Hyundai Globalization Strategy - Case Study Example

Exploring Business Strategies Introduction Hyundai Motors Company is an automobile manufacturer based in Seoul, South Korea with operations in various countries across the globe. Hyundai was established in 1967 and has majority of its single-owned shares affiliated to Kia motors, a company with roots in South Korea. By 2012, the company was categorized as the fourth largest automobile company in the world based on its market capitalization, level of operations and customer base. The company has developed a modern state of the art facility in Ulsan in South Korea from where its research and development facility is conducted (Kannan, 2013). With a high research and development budget, the company has established other facilities in Germany, japan and India and this has enhanced its ability to meet its market base. Currently Hyundai has embraced an intensive globalization strategy that is aimed at enabling the company enter new markets in North America, Africa, china and turkey as well as establish more research and development facilities in different parts of the world (Hyung & Jong-Sung, 2011). The globalization and internationalization strategy of the company has been attributed to its impressive performance in the previous years. From a company facing eminent collapse in 1998, Hyundai adopted a sound strategy and entered the United States, a decision and strategy `which saved it (Kuei & Madu, 2012). Sustainability of Hyundai globalization strategy Globalization is one of the most important business strategies in the 21st century as it improves the performance of organizations and enables them to enter into new markets. According to Yip’s globalization approach, adopting a sound internationalization approach for a business is key in enhancing its success in a more competitive and informed market like the automobile international market (Zou & Lansbury, 2009). The level of exports witnessed considerable growth in the past, a demonstration of the importance of developing a sound globalization strategy and approach. In 1995, Hyundai exported 13% of its motor vehicle productions with majority coming from Hyundai and Kia motors. This bolted Hyundai to develop adequate strategies that can enhance its performance in the international market and improve its performance in the face of tough competition (Selko, 2014). To achieve this plan, the company first developed a joint venture market entry strategy with other more advanced car makes that had already entered such markets. To achieve considerable success in a foreign market, understanding the cultural, political, legal and economic determinant is critical. This can be achieved through engaging industry players in the region of interest and working towards operational independence and an understanding of the market dynamics. Hyundai understood and appreciated this tenet of internationalization and incorporated Mitsubishi in its efforts to enter Japanese markets (James, 2007). A section of Japanese and global Mitsubishi market was accustomed to the company’s motor vehicle design and model and presented significant challenges to direct entry. Hyundai strategically convinced Mitsubishi to manufacture specific vehicle parts for its products as a way of enhancing its entry into the Asian market beyond the Korean boundary (Kim, 2008). This initial cooperation with Mitsubishi enabled the company to improve its production and technical capabilities, a conduit for entry into other advanced market such as the United States. The global market has a massive customer base with varied tastes and preferences, a situation that makes it essential for companies to improve their production volume (Wright, Chung-Sok & Leggett, 2009). Aware of this fact, Hyundai has been keen in improving its production and R&D units such as the Excel phenomena that it introduced in 1986. This development provided the company with the right capacity to enter into the United States market and improve its customer and sales base at a time when motor vehicle industry was facing a number of challenges (Barroso & Giarratana, 2013). The globalization strategy at Hyundai is also sustainable due to a number of support strategies and decisions made to enhance its performance and market control (Suh, Wang, Nam & Zhang, 2014). Following entry into North American market, the company adopted a strong diversification strategy within its overseas market such as the United States and Europe. This strategy also emerged due to the souring automobile market in the United States, which has faced significant challenges as a result of the credit crunch (Lansbury, Seung-Ho & Chung-Sok, 2006). The diversification strategy of the company has aimed at increasing the type of vehicles manufactured, a decision that has seen the company enter into the heavy vehicle manufacturing industry. Construction machines has enhanced its market presence within developed and emerging economies across the globe which are yet to be exploited (Haghirian & World Scientific, 2014). The motor vehicle industry has witnessed significant increase in the volume of sales and demand especially in the developing economies, a fact that has contributed to the focus placed on African countries. In the globalization strategy of Hyundai, the company has focused its energies in entering into emerging markets in Africa and other South American markets. To achieve this, Hyundai has mooted plans to build manufacturing units in different emerging economies of the world (Barroso & Giarratana, 2013). Within the emerging markets in Asia and beyond, Hyundai has developed a suppler association approach christened the ‘Hyungdon hoe’ in which over 265 suppliers were engaged in introducing the different motor vehicles into the new global markets. This approach has been attributed to improved supplier coordination and development across the globe as other companies have successfully embraced it with significant success (Lee & Jo, 2007). Access to information is critical in the success of any globalization strategy as the international market has different dynamics as compared to the domestic market. To this end, the Hyundai globalization process focuses on the development of hierarchical structures of committees to guide the flow of information from different markets across the world. The suppliers to pass essential information to the company on market response towards various products introduced have used this structure. This has enabled the company to change consistently the design and power of its production as a way of adopting a market centrality approach (Lindsay, 2006). In different markets across the world such as Germany, India and japan, the company adopted a subcontracting approach aimed at increasing production while devolving its production unit. Such subcontracted units were empowered to design machines aimed at meeting the needs of the local market as opposed to a standard model of production. To monitor the activities of such companies and ensure that products are of high quality in line with the company’s policy, Hyundai has been at the forefront of offering essential advice to such units on how to modernize their facility and meet the dynamic market nature (Haghirian & World Scientific, 2014). Subcontracting has enabled the company to reduce its cost of operation and time taken to introduce a vehicle into the market as has always been the case. The company designs, builds essential units and forwards the incomplete vehicle to the subcontracted operational units in other foreign markets. Redesigning and remodelling can be done to suit the taste and preference of the market but the foreign manufacturing units must ensure quality and consistency with Hyundai products (Lee & Jo, 2007). Acceptability and feasibility of Hyundai globalization strategy A number of changes have been introduced into the global motor vehicle manufacturing processes that have influenced the performance of various automobile companies. Hyundai has been at the forefront of developing green and environmental friendly products for the global market. The ability to respond to emerging market trends and introduce market sensitive products has been the major force behind the success of the company’s globalization strategy. For example, the Hyundai-Kia project has led to the introduction of an efficient research and development program in which researchers from different parts of the world have been engaged (Lindsay, 2006). The research and development program of the company has contributed towards the introduction of fuel cells and hybrid cars with less greenhouse gas emissions. These products also possess high fuel efficiency and recycling capabilities in line with the emerging global production strategies adopted by other giant carmakers such as Toyota and Mitsubishi. A strong environmental sustainability program geared towards improving the participation of the company in environmental conservation and restoration backs this strategy. The establishment of a strong and operation environmental management committee contributed to the issuance of the issuance of the ISO 4001 to the organization, indicating that its production plants are in line with modern manufacturing approaches (Netland, 2013). The feasibility of Hyundai globalization approach has been manifested in a number of instances when the company has posted significant growth and the development of more vibrant strategies. For example, the introduction of the multi-regional strategy targeting the south-eastern parts of Asia has enabled the company to increase its manufacturing unit and improve in its technological capabilities. Today, the company has single motor vehicle manufacturing unit based in India and supplying vehicles to other parts of southern Asia including Indonesia and Thailand. This has enabled the company to develop an organization structure that is based on three regions where the operations of the company is significantly present (Rechtin, 2004). In line with this approach, Hyundai has developed a three level organizational structure focusing on Asia, north and South America and Europe. Through this approach, the company has made significant inroads into new markets and demonstrated the soundness of its globalization strategy. Alternative strategy at Hyundai The globalization strategy of Hyundai motors has posted significant success to the company and enabled it to emerge from an episode of poor performance. However, the profit margins of the company have not witnessed significant growth due to the challenges that have faced the global automobile market. To address this challenge, the company should adopt a second strategy to augment and support its globalization plan and desire to enter into new markets (Hahn, Duplaga & Hartley, 2000). The most viable strategy that will improve the level of market control and presence of the company in emerging markets is corporate diversification strategy. Corporate diversification is the process of increasing the portfolios that a company services and the number of goods produced and marketed under its trade name (Changhoon & Clark, 2007). Product diversification is the introduction of new products line motivated by the changes in the market and emerging demands that such a strategy seeks to meet. Hyundai should introduce a product-market diversification strategy aimed at introducing the level of market control in the market and the number of products under its name (Netland, 2013). Diversification is considered as part of the growth strategy developed by Ansoff in the product/market mix strategy. This mix includes the development of new markets and penetration of existing markets and the development of new and more market responsive products and finally, the process of diversification. Ansoff’s strategies have been used as a strategy for the development of marketing approaches especially in the event of diversification of operations. Based on this matrix, an organization can adopt four strategies in its marketing approaches, which include the development if diversification approaches market and product development and market penetration (Beene, 2012). Out of these four strategies, diversification remains the most challenging, which compared to the other three requires a company to develop new skills, techniques and build more facilities. This reduced the overall sales of the organization and exposed it to imminent failure at a time when competition had grown beyond the company’s imagination. However, the company has remained afloat despite the turbulent market due to its market strategies including the adoption of diversification strategy. Through diversification, Hyundai has managed to enter into new market and introduce new products that meet the demands of the market (Hahn, Duplaga & Hartley, 2000). Due to the transformation that the market previously controlled by companies from developed economies experienced, the company was faced with massive losses that resulted from a decline in their market share and sales from 1980 to 2003. Most companies within the automobile sector adopted marketing strategies that depicted Hyundai as an old company with old strategies and solutions not fit for the current challenges. To counter this, the company adopted the diversification strategy that enabled it to venture into other sectors of the economy including the medical and commercial sectors (Albanese, 2007). Conclusion Hyundai has emerged as a major automobile company following the financial challenges that it faced during the late 80s to become a major company with significant presence in a number of countries. Though based in Korea, the company has significant presence in the United States, Europe and other parts of Asia. This has been attributed to the globalization strategy of the organization, which has remained awake to the changing market dynamics and the challenges facing the automobile market. In this paper, the diversification strategy of Hyundai has been discussed to highlight the key drivers to the company’s success. Diversification strategy has also been discussed as an alternative that the company can pursue to remain competitive in the global market (Netland, 2013). References Albanese, L., 2007. Changing how consumers see Hyundai, Caribbean Business, 35, 35, p. 36. Barroso, A, & Giarratana, M., 2013, Product proliferation strategies and firm performance: The moderating role of product space complexity, Strategic Management Journal, 34, 12, pp. 1435-1452. Beene, R., 2012, Hyundai dealers see availability as biggest challenge, Automotive News, p. S016. Changhoon, J, & Clark, C 2007, the Impact of Globalization upon the U.S. Auto Industry: The Case of Hyundai Motor Companys Investment in Alabama, International Journal of Contemporary Sociology, 44, 1, pp. 103-113. Haghirian, P. & World Scientific, 2014. Case Studies In Asian Management, Singapore: World Scientific Pub. Co. Hahn, C, Duplaga, E, & Hartley, J., 2000, Supply-Chain Synchronization: Lessons from Hyundai Motor Company, Interfaces, 30, 4, pp. 32-45. Hyung, Je, J, & Jong-Sung, Y 2011, Transferring Production Systems: An Institutionalise Account of Hyundai Motor Company in the United States, Journal Of East Asian Studies, 11, 1, pp. 41-73. James, Q., 2007. Marketing: Hyundai hunts shop for launch of SD hot-hatch, Marketing (UK), 14. Kannan, V.R., 2013, Strategic Management in the 21St Century, Santa Barbara, Calif: Praeger. Kim, L., 2008. Crisis Construction and Organizational Learning: Capability Building in Catching-up at Hyundai Motor, Organization Science, 9, 4, pp. 506-521. Kuei, C, & Madu, C 2012, Handbook of Sustainability Management, Singapore: World Scientific Pub. Lansbury, R., Seung-Ho, K, & Chung-Sok, S., 2006. Globalization and Employment Relations in the Korean Auto Industry: The Case of the Hyundai Motor Company in Korea, Canada and India, Asia Pacific Business Review, 12, 2, pp. 131-147. Lee, B, & Jo, H., 2007, The mutation of the Toyota Production System: adapting the TPS at Hyundai Motor Company, International Journal Of Production Research, 45, 16, pp. 3665-3679. Lindsay, C., 2006. Hyundai gets more autonomy, Automotive News, 11. Netland, T., 2013. Exploring the phenomenon of company-specific production systems: one-best-way or own-best-way? ‘International Journal Of Production Research, 51, 4, pp. 1084-1097. Rechtin, M., 2004, Hyundai reorganizes in US, Automotive News, 78, 6093, p. 57. Selko, A., 2014. Expansion Management: Why the Auto Industry Is Driving to Silicon Valley, Industry Week/IW, 263, 2, pp. 28-29. Suh, C., Wang, Y, Nam, M, & Zhang, X 2014, Sequential internationalization, heterogeneous process and subsidiary roles: the case of Hyundai Motor Company, Asia Pacific Business Review, 20, 4, pp. 578-602. Wright, C., Chung-Sok, S, & Leggett, C., 2009. If at first you dont succeed: globalized production and organizational learning at the Hyundai Motor Company, Asia Pacific Business Review, 15, 2, pp. 163-180. Zou, M, & Lansbury, R 2009, Multinational corporations and employment relations in the Peoples Republic of China: the case of Beijing Hyundai Motor Company, International Journal of Human Resource Management, 20, 11, pp. 2349-2369. Read More