Case study on hyundai


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Case study on hyundai

  2. 2. Abstract:Hyundai Motor Co., formed in 1967, was a part of the large SouthKorean Chaebol - the Hyundai Group - until the group split inSeptember 2000. In the last four decades, Hyundai managed toestablish itself all over the world as a company producing reliable,technically sound and stylish automobiles.In the 90s, the company started aggressive overseas expansionprograms. By the late 90s, when Southeast Asian crisis struck, thecompany like all the other chaebols, faced serious financialproblems. To survive, it had to cut its labor force. The companyoffered various retirement schemes, unpaid leave for two years, workers, and expressed its inability to support its entire workforcein the slack period.The unions refused to compromise and the management too held itsground. Finally, the government intervened to force a negotiatedsettlement between the union and the management."If the company refuses to accept our demands, we have no choice butto go on a full-fledged strike. As the union leader, I cannot control theanger of the union."-Hyundai union leader Kim Kwang-shik, July 1998."Laws and principles, along with dialogue and compromise, should beadhered to in dealing with labor issues."-Choi Kil-seon, president and CEO of Ulsan-based Hyundai HeavyIndustries in an interview to The Washington Times, June 2003.
  3. 3. IntroductionThe Hyundai Motor Co. (Hyundai), South Koreas largest automobilemanufacturer was in the midst of acute labor problems in the late1990s and early 2000s. Until the mid 1990s, Hyundai had beensuccessful in handling South Koreas traditionally disruptive laborunions. It had kept strikes at bay with nearly double-digit pay hikesand other benefits. But the Southeast Asian crisis and the generalslump in the automobile industry in the late 1990s forced thecompany to restructure and cut down jobs. However, the Hyundailabor union and workers rebelled against the managements efforts torestructure the organization and the company faced strikes andworker unrest repeatedly from late 1990s to early 2000s.Members of the Hyundai group such as the Hyundai Construction andEngineering and Hynix Semiconductor were also facing financialtroubles at the time, and were on the brink of insolvency.Founder chairman of the Hyundai Group, Chung Ju-yungcommented, "We are losing our international competitiveness."Regretting the continuous labor unrest, he said, "Wages have doubledin three years and productivity has gone down."The labor problems Hyundai faced were not an isolated case in SouthKorea. By the late 1990s, the chaebols had grown into largemismanaged structures with many having several unprofitable units.During the economic slump of the late 1990s, most of these chaebolsfelt the need to downsize.There was also mounting pressure from the IMF on the South Koreangovernment to undertake strict economic reforms and restructuringmeasures. The labor unions, which have traditionally been verystrong and influential in South Korea, felt threatened.Since jobs were being cut, social unrest and a feeling of insecurityamong the labor class was rising. The unions resorted to extrememeasures in an effort to establish their authority. Although, all over
  4. 4. South Korea, companies were facing labor unrest, Hyundai wasamong those that were hit the most.An Overview of the South Korean EconomyUntil 1960, South Korea focused on agricultural development. But aseries of five-year plans, the first of which was implemented in 1962,greatly altered the economic structure of South Korea. Starting from1962, economic policies were geared towards industrial growth.Export promotion and import substitution were the key elements inSouth Koreas growth plans. The industries of electronics,telecommunication, automobile production, chemicals, ship buildingand steel were the major thrust areas.Business in South Korea was predominantly controlled by a few largeconglomerates or chaebols. Chaebols were industrial groups that wereestablished after the Korean War in early 1950s. They differed fromother corporate organizations in the sense that they were still largelycontrolled by their founding families and were not managed byprofessional corporate managers.All decisions, expansion plans and company policies were made bythe members of the founding families, who occupied the top positionsin the chaebols. In 1995, the top 30 chaebols alone accounted fornearly 16% of South Koreas GDP.The top four chaebols at that time - Samsung, Hyundai, Daewoo andLG contributed 9% of GDP. South Korea has shown an incrediblegrowth pattern. Between mid 1960s and mid 1990s, the annual GDPexpanded by more than nine percent annually.From being at par with some of the poorer countries of Asia andAfrica in 1960, its GDP per capita in 2003 was seven times that ofIndia eighteen times that of North Korea and at par with some of theless prosperous economies of the European Union.This remarkable success has been a result of close cooperationbetween the government and the chaebols. Government policies were
  5. 5. framed keeping the industrialists demands - availability of credit,import restriction, sponsorship of specific industries, import of rawmaterial and technology, encouragement of savings and investmentover consumption - in mind. To encourage domestic industry, themarkets were heavily protected by quotas and tariffs...Labour Problems in the Late 1990sThe slump in the South Korean economy in late 1990s was bound tohave an effect on Hyundai also. The automobile segment was amongthe first to be hit by the downslide in the economy. The domesticautomobile sector had negative growth of almost 55% in 1998compared to the previous year.Hyundai was responsible for almost 50% of total automobileproduction in South Korea and was therefore badly hit. The domesticsales of the company fell by 55% in the year 1998 and its exportscrashed by 74 percent to only 15,056 units . Hyundai recorded a 200billion won loss in 1998.According to company officials, Hyundais six assembly plants with ayearly production capacity of 1.65 million vehicles, were operating atonly 40 percent of their capacity. In May, 1998, Hyundai reacted tothis grim situation by announcing plans to lay off 27 percent of its46,000 workforce in South Korea and to cut pay bonuses and benefitsin a bid to save 230 billion won.Unfortunately for the management of the company, Hyundai had oneof the most powerful and militant unions. The decision of thecompany to lay off workers sparked off agitations not only inHyundai but in other companies too. The unions were particularlyoffended at the governments approval of Hyundais decision.In a demonstration in Ulsan, where Hyundai has its biggestautomobile plant, 32,000 employees participated in rallies. All acrossSouth Korea almost 1,20,000 employees from about 125 companiesparticipated in demonstrations against Hyundai and the governments
  6. 6. decision. The government had to deploy nearly 20,000 riot police tocontrol the demonstrators...Labour Problems in the Early 2000sOn September 1, 2000, Hyundai officially cut ties with the HyundaiGroup and had relocated its head office to Yangjae-dong, Seoul,Korea - a move that was seen as symbolic of its rebirth as anindependent automotive business group. In December 2001, Hyundaiforecasted its highest profits ever - $900 million for the year.In the same year, it posted 23.4 percent growth in unit sales and a74.5 percent improvement in net income. Most importantly, Hyundaivehicles were being accepted as a technologically advanced, stylishand reliable in overseas markets like the US and Europe. In theUnited States, the worlds largest auto market, Hyundai recorded a 42percent sales increase in 2001.This was an era of growth, reorganization and new marketexploration. But the success story was marred by another strike threatin Hyundai.Workers at the Ulsan plant went on a two-day strike in December2001, demanding higher wages and higher bonuses. They alsodemanded a 30% share in the profits that year as a performancebonus.The management clarified, that though the company had done wellthat year, it could not afford performance bonuses to the tune of 30%of profit. The reasons given were: firstly, the increased influx ofimported cars into South Korea was bound to hurt Hyundais marketshare and margins in South Korea.Secondly, General Motors purchase of Daewoo was a threat thatcould not be ignored or taken lightly, and the company had to gearitself up to be able to compete with General Motors, and lastly, themost important reason stated was that due to the appreciation of the
  7. 7. Korean won, Hyundai cars were becoming less competitive ininternational markets and profitability consequently would be hurt...Marketing Hyundai Beat the Bear Market with BehaviouralIn an effort to take the bull by the horns in this bear market, Hyundaiused behavioral segmentation to identify what was keeping prospectsfrom buying. Using this information, the company then developed astrategy enabling customers to part with their hard-earned dollarsmore easily.What can you learn from their example: In every market change, evena downturn, behavioural segmentation is a powerful tool—one thatcan make your product or service stand out.Talk to Target ProspectsEach news cycle brings a tsunami of information impacting yourcustomers purchasing decisions. The smart marketer understandsevery change in the marketplace is an opportunity to capture newcustomers. How do you seize that opportunity and grow yourbusiness?Relying on secondary data or past segmentations isnt a realisticoption. Even in these tough times, resist the urge to repeat a smallerversion of last years marketing strategy and tactics. Use voice-of-the-customer research to talk to prospects you are currently winning, aswell as those you would like to win. You cant overestimate the valueof talking to your customers. Ask new, open-ended questions. Focuson learning the following information:• What their reason is for buying. How is it changing?
  8. 8. • What their needs are. How have they been impacted by recentevents?• Whats keeping them from buying?• What they think of your product versus the competitions product.• What would change their perception of your product versus thecompetitions.• How they rate your product against alternative solutions.Sort FindingsTake a hard look at your data and sort groups with similarcharacteristics to determine which segments to target. Hyundaidiscovered as the market changed so did their segmentation.Significant numbers of prospects were no longer focusing on gasmileage performance and they werent necessarily looking for morediscounts. Armed with strategic customer insight, Hyundai identifieda business opportunity.Define SegmentThe company determined fear of losing a job was a barrier preventingprospective buyers from purchasing a car. After defining the segment,Hyundai developed and aligned sales and marketing strategies toreach this new segment. By targeting prospects concerned about job
  9. 9. security, Hyundai broadened their audience and increased the numberof customers who looked at their cars.Noted David Zuchowski, the company’s vice president of nationalsales, in a New York Times article: "It doesnt matter how manyzillion dollars you put in rebates, or what APR you give them. Ifpeople are worried about their job, they dont really care and theyrejust not going to get off the fence."So, how did Hyundai motivate customers to move off the fence?Target New SegmentThe company developed a strategy to ease the fears of this segment.Hyundais Assurance Program releases customers from car paymentswithout harming their credit score. As Jonah Bloom stated inAdvertising Age, "right there, is an honest-to-goodness big marketingidea…Hyundai confronts the recession head-on and does somethingtangible to tackle its effects."Create MessagesCraft messages to address the specific concerns of your customers.Hyundai advertising used straight talk that resonated with customers.The company said, "Were introducing Hyundai Assurance, to showyou the faith we have in you. Right now, finance or lease any newHyundai, and if in the next year you lose your income, well let youreturn it. Thats the Hyundai Assurance."TestWith some creativity, almost all new segmentations and strategies canbe tested, either in a small geographic area or among a select group ofcustomers. It’s crucial to verify your strategy is on track beforelaunching a new program nationwide. This gives you an opportunityto make corrections to your messages as well as validate the strategyto make sure your investment will pay off.
  10. 10. How can you take the bull by the horns and send the bear packing?Use behavioral segmentation to identify whats meaningful to yourcustomers, then apply that information in strategy development.When January sales came out, it was official: Hyundais AssuranceProgram had hit a home run. The company was one of only a fewautomakers to post an increase in sales.Corporate social responsibilityIn 2008, Hyundai Motors established a committee to oversee itsCorporate Social Responsibility program. Among the programsinitiatives have been the "Happy Move Global Youth VolunteersProgram".The Hyundai Motors India Foundation (HMIF) has invested morethan 20 million rupees in various corporate social responsibilityprogrammes in India. In 2011 it started the "Go Green" villageadoption project in Tamil Nadu. Its aim was to promoteenvironmentally friendly products, increase the forest cover in TamilNadu, and improve living and hygiene conditions in the regionsvillages. A number of schools have been adopted for improvementwith the HMIF donating around 450 benches to government schoolsand drilling 10 bore wells. It has been ranked as 43rd most trustedbrand in India by The Brand Trust Report, India study 2011.