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LG Reorganizes Its Loss-Making Smartphone Business And Will Outsource Its Lower-End Models


LG Reorganizes Its Loss-Making Smartphone Business And Will Outsource Its Lower-End Models
South Korean tech giant LG Electronics has decided to reorganize its mobile phone business unit and is set to increase the role of outsourcing for manufacturing of its mid-end smartphones, the company said on Monday. According to analysts, this step by the company is strategy by it to bring down costs so that it can complete with its Chinese rival smartphone makers.
For a long time, the mobile communications business of LG has been struggling with the division reporting an operating loss for 22 straight quarters. Through this reorganization, LG has created a new management title for original design manufacture (ODM), said spokeswoman for the South Korean tech giant.
This measure essentially means that the designing and manufacturing of some of the smartphones would be done by the third party while the LG will simply be putting its logos and labels on the finished products and sell them in the market as its own.
The spokeswoman said that in addition to completely eliminating some of the positions in its research and production functions for smartphones, the company has also reshuffled a number of other roles. This is part of an effort of the company to focus its in-house research and development and production on development and manufacturing of its premium smartphones while third parties will be designing and manufacturing the company’s mid-end smartphones through outsourcing agreements, she added.
According to data from Strategy Analytics, LG was the third most purchased smartphone brand in the world till the first quarter of 2013. However, in the third quarter of this current year, the company does not rank even among the first seven smartphone companies of the world as it had consistently conceded its market share to its Chinese rivals that include the brands such as Huawei, Xiaomi, Oppo and Vivo, according to data from research firm Counterpoint.
"It knows it is competing with Chinese competitors, not Apple or Samsung, and it is trying to add to its lower-end models' value for the price, by using original design manufacturers that Chinese firms use," Tom Kang, an analyst at Counterpoint, said. "But even if LG sources its products, without marketing ability, it cannot win against Chinese firms who are good at it," Kang added.
Plans of the company to expand its original design manufacture agreements, which currently are limited to just the company’s low-end smartphones, to include its mid-range smartphones line-up, LG had said in October last year.