Samsung Electroincis and LG Electronics - two south korean digital product maker

Question

Samsung Electroincis and LG Electronics  - two south korean digital product makers -  recently announced plans to vertically integrate. According to industry sources, each firm is making the investments that are required to produce products such as cell phones and digital televisions in a self-sufficient manner. LG electronics plans to invest $30 million by 2010 to make this happen with the hope that the cost savings and reduction in risks associated with vertical integration justify the investment.

If you were a decision maker LG electronics would you have recommended vertical integration??? Defend your response

Explanation / Answer

If I were a decision maker for LG Electronics, I would recommend vertical integration because LG and Samsung are both digital product makers and can reduce costs by merging into one company. Not only can this reduce costs by having one distribution location, it will also help in transportation costs. In addition, this merge will allow two competing companies to become the dominant digital product maker in the market. The benefits for being the main distributor would bring the company more control over the market and more profit. If I were a decision maker for LG Electronics, I would not be concerned about the plan to invest $30 million for the merge. This initial investment may seem costly but the profit that will come from the merge will be greater.

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