LG a beacon of light amidst gloom

Ko Tae Yeon

Propped up by a robust business growth amidst macroeconomic difficulties, LG Electronics Vietnam Co. Ltd. continues to nurture its sustainable development in the local market with a longer term vision, as general director Ko Tae Yeon explains to VIR’s Thu Ha.

How well did your business perform in 2010 and what is your vision for 2011? –

We can foresee a very good business outcome in 2010 with 40 per cent growth in Vietnamese dong basis. This high growth rate is attained thanks to our customers’ good response to our products and also our staff’s contributions. Sales of LCD TVs saw the highest growth in our business, followed by air-conditioners as the second and mobile phones as the third.

For 2011, we target 30 per cent growth based on our internal aspiration and anticipated uncertainties. We have conducted many innovation activities to make our target possible, from investing in expanding factories to developing marketing and services.

Why did you set a slower growth for 2011?

There are many factors. Our business growth in 2010 is already very high and a 30 per cent rise on a larger volume is bigger than a 40 per cent increase on a smaller one.

Furthermore, in 2011 we will have to invest more in infrastructure because without  it business development will be very risky. This is one of our main concerns. The second is with the current exchange rate we do not have  strong expectations and must make a conservative target. I have challenged my members as it is not an easy target at all.

How has the exchange rate affected your business?

While having some production bases in Vietnam, we still depend on many key imported components which cannot be sourced from the local market. This year we have to import materials and components from Thailand, China and some other countries. The problem is while other regional currencies appreciate against the US dollar, the Vietnamese dong goes on a reverse trend.

When we import materials from Thailand, we have to pay more due to the baht’s appreciation. Meanwhile, when we sell products in the Vietnamese market, we receive payment in the depreciating dong and then have to exchange for dollars to pay for the imports. Thus we suffer from a dual effect. This is one of the biggest difficulties for us to consider. 

In our business scheme, every 4 per cent depreciation in the dong will take 1 per cent from our profit. So in all, our profit is eaten strongly by the dong depreciation. In term of business portfolio it is okay, but in term of management it is very tough. If we increase the prices then we will pass the burdens to our end-users and also from the competition view, we cannot hike the prices alone.

What about the impact of high interest rates?

Certainly we cannot avoid the burdens when borrowing from banks and having to pay high interest rates. We have tried to minimise the effect by accelerating our capital circulation velocity. But I do hope that the government may manage the exchange rate and the interest rate more properly to support manufacturers and the business sector as well.

Our mission as entrepreneurs is to find more local sourcing to manage the exchange rate risks. However, I think the government can do more to support the business sector by going down to find out their difficulties and devise some solutions to help them directly or indirectly.

Several foreign electronics manufacturers are scaling down their production in Vietnam and shifting into importing goods for domestic distribution. What is your view?

Frankly I am also considering this way because of its many benefits. It is more convenient and easier for us to import the products made by our factories in Thailand or Indonesia. But I have talked to my members it is our social responsibility to contribute the best to the society by creating more job opportunities here in Vietnam. In the short term maybe we will face some difficulties, but in the long term we will have to expand further.

At the same time, we will be able to convince our customers that we are not here just to make profit. By establishing factories and investing more in Vietnam, we can pay tax to the government, develop local expertise and create more jobs. LG in Vietnam is a Vietnamese company, so we have to give these LG factories to our young generation to utilise. That is part of our corporate social responsibility. That is why we are still trying to expand our investment in Vietnam.

Also we consider this is thus a short term challenge. Once the business environment is getting better and if there are some supporting programmes from the government, surely manufacturers will have more favourable conditions to grow.