Globalization of Hyundai

IntroductionSince its launch in 1967, Hyundai Motor Company(HMC) has led the automobile industry in Korea. In 1976 HMC produced its first original model, the Pony (with over 90 percent of parts sources locally), using a low-lost approach(around US$2,000). The successful development of this model resulted in HMC becoming the top car maker in Korea its market share rose sharply from 19 percent in 1970, to 58 percent in 1977.

With the rapid expansion of its mass production capacity, HMC developed a variety of models ranging for the Excel(1985), Stellar(1982), sonata(1985), and Elantra(1990). Canada, in which HMC opened a plant in 1983, was HMC’s first overseas market. The success of the Pony in Canada enabled HMC to make a significant market entry into the United States in 1986 with its competitively priced Excel. This model sold 168,882 cars.

Globalization effortsIn 1993 HMC outlined a long-term business strategy, the so-called ‘Global Top-10,’ whereby it aimed to be one of the world’s ten largest car makers by 2000. HMC aggressively expanded its production capacity in attempt to match that of other top ten global car makers.

This expansion was coupled with HMC’s globalization strategy. To enhance its cost competition and expand into new markets, HMC aggressively globalized its production systems, particularly in developing countries such as Turkey, India, China and Malaysia. HMC moved away from its dependence on the US market and sought to increase exports to other countries. As a result, its exporting market diversified from 65 countries in 1986 to 141 in 1994. HMC took over Kia Motors in 1998.

As a result, it became the world’s tenth largest car manufacturer in terms of production capacity in 1999.

With the establishment of its overseas manufacturing plants of HAOS(Turkey) in 1997, HMI(India) in 1998, and BHMC(China) in 2002 HMC has diversified operations with the establishment of a global production network. With the construction HMMA, its Alabama Plant, together with the Hyundai-Kia America Technical Center(HATCI), the Hyundai-Kia California Design & Technical Center and the California Proving Ground etc., HMC has now established a full-fledged global management system from product development, design, production, marketing and sales to customer service ensuring customer satisfaction on a global scale. In 2006, HMC has been accelerating its globalization with plans to expand its production facilities in China and India. HMC is has recently implementing a new global policy whereby all processes are localized.

This includes product development, design, sales, marketing and customer service to satisfy local customers’ tastes as well as that of the global market. “Our current strategy is to make cars based on each markets desires. You can’t sit back behind your desk in Korea and expect to know what people in China or USA are asking for. The only way to target these markets is by actually going there.” Says deputy general manager Ryu. Global automotive industry trends

The global automotive industry, increasingly characterized by global mergers and relocation of production centers to emerging developing economies, is in the grips of a global price-war. The industry is subject to imperfect competition which has resulted in too much of everything – too much capacity, too many competitors and too much redundancy and overlap. The industry is concerned with consumer demands for styling, safety and comfort; and with labor realtions and manufacturing efficiency. Here are some of the major trends that are reshaping the global automotive industry.

– Global production: There has been a large oversupply in the global auto market. In 2003, the global automobile production capability was 81 million cars while the market demand for automobiles was only 56 million. Nevertheless, during 2003-2006 manufacturers increased their production capacity by 5.5million cars. This trend is expected to intensify in the future as automakers continue to globalize their production, mainly to expanding markets, to take advantage of low labor costs. – Global Alliances: There is a trend of joint venture in the global automotive industry. Most of the giant automobile manufacturers are merging with each other.

The big 3 US automakers(GM, Ford and Chrysler) have merge with, and in some cases established strategic partnerships with European and Japanese automakers. The Chrysler Daimler-Benz merger, was initiated by Benz in order to strengthen its position in the US market. DaimlerChrysler and Hyundai Motor Co., had formed an shortlived alliance during 2001-2005 in which DaimlerChyrsler acquired a 10 % equity in Hyundai.

Overall, there has been a trend by the world automakers to expand by merging with other giant automotive companies in overseas markets. – Industry Consolidation: Increasing global competition amongst the global manufacturers and positioning withing foreign markets has divided the world’s automakers into three groups, the first being GM, Ford, Toyota, honda and Volkswagen.

The two remaining groups are attempting to consolidate or merge with other lower group automakers to compete with the first group companaies. Some anticipate that at some point in the future there will be only 6 major car manufacturers, 2 US owned, 2 Japanese owned and 2 European owned. – New Technology: Strengthened environmental regulations(e.g. Kyoto protocol), increasing oil prices and increased environmental awareness has lead the automotive industry to develop alternate fuel vehicles.

At the end of the 1990’s manufacturers devleoped technology to produce internal combustion engines with an electric motor. In 2001, Toyota and Honda started selling hybrid vehicles at retail value, and in 2005, Hybrids acccounted for 1.2% of all light vehicle sales in the US. Industry experts predict that the market for Hybrid vehicles will reach 5% of light vehicle sales by 2010.

Current issues at Hyundai- Global integration vs. Local ResponsivenessThroughout many years of experience, Hyundai has learned a valuable lesson about overseas markets: do not underestimate the diverse customer preferences around the globe. Ryu, who currently works as a manager in the global marketing team spoke about consumer divergence, based on Hyundai’s experience in the European, US and Chinese market. “Europeans are very economic people when it comes to cars.” he says.

To target Europeans, Hyundai had to develop fuel efficient diesel cars such as the ‘Lavita.’ The Lavita is a 5 seat hatchback available in 1.5, 1.6, 1.8L petrol or diesel engines. It has good sales records in Europe but has done poorly in the US or domestic market. One of the reasons European cars are smaller in size than in the US, is government policies that discourage people riding large cars. In contrast to Europeans, Americans prefer big cars with powerful engines. Americans have a special fondness for pick-up trucks, which are not popular in other countries.

The first Santafe model in America had to go back to the drawing board because the cup holders were too small to fit the large beverage cups that Americans drink in. Hyundai learned through experience that Chinese people are unique for their affection of red and shiny cars. Cars coated with chrome sell better than others. The old version of the Sonata sold better than the new model simply because it was more shiny and coated with chrome.

-Brand management-Quality ManagementHMC made quality management a priority since 1999. Since then lots of capital was invested in this area. As a result of continuous investment, IQS, VDS has increased dramatically since 2003. The problem is how further should we pursue quality? “Toyota was able to improve its quality with its TPS because there was a specific goal: the lexus. Hyundai needs to find such a goal.” says Deputy General Manager Lim.

-Environmental vehiclesAfter the huge success of the Prius, Toyota has planned the launch of a ultra-compact concept car called iQ, which was unveiled at the 2007 Frankfurt Auto Show. The iQ concept is equipped with miniaturized technology help free up interior space. The design is intended to place emphasis on low fuel consumption, maneuverability and environmental friendliness. It also features a panoramic glass sunroof.

Production will begin in Japan in late 2008 and is believed to be the first model in a series. iQ will be offered with a choice of two petrol engines and one diesel. CO2 emissions are anticipated to start at around 100g/km. iQ has been designed to meet Euro NCAP’s top five-star safety rating. A newly developed differential allows iQ to have a more compact engine. UK sales are scheduled to start in spring 2009 EU has set up barriers through placing strict restriction environmental policies cardondioxide. Technology is weak regarding Hybrids but not in fuel cell cars.