Russian State Fund Seeks to Acquire Mobile Division of LG Electronics

On Feb­ru­ary 16, the Korea Times report­ed that Russia’s sov­er­eign wealth fund, the Russ­ian Direct Invest­ment Fund (RDIF), had expressed an inter­est in acquir­ing the mobile divi­sion of South Korea’s multi­na­tion­al elec­tron­ics com­pa­ny, LG Elec­tron­ics.  RDIF’s acqui­si­tion of the unit could offer Rus­sia a long-sought-after path­way to pro­duc­ing its own smart­phone for the domes­tic mar­ket.  Although an indige­nous prod­uct has not yet found com­mer­cial suc­cess, an estab­lished mobile phone man­u­fac­tur­er, like LG, could be effec­tive­ly pro­mot­ed with state-back­ing.  The acqui­si­tion of LG would also give RDIF con­trol of a mobile phone man­u­fac­tur­er that has a small but glob­al foot­print and, accord­ing to recent reports, approx­i­mate­ly 13% of the U.S. mobile mar­ket.

Russ­ian state con­trol over LG would like­ly not only increase the pres­ence of these mobile phones in the Russ­ian mar­ket, but also poten­tial­ly enhance Russ­ian enforce­ment of a new soft­ware install­ment law passed in 2019 that requires all smart­phones, com­put­ers, and smart tele­vi­sion sets sold in Rus­sia to come pre-installed with Russ­ian soft­ware.  For­eign elec­tron­ic retail­ers oper­at­ing in the Russ­ian mar­ket have resist­ed the new law, but ulti­mate­ly face expul­sion from the mar­ket if they fail to com­ply (the law came into effect in July 2020).  At present, LG has a mar­gin­al pres­ence in the Russ­ian mobile phone mar­ket.  Oth­er for­eign retail­ers such as Apple, Sam­sung, Xiao­mi, and Huawei col­lec­tive­ly hold approx­i­mate­ly 90% of mar­ket share (as of Q3 2020).

Although the Russ­ian gov­ern­ment claims the new law is intend­ed to help Russia’s domes­tic soft­ware indus­try, it is seen by many as a means for the Krem­lin to expand state sur­veil­lance tech­niques.  Along these same lines, the Krem­lin has also passed strict inter­net laws requir­ing search engines to delete some search results, mes­sag­ing ser­vices to share encryp­tion keys with Russ­ian secu­ri­ty agen­cies, and a require­ment for inter­net com­pa­nies to store data on servers locat­ed in the coun­try.

Glob­al com­pe­ti­tion in the mobile phone mar­ket has con­tributed to a sharp decline in the inter­na­tion­al sales of LG-man­u­fac­tured cell­phones, prompt­ing the South Kore­an manufacturer’s planned divest­ment from this busi­ness.  LG has stat­ed, how­ev­er, that the pos­si­ble deal could exclude LG’s tech­nol­o­gy and design-ori­ent­ed patents, a port­fo­lio that has drawn inter­est from multi­na­tion­als, such as Face­book and Volk­swa­gen.

RDIF offi­cials report­ed­ly intend to meet with LG coun­ter­parts before the end of Feb­ru­ary to fur­ther nego­ti­a­tions for the acqui­si­tion. RDIF is not the only poten­tial buy­er.  A Viet­namese con­glom­er­ate called Vin­group has also shown inter­est in the LG acqui­si­tion.