Quality and cost are the trump cards of LG Chemical (Guangzhou)in its foray into the highly-competitive Guangdong market, its president Alba Bae proclaimed during an interview with China Daily.

Targeting the high end market, the company was set up in Guangzhou Development District (GDD) in July 2002 as a wholly-owned subsidiary of LG Chem, with its engineering plastic (EP) and ABS (acrylonitrile butadiene styrene) plants launched in May 2003 and July 2004 respectively.

Before the incorporation of LG Chemical (Guangzhou), LG Chem was exporting only a small amount of EP to Guangdong, where the world's top five EP makers, including itself, are in competition, Bae says.

EP and ABS are used in the manufacture of mobile phone casings, computers, home appliances, and car interiors, among other products.

"The plants in Guangzhou are our strategic base," he says, adding that output from Guangdong accounts for more than 40 per cent of EP sales on the mainland.

Guangdong enjoys advantages that other provinces do not, given its huge economy and strong manufacturing capacity, especially for IT products and home appliances.

Guangdong's GDP grew by 13.6 per cent to 1.35 trillion Yuan (US$162 billion) last year, accounting for 11.5 per cent of the mainland's GDP.

Added-value in the industrial sector rose to 635.81 billion Yuan (US$76.6 billion), accounting for about 11.9 per cent of that of the mainland.

The bulk of LG Chemical's EP sold in Guangdong is used in the production of export-bound goods while its ABS is used in the manufacture of domestically-sold products.

Its customers for EP include LG Electronics, Dell and Philips; and its ABS customers include mainland firms like Haier, Gree, Midea and Galanz.

A rough market figure for EP in Guangdong puts production at around 700,000 tons per year and that for ABS, at 1.7 million tons per year.

The market is expected to expand by at least 10 per cent annually.

The key to grabbing a larger share of this market, is providing quality at a low cost, Bae says.

The fact that many of LG Chemical's products are tailor-made calls for stricter quality control. To ensure growth, the company is planning to set up a research and development centre for the southern mainland market in two years.

Bae is proud of the fact that LG Chemical has managed to set its prices lower than its main competitors for 80 per cent of its products.

This has been achieved by sourcing raw materials locally, taking advantage of the mainland's lower labour costs and achieving higher productivity than in Korea and energy savings.

About 30 per cent of its raw materials, for example, are sourced from the mainland.

LG Chemical now has more than 1,000 customers on its books. To maintain them, its service staff ensure there is adequate customer support.

Having been with the firm since March 2003, Bae says the biggest challenge in the managing the company has been trying to understand Chinese culture and the mentality of the local staff.

Having been with LG Chem for 23 years, Bae says there are differences to be found in the way local staff approach their work. For example, he has found his Chinese staff tend to change their jobs more frequently.

To try to minimize the impact of this, Bae talks to his staff as much as possible to share with them the company's vision and to ensure that they are satisfied with things like salaries and staff benefits.

The firm employs around 110 people, including seven from Korea.

It is planning to trim this down to one or two Korean staff in two to three years time as part of the company's localization drive.

Its long-term plans are ambitious to say the least.

There are plans to boost its EP production capacity from the current 20,000 tons to 40,000 tons next year and to 100,000 tons by 2008.

ABS production capacity is planned to grow from 20,000 tons to 100,000 tons by 2008 as well.

Total investment to build the first phase of the EP plant is expected to be 95.93 million Yuan (US$11.6 million) and for the ABS plant, 48.79 million Yuan (US$5.9 million).

The success of the Guangzhou firm's efforts on the mainland has not gone unnoticed by the parent company, which has decided to set up an EP plant in Tianjin, in the mainland's northeast.

When completed, it will be LG Chem's second EP plant on the mainland.

It also operates another ABS plant in Ningbo in Zhejiang Province, located in the mainland's east.

Editor: Olivia