The South Korean home-appliance maker is ringing up huge overseas sales

Most Koreans remember the Asian financial crisis as the toughest period since the Korean War. For Kim Ssang Soo, president of LG Electronics Inc's white goods business, it was a godsend. After the Korean won tumbled by a third, he seized the chance to boost exports of his washers, refrigerators, and air conditioners. "The crisis certainly was a huge stepping stone for us," Kim says.

Now, Kim is stepping all over competitors in the home-appliance industry. Overseas sales - in countries ranging from China to Chile and Saudi Arabia to Sweden — today account for 70% of LG's appliance revenues, up from 30% before the crisis. The unit expects revenues of $6.2 billion this year, more than double its sales of $2.7 billion a year earlier. The division now contributes 60% of LG Electronics' profits and 35% of sales, compared with 30% and 25% before the meltdown. LG has become the world's largest and most profitable home air-conditioner maker and the sixth-largest manufacturer of white goods. That's far from its stature in the mid-1990s, when.the unit was unfamiliar outside Korea and barely breaking even. LG's success is "proof that misfortune comes with an opportunity for the prepared," Kim says.

When the storm hit, Kim was indeed prepared. As the chief of LG's main factory for air conditioners and washing machines, Kim adopted the program of improving productivity known as " Six Sigma ". A key part of Kim's plan: "tear-down-and-redesign teams", which helped trim costs by one-third in just two years. Productivity jumped 50% after he shortened assembly lines and streamlined product development. By beefing up quality control, he cut defects by a third in three years. All of this helped Kim compete with the world's best appliance makers when the currency devaluation made LG's products more attractive abroad.

Kim, an LG lifer who has led its global white goods operations since 1996, now faces his toughest test. To continue his winning streak, the 57-year-old manager must intensify LG's presence in the US and Europe. While LG is dominant in emerging markets, it trails local rivals in Europe. And it's little known in the US despite the fact that it builds air conditioners, fridges, and microwaves for the likes of Whirlpool Corp. and General Electric Co. "There's no question, that LG has become one of the most competitive appliance makers, but building products and brand and images are two different animals," reckons James Kim, an electronics analyst at Salomon Smith Barney in Seoul. LG started selling air conditioners and washing machines under its own brand name this year in the US. To raise its profile, LG plans to boost its US ad budget to $20 million, up from virtually nothing this year.

Kim's other challenge is to keep his company innovating. So far, LG has built mostly midmarket and low-end products; it needs to strengthen its presence at the high end. One hot prospect: the $1,250 Tromm washing machine, which is quieter and more efficient than traditional models. The company is also rolling out better-designed products, such as Whisen air conditioners that are thin enough to hang on a wall. "We can no longer take cues from others. We should be the one introducing products with new features," says Kang Tae Kil, LG's vice-president for strategic planning.

Kim's ultimate goal: Making LG one of the world's top three appliance makers. He expects sales to top $8 billion, which would put LG ahead of GE, Bosch und Siemens Hausgerate, and Matsushita, and on the heels of leaders Whirlpool and Electrolux. But since 1998, the Korean won has regained 16% of its value against the dollar, meaning Kim is losing one of his primary advantages. His answer: Like everyone else, he's moving production to China- and to India, Mexico, and Vietnam. By next year, some 60% of the 11 million microwave ovens LG makes every year, and half of its 7 million air conditioners, will be manufactured in China.

The strength of the white goods unit may be giving LG a new on life. Although it's Korea's No. 2 consumer-electronics maker, LG had long been relegated to a supporting role while rival Samsung Electronics Co. took its star turn. For the past three years, LG has spun its wheels with a $3 billion investment in telecom gear that has gone nowhere. Today, though, LG has overtaken Samsung in white goods. The unit's profits are a cushion for the company, throwing off the cash it needs to expand sales of mobile phones, digital TVs, and plasma-display panels. The appliance business, it seems, might be stepping stone LG needs to become a global player in consumer electronics.

VOCABULARY:

it was a godsend… -это явилось большой удачей для компании, это было настоящим подарком судьбы

stepping stone – средство для достижения цели, улучшения положения

account for – объяснять; приходиться на долю

division of the company – отделение, подразделение компании

(Syn.: a branch, a business, an arm, a unit)

a breakeven point – точка безубыточности; уровень производства, при котором величина расходов равна выручке

«Six Sigma» program – программа «Шесть сигм» – это подход к совершенствованию бизнеса через поиск и исключение причин ошибок или дефектов в бизнес-процессах.

Сигма (σ) – знак, который используется в статистике для обозначения среднеквадратичного отклонения значений в генеральной совокупности. «Шесть сигм» – такой уровень эффективности процесса, при котором на каждый миллион возможностей или операций приходится всего 3,4 дефекта.

 

roll out a product – зд.«запустить» новый товар на рынок

(Syn.: launch/ introduce a product)

the unit’s profits are a cushion for the company – прибыли, получаемые этим подразделением компании, способствуют росту всей компании

 

 

46. A Brand New Opportunity In the Empty Nest

The new advertising campaign for Pillsbury, the General Mills-owned food brand, is designed to appeal to par­ents whose children have just left home. It sounds like an advertising gimmick yet it is anything but. New research suggests that " empty nesters " present some of the most significant opportunities and challenges for household brands.

The findings come as no surprise to Andrew Edwards, president, for marketing services agency Arc Worldwide. Arc has conducted its own study of empty nesters and identifies them as a critical group for consumer goods brands.

"Leaving home, getting married and having children are widely acknowledged as the triggers most likely to prompt consumers to reas­sess the brands they buy," Mr Edwards says. "A fourth, however - the period of re­adjustment parents face once children depart the family home – is just as, if not more, important."

The reason is simple. Women control 80 per cent of household purchases in many countries. And moth­ers between the ages of 45 and 64 have the highest dis­posable income of all.

"Irrespective of social, ethnic or demographic back­grounds, when their children leave home a mother re­appraises many - if not all aspects of her life," Mr Edwards adds. Our research shows when kids leave home a mother is likely to change 80 per cent of the branded goods she regularly buys."

"Few [brand owners] can see beyond the stereotype of two parents, two kids, let alone understand what hap­pens to those parents' brand loyalties once those kids have grown up,” she says.

The challenge household brands face is to understand how to capitalise on empty nesters' spending power and desire to try something new. The best approach is to evolve both their products and marketing strategies, according to a report pub­lished in the US last month by Imago Creative, an agency specialising in mar­keting to women over 40.

Empty nesters' mixed emo­tions about their children's departure present the poten­tial for brands to reassure as well as capitalise on new lei­sure time. They could also tap mothers' growing inter­est in communications tech­nologies to stay in touch with offspring, and their desire to redefine themselves through new interests.

Mr Edwards says it is important that retailers and marketers respond proactively when their custom­ers experience a big lifestyle change. "There's clear poten­tial for brand owners to make better use of consumer data to pre-empt when a mother's children will leave home and target communi­cations accordingly. It is also clear there is a role for brands to offer them support and advice," he says.

A growing number of brand owners are modifying products for older consum­ers. US sports shoe brand New Balance, for example, is rolling out a wider range of products designed for older people, and advertising designed to appeal to an over 45-year-old audience.

Mr Edwards hopes more brands will follow Pillsbury's example. "More accurately representing these consumers' lifestyle in advertising is just the tip of a very big iceberg."

VOCABULARY:

brand new opportunity – абсолютно новая возможность

 

"empty nesters" – родители, дети которых выросли и покинули отчий дом

 

household brands – хорошо известные, вошедшие в обиход бренды

 

dis­posable income – располагаемый доход

 

 

TRANSLATION NOTES:

It sounds like an advertising gimmick yet it is anything but – Это звучит как рекламный трюк, однако отнюдь им не является

Обратите внимание на значение yet – однако и but - кроме

 

 

47. Everybody Loves a Winner — or do they?

He drives a Datsun, his son buzzes around on a Honda motorcycle. His wife listens to music on a Sony radio while she does the housework. He wears a Seiko watch and when he goes on holiday a Nikon camera is slung over his shoulder. His daughter wants to be a concert pianist; she practises daily on a Yamaha piano. Question: Who is he? Answer: A European.

The brand names mentioned above, all household words, bear witness to the invasion by Japanese exporters of European and North American markets during the 1970s. The Japanese have been efficient in their business methods. They have made things people want to buy and they have marketed their goods aggressively. Their prices have been keen, their delivery dates firm. They have never been afraid to make initial losses in order to get a foothold in a new market.

Because of Japan's spectacular success, European and US manufacturers have found their own market shares, both domestic and overseas, diminishing drastically. Japanese competition has been exceptionally intense in basic industries such as steel and shipbuilding, but also in the car, motorcycle, consumer electronics (especially TV sets and tubes) and ball-bearing industries.

As pressure on European and US markets increased, trade officials and businessmen in the countries concerned began to react. Trade ministers in these areas drew attention to the huge trade surplus that Japan had with the EU and with the US. They stated that trade was clearly very one-sided and that Japan was not an open market for European exporters. On a trip to Japan, the British Trade Minister pointed out that Japan had an unnaturally low ratio of manufactures in its total imports: 20% instead of 50%.

The Japanese were also reproached for concentrating their export efforts in vulnerable European markets — the exporting companies concerned were said to receive powerful government support — and, thus undermining European competitors in these sectors. The allegation was that they flooded these markets with cheap exports. In some cases, companies were accused of dumping, i.e. selling abroad at lower prices than in the domestic market. The Japanese ball-bearing industry, for instance, was said, perhaps justifiably, to be selling products at 25% to 40% below domestic prices, and the EU threatened to put a 15% tariff on bearing imports.

A constant source of irritation, according to European and US manufacturers, were the non-tariff barriers erected by Japan against imports. Japanese bureaucracy and red tape were often mentioned. There were often long delays, from four months to two years, in getting documents of approval for a new product to enter Japan and delays in getting trade marks registered.

Exporters were also not impressed by theexpensive and complex distribution system in Japan. Too many middle-men were involved before the goods reached retail outlets. These outlets were often located in narrow, inaccessible streets, which made distribution expensive. Such costs could add as much as 45% to a retail item. Coupled with higher production overheads, they could make foreign goods very expensive.

The Japanese reacted swiftly to these attacks although the steps they took sometimes created other problems. They agreed to exercise self-restraint by limiting steel exports to Europe, but then they increased their sales efforts in the US, with the result that US steel manufacturers started crying out for protection of their industry; no sooner had Japanese companies agreed to limit car sales in Britain — a vulnerable market — than they began intensifying their sales drive in other European countries, causing concern to car manufacturers in these areas. Another of Japan's concessions was to raise ship-building prices and restrain exports, limiting their share of the 'world market to about 50% instead of a potential 70%.

 

TRANSLATION NOTES:

…the exporting companies concerned were said to receive powerful government support - …отмечалось (говорилось), что соответствующие компании (о которых идет речь) получают мощную государственную поддержку (См. часть Ш, раздел 2, § 2)

 

 

VOCABULARY CHECK

1) Услуги – это те же товары, но они напрямую не включены в процесс производства.

2) Компания отзывает свой товар с рынка, если при его продаже обнаруживается брак.

3) Каждый товар имеет свой «жизненный цикл». Устаревшие товары заменяются новыми.

4) Родственный продукт (дженерикс) – продукт, который не имеет известного бренда, не рекламируется, имеет дешевую упаковку и продается по ценам ниже сходного продукта известной фирмы.

5) «Бренд» - марка, тип, сорт, название или символ товара или услуги, которые отличают их от товаров или услуг конкурентов.

 

SECTION 4 ADVERTSING AND PROMOTION

LEAD-IN

Whereas marketing aims to identify markets that will purchase a product (business) or support an idea and then facilitate that purchase, advertising is the paid communication by which information about the product or idea is transmitted to potential consumers.

In general, advertising is used to convey availability of a "product" (which can be a physical product, a service, or an idea) and to provide information regarding the product. This can stimulate demand for the product, one of the main objectives of advertising. More specifically, there are three generic objectives of advertisements: communicate information about a particular product, service, or brand (including announcing the existence of the produce, where to purchase it, and how to use it), persuade people to buy the product, and keep the organization in the public eye (called institutional advertising).

Some commercial advertising media include billboards or hoardings, printed flyers, radio, cinema and television ads or commercials, web banners, bus stop benches, magazines, newspapers, sides of buses, taxicab doors and roof mounts, musical stage shows, elastic bands on disposable diapers, stickers on apples in supermarkets, and the backs of event tickets and supermarket receipts. Any place an "identified" sponsor pays to deliver their message through a medium is advertising.

Product endorsements are when famous people recommend a product.

Advertising is often designed and managed by advertising agencies.

An advertising campaign consists of a series of advertisements, adverts, or ads which are run in various media.

Another way of telling people about products is by direct marketing, using techniques like mailings, also known as mail shots: these are often referred to derisively by recipients as junk mail.

The promotion of a product may refer to any marketing effort to encourage people to buy it, including advertising. However, promotion is often used to refer specifically to marketing activities other than advertising: offers such as discounts, cut-price vouchers, free gifts, displays or events at the point-of-sale, the place in the retail outlet where the product is sold.

Discountsmay be given in a sale at a particular time of year such as summer or January, often to get rid of remaining stock.

Merchandising refers to the promotion of a product by developing strategies for packaging, displaying, and publicizing it, and more commonly, to commercial products that are developed as spin-offs from the success of a movie, TV program, sports team, or event such as toys and T-shirts.

 

VOCABULARY

advertising	- рекламное дело, рекламная деятельность, рекламный бизнес
advertisement advert ad	- реклама, рекламное объявление; объявление
endorsement	- свидетельство, рекомендация: высказывание известного в обществе или в определенных кругах человека, выявляющее его положительное отношение к качеству определенного продукта, что используется в рекламных целях
advertising agency	- рекламное агентство
advertising campaign	- рекламная кампания: комплекс рекламных и сопутствующих мероприятий, осуществляемых с целью продвижения товара на рынке и стимулирования продаж
direct marketing	- прямой маркетинг: розничная продажа или реклама товара с выходом непосредственно на потенциального покупателя, для чего используются такие средства, как почта (в том числе электронная), телефон, визиты агента по продаже и т. п.
mailing mailing shot	- рассылка, отправка почтой; рассылка рекламных материалов в прямой почтовой рекламе
junk mail	- спам, почтовый "мусор": рекламные материалы, рассылаемые по почте бесплатно, не представляющие для получателя особой ценности
promotion	- рекламный материал: рекламные объявления, листовки, проспекты, брошюры, плакаты и иные материалы, используемые с целью продвижения компаний, людей, товаров, идей
point-of-sale advertising	- реклама в местах продаж, реклама на месте покупки (реклама нового продукта, которая осуществляется непосредственно в магазине для привлечения потенциальных покупателей)
merchandising	- мерчендайзинг, выкладывание: обеспечение эффективности продаж товара без активного участия специального персонала- путем удачного размещения товара, эффектного оформления торгового места, обеспечения достаточного запаса товара на полке и т. п.

COMPREHENSION QUESTIONS:

1) Why is advertising so important?

2) What are the three generic objectives of advertisements?

3) What are the means of commercial advertising media?

4) What is merchandising?

5) What do firms and companies usually do to get rid of remaining stock?

 

VOCABULARY PRACTICE

One definition of merchandising is a marketing practice in which the brand or image from one product or service is used to sell another. It is most prominently seen in connection with films, usually those in current release and with television shows oriented towards children.

Merchandising, especially in connection with child-oriented films and TV shows, often consists of toys made in the likeness of the show's characters or items which they use.

What we call junk mail is actually the result of direct marketing campaigns designed to get you to buy a product or service. It's called direct marketing because it attempts to match you and your buying preferences with offers that are likely to make you buy a product or service.

The agency lost a $15 million account for Nikon cameras when it mistakenly ran an advert for a new product before it had formally been introduced.

The world’s biggest advertising campaign rests on the denim-clad shoulders of that anonymous cowboy, the Marlboro Man.

Despite heavy promotion, new car sales rose by only 1.7% in August over the figure for August last year.

Although the number of drug salesmen may decline, firms may still need a big marketing operation to handle the advertising and point-of sale promotion necessary in retail outlets.

TEXTS TO TRANSLATE:

48.Colgate Glides Past Stumbling Competitors

New products, market share gains and further profit mar­gin improvements contrib­uted to a 10 per cent rise in Colgate-Palmolive's fourth-quarter net income, the toothpaste and soaps maker said yesterday.

The group has cemented a reputation as one of the more consistent performers in the household products industry, as peers including Procter & Gamble, Gillette and Dial stumbled last year.

It said yesterday that net income had risen from $261m to $287m, and share buybacks had contributed to a 12 per cent increase in diluted earnings per share to 46 cents.

For the full year, diluted earnings were up 16 per cent at $1.70, and Colgate con­firmed analysts' expecta­tions of double-digit earn­ings growth in the first quarter and this year.

Although three-quarters of its sales come from overseas, Colgate's North American division reported the stron­gest growth in the quarter.

North American sales rose 11 per cent on a 10 per cent increase in unit volumes, as Colgate's market share improved in nine of its 12 main product categories.

Recently introduced prod­ucts, such as the Actibrush battery-powered toothbrush, continued to drive growth.

In Latin America, Col­gate's largest market, sales grew 8 per cent on a 4 per cent rise in unit volume, as it stepped up advertising for product launches.

European sales declined 8 per cent because of the rela­tive weakness of the euro, but were up 5 per cent in local currencies.

Hill's Pet Nutrition, the group's pet food division, showed signs of recovery from the impact of P&G's roll-out of its rival Iams brand. Sales and unit vol­umes were up 5 per cent for the quarter.

Reuben Mark, chairman and chief executive, said: "The strength and breadthofour top line volume growth are extremely encouraging, and reinforce our optimism for the next year."

The group's cash genera­tion was at record levels in the fourth quarter, he said, and its productivity improve­ment programmes gave it confidence in surpassing its goal of 55 per cent gross profit margins by next year.

VOCABULARY:

market share gains - увеличение доли на рынке

share buyback - обратный выкуп акций: выкуп компанией своих собственных акций на открытом рынке

Обычно к обратному выкупу прибегают, если акции являются недооцененными; обратный выкуп уменьшает количество акций в обращении, увеличивает доход на акцию и повышает рыночную стоимость бумаг, оставшихся у акционеров; также обратный выкуп может являться попыткой защиты от поглощения

diluted earnings per share, dilutedEPS, DEPS - разводненная прибыль на акцию

Чистая прибыль, приходящаяся на одну обыкновенную акцию, рассчитанная с учетом как находящихся в обращении обыкновенных акций, так и акций, которые могут быть выпущены при конвертации облигаций, привилегированных акций и некоторых других конвертируемых долговых обязательств

 

 

49. Electrolux Blames Fall on Paranoia

Fears of a sharp slowdown in US consumer demand haunted the white goods sec­tor yesterday after Electrolux, the world's leading maker of household appli­ances, reported a 10 per cent fall in deliveries to US retail­ers in the first two months.

The Swedish group's shares plunged more than 10 per cent after the disclosure, but recouped ground in late trading when they were 6 per cent lower at SKrl51.

Michael Treschow, chief executive, said the deliveries fall stemmed mainly from "paranoid" inventory cut­backs by US retailers. "Janu­ary was a bit below last year, February somewhat more below last year," he said.

Consumer demand in the US was also lower - but only by a couple of percentage points. "We haven't seen a freefall in consumer demand," Mr Treschow said.

Analysts said Electrolux appeared to want to send out a relatively downbeat mes­sage about its short-term prospects. But they were encouraged by its comments that deliveries in Europe had risen 5 per cent in the first two months.

North American consumer goods sales account for 38 per cent of Electrolux's sales, and European white goods sales make up 34 per cent.

Mr Treschow stuck to his group's overall view that Europe and the rest of the world would be stronger this year, with weaker sales in the US.

Meanwhile, Wolfgang König, head of Electrolux's home products division (EHP), said the company was aiming to lift the operat­ing margin in its European consumer goods businesses to 8 per cent by next year from last year's 5.1 per cent.

This would mainly be achieved by cost-cutting, supply chain improvements, and by expanding sales fas­ter than the market. EHP was aiming to cut its mar­keting and administration costs by 1-2 per cent a year, he said. Its overall goal was to achieve a double-digit rise in operating income this year, compared with SKr2.18bn ($217m) last year.

Last year Electrolux's European consumer goods sales were flat, despite a 5 per cent rise in volumes, partly because it grew faster in low-margin countries than high-margin countries.It also suffered cost over-runs as it tried to move to a pan- European based organisa­tion.

Mr König said the group would be seeking to build up its operations in Poland, Russia and Turkey, either through acquisitions or set­ting up on its own.

He said the company was considering building a fac­tory in Russia.

VOCABULARY:

disclosure – раскрытие информации, опубликование данных

recouped ground = regain ground – восстанавливать утраченные позиции

in late trading – во время поздней торговой сессии (на фондовой бирже)

 

…the deliveries fall stemmed mainly from "paranoid" inventory cut­backs by US retailers - … снижение объема поставок главным образом объясняется «неуёмной» тягой американских розничных торговцев к сокращению товарных запасов

 

 

VOCABULARY CHECK

1) Реклама и создание благоприятных условий для продажи товара на рынке – вот главные компоненты успеха любой компании.

2) Рекламная кампания – это реклама товара в различных средствах массовой информации.

3) Одной из основных целей рекламы является стимулирование спроса на товар.

4) Компании тратят больше средств на рекламу своей продукции еще до момента продажи ее на рынке.

5) В определенное время года компании предоставляют скидки с тем, чтобы сократить запасы товаров.

CASE STUDY:

Chinese Imports Prompt Posco Discounts

Posco, the world's fifth-larg­est steelmaker, said yester­day it would slash domestic prices of its 13 steel products by up to 17 per cent next year to better compete with Chinese imports.

The South Korean com­pany's move comes just a month after Chinese rival Baosteel announced a price cut of at least 10 per cent for the first quarter of next year to offset the impact of over­capacity.

"The price cuts are aimed at protecting the local mar­ket from the relentless attack of Chinese exports," Posco said.

Steel prices generally have been under increasing pressure in recent months because of a sharp boost in production in China. The China Iron & Steel Associa­tion expects steel capacity on the mainland to reach 490m tonnes this year, fuelled by booming construc­tion and car markets.

Posco, which earlier this month announced price reductions of up to 20 per cent for its stainless steel products, said yesterday it would cut prices of cold-rolled steel plates and hot-rolled coil products by 4-17 per cent from January.

Kim Kyung-jung, an ana­lyst at Samsung Securities, expected the move to reduce Posco's profits by $1bn next year, with earnings per share forecast to drop 43 per cent, after a 14 per cent rise this year.

"Inventories are rising due to increased output from China," said Moon Jung up, analyst at Daishio Securi­ties. "But prices may go up slightly in February or March, as global steelmakers, adjust their output."

Posco's latest price cut could put further pressure on global steel companies, which are already facing rising raw material costs.

Australia's BlueSeope warned in November that profits for the year would drop sharply because of steel from China spilling over into other markets, especially in Asia.

Analysts expect iron ore prices to keep rising next year, but coking coal prices to fall back, following this year's unprecedented price rises.

South Korea's Posco, which sells more than 70 per cent of its output at home, expects next year net profit to increase 12 per cent to $4.2bn.

 

TRANSLATION NOTES:

…with earnings per share forecast to drop 43 per cent - (См. часть Ш, раздел 4, § 3)