Business Behaviour in Changing World: Hyundai Motor Company

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Table of Contents

Problems faced by HMC and measures taken
Hyundai’s global strategy
Theory/concept behind the Hyundai’s strategies
Policies affecting Hyundai Motor Company
Reference List

Problems faced by HMC and measures taken

Since its inception, Hyundai Motor Company has encountered numerous challenges both in the local and foreign market. The company was established under the authoritarian leadership of Ju-Young Chung. Consequently, the Chung family assumed the responsibility of making all the decisions affecting the company.

One of the challenges that the company encountered both in local and foreign markets was the decision-making process. The success of any organisation dwells on the ability by the management team to make informed decisions. The executives ought to have a chance to present their opinions on matters affecting the organisations.

At the beginning, the leadership of HMC denied the executive a chance to share their ideas on how to manage the company. Hence, the company could not benefit from the wide knowledge and expertise that most of its professional managers possessed. Chung fired all the executive members that opposed his decisions and replaced them with others who showed veritable loyalty to him.

Later, Ju-Young handed over the leadership baton to his younger brother who made efforts to enhance the leadership culture of the company. He promoted autonomous management coupled with equal opportunity and called for harmonious human relations in the company. Unfortunately, he introduced these aspects at a time when Korea was also experiencing political democratisation.

In spite of the positive changes made by Ju-Young’s brother, the company suffered from numerous labour-management disputes. The company saw its first labour union established in 1987, which was responsible for presenting employee complaints and bargaining for better employment terms on behalf of the employees.

Disagreements between the leadership and labour union led to strikes in 1987 and 1988, which pushed the company into huge loss. In 1997, the company suffered liquidity crisis because of the financial crisis that swept across the East Asia.

Moreover, Hyundai group had to restructure its business in line with the International Monetary Fund policies. The restructuring process subjected the company to public distrust as it involved allocating most of the company’s properties to the Chung family instead of coming up with novel management strategies.

In the United States, Hyundai Motor America started at a high note, but later its performance plummeted. At the beginning, the Americans associated the company with Japan; hence, they freely purchased its cars leading to high sales volume recorded during the early days of HMA. Nonetheless, it did not take long before people learnt that HMA’s car, the Excel, had immense quality problems.

The car started exhibiting engine failure and some of its components, as air conditioners did not function properly not to mention its body, which rusted fast. In 1989, the sales volume for Excel went down significantly, which left the company in huge losses. In the process, the dealer profit went down with numerous dealerships closing down. It became hard for Hyundai to get lenders to cater for its consumer loans.

In 1990, J.D Powers and Associates started rating and publicising Hyundai cars. The ratings showed that vehicles manufactured by HMA were of poor quality relative to those manufactured by other automakers. Eventually, Hyundai cars became the synonym for sloppy products.

After Rodney assumed the leadership of HMA, he thought of enhancing the company’s image by enhancing the quality of its cars and increasing their costs.

Poor organisational performance coupled with poor leadership are recipe for employee turnover. Whenever employees feel that they do not have the opportunity to make decisions on matters affecting their company, they tend to slacken and eventually look for another company that allows them to partake in the decision-making process.

Besides, whenever employees learn that their company is not doing well, they fear for their job security, which forces some to quit. Another problem that affected HMA was employee turnover. In 1996, the company lost seven of its talented managers.

In an effort to address all these challenges, the Hyundai Motor Company used numerous strategies. Some of the strategies proved successful while some solved the problems only for a short period. After Se-Young took leadership from Ju-Young, he tried to address the leadership problems by restructuring the organisational culture.

He advocated for autonomous management, equal opportunity, and harmonious human relationship. This move helped in delegating duties to the executive managers that for a long time had been denied the opportunity to participate in managing the company.

Later, in an effort to boost production efficiency, Se-Young merged some of the job functions, which eventually helped the company in downsizing thus cutting down on operations cost.

In 1996, Se-Young relinquished the HMC leadership to his son, Mong-Kyu Chung. Mong-Kyu sought to continue with the leadership style used by his father and in a bold move to improve the company’s image; he set a vision to ensure that HMC became one of the reliable companies in the world. Consequently, he embarked on improving the quality of products sold by the Hyundai Motor Company.

He aimed to use move as an avenue for enhancing organisational brand and realising consumer satisfaction. His humane attitude helped the company in solving the labour-management disputes, thus improving its performance between 1996 and 1998.

In the United States, HMA tried to use varied strategies to address the challenges facing it. For instance, the company came up with advertisements and promotions, offered dealer incentives, and established new packages as ways of regaining its past glory. Nevertheless, these strategies did not work due to the immense tension between HMC and HMA.

Moreover, the company tried to diversify its product mix as away of enhancing its performance in the United States. In 1991, it came up with the Elantra car with an aim of closing the gap between Excel and Sonata.

Nevertheless, the introduction Elantra posed a threat to the sales of Excel in the American market, thus rendering the strategy unsuccessful. In 1994, the company embarked on an advertisement strategy using a popular NBA player. This move helped the company to increase the sales volume of the Sonata model, but only for a short period.

Hyundai’s global strategy

In a bid to facilitate in improving the image of Hyundai Motor Company both locally and internationally, Bob Martin helped the company in establishing bold market strategies. The company not only sought to enhance the quality of its products, but also worked on enlightening its target customers about the quality of its vehicles.

In the process, the company came up with a global approach that sought to help it to realise product differentiation as well as market diversification. One of the factors that made Hyundai Motor Company not to make substantial sales in the global market was the consumers’ perception that the company offered poor quality vehicles. This perception hinged on the low prices of the vehicles sold by both HMC and HMA.

Therefore, to address this challenge, the company opted to come up with a packaging strategy, which sought to repackage their vehicles at higher prices to impart the notion of quality on its target consumers.

One of the challenges that faced this approach was the fact that most of the sales made by the company in the global market relied on the cost of its vehicles. Hence, repackaging the vehicles at a higher price would have resulted to reduction in sales. The challenge was addressed by differentiating some of the equipments installed in its cars from those installed by its competitors.

This approach helped the company to change its image in the public eyes. Customers started perceiving HMC vehicles as reliable just like those manufactured by other automakers. The main reason why customers fail to associate with a particular organisation is its brand image. The brand image facilitates in selling an organisation (John et al. 2002).

No matter how hard an organisation advertises its products, if its brand image is poor, it is hard for consumers to use its products. Differentiating the car equipments from other automakers helped HMC to regain its glory and attract more customers. This move made customers to realise that Santa Fe did not have a cheaper car image as they thought, and thus they developed the willingness to purchase the vehicle.

In 2000, HMC deliberated on selling a luxury car in the American market as a way of enhancing its image. The company felt that selling the entry-level models in the international market, even after being in the market for a long time, sent a negative image about the company. HMC borrowed this idea from its competitors. Other motor companies were selling luxurious cars like Acura, Lexus, and Infiniti.

Building a luxurious car would thus help HMC in boosting its sales in the global market. Besides, it would make the public change their perceptions about the company, and thus start buying even its intermediate models. Normally, companies always strive at being at par with their competitors.

Failure to come up with strategies to counter competition waged by rival companies may lead to a company losing its customers. One of the reasons that prompted HMC to come up with the idea of developing a luxurious car was the fact that the Japanese automakers were already using the approach, which gave them both quality and price advantages.

Besides product differentiation, HMC also opted to establish market differentiation to ensure that it benefited from all the market segments. Hyundai worked in liaison with Kia. Moreover, they operated at the same market level. Moreover, the two companies opted to differentiate their markets and products to ensure that they reap optimally from all market segments.

Kia Company was to focus on the low income earners by selling the entry-level car models, while HMC targeted the high-income market segment by selling expensive car models. This approach could work without opposition from Kia Company. Every organisation would wish to enhance its image by selling products of presumably good quality.

Requesting Kia Company to continue selling low priced vehicles would make the public doubt the quality of its vehicles. Consequently, the company could not just agree with this idea, as it would be detrimental to its profit margin.

In spite of this approach standing out as the most appropriate, it had significant drawbacks to the company. For the company to change the brand image through enhancing the quality and increasing the prices of its product, it had to give up its price benefits. Hyundai Motor Company made significant sales in the global market due to the prices of its vehicles.

Low-income earners and young families bought their vehicles from the company since their prices were affordable. Consequently, increasing the cost of these vehicles would lead to the company losing most of the low-income customers.

Moreover, the company would incur huge costs in manufacturing and distributing high quality car models. Even though the approach would facilitate in building the company’s brand, the management had to dig deeper into the company’s financial reserves to fund the approach.

Theory/concept behind the Hyundai’s strategies

Most companies come up with business strategies based on the market forces that rival companies exert. It would be hard for a business organisation to stand out in the market without differentiating itself from rival companies.

In a bid to achieve this goal, the organisation ought to have a good understanding of its rival companies, their operations strategies, and be in apposition to forecast future market changes that might affect its performance (Teece et al. 1997).

Apart from learning from rival companies, a company ought to understand its customers as well as suppliers in terms of their bargaining power and its probable effects to the company. Hyundai Motor Company formulated its business strategies under the concept of the five forces of competition established by Porter.

The forces include competition from substitutes, new entrants, and rival companies. Besides, the company considered the suppliers and buyers’ bargaining power in coming up with its strategies (Teece et al. 1997).

In coming up with the operations strategies, HMC considered the level of competition waged by rival companies, especially in the American market. The Japanese and European automakers were already manufacturing and selling luxurious and expensive cars in the market by the time Hyundai Motor Company opened HMA in the United States, and thus to capture the market, HMA started by selling the entry-level cars.

The cars were cheaper relative to cars sold by other automakers. With time, customers started doubting the quality of the vehicles that HMA was selling in the market. The competition waged by rival companies triggered the move to embark on enhancing the quality of the vehicles as well as the image of the company.

It was hard for HMA to remain competitive in the market since people perceived that the company sold its vehicles at lower prices due to their poor quality. Therefore, in an attempt to overcome this challenge, Hyundai Motor America had to start selling vehicles that were at par with those offered by rival automakers like the Japanese.

Hyundai Motor America was afraid that new companies would venture into the American market. Hence, it had to look for ways to ensure its establishment in the market before the new entrants. The company feared that in the next ten or fifteen years, the Chinese automakers would establish themselves in the American market.

This move would lead to the introduction of vehicles that sell at lower prices thus being detrimental to the price advantage that HMA had been enjoying in the market. The fear of new entrants’ inevitability in the American market forced HMA to embark on the strategy of enhancing the quality of its cars. The company felt that by enhancing the quality of its cars, it would surmount competition waged by new entrants.

Besides the competition from new entrants and rival companies, numerous vehicles acted as substitutes to the ones sold by Hyundai Motor America. For instance, Elantra competed with Nissan Sentra, Chevrolet, and Dodge Neon. On the other hand, Santa Fe competed with RAV4 and Toyota Highlander.

These substitutes were mainly from companies known for manufacturing quality vehicles, thus making it hard for HMA to assert itself in the American market. The main reason why HMA decided to differentiate some of the standard components in its vehicles was to outdo the substitute cars in the market. It was hard to prove that its cars were superior while they did not reflect anything unique relative to their substitutes.

This aspect compelled Hyundai Motor America to install unique air conditioner components, power windows, and other components to its cars as a way of signifying the cars’ uniqueness relative to the substitutes offered by other automakers.

In coming up with the warranty strategy, HMA considered the bargaining power of its suppliers. The strategy was to be compensated by developing quality vehicles thus boosting the company’s sales volume. Therefore, to come up with quality vehicles, the company had to liaise with suppliers to acquire quality materials.

This aspect meant that suppliers would have an upper hand in influencing the company’s strategy. Moreover, to ensure that they continued acquiring quality materials from the suppliers at a cheap cost, the company worked closely with suppliers in its research and development strategy.

Consumer bargaining power played a significant role in the business strategy that HMA adopted. The company benefited most from the low-income earners and the young families.

Hence, in the effort to come up with high quality and expensive vehicles, the company had to consider this group of buyers. The reason why the company embarked on a market differentiation strategy was to ensure continuity in serving this group of buyers, which acted as it main market.

Policies affecting Hyundai Motor Company

The success of any business organisation depends on its policies. Through policies, a business establishes a set of guidelines that direct its operations. Moreover, every market has some policies that direct the operations of all the stakeholders. Technological, international, and local policies are some of the policies that influence organisational performance in any market (Metcalfe 1994).

Therefore, to enhance its operations, Hyundai Motor Company adopted a technological policy that sought to promote innovation in the company by enhancing management capacity and knowledge acquisition. After operating in the American market for a long time, HMA learnt that it was hard for it to continue enjoying substantial sales without working on the quality of its cars as well as building its image.

Hence, the management embarked on looking for the most innovative enhancements to include in its cars. The company sought the assistance of its research and development personnel to achieve this objective. The personnel members were to work in liaison with suppliers to ensure the acquisition of quality supplies. Moreover, the company worked in collaboration with its customers to identify some of their preferences.

It would be hard for an organisation to meet all the customer needs without liaising with its customers (Metcalfe 1994). Consequently, HMA adopted a technological policy that allowed for cooperation between the company and its customers in building its new car models.

One of the local policies that affected Hyundai Motor Company in Korea was political democratisation. Initially, the Korean Chaebols did not allow their employees to form labour unions. Nevertheless, the democratisation process led to the emergence of labour unions, and as the unions started fighting for employee rights, they led to HMC encountering a series of labour-management disputes.

The disputes made it hard for the company to maintain its consistency in vehicle production and distribution. In 1987 and 1988, the company recorded numerous employee strikes because of labour unions. Besides the local policies, international policies also had significant effects on Hyundai Motor Company. In 1997, East Asia suffered a severe financial crisis. Most of the Korean companies were forced to close down due to bankruptcy.

The crisis did not spare the Hyundai group. In the process, the International Monetary Fund and other foreign companies imposed their foreign policies on the Korean government forcing it to ensure that local Chaebols restructured their operations and enhanced transparency. Hyundai had no option but to restructure its businesses. In the process, the company lost about 70 associate businesses, thus affecting its performance.

Another foreign policy that significantly affected the performance of Hyundai Motor Company in the United States is the tendency to publicise the information about how its products were fairing with respect to quality. When the company entered into the American market, consumers did not know anything about the quality of its cars.

Some associated it with Japanese automakers; nevertheless, as time went on, J.D. Power and Associates started broadcasting the ratings of Hyundai cars. Hyundai’s cars ranked low in the market, which stirred doubt amongst customers regarding their quality. This aspect made most of the potential customers to shun from buying Hyundai cars.

Reference List

John, R, Cox, H, Gillies, G & Grimwade, N 2002, Global Business Strategy, Thomson, London.

Metcalfe, S 1994, ‘Evolutionary economics and technology policy’, The Economic Journal, vol. 104 no. 425, pp. 931-944.

Teece, D, Pisano, G & Shuen, A 1997, ‘Dynamic capabilities and strategic management’, Strategic Management Journal, vol. 18 no.7, pp. 509-533.

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