Benchmarking for Quality Management & Technology

An analysis of the South Korean automotive, shipbuilding and steel industries

Amrik S. Sohal Bill Ferme
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Amrik S. Sohal Bill Ferme, (1996),"An analysis of the South Korean automotive, shipbuilding and steel industries",
Benchmarking for Quality Management & Technology, Vol. 3 Iss 2 pp. 15 - 30
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 An analysis of
An analysis of the South South Korean
Korean automotive, industries

shipbuilding and steel

15
industries
Amrik S. Sohal and Bill Ferme
Faculty of Business and Economics, Monash University, Victoria,
Australia
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Introduction
In addition to the outstanding success of the Japanese industry, a number of
other Asian countries are emerging as the new power-houses of manufacturing.
Over the past ten years the South Korean industry has developed as a major
exporter of manufactured goods and has become the second most productive
manufacturing nation in Asia after Japan. In a number of markets the South
Koreans have threatened the Japanese, using labour-cost advantage to become
the cost leader[1]. South Korea’s economy attained unprecedented levels of
growth during the 1980s, through a policy of export-led industrialization
centred on fostering exports. By promoting infant industries such as cement,
fertilizer, steel, chemicals and consumer durables, South Korea has made its
exports both privately profitable and internationally competitive[2].
Today, the South Korean economy is dominated by the manufacturing sector.
Growth per capita income remained stable during the 1980s and was well in
excess of 7 per cent. In 1990, exports accounted for more than 30 per cent of
GNP with manufactured products constituting over 90 per cent of this total[2].
Since the early 1980s there has been considerable interest in studying the
South Korean manufacturing industry. Many of the previous studies have relied
on industry surveys and single company case studies (mentioned later).
Analysing the machine tools and textiles industries in a number of countries,
including South Korea, Young et al.[1] conclude that studying international
operations at the industry level is an approach which can yield information
quite different from what is expected. These researchers used data collected
from a postal questionnaire survey of the two industries. They further claim
that micro studies of individual firms are also needed to provide an in-depth
understanding and that the only way we can develop a proper global
perspective of operations is for researchers to visit plants throughout the world.
The purpose of this paper is to report on our direct observations of five of the
leading South Korean manufacturing organizations visited on two occasions in Benchmarking for Quality
1993 and 1994. These visits were made as part of Monash University’s annual Management & Technology,
Vol. 3 No. 2, 1996, pp. 15-30.
study tour of Asian countries to observe “best practices” in manufacturing. The MCB University Press, 1351-3036
 BQM&T key objective of the paper is to illustrate how South Korea is emerging as an
3,2 industrial giant and describe the success of five of its leading companies.
In the next section a brief review of the changing economy and manufacturing
industry in South Korea is provided. This is followed by a brief reference to some
of the previous studies on South Korean manufacturing industry. The
observations from the five companies visited during 1993 and again in 1994 are
16 then presented.

The changing environment

The South Korean economy and manufacturing industry has changed
dramatically over the past decade. South Korea was the thirteenth biggest
merchandise exporter in the world in 1993 (see Figure 1). The GDP growth rate
for 1994 was estimated to be about 7-7.5 per cent[3].
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South Korean exports were expected to total about $US90 billion in 1994, an
increase of 7.7 per cent compared with 4.8 per cent in 1993 and 2.9 per cent in
1992. Korea’s “big three” export industries – electronics, shipbuilding and
automobiles – all staged a strong recovery from the middle of 1993,
predominantly on the back of the Yen appreciation.
Corporate facility investment was expected to grow by 7.5 per cent in 1994,
compared with 1.2 per cent in 1993 and minus 0.8 per cent in 1992, according to
the Daewoo Research Institute, the think-tank of Daewoo, South Korea’s third
largest chaebol (the widely diversified and intricately interlinked conglomerates
that dominate the economy). This has been helped by the recent improvement
in investment conditions brought about by the new government which include
the increased investment fund under the new economic 100-day plan[4].
Unfortunately, the new democratically elected government appears to be just
as economically interventionist as the previous government. In early 1994, the
Ministry of Trade, Industry and Energy announced that the country’s top 30
chaebols would do as the government had asked and concentrate on their core
businesses[5].
South Korea no longer has cheap labour costs. The current (1994) average
wage is about A$14,000 per year which is much higher than the other emerging
industrialized countries in Asia. South Korea’s labour costs increased by 100
per cent from 1988 to 1991, much faster than the increase in Taiwan and Japan
(60.9 per cent and 17.5 per cent respectively).
The current industrial relations climate is still sensitive; however, many
companies are pursuing strategies to create a culture with a more humanistic
approach, in which the creativity and self-reliance of individual employees are
to be fully respected and encouraged. This has been observed in a number of the
companies visited (described later).

Previous studies in Korean manufacturing

There have been a number of studies on the South Korean manufacturing
industry since the early 1980s. Rho and Whybark[6] report on the
manufacturing practices of Korean machine-tool and textile manufacturers.
 USA 1,800 An analysis of
Germany 4,500
South Korean
industries
Japan 2,900

France 3,600

Britain 3,200 17
Italy 2,900

Canada 5,200

Hong Kong 23,300

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Holland 8,800

Belgium-Luxembourg 11,100

China 80

Taiwan 4,100

South Korea 1,900

Singapore 26,300

Switzerland 9,200

Spain Exports per head ($) 1,600

Mexico 600

Sweden 5,800

Malaysia 2,500

Australia 2,500

0 100 200 300 400 500 Figure 1.

$ Billion Merchandise exports,
1993
Sources: GATT; United Nations

Their study is based on a questionnaire survey to which 89 machine-tool

manufacturers and 33 textile manufacturers responded to questions on
forecasting, production planning, scheduling, shop-floor control, purchasing
and materials management. This survey was part of the Global Manufacturing
Research Group’s (GMRG) study of manufacturing practices in the machine-tool
and textile industries in a number of countries around the world[7].
Using the GMRG database, Rho and Whybark compared the manufacturing
practices of South Korean firms with those of the People’s Republic of China[8]
 BQM&T and Europe[9]. Using the same database, Handfield and Withers[2] compare the
3,2 logistics management practices in Korea, Hungary, China and Japan, while
Young et al.[1] carry out a comprehensive comparison between the machine-tool
and textile industries in Korea, China, Japan, Europe and the USA.
Other studies have focused on the adoption of just-in-time (JIT) and total
quality management (TQM) philosophies in Korean industry. Lee[10]
18 investigated the adoption of Japanese manufacturing management techniques
in Korean manufacturing industry through a postal questionnaire survey to
which 48 companies responded (a 19 per cent response rate). He also conducted
in-company interviews and made extensive observations in four companies.
Kang presented two case studies of JIT implementation in Korean companies;
one is in heavy industries[11] and the other is a leading company dealing in
household electrical appliances[12].
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Another study by Kang et al.[13] investigates the level of automation in

Korean factories. Using data collected through a postal questionnaire from 229
companies, they provide details on how and why Korean companies have
automated their factories and the kinds of problem experienced in the process
of automation.
Other interesting studies on South Korea include a study on the production
of computer-numerically-controlled machine tools[14] and the behaviour
patterns of the Korean people[15].
All the studies referred to above were based on a postal questionnaire survey
of the Korean manufacturing industry or are case studies of single
organizations. Most of these lack the in-depth investigations based on direct
observations referred to by Young et al.[1].
This paper is based on direct observations of five leading Korean companies.
In addition to our direct observations, a number of documents were provided by
each company from which information contained in this paper has been taken.
Our objective was to gain a first-hand understanding of the best practices in
each company visited.
Each company visit lasted one full day, once in February 1993 and then again
in February 1994. The experiential learning opportunity available through the
plant visits and discussions with senior managers in each company was
excellent in providing an in-depth understanding. The five companies visited
were: the Pohang Iron & Steel Company Limited (POSCO); Kia Motors; Hyundai
Motor Company; Hyundai Heavy Industries; and Hyundai MIPO Dockyard. In
the next section we present our observations and analysis of each company.

Observations from study tours

Pohang Iron & Steel Company Limited (POSCO)
POSCO is perhaps South Korea’s most striking success. It has a capacity to
produce 21 million metric tons of crude steel per year. It is also one of the few
big steelmakers to make profits. (Nippon Steel, the world’s largest steelmakers,
admits that POSCO is also the world’s most efficient.) POSCO was established
in 1968 and is currently 65 per cent privately and 35 per cent government
 owned. POSCO produces high-quality steel products at low cost using the most An analysis of
modern facilities and advanced technologies and has a current sales turnover of South Korean
about $A12.5 billion. Currently, POSCO’s steel products are selling at 20-40 per industries
cent less than comparable Japanese products[16].
POSCO has two plants, one at Kwangyang which has a capacity of 11.6
million metric tons of crude steel and produces a small variety of steel products
in large volume, while the Pohang plant has a capacity of 9.4 million tons and 19
produces a wide variety of products in small volumes. Currently, POSCO
exports about 30 per cent of its output, while the 70 per cent (about 15 million
metric tons) goes to the large South Korean market of 28 million metric tons.
POSCO’s size has enabled it to make South Korea the world’s sixth largest
steelmaker (see Figures 2 and 3).
Like the other Korean companies, POSCO is a relatively young organization.
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Its management style, employee education, training and welfare and

environment protection policies are second to none. In 1993 POSCO changed its
management team in order to create a culture with a more humanistic approach,
in which the creativity and self-reliance of individual employees are fully
respected and encouraged. In the new POSCO, customer satisfaction and the
employees themselves are management’s top priority. POSCO’s management
philosophy is based on the “three-best” and “three-zero” principles. The three-
best principle includes best quality, best productivity and best (low) cost. The
three-zero includes zero waste, zero defects and zero accidents.
The three-best and three-zero objectives are achieved through a highly
skilled and trained workforce. Induction and regular on-the-job training is

Production by country (metric tonnes)

160

140

120

100

80
Key
60 1983
40 1993

20
a

0
r S an

C t
na

So erm A

Ko y
a

Br y

In l
Fr ia

Br e
C in

Sp a
Ta in
Tu an
Be key

N st a
Po m

So Me d

A o

th lia

a
i
ie

az
ut an

l
re

ad

Au fric
n
ut xic

re
G US

Ita

ita

iu

or ra
ov

an
ni m ap

hi

iw

la

Ko
r
lg
an
U For J

h
h
on e

Figure 2.
World steel production
Note: aEstimate by country (1983, 1993)
Source: International Iron and Steel Institute
 BQM&T World production (metric tonnes)
800
3,2
775

750

725
20
700

675

650
Figure 3.
World steel production:
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1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
1983-1993
Source: International Iron and Steel Institute

considered vital for employee development. The development of healthy, well-

educated and trained people for the next century is one of the key objectives of
POSCO management.
POSCO’s overall philosophy of “Resources are limited – creativity is
unlimited” demonstrated the company’s recognition of people’s potential.
POSCO does not plan to build additional capacity but to increase productivity
through better management practices and people development. POSCO has
introduced an employee ownership housing programme for its employees and
their families. The housing complex for both Pohang and Kwangyang
combined covers a total of 6.7sq. km, on which POSCO has built 9,650 housing
and apartment units. POSCO also has 14 educational establishments, from
nursery to university level, which provide superior educational opportunities
for the children of the POSCO employees.
POSCO has organized an ideal three-way co-operation system between: the
Research Institute of Industrial Science and Technology (RIST) – the largest
private research institute in Korea, equipped with the most advanced research
facilities; Pohang Institute of Science and Technology (POSTECH) – the first
research-oriented university in Korea; and the POSCO steelworks, where
fieldwork is carried out. Currently, POSCO’s R&D expenses-to-sales ratio is
only 1.75 per cent.
In pursuing a pollution-free policy through aggressive environmental
protection measures which exceed the required level of controls, POSCO has
invested more than $A2 billion into environmental preservation, installing
various pollution control systems to prevent air and water pollution. In
addition, POSCO has designated 34 per cent, or what amounts to 7,700sq. m, of
the steelworks and housing area as green-belt land, which creates a verdant
park-like setting.
 Some of POSCO’s success depends on its extensive use of information An analysis of
technology. An electronic data system (called “Steel VAN”) developed jointly South Korean
with Data Communications Corporation of Korea, links domestic customers industries
and POSCO. Its executives can continually monitor any phase of the production
process using the main corporate system which tracks 60,000 items for cost
control and updates 70 per cent of these automatically.
21
The Korean automotive industry
South Korea’s car makers are revving up fast. They hope that booming exports,
a fast-expanding domestic market and the over-valued Yen will give them the
chance to overtake Japanese producers in the small car market. South Korea is
already the world’s fifth largest car maker (after Japan, the USA, Germany and
France) producing 2.4 million vehicles in 1994, up 17 per cent from 1993 (2.05
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million). The three Korean car makers still rely on Japanese technology as they
all have production and technology agreements with Japanese companies (see
Table I). Figure 4 shows the domestic market share for Hyundai, Kia and
Daewoo.

Kia Motors
Kia Motors is the second largest automotive company in Korea and has an
interesting history as it almost went bankrupt in 1982. The owner decided to
give up his ownership and, for the sake of survival, delegated management of
the group to non-family members. The professional managers surmounted the
crisis successfully and the incident has become known as the “Korean Chrysler
story”. Now most of the group’s CEOs are professional managers and all Kia’s
employees (approximately 24,000 in total) believe they can climb to the top, if
they work hard enough.
Kia was founded in 1944 when it started to manufacture bicycles, moving
into motorcycle production in 1961 and three-wheel cargo trucks in 1962. Its
first car rolled off the assembly line in 1974 and exports of cars began the
following year. Kia’s Sohari plant, which was constructed in 1974, produces the
Pride/Festiva car and the Besta van, and the new Asan Bay plant produces the
Sephia and Sportage cars. The 1993 output included 320,000 cars, 30,000 vans,
and exports of approximately 150,000 units to over 30 countries.
Kia spends about 5 per cent of its sales revenue on R&D and operates several
R&D centres employing around 10 per cent of the total Kia workforce. The
Central Technology Research Institute is responsible for new product
development while the Technology Centre investigates leading edge automotive
technologies and co-ordinates the exchange of advanced technologies and
product research with R&D centres in Tokyo, Los Angeles and Detroit. Kia is
the only private South Korean company to have installed a CRAY
supercomputer which it uses for R&D and design work.
Currently, Kia is investigating both electric and solar-powered cars. In a bid
for greater technological self-sufficiency, Kia has developed international
associations with Bosch of Germany, ITT of the USA and Hitachi of Japan, to
 BQM&T
Contract
3,2 Japanese Products period Approval
Korean companies companies (years) date

Korea Micro Research Micro Research Press 9 22 Sept. 1984

Daewoo Heavy Toshiba Machine Machining centre 5 12 Oct. 1985
22 Industries
Daewoo Heavy Sodick NC EDM 7 14 Nov. 1985
Industries
Samchully Machinery Kitagawa Iron Works Hydraulic chuck 10 8 July 1986
Hwacheon Gear Howa Hydraulic chuck 5 18 July 1986
Industry
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Kia Machine Tool Hitachi Seiki Machining centre 5 28 Nov. 1986

Ssang Yong Precision Kojima Iron Works Die slotting press 5 27 July 1987
Man Do Machinery Tsugami Thread rolling machine 5 27 July 1987
Kukje Diamond Nachi-Fujikoshi Broaching machine 5 31 July 1987
Ssang Yong Precision Yamada Dobby High-speed press 5 12 Dec. 1987
Korea Nikken Nikken Kosakusho Tool holder 10 29 Aug. 1987
Goldstar Instrument Fuji Electric PLC 7 5 Nov. 1987
& Electric
Goldstar Cable Amada Mechanical presses 5 17 Feb. 1988
Han Won Precision Homma Machinery Machining centres 5 20 Feb. 1988
Machinery
Hyundai Heavy Shin Nippon Koki Piano miller 5 28 March 1988
Industries
Hyundai Motor Kashifuji NC gear-cutting machine 5 28 April 1988
Fanuc Korea Fanuc EDM 3 4 May 1988
Dae Young Machinery Yasunaga Tekkosho Special purpose machine 3 20 July 1988
Doosan Manufacturing Yaskawa Electric Industrial robots 5 27 July 1988
Samchully Machinery Rich Mill Milling chuck 5 14 Oct. 1988
Youil Machinery Matsuzawa
Works Manufacturing Tool grinders 5 12 Dec. 1988
Samsung Shipbuilding Osaka Kiko Machining centre 5 13 Dec. 1988
Daewoo Heavy Toyoda Machine PLC 5 27 Jan. 1989
Industries
Fanuc Korea Fanuc Robot controller 7 15 March 1989
Korea Machinery Takisawa Machine Machine tool 5 3 May 1989
Kuk Je Ki Kong Kansai Seisakusno Gan-grill machine 5 20 May 2989
Hwacheon Machine Osaka Kiko Machining centre 4 22 Dec. 1989
Tool
Table I.
South Korean technical Mando Machinery Ikegai CNC lathes and
collaboration with machining centre 5 30 Dec. 1989
Japan (Continued…)
 Contract
An analysis of
Japanese period Approval South Korean
Korean companies companies Products (years) date industries
Woo Chang Machinery O-TEC Broaching machine 5 4 April 1990
Hyundai Precision Yamazaki Mazak CNC lathes and
& Industry machining centre 10 30 April 1990 23
Samsung Shipbuilding Osaka Kiko Machining centre 5 20 July 1990
Taihan Manufacturing Sumikura Shearing line 5 16 Oct. 1990
Kia Machine Tool Nippe Toyama NC line centre 4 12 Nov. 1990
Sang Won Industrial Nomura Machine Boring and milling
machine 4 15 Nov. 1990
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Source: Korea Machine Tool Manufacturers’ Association Table I.

(a) Vehicle sales (’000s) (b) Market share (excluding commercial vehicles)
5,000
Other and imports
4,000 3 per cent

3,000 Daewoo
Exports
24 per cent
2,000
Hyundai
46 per cent
1,000 Domestic sales Kia
27 per cent
Projection
0
19 3
19 5
19 7
19 9
19 1
1993
19 4
96

20 8
2000
01

Figure 4.
8
8
8
8
9

9
19

19

South Korean vehicle

Sources: Ministry of Trade, Industry and Energy; Kia Economic Research Institute, sales and market share
KIET; Ward's Automotive

produce more of its own components such as air-bags and anti-lock braking
systems[17].
Kia is quite clear about its long-term vision and direction. By 1995, it aims to
be recognized as the number one company in Korea for customer satisfaction
and to be number ten in the world by the year 2000. Quality, safety and features
are considered to be Kia’s competitive advantage in the marketplace.
To realize its long-term vision, Kia has clearly defined short-, medium- and
long-term targets and all employees strive to meet these. The company is very
much focused on its activities. All its affiliates are directly associated with the
automotive industry, machine-tool manufacturing, robotics, steel, dies,
automotive parts such as transmissions, axles, brake systems and plastic parts.
Kia is experiencing both technology and management revolutions. The rate
of automation including computer-integrated manufacturing and integrated
 BQM&T networks with suppliers has been rapid in recent years. Much of the Sohari
3,2 plant, however, still uses 1970s’ technology. Much manual welding is involved
in the body assembly weld-lines; this is only occasionally supported by robots.
As a result, Kia’s productivity is much lower than other automotive plants. For
example, it takes around 40 hours to produce a car in the Sohari plant, as
against approximately 16 hours in Japan.
24 With regard to quality, Kia maintained that some of their models were
number one for quality in Korea. Programmes such as QM21 (Better Quality
Start With Me – 21st Century) and TPM (total productive maintenance) are
being pursued vigorously. During 1993 all Kia’s 24,000 employees were put
through a three-day training programme on customer satisfaction.
Kia anticipated receiving their ISO 9000 certification by December 1994.
This is to help their marketing efforts in Europe. The Ford Motor Company has
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already accredited Kia as a Q1 supplier.

Kia operates an elaborate quality management programme which covers the
integration of their quality objectives with their schedule management. This
includes a very detailed internal standardization system, a solid quality
assurance system and a quality assessment system.
Almost all shop-floor workers are members of a quality circle which meets
twice a week outside working hours for which they are not paid extra. The
quality circle activity is tracked on an annual basis. This shows that, on
average, quality circles work on about three projects a year. Also, each
employee averages about 24 suggestions per year, about 33 per cent of the
suggestions being adopted. Kia are currently changing the emphasis from the
quantity to the quality of the suggestions.
Kia also tracks its employees’ morale, which shows that the labour turnover
rate is running about 5 per cent with a very low accident rate. However, Kia is
working strongly on its management/union relationship, as there was a serious
strike in 1991; since then there have been no more strikes.
Each department is responsible for its own training, new employees
receiving 16 hours of initial training before starting on direct training for
allotted work. Training for multiskilling in the form of knowledge of upstream
and downstream processes is also provided.
Kia plans to build a network of plants along China’s booming east coast.
These, in conjunction with the Yanbian Industrial Technology Training
Institute founded in the Korean autonomous prefecture in China, is laying the
groundwork for a future in the People’s Republic of China, and will help to
further cement relations between the two nations[18].
Kia, in world automotive terms, is a small producer of cars, vans and trucks,
and is still reliant on Japanese technology; however, it is developing the
capability to create, design and manufacture automotive products from start to
finish. Currently, Kia has about 27 per cent of the South Korean market. Kia
may have to increase its R&D expenses-to-sales ratio from 5 per cent to about
10 per cent to remain competitive.
 Hyundai Group An analysis of
This giant organization is regarded as Korea’s most potent exporter, accounting South Korean
for about 11 per cent of Korea’s total exports. The group, with more than 41 industries
subsidiaries and a staff of more than 150,000, is expecting to have a sales
revenue of about $A50 billion for the 1994 financial year. Hyundai has eight
product/service groups: engineering and construction; automobiles; electronics
and information systems; shipbuilding and industrial plants; precision; 25
petrochemicals and oil refineries; iron and metals/electrical equipment; and
trade and services.
Stressing R&D activities and technological developments, Hyundai
developed leading edge products in the early 1990s. Some of the most
significant products developed were the next generation 64 DRAM (the
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semiconductor memories used in computers), the Moss-type LNG carrier ship,

the electric-powered car, the state-of-the-art magnetic levitation train and the
pollution-free mass transportation system of the future. The Hyundai Group
has established a number of research institutes employing approximately
10,000 researchers in total. These include: Hyundai Engineering Research
Institute, Hyundai Motor Company R&D Institutes, Hyundai Electronics
Industries Research Institutes, Hyundai Maritime Research Institute, Hyundai
Precision Research Institute, Asian Institute for Life Sciences, Hyundai
Petrochemical R&D Centre, Hyundai Industrial Research Institute, Light Metal
Research Institute, Hyundai Electrical Engineering Research Institute, and
Hyundai Central Research Institute.

Hyundai Motor Company (HMC)

Hyundai Motor Company (HMC) is the largest automotive company in South
Korea with an annual capacity of about 1,270,000 vehicles – approximately
1,000,000 cars and 270,000 trucks and buses. Currently, HMC is producing
about 1,150,000 units per year and exports to over 160 countries. The company
was established in December 1967 and in 1994 it has a sales turnover of A$15
billion and about 41,000 employees on a site of 1,215 acres in the city of Pusan.
The plant operates two ten-hour shifts per day.
HMC’s corporate aim is to be in the top ten automotive companies in the
world. The corporate philosophy focuses on customer service and high quality.
HMC was the first automotive company in South Korea to develop its own
models. Currently, HMC designs, develops and makes its wide range of cars and
is now 35 per cent self-sufficient component-wise. The latest CAD/CAM
systems for both car shape and component design are employed and HMC is
following the Americans and Japanese in having a design centre in a main
market area such as California where their new sports car, the HCD-I, was
developed. Their Korean Advanced Engineering and Research centre at
Mabookri is also working on cars of the future. The R&D expenses-to-sales
ratio is an impressive 5 per cent compared with 1.75 per cent for Kia Motors.
 BQM&T HMC also manufactures cars in Quebec, Canada, with a capacity to produce
3,2 about 100,000 cars per annum. It also recently announced its intentions to
manufacture motor vehicles in Malaysia[19].
In recent times industrial relations in this company have been disastrous. In
1992 a week-long occupation of the company by the workers ended when 15,000
riot police stormed the factory[20]. This event proved disastrous, breaking
26 down the notion of a family spirit with everyone working together for the
common good.
HMC’s press shop consists of six new 3,000-ton presses (95 per cent
automated) with a multi-stage pressing capability using the walking-beam
transfer method. This is a very clean and tidy facility where the dies and steel
coils are stored adjacent to the presses. The press shop worked to the TPM
(total productive maintenance) philosophy.
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The body shop is totally automated where the various pressings are welded
together by robots to produce the car body. The robots were made by a Hyundai
subsidiary, NACHI. At the end of the body line an electronic measuring station
measures the positioning of the welded pressings as well as the number of
welds. The handling of the welded bodies is also fully automated.
The final assembly line is a U-shaped arrangement, the line speed being
about double that of Kia Motors. The painted bodies on the line have protective
coverings on the side panels to avoid damage. The assembly instructions are
excellent and very visual, usually at head level.
The attachment of the windscreens is impressive, as a walking beam
arrangement is used. Reattachment of the car doors is carried out via an
external slide on each side of the line; a robotic arm on each slide quickly
attaches the doors.
The assembly line is automated to about 3 per cent of the potential: the
leading Japanese plants are approaching 20 per cent. The information board at
the assembly area indicates the cycle time through the trim and assembly line.
This was one hour in February 1994. The total manufacturing time was about
15 hours for the Elantra, a medium-sized car with a 1.5-litre engine, but this did
not cover the pressing content. This figure indicates that HMC is close to world-
class performance which is about 16 hours for the best US and Japanese plants.
HMC operates an order-launching and delivery-sequencing system to
provide for uninterrupted synchronized daily production operations. The
prerequisites for the success of such a system include:
• a highly reliable network of co-operative suppliers;
• a smooth and stable monthly sales and production plans and weekly
assembly schedules; and
• a highly reliable information system connecting the various sub-systems
in operation throughout the company.
HMC is an impressive operation with its own design capability and is
approaching world-class status; indeed, it should be close to it by the mid to late
1990s.
 Hyundai MIPO Dockyard (HMD) An analysis of
This is the largest ship-repair dockyard in the world. Even so, it has only 5 per South Korean
cent of the world market! The operational throughput is about 400 ships per industries
year, of which about 80 per cent are foreign-owned, and provides about $A300
million sales turnover. Currently, about 70 per cent of the ships handled are
bulk-carriers.
HMD has processed more than 4,000 ships since the company’s inception in 27
1975. The site’s capacity includes four dry-docks each capable of handling up to
400,000dwt (dead-weight tonnage) and 380-metre long ships supported by up to
80-ton jib cranes and three kilometres of quay repair docks which are supported
by up to 30-ton jib cranes. The site is in the inner port of Ulsan and is superbly
positioned for the Far-Eastern shipping trade.
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The site employs about 2,700 employees, which includes about 200 engineers
and about 100 managers. The employees join the company at age 23/24 and the
average age is about 39 years, the retirement age being 55. The employee
benefits include:
• housing and children’s education including first-year university entrance
fees;
• access to a swimming pool and a gymnasium;
• employees can buy shares in the company;
• company provides land with a 50 per cent loan for house building.
The business is cost-driven in a very competitive market and this means that
HMD has to keep improving its methods all the time. The average wage is about
$A23,000 per year. There is one union , but it would appear that industrial
relations have not improved since a major strike in 1988. The workers are
encouraged to contribute to the suggestion scheme; in fact, each worker is
required to submit two suggestions per month or about 5,000 suggestions per
month for the site. From this large amount about 2,000 are selected for further
evaluation and usually about 20-25 rewards are made per month to the
successful workers.
A ship conversion can take up to 80,000 labour hours or up to 25 days.
Obviously, the company’s project management skills are of a high order. The
dry-dock operations are usually scheduled to give optimum performance and
generally the dry-dock activities can take up to five days. The work is done in
teams of three employees. This was changed from teams of five by request from
the workers.
It would appear that HMD has some significant potential threats looming on
the horizon as its major Singaporean competitor, Keppel Corporation, is having
negotiations with the Vietnamese government to take over and convert to
commercial use the shipyards being vacated by the Russian navy at Camranh
Bay, thus taking advantage of a ready-made facility and very low labour costs.
A further threat is seen in Keppel’s plan to take over what was the US naval
 BQM&T base at Subic Bay in the Philippines. Keppel Corporation is said to be a front-
3,2 runner in the race to land both projects[21].

Hyundai Heavy Industries (HHI)

This company is the largest shipbuilding operation in the world and started
shipbuilding in 1973. It employs about 27,000 employees which includes about
28 3,600 engineers on a site of 7.26 million sq. m. Currently, Korean shipbuilders’
production costs are 25 per cent lower than Japan’s with the former’s labour
costs only 50 per cent of the latter and the Korean steel costs being 20 per cent
cheaper, where the steel is about 50 per cent of the raw material cost[22].
This gigantic operation has six divisions: shipbuilding; industrial plant; off-
shore engineering; engine and machinery; construction; and administration.
HHI has a 1994 sales target of about A$5 billion and export sales of about A$2.5
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billion. This operation has benefited from the high value of the Yen. HHI’s R&D
annual expenditure amounts to about 3.5 per cent of sales revenue.
The yearly building capacity is four million dwt and the unitary maximum
capacity is one million dwt. The production facilities include seven large docks
with a capacity of between 20,000 and one million dwt.
HHI has the engineering and manufacturing skills to make the high value-
added and technologically complex Moss-type LNG (liquidized natural gas)
carriers (which can cost up to A$300 million) and double-bottom ships, thus
indicating that the company has caught up with the Japanese shipbuilders.
HHI manufactures ships on a sequential production line basis where the
major components are fabricated as far as possible in the yard factories before
final assembly in the huge docks. HHI has the total manufacturing capability
from design, R&D, steel preparation, fabrication, subassembly, final assembly
and finishing to testing and trials. As a guide, the time to both design and build
a ship is about ten months – about five months for design and five for building
and tests.
HHI already works to ISO 9000 quality standards and also follows Lloyds of
London design requirements. HHI’s future competition could come from China
(PRC) as they are closing the gap with both Japan and South Korea and are close
to overtaking Taiwan as Asia’s third largest shipbuilder. PRC capacity is being
expanded to build medium-to-large ships to secure a bigger share of the world
market by increasing shipbuilding capacity to 1.2 million dwt by 1995[23].

Conclusions
The new democratically elected South Korean government is still very
interventionist in that it wants to control or command the country’s industry.
This is made easy by the country’s industry structure which is based on
chaebols. Recently, the interventionist approach was manifested when the
country’s top 30 chaebols were told that they would have to concentrate on their
core businesses, the ten largest being told that each would be allowed to operate
in three sectors! Also, Samsung, a major chaebol, was planning to enter the
automotive industry on a large scale, but was told by the government that
 South Korea already had enough car-makers[24]. The government’s reasoning An analysis of
behind this approach is to encourage competition and foster small business South Korean
activity; to wrest power from the old industrial dynasties and hand over to industries
professional managers; and to stem the growth of the chaebols into unrelated
areas.
The Korean companies visited are on a world scale and followed very
ambitious targets. Two of the sites visited were the world’s biggest, i.e. Hyundai 29
ship-repair and shipbuilding. The steel plant visited (POSCO) was third in the
world based on steel output. The Korean automotive industry is already the
world’s fifth biggest. These plants have been in existence only for a generation!
In July 1994, Hyundai stunned Korea’s existing steel producers with the
announcement that it plans to build a 9.3-million-tonne integrated steel plant on
an island off Pusan[25]. Obviously, the chaebols want to go their own way
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despite government planning.

The Koreans are still very much dependent on Japanese technology and for
some reason most of the machine tools manufacturers are still small to medium
in size, and consequently have not had the same success as other industries
such as steel, automotive and shipbuilding. This could also be due to restrictive
access of technology to the Koreans by the Japanese machine-tool companies.
Previous studies indicate that Korean companies have benefited from the
adoption of Japanese manufacturing management techniques such as TQM, JIT
and TPM[10-12]. Our observations of the companies visited agree with this. It
was interesting to note that two of the companies visited were using
information technology to give them a strategic advantage.
The one weakness identified is that these companies are very hierarchical
and some are still dependent on Japanese technology, especially the automotive
industry and the machine tool industry. Although the Korean automotive
industry is the world’s fifth biggest, both plants visited were still lagging with
regard to world car assembly automation. Also, there is great international
pressure to open up this almost closed market to foreign cars, and this could
cause real problems for the three Korean automotive manufacturers[26].

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