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HYUNDAI: LEADING THE WAY IN THE GLOBAL AUTO INDUSTRY

Questions 1-5

1-In South Korea, the population is not very high and so the demand for cars. In order to

sustain local automakers have to explore new possibilities, thus it is important for local players to

export to achieve the economies of scale and survive in a highly competitive industry. Many

competitive advantages are enjoyed by South Korea which produce a conducive environment for

automotive companies, such as:

 Availability of Cost effective labor

 Geographical diversification

 Highly skilled workforce

 Technological advancement

 Availability of Capital

Korea has seen the growth of many industrial clusters like those of cars and parts thereof

due to its congenial business environment (Ravenhill). The government has taken many steps

like providing easy credit, removal of import restrictions, and promoting various industries.

The comparative advantage for the same are as follows:

Demanding nature of consumers - The consumer society in South Korea is very

demanding which benefits the automotive companies. South Korea has emerged as a

major product testing ground due to its demanding consumers. This also helps a
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company in continuous improvement which provides comparative advantage over

competitors.

Exchange rate benefit- The weak exchange rate of Won has been beneficial for

Hyundai. Because of the favorable international currency rates, the exported cars’ prices

have been reduced. A weaker Won means higher operating profit for Hyundai as well as other

automotive companies based out of South Korea.

Effective Labor- Most of the labor in Korea is highly skilled and wages are also

low as compared to other nations, this provides an efficient and cost effective alternative

to automotive companies. Hyundai takes the advantage of this highly skilled labor force.

Industrial Cluster- By framing business friendly policies, Korean government

has managed to attract a multitude of businesses and has developed Industrial

clusters all across the nation. These clusters include manufacturers, distributors as

well as retailers. These industrial clusters have helped Hyundai in managing its

operations efficiently and thus giving it a competitive advantage.

2- (Kleinert 33-34)

FACTOR
PROPORTION
THEORY

EXPORT IMPORT

Excel Economy Abundant Required

Raw Material
Car Hundai Car Technology
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Factors favouring Hyundai in its global business are:

 Technology advancement both in manufacturing and servicing

 Highly skilled labor available at low cost and high savings propensity of citizens coupled

with high FDI inflow into South Korea will ensure Hyundai has access to abundant

capital to fund their R&D operations at low cost.

 Good educational institutes in South Korea provide highly skilled engineers to

Hyundai and other Korean carmakers (Campling et al.). Presence of many

component suppliers ensures continuous availability of tires, engines and

spare parts.

 Strategic partnerships with companies all over the world in the domains of

manufacturing and design, research and development and other value addition

activities. By doing this, they are able to access their partners’ technical knowledge,

supply chains and other assets.

3-In the competitive global market, maximum automakers like Skoda, Volkswagen, Ford,

Fiat, General motors, Hyundai, AG Daimler, Honda, Nissan and Toyota operate on lower profit

margins. This industry all around the globe has established big units and is now plagued with

underutilized capacity. If we take a look at the figures, production capacity is 80 million cars, but

the global consumption is around 60 million annually. So, car makers around the world utilize

only on an average about 75-80% of their total production capacity.

For Hyundai, the “10-year warranty” strategy was a major game changer, and using this

strategy they started building heavy duty and high quality vehicles which conformed to a certain

standard of quality. Providing high quality vehicles at low price enabled Hyundai Motors to

provide value to its customers. Through investment in Kia Motors, HMC got access to Kia’s
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technical know-how and R&D. Kia has managed to develop a technological infrastructure which

makes its R&D unparalleled coupled with skilled engineers, designers and management

professionals enabled the company to establish a firm hold on a loyal customer base.

Kia’s and HMC’s collaboration brought about synergy gains in terms of economies of

scale in purchasing and quality control processes, research and development, engineering

technology and marketing. R&D was the area which saw maximum investment by Hyundai

across Japan, Europe and North America. In order to gain competitive advantage, Hyundai must

scout for locations with availability of low cost inputs and source from multiple locations.

Hyundai also invests heavily in its global value chain operations and most of the investment by

Hyundai is done in the form of FDI.

Hyundai choses multiple foreign locations to gain out from the unique advantages each

one has. The company aims to develop high quality and technologically superior products at low

cost. In order to keep up with the pace, Hyundai is also developing environment friendly vehicle

technology to reduce its carbon footprint. Hyundai relies on market research to gauge the interest

of customers which helps the company in developing specifications for its products. If we look at

the domestic demand, it is 5 million units, however the company has production capacity of 5

million units which serve the export markets.

Exports became a necessity for Hyundai motors. After 1970s, when competition soared

Hyundai began developing its global engineering infrastructure and new globally inspired

designs. The company chose exports as mean to go ahead with its global ambitions instead of

going with FDI which it did when entering Canada. When entering US, company started

exporting its economical brand of cars with $4,995 price tag. The annual exports rose to 250,000

units due to a demand increase in the US market. Hyundai produces more than a dozen car
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models, from minivans to trucks and other commercial vehicles. Taking a look at the exports

data, we get to know that top exported models are Sonata, Accent and Elantra (Magee).

4- The Korean government has supported automakers like Hyundai, by enacting business

friendly policies such as setting up industrial parks, giving credit access to local companies,

providing protection by restricting imports in the country and also giving tax breaks. In case of

any firm going bankrupt, the government supports the firm by providing adequate funding.

However, consideration needs to be given to the following points:

Support by government to Hyundai (Green):

 Strict accounting policies and frameworks for industry

 Moving in line with business expectations

 Ensure low cost and continuous access to funding

 Sponsoring certain kind of industries

 Providing subsidies for import of raw material and capital machinery

How government can help Hyundai in future:

 Providing access to better technology at reasonable cost

 Investing in R&D which will be beneficial for all automotive companies

 Making it easier to access capital, reduction of regulation on acquisition of land,

provision of transportation and access to cost effective raw material

 Upskilling of labor by setting up more skill development institutes

What government can do in my country to support a strong growth in the auto industry:

 Easy entry and exit into the country, also allowing repatriation of profits

 Giving tax breaks and tax holiday to new enterprises

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 Setting of Automotive industry specific parks

 Providing funds for development of technology and automation

5- One of biggest benefit to Hyundai has been its investment in Kia motors, its

investment in Kia gave it access to technological advancements and research and development

know-how of Kia along with an increased production capacity. With all the technical knowledge,

Hyundai started setting up more plants across various locations, like one in Turkey in 1997, two

in India in 2000 and 2007, and one in China in 2002. These locations provided access to cheap

labor and inputs, along with geographical proximity to Europe and Middle East.

Taking its Global ambitions forward, Hyundai put FDI in those countries which provided

low cost inputs labor and access to better technology. These advantages played a major in

establishing Hyundai as a true Global player.

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Works Cited

Campling, Liam, et al. “South Korea's Automotive Labour Regime, Hyundai Motors’ Global

Production Network and Trade‐Based Integration with the European Union.” British

Journal of Industrial Relations, 2019, doi:10.1111/bjir.12506.

Magee, David. 2012 Hyundai Elantra: Why It Won Car of the Year Award. 15 Mar. 2013,

www.ibtimes.com/2012-hyundai-elantra-why-it-won-car-year-award-392868.

Ebert, Robert & Montoney, Mariel. (2007). Performance of the South Korean Automobile

Industry in the Domestic and United States Markets. The Baldwin-Wallace College Journal

of Research and Creative Studies. 1.

Ravenhill, John. “From National Champions to Global Partners: Crisis, Globalization, and the

Korean Auto Industry.” Crisis and Innovation in Asian Technology, 2003, pp. 108–136.,

doi:10.1017/cbo9780511610059.005.

Green, Andrew E. “South Korea's Automobile Industry: Development and Prospects.” Asian

Survey, vol. 32, no. 5, 1992, pp. 411–428., doi:10.1525/as.1992.32.5.00p0168x.

“Factors Proportion Theory.” The Role of Multinational Enterprises in Globalization, by

Kleinert Jörn, Springer, 2004, pp. 33–34.