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.