HR Problems in Hyundai Motor Co.

Abstract: 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 management. Issues: Damage that unhappy management-labor relations can cause to an organization Introduction 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 threatened. 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 fiveyear 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...