LG Electronics Inc. has turned its rivals into allies in an unlikely pact to win the budget appliance war and ward off Chinese competitors rapidly encroaching on the South Korean electronics giant’s premium turf.
According to sources in the electronics industry on Monday, LG will begin selling washing machines and refrigerators co-developed with Chinese electronics companies under its own badge in Europe later this month.
It has collaborated with Skyworth Group Co. to develop a washer with a drum capacity of 9 kilograms and AUCMA for a top-freezer refrigerator, sources said
It is the first time for the South Korean electronics giant to teamed up with Chinese companies to develop home appliances.
LG led the design and development of products, joined by its Chinese partners that are fully in charge of product manufacturing under a joint development manufacturing (JDM) deal, different from an original equipment manufacturer (OEM) contract, in which a designing company outsources its manufacturing to another company.
Through this unexpected alliance, LG plans to win a pricing war while maintaining the brand reputation and quality associated with its mid- to low-end models, according to sources.
AUCMA plant The company sees the move as a way to regain ground in the growing budget segment after years of focusing on high-end appliances.
“LG is rolling out new models that offer strong value for money, backed by LG’s brand power for quality,” said an official from the industry.
QUALITY AT A COMPETITIVE PRICE
The move follows LG’s strategic pivot last year from a premium-focused strategy to a dual-track approach that adds budget product lines, amid sluggish global demand for high-end appliances.
Last year, the Korean electronics giant reported 1.6 trillion won ($1.2 billion) in operating profit for its core Home Appliance & Air Solution (HA) business, halving from 2021 when the division posted 3.3 trillion won in profit.
During that time, LG lost ground to Chinese rivals in the low- and mid-range appliance segment, where demand held up better as consumers scaled back spending.
(Graphics by Daeun Lee) By contrast, operating profit at China’s No. 1 home appliance producer, Midea Group, jumped 39% to 8.9 trillion won over the same period, driven by demand for its reasonably priced, decent-quality products not only in China, but also across Europe, Latin America and Southeast Asia.
Under its current production system, it’s nearly impossible for LG to match the prices of Chinese-made products.
The JDM partnership with Chinese companies is the result of LG’s extensive efforts to find a way to compete in the budget appliance race against its Chinese rivals.
While Skyworth and AUCMA are not direct competitors to LG, they are known for producing competitively priced, quality products.
Skyworth is a mid-sized company selling its own brand appliances while manufacturing for its peers. AUCMA is one of China’s top 10 refrigerator producers.
Skyworth's headquarters building The industry considers LG’s JDM deal as a smart move that allows it to boost price competitiveness without compromising its brand power, as it leads product design and development.
“LG has opted to stay involved in everything except manufacturing to protect its brand image from any potential quality issues tied to low-cost products,” said an industry official. “If the plan unfolds as intended, LG could gain control over the massive global mass-market appliance sector.”
EUROPE AS A LAUNCHPAD
The shift doesn’t mean LG is abandoning the premium segment.
It will continue to focus on upmarket products in Korea and North America, while expanding its budget offerings, co-developed with its Chinese partners, in Europe, China, Southeast Asia, South America and Africa.
Its existing production lines will focus on manufacturing mainly premium models, while its Chinese allies produce budget models.
Europe will serve as the proving ground for LG’s new approach.
The region’s low- and mid-range appliance market is currently dominated by Chinese and Turkish brands such as Vestel, Arçelik and Beko.
(Courtesy of LG) While LG has previously promoted artificial intelligence-powered premium appliances in Europe, rising demand for affordable machines – especially in Eastern Europe and among lower-income households in developed countries – is reshaping the market.
LG will market its new budget refrigerator and washer models in Europe at about $500, each, slightly higher than the similar capacity model offered by China’s Hisense at $400. LG will also provide after-sales (AS) services for its budget products, the company said.
If the European rollout proves successful, LG plans to expand the JDM strategy to China, Southeast Asia, South America and Africa.
It also considers producing other low- to mid-tier appliances, such as air conditioners and dryers, under a JDM deal.
BUDGET APPLIANCE PLANT IN BRAZIL
To support this push, LG is building a new 400 billion won plant in Paraná, Brazil, which is expected to churn out mid- to low-end refrigerators to meet growing demand in the country’s mass-market segment, sources said.
(Courtesy of LG) Despite being the world’s sixth most populous country, Brazil’s home appliance penetration remains relatively low, and most purchases lean toward economy models. Refrigerators classified as “volume-driven” products account for 70% of the local market.
Until now, LG has imported most budget appliances into Brazil from its plants in Indonesia and Vietnam, limiting their competitiveness due to shipping costs and tariffs.
With the new plant, LG plans to develop locally tailored products at lower prices.
CHINA EYES HIGH END
Still, LG should not drop its guard in the high-end appliance market, as Chinese players are accelerating their foray into the market currently controlled by LG and Samsung, industry observers said.
Industry analysts say Chinese brands are following the same playbook that LG and Samsung once used to unseat Japanese electronics giants: to offer high performance at low prices, then gradually move upmarket.
Especially, Midea and Haier have thrown the gauntlet against the Korean leaders in the premium segment in Europe with their upscale sub-brands, Colmo and Casarte, respectively.
Midea’s premium brand sales jumped 55% in the first quarter.
(Graphics by Daeun Lee) Their growing presence in Europe, the heart of the global high-end appliance market, underscores their ambitions.
According to the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME) on Monday, China’s exports of electronics rose 14.8% year-on-year to $128.6 billion in 2024.
By region, its shipments to South America rose 33.1% over the same period, followed by Southeast Asia with 19.9%, Africa with 17.9%, the Middle East with 16.6% and Europe with 15.5%.
Chinese robot vacuum cleaners are gaining global popularity – even with higher price tags – while China-made built-in appliances are now outperforming many global rivals, analysts said.
The fast ascent of Chinese electronics is largely driven by significant advancements in their technology, industry observers said.
Haier now holds 17% of the US electronics market after acquiring General Electric Co.’s appliance business for $5.4 billion in 2016. It also acquired Italian appliance brand Candy in 2019.
Hisense took over Gorenje, the largest electronics company in Central Europe, in 2018.
Write to Chae-Yeon Kim, Eui-Myung Park and Jeong-Soo Hwang at why29@hankyung.com Sookyung Seo edited this article.
