretailpriceinYYSCRMB,Industry,Galanz,LG,Galanz2000variablecostplus10%channelmark-up,Source:SIC,LG,teamanalysis,010326SH_120703_085v5i,28,WEEXPECTTHEPRICEDROPTOCONTINUEINTHEFUTURE,*2001JanpriceinYYSC,2000LGcoststructure*Includingmaterialcost,utilities,gifts,logistics,rebate,and10%ofGset,100%=,633,191,LG,1997,1998,1999,2000,Galanz,Others,847,008,774,760,1,032,198,Sensor/computergrillmarketsharebysalesvolumeYYSCPercent;set,100%=,79,505,LG,1997,1998,1999,2000,Galanz,Others,204,976,208,410,318,576,MechanicalgrillmarketsharesalesvolumeYYSCPercent;set,100%=,55,551,LG,1997,1998,1999,2000,Galanz,Others,103,335,236,302,361,983,SinglefunctionmarketsharebysalesvolumeYYSCPercent;set,100%=,498,134,LG,1997,1998,1999,2000,Galanz,Others,538,697,330,048,351,679,010326SH_120703_085v5i,32,HOWEVER,LGSTILLLAGSBEHINDTHEMARKETLEADERGALANZBYASIGNIFICANTMARGIN,ANDMIDEAISATTACKINGAGGRESSIVELY,*Assumingtotalmarketsize3,800K4,400K:Galanz2,400K3,000K,LG700K,Midea100K,Others600KSource:SIC,teamanalysis,Galanz,LG,Midea,2000ChinaMWOsales,SalesvolumeThousandsets,Marketsharebysalesvolume*Percent,Midea,Galanz,Others,Mideasmarketsharehasgrownto8.7%inYYSCinJan2001,mainlytakingsharesfrom2nd-tierplayers,LG,63-68,16