From a Polish city, LG keeps Europe supplied

Industry

From a Polish city, LG keeps Europe supplied

Published: 13 Sep. 2011, 22:29

Workers assemble LG Electronics flat-screen TVs at the Wroclaw plant in southwestern Poland, the manufacturing locale for the company’s flat-screen TV, refrigerator and washing machine production and sales in Europe. Provided by the company

WROCLAW, Poland - This small, pleasant city in southwestern Poland is little known to most Koreans. But Korea is not a stranger to Wroclaw.

In this city full of history and architecture on the River Oder, you cannot miss the “LG Cluster” where LG Electronics, its display, chemical and light-emitting diode (LED) affiliates and its partner companies operate plants.

On this vast, 1.55 square-kilometer site, they roll out flat-screen TVs of many sizes and types, including 3-D TVs, refrigerators and washing machines that are sold across Europe. At least one-third of LG Electronics’ sales are on this continent, so to better market their products in Europe, this cluster was set up in October 2005 and began production a year later.

For LG, the Wroclaw plant is the advance base for its Europe battlefield. But the plant also bears quite a bit of significance for Poland. It was the first production plant of a foreign firm to be established after Poland joined the European Union in 2004.

The cluster now employs nearly 13,000 people, and LG is the biggest consumer electronics brand in Poland by sales.

“In the past, there were only a few Koreans in Poland but with the emergence of the cluster, more Korean businesses have made inroads into the country,” said Seong Jun-myeon, the president of LG Electronics Wroclaw.

LG touts the cluster as an exemplary case of a large manufacturer and its smaller partners successfully penetrating a foreign market, working together from the initial stages and seeking joint growth.

Here at the LG cluster, some 3.2 million flat-screen TV sets were produced last year. Three-dimensional TVs represented about one-third of that production, but LG says they will account for more than half this year.

Meeting with reporters on the sidelines of the IFA consumer electronics show that wrapped up a six-day run on Sept. 7 in Berlin, Havis Kwon, the executive vice president of the home entertainment division at LG Electronics, said LG will claim the No.1 spot in the world 3-D television market next year.

The cluster also has an annual production capacity of one million refrigerators, up from its earlier capacity of 300,000, as well as one million washing machines. That expansion of the complex began production on Sept. 2.

Why Wroclaw?

Situated in the center of Europe, Poland is an ideal logistics hub. That realization also prompted LG’s rival, Samsung Electronics, to set up a production plant in Poznan, taking over some of the manufacturing facilities of a Polish home appliance company called Amica in 2009.

“Before, when we responded from Asia, it took us 35 days to transport the products to Europe. But now it takes us no more than five days to transport products to anywhere in Europe,” LG said. “The time that products sit in stock is also reduced by 20 percent.”

It takes only four hours to truck products from Wroclaw to Prague, five hours to Berlin and six hours to Vienna.

Wroclaw has created a designated economic zone and the local government is keen on attracting foreign investment, offering many incentives.

Seong says that “LG has so far received $35 million in tax refunds for its contributions to investment and employment and is entitled to $31 million more by 2016.”

Wroclaw also offers high-quality talent. Home to 23 universities, 24,000 university graduates come into the market every year, including 2,000 trained in research and development.

Localization is the key

LG had its share of trials and errors with its Wroclaw plant. The Korean management demanded heavy work loads, failing to understand the local work style, which strictly adheres to 7 a.m. to 3 p.m. hours for manufacturing jobs and 7 a.m. to 4 p.m. for administrative jobs. As a result, the plant was the target of fierce media criticism in its early years.

Evaluation-based incentives were also a new concept for the workforce, where communism fell only in 1989.

But things began to change under Seong’s leadership. He has run the Wroclaw plant since 2008 after having worked in LG’s India plant for 10 years.

He puts localization before anything else, he said. His philosophy is that “localization begins with the ground breaking for a plant.”

“We transformed the cluster into a local organization,” he said. “We gave greater duties and responsibilities to local employees, and that induced higher dedication and commitment.”

The efforts seem to have paid off. The 700-member union disbanded within a year, and the Wroclaw plant is the best-performing LG plant for on-time delivery and production plant accuracy among the company’s 30 overseas plants.

And the location near major European markets has been a boon for LG. The company’s flat-screen TV sales in the European market surged to 9.71 million sets last year, up from just 1.82 million in 2006.

Given the debt crisis in Europe, LG acknowledges that this year’s sales won’t be as good as last year’s $1.8 billion in revenue. Nonetheless, LG’s “Wroclaw drive” continues. The company is now adding a new line where the finished products of LG Electronics and the components of its affiliates and partner companies will be assembled jointly, with plans to add more such lines in the future.

“LG will invest a total of $70 million in the Wroclaw plant by 2015, with plans to strengthen its position as the home appliance hub for the European market,” LG said.

By Kim Hyung-eun [hkim@joongang.co.kr]