The Impact of Vertical Integration on Hyundais Earnings

Hyundai Steel, affiliated to Hyundai Kia Automotive Group, became the nations second steelmaker to operate a blast furnace when its plant in Dangjin, South Chungcheong Province was completed April 8. The facility investment resulted in a significant rise in its earnings in the second quarter, with its operating profits jumping 156.3 percent from a year earlier and sales increasing 39.7 percent. The integrated steelworks has larger implications than an improved bottom line.

Hyundai Steels integrated steelworks going into operation marks the completion of vertical integration for the group, Vertical integration refers to a business model in which affiliated companies form different parts of a supply chain. Vertical integration for Hyundai Kia Automotive Group created synergy between steel and automotive industries.Although Hyundai Kia Automotive Group subsidiary Hyundai Hysco supplies steel plates to its affiliate carmakers, the company until now had to rely on imported hot-rolled plates to produce automobile plates. As Hyundai Hyscos plates are produced from imported hot-rolled plates, the companys research and development efforts had been limited. With vertical integration among Hyundai Kia Automotive Group companies in mind,

Hyundai Steel plans developed the Dangjin plant as a steel mill specializing in automotive plates, and began related research and development ahead of the Dangjin plants completion.