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HR Problems in Hyundai Motor Co.

Hyundai Motor Co., formed in 1967, was a part of the large South Korean Chaebol -
the Hyundai Group - until the group split in September 2000. In the last four decades,
Hyundai managed to establish itself all over the world as a company producing
reliable, technically sound and stylish automobiles.

In the 90s, the company started aggressive overseas expansion programs. By the late
90s, when Southeast Asian crisis struck, the company like all the other chaebols,
faced serious financial problems. To survive, it had to cut its labor force. The
company offered various retirement schemes, unpaid leave for two years, etc. to
workers, and expressed its inability to support its entire workforce in the slack period.
The unions refused to compromise and the management too held its ground. Finally,
the government intervened to force a negotiated settlement between the union and the

» Damage that unhappy management-labor relations can cause to an organization

The Hyundai Motor Co. (Hyundai), South Korea's largest automobile manufacturer
was in the midst of acute labor problems in the late 1990s and early 2000s. Until the
mid 1990s, Hyundai had been successful in handling South Korea's traditionally
disruptive labor unions. It had kept strikes at bay with nearly double-digit pay hikes
and other benefits. But the Southeast Asian crisis3 and the general slump in the
automobile industry in the late 1990s forced the company to restructure and cut down
jobs. However, the Hyundai labor union and workers rebel against the management's
efforts to restructure the organization and the company faced strikes and worker
unrest repeatedly from late 1990s to early 2000s.
Members of the Hyundai group4 such as the Hyundai Construction and Engineering
and Hynix Semiconductor were also facing financial troubles at the time, and were on
the brink of insolvency.
Founder chairman of the Hyundai Group, Chung Ju-yung commented, "We are losing
our international competitiveness."5 Regretting the continuous labor unrest, he said,
"Wages have doubled in three years and productivity has gone down."6

The labor problems Hyundai faced were not an isolated case in South Korea. By the
late 1990s, the chaebols had grown into large mismanaged structures with many
having several unprofitable units. During the economic slump of the late 1990s, most
of these chaebols felt the need to downsize.
There was also mounting pressure from the IMF on the South Korean government to
undertake strict economic reforms and restructuring measures. The labor unions,
which have traditionally been very strong and influential in South Korea, felt

Since jobs were being cut, social unrest and a feeling of insecurity among the labor
class was rising. The unions resorted to extreme measures in an effort to establish
their authority. Although, all over South Korea, companies were facing labor unrest,
Hyundai was among those that were hit the most.
An Overview of the South Korean Economy

Until 1960, South Korea focused on agricultural development. But a series of five-
year plans, the first of which was implemented in 1962, greatly altered the economic
structure of South Korea. Starting from 1962, economic policies were geared towards
industrial growth. Export promotion and import substitution were the key elements in
South Korea's growth plans. The industries of electronics, telecommunication,
automobile production, chemicals, ship building and steel were the major thrust areas.
Business in South Korea was predominantly controlled by a few large conglomerates
or chaebols. Chaebols were industrial groups that were established after the Korean
War in early 1950s. They differed from other corporate organizations in the sense that
they were still largely controlled by their founding families and were not managed by
professional corporate managers.

All decisions, expansion plans and company policies were made by the members of
the founding families, who occupied the top positions in the chaebols. In 1995, the top
30 chaebols alone accounted for nearly 16% of South Korea's GDP.
The top four chaebols at that time - Samsung, Hyundai, Daewoo and LG contributed
9% of GDP. South Korea has shown an incredible growth pattern. Between mid
1960s and mid 1990s, the annual GDP expanded by more than nine percent annually.

From being at par with some of the poorer countries of Asia and Africa in 1960, its
GDP per capita in 2003 was seven times that of India7, eighteen times that of North
Korea8 and at par with some of the less prosperous economies of the European Union.

This remarkable success has been a result of close cooperation between the
government and the chaebols. Government policies were framed keeping the
industrialists' demands - availability of credit, import restriction, sponsorship of
specific industries, import of raw material and technology, encouragement of savings
and investment over consumption - in mind. To encourage domestic industry, the
markets were heavily protected by quotas and tariffs...

Labour Problems in the Late 1990s

The slump in the South Korean economy in late 1990s was bound to have an effect on
Hyundai also. The automobile segment was among the first to be hit by the downslide
in the economy. The domestic automobile sector had negative growth of almost 55%
in 1998 compared to the previous year.

Hyundai was responsible for almost 50% of total automobile production in South
Korea and was therefore badly hit. The domestic sales of the company fell by 55% in
the year 1998 and its exports crashed by 74 percent to only 15,056 units . Hyundai
recorded a 200 billion won loss in 1998.
According to company officials, Hyundai's six assembly plants with a yearly
production capacity of 1.65 million vehicles, were operating at only 40 percent of
their capacity. In May, 1998, Hyundai reacted to this grim situation by announcing
plans to lay off 27 percent of its 46,000 workforce in South Korea and to cut pay
bonuses and benefits in a bid to save 230 billion won.

Unfortunately for the management of the company, Hyundai had one of the most
powerful and militant unions. The decision of the company to lay off workers sparked
off agitations not only in Hyundai but in other companies too. The unions were
particularly offended at the government's approval of Hyundai's decision.
In a demonstration in Ulsan, where Hyundai has its biggest automobile plant, 32,000
employees participated in rallies. All across South Korea almost 1,20,000 employees
from about 125 companies participated in demonstrations against Hyundai and the
government's decision. The government had to deploy nearly 20,000 riot police to
control the demonstrators...

Labour Problems in the Early 2000s

On September 1, 2000, Hyundai officially cut ties with the Hyundai Group and had
relocated its head office to Yangjae-dong, Seoul, Korea - a move that was seen as
symbolic of its rebirth as an independent automotive business group . In December
2001, Hyundai forecasted its highest profits ever - $900 million for the year.
In the same year, it posted 23.4 percent growth in unit sales and a 74.5 percent
improvement in net income. Most importantly, Hyundai vehicles were being accepted
as a technologically advanced, stylish and reliable in overseas markets like the US and
Europe. In the United States, the world's largest auto market, Hyundai recorded a 42
percent sales increase in 2001.

This was an era of growth, reorganization and new market exploration. But the
success story was marred by another strike threat in Hyundai.
Workers at the Ulsan plant went on a two-day strike in December 2001, demanding
higher wages and higher bonuses. They also demanded a 30% share in the profits that
year as a performance bonus.

The management clarified, that though the company had done well that year, it could
not afford performance bonuses to the tune of 30% of profit. The reasons given were:
firstly, the increased influx of imported cars into South Korea was bound to hurt
Hyundai's market share and margins in South Korea.

Secondly, General Motors' purchase of Daewoo was a threat that could not be ignored
or taken lightly, and the company had to gear itself up to be able to compete with
General Motors, and lastly, the most important reason stated was that due to the
appreciation of the Korean won, Hyundai cars were becoming less competitive in
international markets and profitability consequently would be hurt...