LG Establishes an Air-Conditioning Joint Venture in Saudi Arabia
Apr 11, 2006
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LG Electronics (LG), a leader in consumer electronics and mobile communications, and Saudi partner H.G. Ibrahim Shaker plan to establish the LG-Shaker Air-Conditioning Company.
H.Y. Nho, head of LG Electronics' Air-Conditioning Division, said, "Saudi Arabia is the biggest market in the Middle East. LG will build the complete local business system from the product development stage to sales. We plan to further strengthen our global network of air-conditioning business by utilizing all regional production facilities, including the plant we will build in the country. After the completion of this new air-conditioner production facility in Saudi Arabia, LG will have nine air-conditioner production facilities located in all major home appliance markets around the world."
H.G. Ibrahim Shaker is LG's biggest partner in its air-conditioner business in Saudi Arabia. The initial investment volume for the joint venture is U.S. $5.5 million. The joint venture will invest $30 million by 2010 in plant construction. The new air-conditioner production facility is being constructed in Saudi Arabian capital Riyadh's 2nd Industrial City. It is set to open in the first half of 2007. The plant is expected to have an annual production capacity of 250,000 units by 2008.
LG Electronics plans to utilize the new facility as a foothold to move forward into the Gulf Cooperation Council (GCC), which consists of UAE, Qatar, Bahrain, Oman, Kuwait, and Saudi Arabia, by developing and producing localized products at competitive price while saving on expenses such as distribution costs and customs duties.
The Saudi Arabian air-conditioner market is growing at an average rate of 7 percent annually. The market size was $400 million last year, and is expected to be $450 million this year. The market size is further expected to grow to approximately $700 million in 2011. Last year LG's market share in the country was 19 percent. The company aims to hold 22 percent of the market in 2006 and 30 percent in 2011, solidifying its No. 1 position in Saudi Arabian market.
LG currently operates air-conditioner plants in Turkey, India, Thailand, Brazil, China, and Korea. It signed a technological alliance contract in February with its Iranian partner 'Gold Iran' to build a plant in Iran. Production sites in Turkey and India supply the European and African markets, the plant in Brazil provides for the North and South American region, and the plant in Thailand serves the ASEAN Free Trade Area (AFTA). Additionally, the Korean plant functions as LG's air-conditioning technology global research and development center, while the plant in China focuses on the domestic market.
When its ninth plant in Saudi Arabia begins operations, LG will have the strongest global air-conditioner production network in the world. Local plants in Saudi Arabia and Iran, the region's two biggest home appliance markets, will allow LG to secure market leadership in the Middle East.
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