Hyundai: A cross-cultural analysis with special focus on India and USA VIVEK Roll No. 51 MBA (IB), IIFT Delhi, 2010-12 Executive Summary The current issue in the world economy is characterized by globalization. Corporations have built up a world-wide network economy by promoting production and trade. An important cause for the globalizing trend of the world economy lies in relocation of production sites and management strategies of business. Firms need not only partnership with foreign companies in the form of direct investment and joint ventures, but they need also to develop cross-border buyer supplier relations.
Globalization is an increasingly important aspect of the automobile industry. In the past decades, the automobile industry has been one of the mains driving forces in globalization. The pattern of globalization followed by the major car makers can so far be split into three stages. The first stage is export. At this stage the goal is to create a car that fits into a worldwide car category. The second stage of globalization comes after the expansion of export. This is the setting up of transplant in major market regions.
The last stage of globalization is complete localization of transplants on one hand and the establishment of a global business network on another hand. In the early 1980s, Hyundai constructed a new plant for the first front-wheel drive car in Korea and created the “Excel Phenomena” in 1985 and successfully entered the market in the United States in 1986. Initially considered to be a low quality manufacturer, Hyundai rose to prominence in the late 90s and then further in the 21 st century through innovative international marketing strategies.
This phenomenal rise from being a Korean manufacturer to a global giant has been an interesting topic of discussion and research worldwide. In this report we look at the problems faced by Hyundai in the international perspective and the steps taken by it to overcome the same. Page 2 of 18 Hyundai Motor Company: An Introduction H yundai Motor Company is a Korean automaker which along with Kia comprises the Hyundai Kia Automotive Group, the world’s fifth largest automaker as of 2009. As of 2009, it is the world’s fastest growing automaker. In 2008, Hyundai (without Kia) ranked as the eighth largest automaker.
Chung Ju-Yung founded the Hyundai Engineering and Construction Company in 1947. Hyundai Motor Company was later established in 1967. The company’s first model, the Cortina, was released in cooperation with Ford Motor Company in 1968. 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. Hyundai vehicles are sold in 193 countries through some 6,000 dealerships and showrooms worldwide.
The Hyundai logo, a slanted, stylized H, symbolizes the company shaking hands with its customer. In 2004, Hyundai was ranked second in “initial quality” in a survey/study by J. D. Power and Associates. Hyundai is now one of the top 100 most valuable brands worldwide. Since 2002, Hyundai has also been one of the worldwide official sponsors of the FIFA World Cup. Some of the famous cars from Hyundai’s stable are: Accent, Sonata, Santa Fe, Tucson, Genesis, Santro, i10. Problems faced Operations by Hyundai in International Hyundai entered the United States market in 1986 with a single model, the
Hyundai Excel. The Excel was offered in a variety of trims and body styles. That year, Hyundai set a record of selling the most automobiles in its first year of business in the United States compared to any other car brand (c. 126,000 vehicles). Initially well received, the Excel’s faults soon became apparent; cost-cutting measures caused reliability to suffer. With an increasingly poor reputation for quality, Hyundai sales plummeted, and many dealerships either earned their profits on repairs or abandoned the product. At one point, Hyundai became the butt of many jokes (i. e.
Hyundai stands for “Hope you understand nothing’s driveable and inexpensive”) and even made David Page 3 of 18 Letterman’s Top Ten Hilarious Mischief Night Pranks To Play In Space: #8 – Paste a “Hyundai” logo on the main control panel. On the whole Hyundai was branded as a cheap car maker which was low on quality. Hyundai’s image suffered a severe blow but Hyundai struck back with lots of innovative marketing strategies in place. We now see the step-by-step evolution of Hyundai in USA and the schemes it launched to successfully overcome the crisis. Evolution of the Hyundai performance in USA
The Initial Stage (1986 to 1988) The U. S. customers’ response to Hyundai’s first car was immediate: they sold like hotcakes. Just seven months after its debut in February 1986, HMA sold its 100,000th Excel. Total 1986 sales were 168,882, an industry record for an import car distributor in its first year. Hyundai sales averaged 1,431 units per dealer, another sales record in the U. S. , despite having dealers located in only 31 of the 50 states. The Troubled Years (1989 to 1998) It did not take long for customers to realize the Excel had severe quality problems.
It wa s not uncommon to see one stopped on the street with its engine blown. They often observed that car bodies rusted fast and air conditioners did not work on hot days. In 1989, Hyundai’s sales fell to 183,261 units, a decline of 30. 66 percent (Exhibit 3). Such a big drop in sales was a heavy blow to Hyundai’s business in the U. S. HMA lost two COOs during the latter half of 1989. Dealer profits plummeted, and a number of showcase Hyundai dealerships closed in 1989. The Recovery (1999 to 2003) Hyundai was back with a rapid sales hike beginning 1999.
Sales of Hyundai-branded vehicles rose about 80 percent, Hyundai’s dealership shopping rate was t he highest since 1993, and more than double that of 1998. These trends in sales continued, with sales reaching 375,119 units in 2002. Part of the reason for this turnaround seems to be that Hyundai cars’ quality ratings had steadily increased since the mid-1990s and customers had begun to recognize Hyundai as reliable. More importantly it was the innovative market strategies developed by Hyundai that worked in its favour. Page 4 of 18
After being called a Cheap Car by consumers and experts alike, Hyundai turned to innovative marketing campaigns, collaboration strategies and technological advancement to achieve the status of a globally respected quality car-maker. Hyundai’s innovative Marketing Campaigns Campaigns in the United States of America The Best Warranty Campaign In November 1998, right after the promotion of Finbarr O’Neill to president and CEO from COO, HMA launched national commercials for what it called “the industry’s best warranty,” which offered 10-year, 100,000-mile power-train protection to original owners.
The U. S. auto industry was perplexed with this “crazy” tactic, but it really turned things around. Sales soared, dealers became profitable, and Hyundai began to get accolades. A document from HMA reported that 92 percent of the 1999 Hyundai buyers said that the warranty was one of the main reasons they bought Hyundai. The Packaging Strategy Hyundai also had to come up with a solution to how to avoid the cheap car image. In late 1998, executives in HMA began to suspect that Hyundai cars would not be able to change their cheap car image as long as their retail prices are lower than competitors.
Given the simple rule that a car’s price is what it’s worth, Hyundai’s low price should be interpreted as low value. However, executives in HMA also recognized that one of the main reasons for buying Hyundai cars was the price, and they were afraid of a sales loss, which would probably come from the price increase. HMA faced a dilemma. The solution HMA brought out was to differentiate the standard equipment of its cars from other makers, which was called the “packaging strategy” or “value pricing” by people working with HMA.
The manufacturer’s suggested retail price (MSRP) of the 2003 Hyundai Santa Fe was $924 higher than that of its Toyota competitor, the 2003 RAV4. However, many features Page 5 of 18 earmarked as “standard” in the Santa Fe were “optional” in the RAV4: manual air conditioning, power windows, power door locks, delayed power retention system, cruise control, CD player, power adjustable exterior mirror, heated exterior mirror, and alloy wheels. In contrast, there were no features that were optional in the Santa Fe but standard in the RAV4. Ironically, “This packaging strategy was learned from Japanese makers’ earlier experience.
Hyundai Buyer Protection In deference to the current economic situation, also known as the Great Wallet Lightener of 2009, Hyundai has decided that anyone who leases or finances one of their vehicles will have the option to return it and walk away from any financial obligations in the case of a life changing event within the first 12 months of purchase. Hyundai is pretty specific about what situations will be honoured. They are: Involuntary unemployment, physical disability, loss of driver’s license due to medical impairment, international employment transfer, self employed personal bankruptcy, accidental death.
How it works 1. You finance or lease the new Hyundai of your choice using the financing option of your choice. 2. Should you experience any of the covered circumstances noted above, you may file a request for benefit with a Buyer Protection administrator. You must have made at least two scheduled payments and be current on your loan or lease in order to qualify for benefit approval. 3. Your benefits specialist will determine the value of your vehicle based on the average of your dealer’s appraisal and the values from leading industry guides. 4.
Upon benefit approval, you return the vehicle to the selling dealer and pay any Additional Balance Amounts and the amount above the $7,500 Buyer Protection benefit amount (if any). Page 6 of 18 5. You walk away without further financial obligation, leaving your credit rating intact. Hyundai Assurance Gas Lock It guarantees a year’s worth of gas at $1. 49 per gallon on most Hyundai models leased or purchased between July 1 and August 31, 2009. Hyundai Assurance Gas Lock complements Hyundai Assurance and Hyundai’s 10-year, 100,000-mile warranty, and is available with special rebate and financing options on individual models.
Hyundai Assurance Gas Lock enables consumers to save between $1 and $1. 50 per gallon at the pump from current gas prices with the purchase of a new Hyundai. Hyundai 24/7 Roadside Assistance A Road Side Assistance Program was launched with the aim of providing emergency road side assistance services round the clock. The 24X7 Road Side Assistance is launched in association with Mondial Assistance, the world leader in Roadside Assistance services and the program is designed to enhance the customer ownership experience and ensure that customers get immediate and hassle free service in the event of any car breakdown.
The scheme will be available as a complimentary service with new vehicles for two years starting February 1, 2010, while existing customers will be offered this option at the best rates. The 24? 7 Road Side Assistance program covers services such as: wheel change, fuel delivery up to 5 litres, arrangement of taxis for the customer, opening the vehicle in the event of a key lock-out, rectifying electrical problems related to the battery and fuse, on-spot repairs for complaints that can be attended to on site and car towing to the nearest workshop in cases of an accident. Page 7 of 18
Campaigns in India Hyundai Free Car Care Clinic Hyundai Motors India Limited (HMIL), the second largest car maker and the largest car exporter in the Indian market, launched the 9th ‘Free Car Care Clinic’ for its customers all across the country. With this, the company offered free service check-ups at its 30 authorized service centres spread across the Indian market. Moreover, the company also offered a 10 percent discount on selected accessories and spare parts along with labour discounts of more than 20 percent. An extended warranty was also offered to the visiting customers.
In addition to this, during this service campaign, Shell, the sponsor of the event, will be offering a scratch card scheme th rough which customers can avail up to 20 discounts on consumables and oil. To make this event even more attractive and exciting for the customers, the company rewarded the visiting customers (who attended the camp) with exciting gifts and freebies on every single day of the campaign. The gifts offered by the company include 100 extended warranties (10 warranties daily), a 32 inch LCD TV (first prize), Digital camera (second prize), and DVD player (third prize).
The prize was given separately in the 8 different regions in the country. With this, company also offered a bumper price of a 32 inch LCD+DVD player to a lucky customer. Always Around Campaign Hyundai Motor India launched its nationwide service initiative – ‘Always Around’ campaign in a mega avatar for the fourth consecutive year. The ‘Hyundai Always Around’ campaign provided free check-ups for its customers at convenient locations. Last year around 85,000 Hyundai vehicles across 6,000 locations attended the camp.
The ‘Hyundai Always Around’ campaigns has grown much wider in terms of locations and reach and continued till December, 2010 covering 6500 locations wherein Hyundai reached out to around 90,000 customers in an effort to make them smile by ensuring that their car is in the best of condition. Around 4,500 vehicles across 405 locations nationwide were expected to attend the camp on the launch day. Page 8 of 18 The mega ‘Hyundai Always Around’ campaign was conducted at various locations hich customers in their normal course of life frequent on an everyday basis like Joggers Park, Shopping Malls, Apartments, Multiplexes, etc. What makes the Always Around campaign a truly innovative one is that it reaches the customer at a time and a place where it is most convenient for him at no extra cost and saves time as well e. g. while the customer is busy shopping in a mall his car is serviced and cleaned and this saves both his time and money as it is a free service and the advice that he gets from trained technicians which will help him maintain his car even better.
This year Shell India had partnered with Hyundai as the recommended oil consumable vendor for ‘Always Around’ activity throughout the year. Tackling cultural diversity: the Hyundai Way Hyundai Motors India has also implemented HR policies and practices which emphasize selection procedures and training programs designed to ensure that new employees are strongly integrated with the organisation. Like the Canadian plant Chennai is also strongly focused on mass production so that the work is segmented and routinised.
However, given the lower labour costs in India, there is more reliance on labour-intensive methods and less use of automation. Given the lower levels of education and skill among the Indian workforce, compared with Korea or Canada, there has been a much greater presence of Korean managers and technical advisers in Chennai, particularly during the first year or so of operation. The lines of demarcation between different segments of the workforce are also greater in India as the labour force is more segmented and there is a more hierarchical structure in the Indian company.
The experience of the Hyundai Motor Company in India is analysed with regard to three areas: Human resource policies and practices, industrial relations and the internal labour market arrangements. Page 9 of 18 Campaign in Spain Descubrelo tu mismo Campaign Hyundai has launched a multichannel ad campaign geared toward Spanish-speakers, an effort to boost its meagre 2. 7 percent share of Hispanic car sales. The “Descubrelo tu mismo” (“Discover it for yourself”) campaign by LatinWorks/Austin launched early this month. “Second Chance,” a TV spot, features a man reflecting on how he would take life more seriously during an out-of-body experience.
The sentiment of taking life more seriously — was positioned as a cultural cue. The accompanying website includes token Spanish words for “safety,” “reliability” and “design. ” Hyundai told Advertising Age its Hispanic campaigns are often verbatim translations of English counterparts, with no actual Hispanic insights. The company has a new head of multicultural marketing and is riding its third Hispanic agency in less than three years. Think smart live smart campaign This fantastic new campaign called “Think Smart. Live Smart” from Hyundai created to promote its environmentally friendly cars.
Not so much by the campaign itself, but for the great initiative behind it. Following the concept “Think Smart. Live Smart” commercials were produced with zero carbon emissions. The result is really worth seeing. The creative team used wind and solar energy to power generators supplying energy for the machines, LED and lighting. Bicycle generators were used to move the artificial landscape. Hyundai also launched a YouTube channel and is now purchasing one metric tone of carbon offsets for every 600 people who view its videos.
Till today the channel has already been visited by almost 140,000 users. Hyundai White Band Campaign Page 10 of 18 Hyundai Motor Company is participating in the 2010 White Band Campaign, a global awareness-raising campaign taking place in over 100 countries with the aim of ending poverty and inequality. All employees worldwide are encouraged to wear the symbolic white bands, while a variety of supporting activities are being conducted at 47 major operations of Hyundai Motor and its affiliates in over 22 countries, ranging from customer events at dealerships to fundraisings.
Throughout the three-week long campaign, which began on the 11th of October, a white banner, reading the movement’s slogan “Stand Up, Take Action” will be displayed at all the participating operations, translated into their respective languages. Launched in 2005, the White Band Campaign aims to raise public awareness of global poverty and promote MDG (Millennium Development Goals). These include the eradication of eight anti-poverty goals such as reducing child mortality and improving maternal health by 2015.
The campaign has been carried out every year on the occasion of the UNdesignated international day for the eradication of poverty, October 17. Shouting Korea Campaign Hyundai launched the ‘Shouting Korea Campaign’ during the Football World Cup in 2010. Its purpose was to create a “cheering spirit” in Korea, through a World Cup cheering song (nothing new, since for at least the two past World Cups, Korea star singers have released World Cup Cheering songs, and other groups are planning to do so for the 2010 one), contest to win tickets to some World Cup plays, … and it’s was a good way to promote Hyundai.
Page 11 of 18 Hyundai’s Technological Advancements Hyundai has been at the fore front of technological developments ever since it was called a cheap car by consumers. Through sustained innovation, Hyundai has been able to develop some of the critical safety and driving technologies which reflect in its products. Some of the technologies are: Page 12 of 18 Through these technologies, Hyundai has successfully transformed its image to a quality carmaker. Collaboration strategies Hyundai – Kia In March 1999, Hyundai Motors absorbed Kia Motors.
And by union with two rival companies, Hyundai took a lot of advantages from Kia Motors and consolidate its first position in domestic market. There were three advantages that Hyundai got from collaboration. First, Hyundai established a constituency for their overseas expansion. Around 1990, many car companies tried to collaborate with others. For example, there are GM-Fiat and Saab, Ford-Volvo and Jaguar, Daimlerbenz and Chrysler and so on. Hyundai had collaborated with Daimler Chrysler, but it wasn? t a solid relationship.
Car industry needs to spend lots of development cost for new car, novel engine, plant and etc. And there are two ways to get high revenue. First one is to sell lots of car, thus expect effect of economy of scale, or Page 13 of 18 secondly, to get high revenue by producing small amount of high quality car. Because Hyundai didn’t have high technologies at that time, they had to choose first choice. By collaborating with Kia, in 2003, Hyundai sold 2. 69 million cars and took 9th place after Honda in world car market Second, Hyundai got Kia’s high technologies.
Kia gave importance to technology and engineering. Kia developed several technologies such as world’s first small sized SUV, sportage, mechanical direct spread engine of Carnival and so on. Through collaboration, Hyundai could absorb Kia’s technology and also, reduced R&D cost. Third, Hyundai could restrain foreign companies from holding domestic market. Foreign company had problems in supply chain and brand value in Korea market. But they could solve these problems by collaboration with Kia. So if foreign company absorbed Kia, probably Hyundai would meet a big rival in domestic market.
If Kia were absorbed by foreign company, probably domestic market situation would be changed a lot from present. Hyundai – Kia collaboration was a very successful case. Hyundai – Microsoft In May2008, Hyundai collaborated with Microsoft to develop infotainment for next generation’s car together. They had discussed about diverse aspect of cooperation and long term vision since 2006. Through this collaboration, Microsoft will focus on developing software platform for car and Hyundai will adopt those technologies in car for the first time in the world.
Car infotainment technology will enable drivers to experience innovative information, entertainment and communications and so on. First of all, they will start to develop audio system for North America market in 2010 and will expand to domestic and Europe market. And they will aggressively advertise their product by CES (Consumer Electronics Show) and Motor show. Moreover they contracted about establishing „Car IT Innovation Center? with National IT Industry Promotion Agency. They will promote car IT venture companies to advance global market by market network.
This collaboration between two companies will raise Hyundai’s brand value in the world car market and give Microsoft a chance to expand market share in Car IT market. Hyundai plans to invest around 166million dollars for next five years and expects that they will make sure of their high position in car industry and contributes to developing high quality products and increasing employment through fostering IT venture companies. Hyundai- LG telecom In Dec 2005, Hyundai collaborated with LG telecom to start navigation service, telematics, based on cellular phone.
Service provided various information, such as road guidance, dangerous region information, and famous restaurant. It would also provide voice recognition to prevent driver from danger caused by using cell phone during driving. Through service, Hyundai and LG telecom would like to gather new customers. Page 14 of 18 Conclusion Nowadays, Hyundai’s Trajectory is characterized by transition from a world-wide export strategy to multi-domestic strategy based on manufacturing sites in the differential regions, because they can’t continue to depend on the domestic market for sustained grow th and loss to the vast potential market.
In this transition process, Hyundai has adopted three ways that become clear as follows: Continuously, Hyundai has extended production sites with knock-down manufacturing base in periphery areas. Through niche-market strategy, the company has been able to increase its periphery market penetrations despite increased import barriers or raised dumping charges. For the core markets, they will hold the direct export strategy. To increased quality, they are to complete a new modern factory with the respective company’s latest technology and new work organization. In ransition the multi-domestic company, Hyundai will develop the “Asian Car” based on the new transplant in India. The success of Hyundai’s trajectory and enhanced position in the world car market depends more on the competitive foundation of the company. Nevertheless, Hyundai faces critical challenges: The logical target for transplants by the KD knit is throughout Asia, but that means hard competition between Korean automobile, Southeast manufactures in the periphery. Otherwise Asia is already dominated by Japanese auto makers. It may be that Hyundai access for these regions may need important strategic challengers.
In response to the growth of the Asian market, Hyundai should be equipped with modern technology and operate under modern management concepts in overseas plants in Asia. In spite of the pressures’ globalization creates, the strategy of global sourcing and localization is in its infancy. Obviously, the major task is to stimulate the set up of the international supplier’s network. It may be that Hyundai may need to be secured through Korean sourcing from suppliers in Southeast Asia. To survive the fierce sales competitions in core markets, Hyundai should exert its best efforts to improve technology and quality.
Quality and high technology are preconditions for survival. They also must improve their own image, which is a reputation for poor quality cars in the main export market. Hyundai can succeed with appropriate human resource development in order to improve quality. It is still unclear whether or not Hyundai is effective in responding to its challenges. Hyundai is at critically important cross roads in the globalization process. On the whole, Hyundai’s strategies have paid good returns and it is increasingly eating into the market share of legendary auto companies like GM, Ford and Wolkswagen.
Being a leader in churning out innovative campaigns, Hyundai’s strategies are being copi ed by other auto majors. But this does not stop Hyundai from marching ahead of the competition as it being the pioneer of such campaigns, the ideas are still flowing. Page 15 of 18 Annexure Source: www. motori ntelligence. com Page 16 of 18 Compiled from: Kelley Blue Book: New Car Guide, 2003. Source: J. D. Power & Associates Page 17 of 18 Source : www. team-bhp. com References: www. wikipedia. org www. motorintelligence. com www. hyundaiusa. com www. hyundai. com/in www. team-bhp. com Page 18 of 18