Case- HYUNDAI-Ch5

Hyundai- Company
 No 1 car maker in South Korea and 10th largest in the world
 Sales nearly 190 countries
 Product- car, minivan, trucks, bus and other commercial vehicles
Born of HYUNDAI-
 1947- Founded by Chung Ju- Yung
 1970- Developed aggressively in auto industry
 The turning point of Hyundai through the issue of excel
Three Parties-
 Hyundai Motor Company
 The South Korean Government
 The automotive industry
Industry in South Korea-
 Hard to sustain automakers like Hyundai and Kia
 Demand for Korean customers
 Domination of currency- Chaebols
 Accounting control of the Korean government
 Benefit for Hyundai through Korean Currency
Hyundai and FDI-
 Turkey- Factory
 India- Plant
 China – Factory and Partnership
 Europe
 Iran
 Venezuela
 Vietnam
 Taiwan

What is the Case Problem?

 How has comparative and competitive advantages in Hyundai’s success?
 The Korean government has been instrumental to Hyundai’s success. In terms of
national industrial policy, what has the government done to support Hyundai?
 What can the government do to encourage future success at Hyundai?
 What can the government in your country do to support development or maintenance
of a strong auto industry?
 Firm’s success?
Comparative and Competitive Advantage-
South Korea is the country that enjoys different competitive advantages at national level
in the establishment of cars for example with the help of richness of production factors
i.e. labor that is cost effective, educated workers, highly technological machinery and way
of working, and high investment of capital. It is observed that there is very low demand in
South Korea to endure original automakers like HMC and Kia that is why for this
country, exporting is the necessity for South Korea to accomplish economies of scale so
that country will be competitive in a hard industry. These efforts shows that Korea is a
country that is significant industrial cluster for the manufacturing of cars and spare parts
of cars as well.
The competitive advantage that a company has refers to the factors that allow the
company to produce their product or service more cheaply than its rivals. Competitive
advantage allows the company to be more efficient by having a more productive
workforce or technology that helps it become more competitive in the marketplace.
Hyundai realized after their flagship vehicle sales began to fall in the 1990’s that quality
is one of the most important characteristics in selling their vehicles. They began to focus
heavily on making quality vehicles to the point where it became the company’s
competitive advantage. They also have access to more quality supply chain which allows
them to produce long lasting vehicles that can be more reliable than its rivals.
Role of competitive advantages are:
 Customer Centrality (customer loyalty associated with the brand)
 Marketing Innovations (Subsidies in different locations for Car part deals)
 Warranty Program
 Assurance in quality
 Geographic Diversification and presence of Product in the market
 production facilities in different geographical areas
 Diversified Collaborative ventures in R&D in Europe, Japan, North America
 Distribution centers across different countries
 Diversified Sales (not like Toyota)
 Low cost high quality labor
 Input resources Low cost high quality (engines and tires)
The comparative advantage that a company has refers to the ability of the company to
perform a particular activity more efficiently than another different activity. And by
having this comparative advantage, they have the ability to lower costs or increase
efficiencies which gives them the upper edge against competition. One of the comparative
advantages that Hyundai possesses is its workforce. The company located out of South
Korea has access to a low cost knowledgeable workforce when compared to other
companies such as the United States. So when Hyundai needs to compete in international
markets, they can use this comparative advantage of their low cost and knowledgeable
workforce to reduce costs and be more efficient in producing their costs
Role of Comparative Advantages are:
 Favorable Exchange rate (for manufacturing plants)
  Korean Government Cooperation and various subsidies like promote imports of
raw materials
 High savings rate and high FDI (low cost of funding supported by government of
South Korea)
 Cost-effective and skilled workers (Presence of Skilled workers in the Country to
increase competition)
 Consumers are demanding(Consumers are more demanding in South Korea as
compared to other countries)

Factor Proportion-
In order to operate effectively, Hyundai uses capital intensive production to support
international operations and their skilled workforce to support their local production. The
abundant factors For the factor proportions theory, this contradicts it since the company has
proved that they can compete more effectively by using both methods.
It is a clear fact that Hyundai is a company that is belongs to South Korea so that the
advantages that is experienced by the country itself the company will enjoy the same
advantages and it is a common rule. The advantages and disadvantages that a particular
economy faces then the global organization, which are operating in that country, will
definitely face the same advantages and disadvantages. This case is particularly for the
Hyundai as well, because Hyundai is experiencing advantages as educated labor, low-priced
wages, low cost of goods and materials that are used by the Hyundai as Input. These
advantages may be profitable for the Hyundai but as government of South Korea has
implemented certain restrictions on the imported goods that is why factor proportions theory
is continuously misused.
Theory related to Production:
This theory explains that countries are differing according to the possession of type, quality,
and quantity of factors of production for example Labor, Raw Material, land, and
entrepreneurship.
Theory that Hyundai is Operating:
As explained earlier that South Korea is experiencing high savings rate with the inflow of
high Foreign Direct Investment that is why the country is considered as the center of World
for new technology with the highly effective educated labor force. These advantageous
factors are adopted by the Hyundai in its operations and hence show technological
developments
Major Points-
 Hyundai appears to exemplify
 Excel in low cost and how quality cars
 Abundant factor in technology, cost effective workers and supportive suppliers
 Internationalization- more on exports than imports
Hyundai Position Global Car Industry
Hyundai has its main headquarters located in South Korea. This being a relatively small
economy when compared to the world, it is unique in that they are considered in the top ten
largest car manufacturers in the world. The company has grown rapidly in the last several
decades and now has factories in several regions throughout the world. The current demand
conditions are minimized since there seems to be a lack of purchasing new cars worldwide.
The company has to now compete with other manufacturers while having smaller margins to
deal with the lacking demand. Hyundai has had issues relating to quality control in the late
1990’s which hurt both their sales numbers and brand reputation. But the company faced this
problem head on and created a strategy focused on positive brand image and quality control
improvements which has led to great results. They created an industry first 10 year
powertrain warranty to create a sense of confidence from the consumers point of view. This
has led to more steady sales across the world and a new formed positive brand image built on
quality cars. The management of Hyundai are focused on steady growth for the company.
They are heavily focused on opening new factories only in regions where there is a need from
demand and favorable local factors. This allows the company to diversify into several
markets which will help the company survive in hard times. These factors have led the
company to gain market share in their industry while diversifying to decrease their risk in
slowing sales in the industry.
Hyundai Motor Company is South Korean’s no1 carmaker. It is the 10th largest in the world,
generating about $100 billion in annual sales.
Competitive advantages of the company in national level is the product are:
1. Demand- demand for specific products in the home market was huge
2. Factor condition- different factors such as cheap and skilled labor, national resources,
capital assets, technology advancement and the government support and subsidies
3. Related & supporting industries- refers to presence of clusters of suppliers, home
competitors, technological advance companies, and demanding customers
4. Firm strategy, Structure, and rivalry- refer to nature of domestic rivalry and condition in a
nation that determine how firms are created, organized, and managed
All of the above factors played important role in international success of the Hyundai
Government Support-
The government of South Korea has helped many of the large companies in the country grow
and prosper into worldwide conglomerates. This has led to the successful companies of
Samsung, LG, and Hyundai. The success of these companies is due to the government
focused on cooperating closely with the business sector and giving them favourable
conditions for worldwide competition. The Korean government has helped ensure funds for
businesses in need, established laws protecting some industries, and even sponsoring others.
In addition, and unlike the United States, the Korean government has promoted imports of
raw materials and technology instead of consumer goods while encouraging investment
instead of consumption. This creates a favourable business environment in the country and
has drastically helped large countries like Hyundai compete worldwide.
The Government has helped the company to develop the industrial structure that will be
favourable to development. The government has helped the company in the development of
infrastructure and production facilities according to world standard. The government has
encouraged the imports of raw materials for the industry and also enhances the technology for
the auto industry with the compromise of consumer goods. The government of South Korea
can open auto market to encourage the Hyundai. The government should attain access to
Chinese market and should keep current rules and regulations in practice. The government of
my country can integrate the environment of entrepreneurship and innovation and further it
can reduce the taxes and provision of loans at low interest rates to support the development or
maintenance of strong car industry
Government support to Hyundai:
 Strict accounting control over the industries
 Cooperate with business to protect the industry
 Ensure continuous flow of fund
 Sponsor the industry
 Subsidies in importing Raw materials

Things government can do in future to support Hyundai:

 Provide better technology
 Invest in R & D for innovation
 Provide more capital such as land, transportation & raw materials
 Trainings and skills for more effective labor culture

Things the government can do in your country to support development or maintenance

of a strong auto industry
 Freeze of issuance of new manufacturing license will be lifted
 Tax exemption in the manufacturing industry
 Automation and technology development funds
Firm Success-
The location advantages refer to the competitive advantages of the company seeking to
engage in foreign direct investment. Hyundai has focused heavily on investing in dominant
shipping locations that allows the company to have access to markets with strong and
growing demand trends. For example, the company has opened shipping locations in China
and India to take advantage of the growing middle class purchasing quality vehicles. This
gives them more opportunity to gain market share by being close to the strong demand
markets.
Ownership specific advantages include access to important finance projects, managerial
skills, and technical patent rights. Internationalization advantages that held by Hyundai
includes crossing of national borders without mutual sharing of profits with other foreign
based companies in the form of collaborative business. Location specific advantages that are
associated with Hyundai includes LSA built factories in Turkey and other Middle East
countries, other location benefits include Hyundai has built research and development centres
and has regional head offices in Europe, North America, and Japan. All the above conditions
are working for the favour of Hyundai hence, all are considered as instrumental for Hyundai.
Dunning Eclectic Paradigm
Framework introduced by Jon Dunning and company to follow to determine whether to
internationalize via FDI by analysing three conditions:
1. Ownership Specific Advantage:
2. Comparative advantage a company holds and owns within the industry, which allows it to
compete effectively in foreign market.
3. Internationalization Advantage
Benefits from internationalizing foreign manufacturing techniques, distribution patterns/
supply chain or other value chain like marketing techniques
4. Location Specific Advantage:
Every country have their specific core competencies which play a major role and also the
support of nation’s government which helps in increasing profit margins and also cheap
labour and culture play an important role in it.