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Analysis On Automobile Industry And Hyundai Motor Company Marketing Essay

Hyundai Motor Company(HMC) is a Korean automaker which along with Kia, which was acquired in 1998, comprises the Hyundai Kia Automotive Group, the world's fourth largest automaker as of 2009. Chung Ju-Yung founded the Hyundai Engineering and Construction Company in 1947, HMC was later established in 1967. As of 2009, it is the world's fastest growing automaker. In 2008, Hyundai (without Kia) ranked as the eighth largest automaker. Headquartered in Seoul, South Korea, Hyundai operates the world's largest integrated automobile manufacturing facility in Ulsan, which is capable of producing 1.6 million units annually. The company employs about 75,000 persons around the world. HMC vehicles are sold in 193 countries through some 6,000 dealerships and showrooms worldwide. In 2010, Hyundai sold over 1.7 million vehicles worldwide [1] .

Distinctive competence

HMC’s distinctive competence is its ability to produce its models with its own technology. The company's first model, the Cortina, was released in cooperation with Ford Motor Company in 1968. When HMC wanted to develop their own car, they hired George Turnbull, the former Managing Director of Austin Morris at British Leyland. He in turn hired five other top British car engineers. In 1975, the Pony, the first Korean car, was released, with styling by Giorgio Giugiaro of ItalDesign and powertrain technology provided by Japan's Mitsubishi Motors. However, after years of in-depth research and development, HMC began to produce models with its own technology from 1988 beginning with the midsize Sonata. While other domestic motor companies such as Kia at that time still relied on foreign companies like Ford or Mazda, HMC’s independence of technology was and still is a strong distinctive competence.

Scope of operations

The scope of operation of HMC is significantly broad across numerous regions of the world. Its first export was in 1976, with its first Korean car Pony, to Ecuador and soon to the Benelux countries. During the following years, it exported small compact vehicles such as Excel to Canada and the US and gained huge success. The US market is still increasing and growing while the Europe market is still in the starting level although it has achieved some success with the i-series. China and India are also attractive markets for HMC with the increase of demand on cars with the development of the economy in those regions. Other emerging markets such as Africa-Middle East & Latin America are achieving consistent sales volume growth through the years. Currently, HMC has production plants in the US, China, India, Czech, Turkey, and Russia which started performance from 2011 [2] . The global demand of Hyundai’s cars is increasing every year (2010:70,1432011:74,901) and to fulfill the demand, its production capacity of overseas plants is increasing as well (2010:1,8822011:2,070) [3] .

Resource deployment

Given that HMC will compete in the above regions with other companies, resource deployment varies among geographical regions with certain product lines. The US market has shown increase in demand for compact and middle size vehicles rather than big size SUVs. Therefore, HMC will focus on meeting the demand on these cars. In the Europe market, despite the declining industry demand, market shares have increased due to new models such as the i-series (2007:1.8%2009:2.4%) [4] which leads the company to establish direct sales subsidiaries to increase sales momentum in key markets. The China and India are attractive markets due to their growth in economy which will naturally increase the demand of cars. HMC will focus on optimal dealer distribution to capture fast growing demand from small & medium cities in China.

Synergy

The automotive industry is a tough capital-intensive mature sector. Heavy fixed costs are necessary for R&D, so getting a bigger scale is inevitable. In 2008 HMC (including Kia Motors and all of its subsidiaries) rank fifth in the world’s automakers, ahead of Honda. HMC and Kia Motors dominate Korean car-making capability with 75-80% local market share. As a group level, they export to 200 countries, primarily from Korean facilities. Local capacity is 1.83m units for HMC and 1.4m for Kia, with a normal 40/60 domestic/export split(as of 2010). HMC includes Kia, Mobis, Hyundai Steel, Hysco, Glovis, and Hyundai Capital among others.

After merging with Kia motors, HMC successfully launched its R&D center’s integration and openly shared its manufacturing platforms and components. On behalf of its successful post merger integration, HMC’s sales figure is leveled off after topping out in 2010. Kia, which is placing its brand imagine as dynamic and innovative, is taking a different brand positioning from HMC. So far, their brand positioning gets along quite well.

With the recovery of world demand in automotive sector, for the all of its player including HMC group, it is time to survive as the major player, or to lose its share and fade away. It is positive that both their export figures of finish car and outside Korea’s capacity are increasing. With the start of Russia plant’s production, Hyundai steel and newly entered subsidiary, Hyundai construction, it is anticipating that there is a much room to make a sales leap with the momentum is keep encouraged.

SWOT Analysis

Strengths

Weaknesses

-Dominant local presence in Korea, a source of less competition and therefore higher margins

-Quality service across 1036 cities, In the J.D. Power CSI Study Hyundai scored the highest across all 7 parameters

-Leading global automaker in “Chindia” in terms of their combined presence in India (19% share) and China (6%)

-Have done an excellent job in improving technologies / quality of their line-up, and in recent years the designs are also improving

-Lagging Japanese on hybrid technology, expecting to roll out their first hybrid dedicated model in 2012, similar to Toyota’s Prius, although question marks over the profitability of such in initial years

-Dominated by family ownership, so likely that MK Chung’s son is groomed to fill the Chairman role. But MK Chung is notorious for his embezzlement in early 2007.

-Higher exposure in commodity price risk due to changes in prices of inputs such as steel, aluminum, plastics and rubber, which go into the production of automobiles

Opportunities

Treat(Risk)

-Strong presence in Chindia, but use to be strong in Russia, but experienced a setback when govt imposed more import taxes, the new domestic Russia plant likely helps build up their Russian franchise

-In last few years, company led the growth in the passenger car sector. In north America market, their sales figures is soaring by changing Canadian distribution chain from 65% “exclusive” dealers to close to 100%(Moved Canadian market-share from 5% to 8.2% in last two years), and also working to improve this in USA

- Currency is always a risk. Hyundai is exposed to the risks associated with fluctuations in foreign exchange rates mainly of import of components & raw materials and export of vehicles. (currently it is in their favour)

-The automotive industry is very capital intensive. Such investments require a certain scale of operation to generate viable returns. Merge with the Hyundai construction could be a harmful event, which prevent further capital injection in automotive industry.

Analysis on Automobile Industry and Hyundai Motor Company

Configuration and Coordination Analysis

Configuration

HMC is one of the most multinational companies in the world. It is currently operating in 193 countries which are widely spread throughout Asian Pacific, Europe, Middle East, Africa, North America, and Central & South America [5] . There are nine types of operating departments: headquarters, Regional headquarters, Regional Office, Distributor, Overseas Subsidiaries, Overseas Sales Subsidiaries, R&D Center, Production Facilities, and CKD Assembly Facilities [6] .

International cost differences

In Asia Pacific and Europe, most of the functions listed above exist due to the maturity of the automobile industry in these regions. Therefore, in terms of transportation, the cost would be relatively low since transport only takes place within the continent. However, in European countries, wage rates are relatively high which could result in an international cost difference.

In Middle East, Africa, and Central & South America, most of the functions that exist are distributors with one regional headquarter and one or two CDK assembly facilities in each continent. This means that they are importing automobile parts, not the final products, and assembling them locally. This could result in relatively low cost since importing parts is less expensive than importing final goods and assembly facilities are smaller in scale than actual plants. Moreover, these areas have low wage rates which also lead to low cost.

North America is a very special case because it does not have distributors unlike most parts of the world. Instead, it has two regional offices, two R&D centers, two overseas subsidiaries, and two overseas sales subsidiaries and one production facility. This shows that the countries in North America are focusing on research and international business strategies and producing final goods locally. Therefore, it could be implied that their reliance on headquarter in Seoul, Korea is relatively low and they are focusing on their own operation. Such localization would result in high cost and wage rates in North America are also high.

Business environment

Since HMC is operating in 193 countries, it faces different business environments throughout the globe. However, there still are some main business environments that have large influence upon HMC. These include strict regulation on trade and international business in some parts of the world, such as China, instable economy and politics in Middle East and North Africa, and the most current issue of Japan’s large tsunami [7] . HMC could face some challenges in such environments. On the contrary, the automobile industry is still a very mature and stable one throughout the world and there are opportunities in emerging markets such as China, India, Russia, and Brazil [8] .

Cluster effects

HMC is widely spread out across globe and operating in most of the countries; however, level of concentration in each country is not equivalent. Currently, the company is focusing on China, India, and Russia which are growing markets and have high potential and the United States which has shown steady growth due to recent recovery from the financial crisis [9] . On the contrary, in Middle East, Africa, and Central & South America, the focus is very minimal and the company is relying heavily on distributors instead of direct engagement.

Digitization of products and services

HMC has shown great attempts to follow the trend of digitization in its products. The company is offering various options and showing cars running online. However, because of the nature of the product category, such digitization in products was limited. Nevertheless, in services, HMC has recently adapted use of social media which include facebook, twitter, and blogs to better communicate with its consumers [10] .

Economies of Scale

Since the products and the parts are uniform and universal in every part of the world, there exists high need for economies of scale. To achieve economies of scale in order to reduce cost by mass production, HMC has formed an alliance, and realignment, with DaimlerChrysler which is a German car corporation with large resources [11] .

Customer needs

There are many factors behind customers’ different needs in different countries. One of these factors is the country’s economic status which could result in preference for cheap or premium cars. Also, another factor is the development of infrastructure and public transportation which could result in the frequency of using cars. Moreover, customers in different countries have different needs and wants for designs, functions, benefits, and so on. Therefore, there is high necessity for meeting different customer needs in different countries.

Coordination

By having regional headquarters in each continent, HMC shows efforts towards coordinating global activities.

Operational obstacles

In terms of operation, HMC needs to deal with different environments in different parts of the world. In order to overcome these operational obstacles, HMC has received advice from firms that have specialized expertise in each field. For example, to better deal with various obstacles in logistics, HMC receives advice from Glovis, which is a logistics firm part of HMC [12] .

Cultural differences

Even though the products of HMC are quite uniformed across the globe, there still exist needs to adapt to cultural differences in various countries. These include different usage of automobiles, different frequencies of using cars, different preferences for car types, and so on. Moreover, not only products, but also services and marketing methods need to reflect such cultural aspects. HMC has to take into consideration of what kind of services customers value and what marketing method would be effective in each country. As a result, there is high need for coordination of different cultures throughout the countries in which HMC is operation.

Generation and transfer of knowledge in global subsidiary networks

The charts (see Appendix) show the organizational structure of HMC. The darker colored divisions represent the ones that deal with international business of the company. Especially for China, there exists Chinese Business Division specifically designed for this country only. Moreover, as mentioned previously, there is at least one regional headquarter in each continent that directly reports to headquarter in Seoul, South Korea or provides information to other countries. Therefore, since there are divisions which provide connections between international divisions and the home country, or even among international divisions themselves, it can be assumed that there is high generation and transfer of knowledge in global subsidiaries.

High Foreign Investment with Extensive Coordination among Subsidiaries

Through the analysis of configuration and coordination of HMC by each determining factor, it can be concluded that both configuration and coordination of activities are high. Thus, on the matrix, HMC is located in the upper-right side which indicates high foreign investment with extensive coordination among subsidiaries.

Global Integration-Local Responsiveness Analysis

When choosing the main international business strategy, there are countervailing forces: global integration and local responsiveness. Company must first think where it is positioned, and then analyze further to select the right strategy.

Global Integration

Globalization of markets

People buy cars mostly for means of transportation and they prefer those having high quality. Therefore to some extent, HMC can minimize costs and maximize benefits by producing similar products. For instance, compact cars are in fad, so HMC is also focusing on producing these cars. [13] 

Globalization of productions

For an automobile company economics of scales is very crucial. Through having economics of scales, company can reduce its production costs. HMC also has some pressures for achieving economics of scales and this pressure goes stronger when the company wants to expand its business globally.

Local Responsiveness

Customer Divergence

Differences in culture, national attitudes, and economic and usage conditions are also important factors that HMC must consider when it penetrates foreign market. For example, people in America prefer SUVs since they emphasize the capacity a car has. In India, people prefer compact cars which are well matched to their current economic status. [14] Thus HMC has to focus on SUVs when it wants to improve its sales in American market but for Indian market, HMC should put emphasis on selling compact cars.

Host Government Policies

Different countries have different regulations for an automobile industry. Some has favorable situations for foreign companies but others do not. For example Chinese government is currently alleviating its regulations to encourage automobile production in China. [15] Therefore HMC has made Chinese Business Division hoping cost reduction and sales increase [16] .

Transnational Strategy

As we have discussed above, HMC is located in the upper-right side. It seeks the benefits of global scale efficiencies and the benefits of local responsiveness. Thus HMC is currently using Transnational Strategy.

Emerging Market_Industry analysis

Recently, the automobile industry in emerging markets, such as China, India, Russia, and Brazil has shown a high growth rate. Especially in China and India, the revenue in these emerging markets have reached its maximum at the end of 2010. Moreover, although not as dramatic as in case of China and India, Russia is also steadily increasing its potential for an attractive automobile market as more policies and marketing strategies are adapted. Furthermore, in 2010, Brazil has established itself as the fourth largest car industry after China, the US, and Japan. Consequently, many automobile companies show a trend of targeting these new emerging markets

Emerging Market_Company specified analysis

Diversifying the markets to emerging countries

According to the HMC’s sales performance over the world, sales from emerging markets are highly roared during recent years. As well as the population of emerging market is large enough to support future sales potential, the economic growth rate is getting high in the countries like China, India, and other countries in East Asia. One of the strength of HMC is that it has highly diversified markets compared with other peer company like Toyota, Honda and so on [17] . These diversified markets are one of the main reasons that HMC can be better off during the global economic crisis.

Chindia Market

Market attractiveness

Chindia, which stands for the combination of China and India, is world most attractive market in any industry present days. HMC has already established its production plant both in China and India, while its demand for HMC car increases as well.

Demand sustainability from economic growth

As China and India both have highly growing economy, the demand for car is positively correlated with economy. According to the company survey, the demand growth rate expected in the Chidia market is above 10% for several years from now [18] . The Potential in Chindia market must be a major part of HMC’s future sales performance.

Dealer distribution for small and medium cities.

HMC has established its dealers in small and medium cities to capture fast growing demand from these cities. Automobile industry demand by region shows that the growth rate of demand in small-medium cities is dominating that of large cities.

Middle East, Africa, and Latin America Market

Market attractiveness

As growing numbers of population can afford to purchase their own car resulting from developing economy, Middle East, Africa and Latin America are now very prospective market for any industry. To capture these growing consumption, HMC have invested in emerging market in developing countries by diversifying the market structure.

Growing Sales volume

As HMC expected from these emerging market at the initiation of their investment, the sales have been increasing steadily for several periods. The amount of sales from these markets is not as much as those of from US or Europe market, but the growth rate is much greater than matured markets.

Types of car_Industry analysis

Across the globe, especially in South Korea, India, and the United States, sales of compact cars have shown significant increase due to high oil prices. Firstly, In the 2011 Detroit Show held by the American Big 3 (GM, Ford, Buick), the new models that were introduced were mostly compact and small cars. This focus on compact cars is necessary not only to target the American market, but also and more importantly, the markets in developing countries. Secondly, the high growth of the Indian automobile market, which is one of the most attractive markets as of now, was mostly due to high sales of compact cars. Moreover, this trend is also apparent in the Korean market as the sales of compact cars and semi-middle-size cars have shown an outstanding growth.

Types of car_Company specified analysis

Variety of cars from Hyundai Motor

HMC has made a lot of car models ranging from compact-sized car to luxurious sedan, or SUV. The interesting this is that, the car model reflects the consumers’ preferences or affordability to a car. HMC currently has about 10 representative car models globally; Accent, Elantra, Sonata, Azera, Genesis, Equus, Genesis Coupe, i-series, Tucson, Santa-Fe, etc. To capture various tastes of global demands, HMC has been successfully developed its customized model. As increasing number of new models are launched or will be launched in a year [19] , HMC has been recognized to more consumers over the world.

Different demand structures among the markets

Interestingly, one big successful model in certain market does not guarantee consecutive success in another market. For example, Elantra and Sonata are dominating models in American markets among HMC’s car, which means Americans prefers sedan-type cars. In European market, however, the total sales of these sedan models is almost less than 5% of sales of US market. In contrast, a lot of European consumers have chosen i-series which is hatchback model. By developing more cars those are more popular than other markets, Hyundai Motor can be recognized well compared with past when they only displayed only few models. With these different market preferences, HMC launched new sedan model in U.S. markets, while they launched new i-series model in European market.

Global Manufacturing System_Industry analysis

As automobile industry expands globally, each company is eager to build its own plant in the host country. Having globalized plant brings several advantages to the automobile company: 1) low or even no tariff, 2) glocalization, 3) low influence of exchange rate, 4) cost effectiveness, 5) high quality. Thus many companies are building their plant overseas. For example, Volkswagen is planning to build a plant in Chattanooga, Tennessee to improve its sales in America according to Volkswagen’s ‘Strategy 2018’ and Toyota is going to build new plants in China and Brazil to produce compact cars.

Global Manufacturing System _Company specified analysis

International Manufacturing Plants

HMC grows continuously with sales as well as demand, which is resulted from the expansion of overseas plant. Growing portion of HMC’s total production is produced from the plant in overseas countries, not in domestic. By construct international manufacturing system around the world, it enables company to produce efficiently along with demand from nearby markets. As the global demands trends are various from market to market, HMC can move flexibly by producing from local manufacturing system.

Increasing number of overseas plants

HMC now has 5 overseas manufacturing plants and the one in Russia is going to start producing cars from 2011. Compared with early 2000s, now HMC has enough capacity to meet its global demand and along with increasing demand, HMC keep investing in expanding its capacity around the world. Not only in U.S. market and Europe market, but the emerging market like Chindia or Middle-East can be covered by plants in China, India and Turkey.

Recommendations

As recommendations for future international strategies of HMC, our team focused on analyzing the automobile industry trend and countries that have high potential of success.

Future automobile industry Trend

The automobile companies have gone through high level of globalization due to globalization of the industry. However, according to Korean Automobile Industry Research Center, the near future of the industry will show different features. They predicted that in 2020, the globalization of automobile companies will reach its highest point and there will be no further need for globalizing the companies. Instead, the main focus will be shifted to developing environment-friendly cars, such as hybrid cars, and smart cars that can provide more improved functions [20] .

Therefore, as one of the leading automobile companies in the world, HMC should fully and quickly adapt to these changes in order to be competitive in this market. For environment-friendly cars, HMC should focus on reducing the use of oil by substituting the fuel with other sources such as electricity and solar heat. HMC is currently putting efforts in this area, but the focus should be more emphasized due to the fast changes in this industry. Furthermore, due to the growth of technology, almost every device, such as cell phone and television, is becoming ‘smart,’ and car is no exception. Thus, consumers will seek for more intellectually developed functions other than basic functions of a car. Consequently, cars need to be ‘smarter’ and HMC should also adapt to this change in the automobile industry.

European Market

Europe is known for its high acknowledgement in the eco-friendly field. Various products that are used in everyday lives such as soap, bags, toys could be easily found in eco-friendly versions compared to other parts of the world. Not only in products, but countries such as Spain, United Kingdom, and France are also famous for their efforts in eco-friendly architecture as well. Such awareness and consideration of the environment could be used for HMC in marketing eco-friendly cars such as hybrid or electronic cars in the Europe region. It is evident that ‘green’ cars cannot receive much welcome from the currently rising countries such as China or India since the price of them are considerably high compared to other available vehicles. However, most of the Europe has already developed to a stance in their economies which naturally leads their attention to caring for the environment. Under these circumstances, marketing eco-friendly cars in Europe could be HMC’s promising next move.

HMC car is a vehicle that uses two or more distinct power sources. The term most commonly refers to hybrid electric vehicles (HEVs), which combine an internal combustion engine and one or more electric motors [21] . Compared to previous cars, HEVs have higher fuel efficiency and engine performance. The most distinctive feature of HEVs is that it is environment friendly.

Source :http://blog.naver.com/lyj8004?Redirect=Log&logNo=30083545142HMC has ‘BlueDrive’ strategy, and recently HMC is highly focusing on producing Hybrid cars. It has produced two hybrid cars, AVANTE LPi Hybrid and SONATA Hybrid in 2011 [22] .

1. AVANTE LPi Hybrid

Engine

γ-1.6 LPi Engine

Maximum output

114ps

Maximum Torque

15.1kg.m

Maximum Horsepower

134 horsepower

Fuel Efficiency

17.0㎞/l~17.8㎞/l

Key Features

Li-ion Polymer Battery

2. SONATA Hybrid

Engine

Theta(θ) 2.0 Engine

Maximum output

150ps

Maximum Torque

18.3kg.m

Maximum Horsepower

191 horsepower

Fuel Efficiency

21.0km/l

Key Features

111g/km Carbon

Emissions, EV model [23] 

In European market, HMC hasn’t launched any hybrid vehicles so far despite of Europeans increasing interests for eco-friendly cars. But, in domestic markets or North American market, Hyundai started its eco-friendly car sales. As European market has great potential in hybrid car market, HMC’s next target for its eco-friendly model should be at European market. The leading company in the Hybrid vehicle sector in current European market is Toyota. As Japanese company launched eco-friendly model early, Toyota and Honda, as a leading automobile company in Japan, keep great portion of market shares in Europe with several hybrid car model [24] . Followed by Japanese company, other local companies like Mercedes Benz, BMW, and Volkswagon, etc. started to launch hybrid model in European market [25] . Currently, HMC released new i-series models to capture the increasing demand on European hatchback style cars, but still couldn’t launch any hybrid model in European market. So if HMC develop hybrid i-series model, it can be a competitive model to other hybrid model.

Latin America Market

In Latin America, Brazil would the most appropriate country to boost up the level of concentration, build up an actual plant, preparing to face the competitors and balancing the local responsiveness. Since Brazil’s high growth rate and establishment as the fourth largest car industry for HMC, relying dramatically on distributors at the present moment should be changed in to a direct engagement to be more highly concentrated which are one of the weaknesses that HMC might face in the future at Latin America. Also building an actual plant is very beneficial and necessary, because it lowers the tariff, glocalization, low influence of exchange rate and cost effectiveness which would not only improve its sales in Brazil, but throughout Latin America. To add more, reducing its international cost difference by setting up the actual plant not only has the effect of improvement of sales, but stability of the actual plant itself domestically. Domestically stabilized actual plant in Brazil would bring new distribution channels throughout many countries in Latin America. Major competitor, Toyota is also planning to build up a plant in Brazil to produce compact cars and HMC should be ready to compete it’s competitor by analyzing the new emerging markets right now with analyzing the potential growth of compact cars in Brazil before more competitors enter the same emerging market near future. Lastly, balancing the local responsiveness meaning to analyze the customer divergence to fit the type of car(compact cars in Brazil) and should launch a new model targeting Brazil markets to fulfill the different demand structures that the customers prefer as the first step forward of its expansion in Latin America.

Conclusion

Since it has established in 1967, HMC has grown up as a leader automobile company in Korea, and world’s fourth largest car producer as a result of their globalization strategies. We have analyzed HMC with some theoretical methodologies including SWOT analysis, Configuration-Coordination analysis, and Global integration-Local responsiveness analysis. Based on these approaches, what we have found are HMC goes well with not only in domestic market, but in overseas markets by diversifying its market, ranging from US, Europe, to prospective emerging markets. When it comes to manufacturing system, HMC’s international plants are spread over the world, which enable efficient global supply chain.

In some aspects, however, we have also found that HMC need to complement its strategies to follow with global automobile industry and take more market shares. So we recommended some strategies in recommendation part based on these kinds of issues that HMC faces currently. One unique issue in automobile industry is environment-friendly cars such as hybrid car and smart car. To catch up with these global changes, HMC seems to need more effort to develop its new-technology cars in near future. Going with this global trend, European market is highly attractive market for hybrid car where people are much more interested in environmental problem than other areas. Another one that we recommended is in Latin America market. We pointed out that HMC doesn’t have its manufacturing systems near Latin America compared to other emerging markets. In order to capture growing demands on car, HMC need to be prepared to respond in the future.

Appendix

Organizational Structure of HMC

Source: Stanford Graduate School of Business, Hyundai Motor Company, Nov 14 2003.

Source: Stanford Graduate School of Business, Hyundai Motor Company, Nov 14 2003

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