The Telegraph
Since 1st March, 1999
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LG local operations come under a cloud

New Delhi, March 17: An 11-day misadventure and a battle for supremacy among sister entities have sparked a controversy over Korean chaebol LG's operations in India.

On January 1 this year, LG CNS, a Korea-based group company, signed a three-year, renewable sole licensing agreement with India Household and Healthcare Ltd (IHHL) to import, market and distribute a range of computer and IT-related products.

Eleven days later, the deal was scrapped coinciding with the government's decision to withdraw the Press Note 18 under which foreign companies establishing wholly-owned subsidiaries in India in the same area of business were required to seek a no-objection certificate from their partners in existing joint ventures.

LG CNS had said the deal had been scrapped because of an internal dispute over the use of the LG logo.

The issue has since snowballed into a major controversy ' the first since the withdrawal of the Press Note 18 ' with IHHL securing an injunction from Madras High Court on the use of the LG logo to sell computer peripherals and networking products.

The injunction against the termination of the contract was obtained by Nalini Chidambaram, senior counsel for IHHL. The battle over LG operations in India has been brewing over two months but it conceals a deeper controversy over the sibling rivalry that has been raging among LG entities in India.

LG has three operations here but it is best known for its television sets, washing machines, airconditioners and refrigerators, a profitable business that comes under wholly-owned subsidiary LG Electronics India (LGEIL).

The two other operations ' for FMCG products and computer and IT-related products ' are run by IHHL under licensing contracts, which have since been scrapped.

The buzz in the grapevine is that LGEIL, which is managed by K. R. Kim, has been seeking to gain some say over the way all LG entities operate in India. Being the largest LG operation here, Kim and LGEIL had reportedly insisted on a prima donna status.

Sources say Kim had called a closed-door meeting of IHHL officials and told them unequivocally to accept the termination of the contracts.

Kim could not be contacted to comment on recent developments. Officials said Kim was away in Korea. 'LGEIL will not comment on the issue. We have nothing to do with the two other subsidiaries,' they added.

LG has a third business operation in India which handles soaps and shampoos. This is also run by IHHL under a licensing deal, which was signed in May 2004 and scrapped on February 5 this year ' another victim of the Press Note 18 withdrawal.

'Multinationals such as the LG group Korea can't just get away by signing contracts and inducing the Indian partners to invest several crores on the strength of the agreements. They will have to honour the commitments and also make good the losses suffered. Otherwise, the courts will come to the rescue of the Indian partner IHHL,' Nalini Chidambaram said.

'It is utterly shocking that they unilaterally asked the Indian partner IHHL to silently accept the termination without recourse to any compensation,' Chidambaram said.

IHHL has claimed that the licensing agreement was cancelled by trotting out an excuse that there was an internal dispute over the use of the LG logo. Chidambaram said the excuse for not using the logo for the computer and IT-related products was a smokescreen created to dump the Indian partner.

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