Korean Car Industry.

University Degree Business and Administrative studies

MG 611

Dr. Linda Carr

First Individual report

Park, Jaeyong

January 28th , 2004

Introduction

Korean Car Industry began in 1970’s. Back then we couldn’t make anything by ourselves. We didn’t have technology, source and know-how. But we tried hard to make good cars. The Korean car history is not very long, they somehow made their way up until now and I want to introduce the brief history of Hyundai Motor Company, the leader in the Korean Car Industry.

Hyundai Motor was established in 1967 by the Hyundai group. However, for a long period it was just producing cars based on the design supplied by Ford UK. The first self-developed model was the 74 Pony, but under the guidance of Mitsubishi. Engines also came from the Japanese design, while the styling was penned by Italian design. The car earned Hyundai the name as the biggest Korean car maker which is still unchallenged today. The second generation Pony of 1982 marked another milestone: the first large scale export. Like the Japanese, Koreans industry was (and still is) very export-oriented. The Pony small car, benefited by the wage advantage of Korea labors, stormed the Canadian small car market in 1983. The world started to realize the rise of another Eastern car making nation. The first self-designed engine appeared in 1991, which signaled the “real” autonomy of R&D. Sales continued to grow in the whole 90’s as model range expanded and quality improved.

In year 2000, Hyundai sought a strategic partnership with DaimlerChrysler - the new owner of Mitsubishi - by selling 10% stakes to it. This should secure the survival of the Korean No. 1. Somewhat like Japan’s Mitsubishi and Subaru, Hyundai Motor is part of the giant Hyundai group whose variety of business monopolies the economy of South Korea. The car division is also proud to be the Korea No. 1 car maker, easily beating the second place Daewoo. The drastic economy recession in 1998 dropped its domestic demand shortly, but in fact the benefit to Hyundai was more than loss, since the No. 3 car maker Kia bankrupted and was then absorbed by the No. 1. This further strengthens Hyundai’s position as the strongest Korean car maker. After the becoming one company with Hyundai, Kia kept up with the industry and now both domestic and export sales are increasing. Together with Hyundai Motor, Kia Motors is committed to becoming one of the global top 5 automakers by 2010. To this end, the company is focusing all its resources on the improvement of business profitability, quality competitiveness, and productivity.

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Table 1: Total Production and Sales

New Globalization Strategy: Niche Market Player

The new trend of internationalization by Hyundai motor is expansion of knockdown kits and/or joint venture’ investments in the less developed countries of the automobile industry to avoid intensifying trade friction. Two parallel patterns of Hyundai activities are likely to continue. On the one hand, they will continue to be heterogeneous forms of enterprise, namely project-based collaborations, licensed manufacturing or joint ventures. On the other hand, Hyundai motor founded transplant through the acquisitions of local existing car assemblers. Hyundai motor started mostly in ...

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Table 1: Total Production and Sales

New Globalization Strategy: Niche Market Player

Table 2: Overseas Manufacturing sites of Hyundai

The new strategy by Hyundai is the access to emerging markets that may include the need to overcome tariff and/or non-tariff barriers. Since 1990, Hyundai move from a worldwide export strategy to a multi-domestic structure based on manufacturing sites in the different regions. In the second half of the 1990s, the international structure of production appeared to be based on an axis between two regional poles:

One new pole of integrated activities in Southeast Asia, extended to China, Europe and Africa.
One new pole in Latin America based in Venezuela.

Therefore, the internationalization of automobile manufacturing by Hyundai started mostly in periphery regions. Hyundai’s CKD(Complete Knockdown) plant in Botswana is the only assembly plant of foreign automakers in Botswana. It has an annual capacity of 40,000 units. In 1996, Hyundai was producing about 15,000 units on an SKD(Semi Knockdown) basis with South Africa absorbing 95% of the output.

The internationalization strategy of Hyundai is characterized by a niche-market strategy. This means that the overseas production site is limited to the periphery area, which does not have the hard competition of advanced automakers. They have been able to increase Hyundai’s overall market penetration despite increased import barriers or raise dumping charges against foreign-made cars. This strategy involved the decision to integrate Southeast Asia operations in terms of products and manufacturing. Ultimately, Hyundai created a single vehicle, launched in India in 1998 and the following year in Indonesia and Thailand. An organizational structure is emerging which is based on three world regions: Asia, North & South America and Europe. Hyundai has made significant regional advances as far as it Asia-Pacific operations are concerned, as it has attempted to coordinate the activities of its various subsidiaries spread out among the ASEAN countries, creating a regional division of labor, and linking the factories in India and Indonesia into a network of global sourcing of components and parts. Hyundai continues to expand in markets it has already entered and influences through its exports, with the internationalization of its sales, based on the existence of sales and the after-service network as a basis upon which to make investments in production.

For achieving the company goal as mentioned above, I researched the Indonesia in economic situation, political situation, culture, labor market, and government policy for automobile industry. When I worked in Hyundai, the East Timor tried to become independent from Indonesia. But Indonesian government didn’t allow the East Timor to become independent. Then they had war. In that time, my primary work was to collect information about war situation and other economic indicators and then conducted the impact study. Finally, I reported to senior managers in Korea and vice president in Indonesia. I think when the senior manager or top manager decided the market strategy about Indonesia; my works help them to right decision.

SWOT analysis

Strengths

Diversity of manufacturing and R&D that lets Hyundai make cars more profitably than most of other carmakers.
Niche Market Player: Hyundai has more experience than any other carmakers in the less developed country and small demand markets.
Flexible manufacturing system gives it an advantage over most of the carmakers.
A global reach that stretches from Brazil to China. Hyundai sells more abroad than at home.

Weaknesses

Insufficiency of high technologies for the future.
Poor Brand reputation in main export market.
Hyundai depends on North America for 65% of its profits.
Dispute with labor union about wage and work condition. The wage is increasing almost 10% in every each year.
Hyundai is unable to spread its fixed costs for engineering, technology, and marketing over a huge volume of vehicles.

Opportunities

Demand for car is growing rapidly in Asia and Latin America markets. Specially, Chinese automobile market is becoming the biggest and most profitable market in the world.
Customers start to be satisfied by quality of Hyundai cars.
World economies begin to rebound.

Threats

The experts say that only big 5 will be survive in the automobile industry in near future. So many global automobile companies do merger or alliance with each other. The past year has brought vast change to the industry. The Daimler-Chrysler deal created a new giant. Ford snapped up Volvo. Nissan Motor reached out to France’s Renault for rescue.
The advanced automakers also try to do diversity their plant to niche market. It makes the niche market to more competitive.

Strategic recommendation

It may be that Hyundai motor access for niche market regions, Asia, Latin America and Eastern Europe, may need important strategic challengers. In response to the growth of the emerging markets, they should be equipped with modern technology and operate under modern management concepts in overseas plants in these regions. Also, they need to set up of the international supplier’s network.

To survive the fierce sales competitions in core markets, Hyundai motor should exert their best efforts to improve technology and quality. Quality and high technology are preconditions for survival. They also must improve their own image, which is a reputation for poor quality cars in the main export market. They can succeed with appropriate human resource development in order to improve quality.