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Case Study - Hyundai: Leading the way in the global car industry The global car industry is one

of the largest and most internationalised business sectors. There are 17 major global car companies, each of which produces over 1 million cars a year. The Hyundai Motor Company (Hyundai) is South Korea's number one car maker and the 10th largest in the world. It sells vehicles in over 190 countries producing about a dozen car and minivan models, plus trucks, buses and other commercial vehicles. Popular exported models in the United States are the Accent and Sonata, while exports to Europe and Asia include the GRT and Equus. During the global recession in 2008, while most car companies suffered steep sales declines, Hyundai managed to earn US$1.3 billion - putting it among the best performers in the global car industry. The industry In 2009 global car sales fell to near-record lows due to the global recession, which started in late 2008. Industry car profit has suffered due to significant excess production capacity. Although there is a capacity to produce 80 million cars worldwide, total global demand has been only 60 million a year. There have been some acquisitions throughout the industry with Jaguar and Land Rover being acquired by India's Tata Motors, and Volvo being purchased by China's Geely Motors. Consistent with new trade theory, the requisite scale compels car makers to target world markets, where they can achieve economies of scale and maximise sales. The industry in South Korea Korea is the largest emerging market in the Asia-Pacific region. Yet the car maker market in Korea is too small to sustain indigenous carmakers such as Hyundai and Kia. Thus, Korean car makers sell aggressively in foreign markets. Fortunately, Korea holds numerous competitive advantages in the car industry. The country is a world centre of new technology development. It has abundant, cost-effective knowledge workers who drive innovations in design, features, products and product quality. The country also has a high savings rate, with massive inward foreign direct investment, which ensures a ready supply of capital for car makers to fund R&D and other ventures. Collectively, Korea's abundance of production factors - cost-effective labour, knowledge workers, high-technology and capital - represents key location specific advantages. Korean consumers are very demanding, so car makers take great pains to produce superior products. Intense rivalry in the domestic car industry ensures that car makers and car parts producers improve products continuously. The Korean economy is dominated by several conglomerates called chaebol. They include Hyundai, Samsung, Daewoo, LG and SK, and account for about 40 per cent of Korea's GDP and exports. These large firms have expanded by borrowing from their own banks. The Asian financial crisis of 1997 resulted in the Korean government imposing stringent accounting controls on many of these firms. In particular, the manner in which the Daewoo group collapsed and the subsequent takeover of Daewoo Motors’ operations by General Motors (GM) has resulted in a rethink in terms of strategy and regulatory control in the car sector. The government cooperates closely with the business sector, protecting some industries, ensuring funds for others and sponsoring still others. The government promoted imports of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption. Partly due to these efforts, Korea is home to a substantial industrial cluster for the production of cars and car parts. Accordingly the nation benefits from the presence of numerous suppliers and manufacturers in the global car industry. In years past, Hyundai also benefited from a weak Korean won, making the prices for home and cars cheaper for customers in Australia, Europe and the United States who buy imported cars in their local currencies. Hyundai owes much of its success to favourable international exchange rates.

under which a buyer can return a recently purchased car if he or she loses their job within one year of purchase. marketing assets and the ability to overcome government-imposed obstacles. In response to these quality complaints. winning entry to China's huge commercial-vehicle market. Hyundai hopes its presence in the local showrooms will improve consumer awareness and drive sales in new markets. The Genesis was noted for its luxury touches. The firm has entered various collaborative ventures to cooperate in R&D. Hyundai uses FDI to develop key operations around the world. By the 1970s the firm had become a car company and began an aggressive effort to develop engineering capabilities and new designs.from low-cost suppliers. These allow Hyundai access to foreign partners’ know-how. To remain competitive. . The program even pays the customer’s lease payments for up to 90 days while they search for a new job. Geographical diversification In 1997 Hyundai built a factory in Turkey. while China. to the United States. Hyundai partnered with Daimler-Chrysler to develop new technologies and improve supply chain management. Jaguar XF and Cadillac CTS-V. an economy car with a US$4995 price tag. But problems occurred and the car fell from favour. design. Vietnam. Europe and North America. trumping industry favourites such as Audi A4. India.000 price. In 2002 Hyundai launched a factory in China. To guarantee control over production and marketing. Management chooses locations based on the advantages they bring to the firm. Owners who elect to keep their cars are not required to reimburse Hyundai. Japan and North America. manufacturing and other value-adding activities. and numerous other countries around the world. While Japanese car giants such as Toyota and Honda rely heavily on US sales for their profits. distribution channels. a visionary entrepreneur from a peasant background. A recent marketing innovation is the ‘Assurance Program’. Hyundai is more diversified. This car was an instant success. Next. Hyundai has superior cost advantages in the acquisition of high-quality inputs. high-quality labour in emerging markets. high-quality and US$33.000 units per year. capital. Hyundai also has regional headquarters in Asia. Hyundai is aiming for 20 per cent share of the Chinese car market. Buyer confidence waned in the late 1990s. It has distribution centres and marketing subsidiaries at various locations that deliver parts to its expanding base of car dealers worldwide. The Genesis was named ‘North American Car of the Year’ at the 2009 Detroit Auto Show. giving the firm convenient access to the Middle East and Europe. unprecedented in the car industry. Hyundai initiated major quality improvement programes and introduced a ten-year power-train warranty program. Taiwan. Hyundai opened a plant in India and within a few years became the country's best-selling brand of imported cars. electronics . The strategy was a major turning point for Hyundai. the Genesis. smooth ride. In addition to gaining access to low-cost. For example. The Excel suffered from quality issues and had a weak dealer network. Hyundai employs inexpensive labour and sources imports . Venezuela. Hyundai’s b rand equity weakened. Hyundai has internalised many of its own operations. The firm also has R&D centres in Europe. Compared to Japanese or Western rivals. Hyundai recently launched its first luxury model. Russia and Latin America represented a combined 35 per cent of its sales. In the 1980s Hyundai began exporting the Excel. which did little to dispel negative imagery or generate substantial new sales. and Excel exports grew to 250. By 2006 have established plants in Iran. tyres.engines. The firm also partnered with Guangzhou Motor Group. doubling production.Background on Hyundai Hyundai was founded in 1947 as a construction company by Chung Ju-yung. In 2008 the US market accounted for only 14 per cent of Hyundai’s total sales.

the firm slowed production of its Alabama plant in the United States and laid off hundreds of employees at regional headquarters in the United States. What are the roles of comparative and competitive advantages in Hyundai’s success? Illustrate your answers by providing specific examples of natural and acquired advantages that Hyundai employs to succeed in the global car industry. cost-control and customer satisfaction. factor conditions. perhaps Hyundai is the new standard bearer in the global car industry. energy efficiency. structure and rivalry. In terms of factor proportions theory. Hyundai has pursued internationalisation aggressively. Given its focus on quality. It also cut production by some 25 per cent at plants in Korea. location-specific advantages and internalisation advantages held by Hyundai. and replaced General Motors as the official car sponsor of the Academy Awards. what abundant factors does Hyundai leverage in its worldwide operations? Provide examples and explain how Hyundai exemplifies the theory. Discuss higher Hyundai and its position in the global car industry in terms of Porter's Diamond model.Recent events Like other car makers. Hyundai sees the crisis as an opportunity. But the firm continues to launch new marketing campaigns. 3. Source:This case was adapted from Cavusgil et al (2012. due to unwanted inventory. pp. with plans to emerge even stronger. described the ownership -specific advantages. Hyundai has improved quality and increased sales against all odds. What is the role of firm strategy. While many local firms struggle to stay afloat during a crisis.171-73) Case Study Questions 1. Consistent with Dunning’s eclectic paradigm. Which of these advantages do you believe has been most instrumental in the firm's success? Justify your answer . 2. Hyundai has also experienced problems with excess capacity. Hyundai is seeking to expand. In 2009. demand conditions and related and supporting industries to Hyundai’s international success? 4.