Korean company LG Electronics announced on Monday that it had done a reorganization of its mobile phone division to increase efficiency and sales by outsourcing its low to mid-end smartphones, in a direct move analysts to significantly cut costs and compete with its competitors.
The fortunes of the mobile communications subsidiary of the company have been on a downward spiral for over five years, with operating losses reported for 22 consecutive quarters, and this has led to a new management direction and the choice of Original Design Manufacturer (ODM), a spokeswoman for the company said (via).
LG had said last year that it will expand ODM to its mid-range smartphones from just low-end smartphones. The company will now outsource the design and manufacture of its smartphones, while still maintaining the LG brand name on the products.
LG has also jettisoned some of its research and production positions and realigned others to fit with its new business model, which may imply redundancy for a segment of the company’s staff. The move is part of plans to rely more on LG’s in-house research and development and production of high-end smartphones, with low and mid-end ones to be produced by ODM.
In 2013 LG was ranked No. 3 in the global smartphone market by Strategy Analytics, seven years later, the company is not even among the top seven OEMs, indicating massive regression in turnover and market share over this period, with Chinese brands like Huawei, Xiaomi, Oppo and Vivo, taking preeminent positions at the top, research firm Counterpoint stated.
Further illuminating the scenario, the research firm states that LG knows it is competing with Chinese competitors, not Apple or Samsung, and it is seeking to add to its lower-end models’ value by using Chinese original design manufacturers, according to Counterpoint analyst, Tom Kang.
Going further, Kang states that even if LG outsources the production of that segment of its products, without the requisite marketing ability, it is bound to come short against Chinese tech firms who have a better marketing strategy.
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