Hyundai Case Analysis - Essay Example

Executive Summary and conclusions The case presented here talks about the fundamental problems faced by the Hyundai group since the Asian financial crisis in 1997. The issues are a blend of structural matters, owners’ feud, and management methods of the founder. Although, Hyundai established itself into a big player in the local as well as in the world arena due to the support given by the South Korean government, the relationship soured and Hyundai suffered further misfortunes due to its non-following of the government’s reform policies.

It suffered more financial difficulties due to its operationally and financially unfeasible expansion plans into North Korea and the continued acquisitions made during the crisis. The other factor was the disagreements that arose among the family members after the death of the founder, Chung Ju-Yung. The resultant instability negatively impacted Hyundai’s functioning and its image in the market place. The last component was the management manner that the founder applied. He had suppressed creativity and leadership roles among his workers.

These three major issues have negatively affected the firm. If the clock could be turned back, it would have been a good idea for Hyundai to adopt the government’s reform plans, to have done the reorganizing of the owners’ involvement aptly as well as the restructuring of the whole firm in a more decentralized way. In the end of these analyses, I found that separating the firm’s segments is the best way to fix it. It has such profitable and promising segments like car making, shipbuilding, and construction activities and would be better if the firm concentrates only on these segments.

What Went Wrong? 1- Responding to the Changes While the company was supposed to restructure its massive conglomerate during the Asian financial crisis in 1997, it decided to expand and even acquired few firms. Although this was a positive approach, in those tough times, conservative approach was the best possible strategy. In addition, it seems that the Hyundai’s management was not under pressure from the government to carry out those reforms as the other bigger Korean organizations did. This decision of Hyundai reflected badly on its performance and the profits.

While its competitors who followed these reforms achieve positive growth, Hyundai achieve major losses. Another problematic phase was when Hyundai went to North Korea when the financial crisis was at its peak. First, doing business in such an autocratic, confrontationist and non-business friendly country contains a high level of risk, and Hyundai experienced that when it suffered cash shortfalls in the projects there. Because of those shortfalls, it faced repercussions in other sectors, since they were linked to each other financially 2- Family problems One of the difficult phases for any family businesses could occur in the aftermath of the founder’s demise.

The succeeding generation would more likely to face difficulties in running the business due to the confrontations between them, lack of succession plan, leadership vacuum, lack of continuity in the operational processes, etc, and Hyundai was no exception to it. The heirs had issues between them in relation to their positions in the organizational structure and also due to wealth sharing. 3- Centralized Leadership The founder practiced a sort of centralized behavior when he was in charge of the conglomerate which led to negative impact in the firm.

In the long run, this practice hurts any firm as it ignores the creativity and development leadership qualities among the workers especially those who are in the upper management level. So, what went wrong with Hyundai was that the company was linked to the founder’s personal characteristics, and so when the founder passed away, the whole firm fell in troubles. Alternatives 1 - Adopting Governmental Reforming Plan As mentioned above, the firm did not heed to the government’s suggestion in terms of downsizing its structure and separating the affiliates to make them financially independents.

If the company did that earlier itself, it would have salvaged its position. Although, they are doing it now, they are just catching up. Thus, one of the alternatives that could be tried by Hyundai is making each of its entities stronger in their own right, with more independent leanings. This could minimize the spread of negative impacts across all its entities. In other words, any problems, which could affect one entity, may not spread around to the other healthier entities or sectors. 2- Organizing the House A big firm, like Hyundai, should not have the poor top management, as it would could failures at all levels.

Hyundai is one of the biggest employers in South Korea, and so it responsible for the livelihood of many employees, and its family feuds should not wreck the families of the employees. In that direction, Hyundai or in particular its founding families should reduce their stake, and also their members in the board, so independent outside leaders can be brought in to manage its various entities. The deal between the Hyundai Engineering & Construction Co and the Hyundai Group was in that direction.

“If the deal goes through, it will underscore that South Koreas conglomerate era is nearing an end,” with the Second generations “of founding families reducing their stakes and control by the need to raise capital from other investors.” (“Family feud ends at Hyundai. Family Business”). Specializing It is a basic microeconomic principle that firms should find on what are they good at and then focus and specialize on it exclusively. Organizations can have an absolute advantage in the market and also over its competitors if they specialize in the sector or product or service, in which it has a comparative advantage. (Mankiw). According to market estimates, Hyundai seems to have comparative advantage in certain sectors, and so it should either sell off the least profitable segments, or separate them into independents entities.

The Best Alternative Among these three alternatives, I think all of them are important, but the alternative of specialization is the most important and can be an effective strategy for Hyundai. What should Hyundai specialize in? I think it has to improve its business in car making industry, shipbuilding, and constructions. Car Making Hyundai is a well-known car making company and brand all over the world. With optimum sales in 2011 and positively forecasted sales in 2012, Hyundai Motors along is expected to reach the 3rd position among the global car makers based on sales.

Hyundai with its sister company Kia motors achieved global sales of 6.5 million units in the year 2011, and has a target of selling 7 million cars in the year 2012. “If achieved, and Toyota continues its spiral downward, Hyundai could potentially move into third place among global automakers, ousting the Japanese giant.” (Evans). Due to this positive trend, Hyundai should continue to keep their focus on car-making sector. Shipbuilding It’s the largest shipbuilder in the world and has 15% share of the market.

In addition, shipbuilding industry is a promising field. “Further, with the reported increase in oil demand, stronger availability of financial support and continuously improving economic fundamentals, the market for shipbuilding is forecasted to increase at a CAGR of 22.7% (in terms of dwt) during 2011-2013.” (“Global Shipbuilding Market Report”). With favorable scenario, Hyundai has to optimally focus on its Shipbuilding arm. Constructions Hyundai’s construction business is also growing positively in the recent years.

With many emerging countries spending billions of money in the construction industry, Hyundai has good opportunities to grow effectively. Saudi Arabia, for instance, has “announced in August 2010, the plan sets out to invest SAR1, 444bn (US$385bn) between 2010 and 2014” (“Saudi Arabia Infrastructure Report Q1 2011”). China also “plans to spend at least $1.3 trillion over the next five years to ease transport and freight bottlenecks” (“China plans $1.3trillion infrastructure spree”).

Four T Frameworks Technology: In any technology based or technology intensive industry sector, the evolution of the technologies will maximally impact the organizational functioning. In the case of Hyundai, all its businesses are technology intensive, and thus it has its own R&D wing for each of its entities. All these wings have performed their roles, without fail. Although, its R&D wing carried on with its work during the financial crisis, other weaknesses in Hyundai’s functioning pulled it down.

Training: The training aspect in Hyundai comes mainly in relation to its founder’s inability to train and groom the next set of leaders. That is, as mentioned above, its founder followed a centralized form of management, and did not provide good opportunities for the managers in the middle level as well as in the upper level to develop their leadership skills. Thus, without adequate training, it became difficult for Hyundai to groom the next set of leaders. Trade: Although, the 1997 financial crises impeded Hyundai and caused negative growth for it, after the restructuring, Hyundai was able to salvage its position through positive trade figures.

In addition, its trade with North Korea further deteriorated its fortunes, due to the lack of business-friendly environment there. Treasury: Here again, the faulty trade relations with North Korean entities badly impacted Hyundai’s finances, causing severe cash shortfalls. That problem led to liquidity problems for Hyundai’s flagship entity of Hyundai Engineering and constructions. It was clear that chronic cash shortfalls in one sector of its business caused Hyundai problems in other sectors as well.

PEST Political Organizations in any industrial sector or in any country cannot function without the influence of the political government at the helm. On the same lines, Hyundai was greatly supported by the Hyundai government in the initial stages through government contracts. Hyundai for its part also invested in key national sectors on the advice of the government. However, Hyundai’s rejection of the government’s reform plans and its eventual problems, shows how an organization can suffer, if they do not positively tap the political influences.

Economic When it comes to the economic factors, Hyundai suffered maximally because of the economic crisis that happened in the late 1990s. The crisis engulfed the economies of whole of East Asia and even South East Asia, affecting not only Hyundai’s home market but also its many Asian markets. Although, the 1997 economic crisis affected Hyundai, it was failure on the part of the company to follow the government reforms, which pushed it down further. Social Certain social impacts that happened in the Korea also impacted Hyundai.

For example, its decision to enter North Korea seems to be more due to the political-social reasons than the business reasons. In addition, the prominent role of families in the Korean social structure also reflects in their businesses, and in the case of Hyundai, family feuds further derailed it. Technology The advanced technological environment that was visible in South Korea also aided Hyundai. With South Korea witnessing sizable technological developments, particularly after the Korean War, it positively impact Hyundai’s growth.

Works Cited “China plans $1.3trillion infrastructure spree.” Construction Week Online, 9 May 2011. Web. 27 March 2012. Evans, Huw. “Hyundai Targets 7 Million Global Sales in 2012, Could Oust Toyota from Top Three.” Auto Guide, 27 Oct 2011. Web. 27 March 2012. “Family feud ends at Hyundai.” Family Business, 16 Nov 2010. Web. 27 March 2012. “Global Shipbuilding Market Report: 2011 Edition.” Global Information Inc, 2010. Web. 27 March 2012. Mankiw, Gregory. “Principles of Microeconomics.

” California State University, n. d. Web. 27 March 2012. http://www.csun.edu/bus302/Lab/ReviewMaterial/micro2.pdf. “Saudi Arabia Infrastructure Report Q1 2011.” Research and Markets, n. d. Web. 27 March 2012.