The remarkable economic advance of HMC what made HMC's resurrection possible in the global recession?

• Author: Kim, Yeongsu
• Position: Report

1. INTRODUCTION

   In 1989, Alice Amsden, a well-known political economist at the MIT (Massachusetts Institute of Technology) argued that South Korea was emerging as Asia's next giant. It was expected that South Korea will become another advanced economy like Japan and it has been a strongly debated issue in academic circles throughout the world. Since the Korean auto industry was at the center of that debate, and it represents an important part of the national economy, the view of South Korean automobile industry was hotly debated, in terms its industrial linkage effects. In 1990, the automobile industry was almost dominated by the several Japanese companies. The IMVP (International Motor Vehicle Program) group at MIT, praised Japan's companies like a symbol in automobile industry and acclaimed them as the ideal manufacturing mode. At the time the prospect of South Korea becoming another Japan was virtually impossible. Moreover, since Hyundai Motor Company failed to penetrate the US market at the time (Bourmont nightmare), the prospect of Hyundai was not that propitious. However, since the global recession that followed the financial crisis of 2008, Hyundai's performance cut over the other major automakers. While General Motors (GM) tumbled down into financial collapse and Toyota faced the crisis of tremendous recalls related to safety issues, Hyundai was the sole automaker that expanded both its sales volume and its US market share in 2009.2. In addition the Hyundai vehicles have received favorable quality and reliability evaluations from various institutes over the last several years. (2) Furthermore, Hyundai had already surpassed the performance of US automakers and received similar evaluations to the top Japanese automakers such as Honda and Toyota, who were widely considered as the symbol of quality. What made Hyundai's resurrection possible? And how was Hyundai able to defeat the Big US automobile companies even in the global recession? This case aims to explain the key success moderator of Hyundai Motor Company and will explain how Hyundai Motor Company epitomizes the remarkable performance of the Korean economy as well as the Korean auto industry over the last several decades.

2. LITERATURE REVIEW

   2.1 A brief History of HMC

   "The myth of Excel" vs. "Bourmont nightmare", 1986-1999

   In the late 20th century, Hyundai Motors was not qualified to match the global quality-standard. Ironically, however, Hyundai Motor sold 126,000 vehicles (Excel) in the US in 1986. In the following two years, the record of the sales volume was better than the record of the year 1986: Hyundai sold 260,000 vehicles each year. Hyundai constructed their first factory in Bourgmont and began to produce "Sonata," a middle sized automobile vehicle. In producing "Sonata," the board members of Hyundai presumed confidently that they may reach the upper region of the value curve. However, "The Myth of Excel" didn't keep up for more than 3 years. The effect of price advantage started to fade out and the low price of the vehicles was no more an advantage which aroused the costumers' interests. Hyundai benchmarked its production model against the Japanese automakers Mitsubishi Motors, with which it had a joint venture for decades, and Toyota. Since the early 1980s, when it started developing a vehicle to export to the US, Hyundai sought to adopt the Japanese production model which used highly skilled workers who participated actively in the production process on the shop floor. Over time, however, the different circumstances of manufacturing in South Korea caused Hyundai to evolve in a direction different from those of the Japanese automakers. Furthermore, the chronic quality issues started to appear. Consequently, in year 1993, Bourgmont was stopped the operation, and in the year 1996, the whole plant was shut down with losses of 500 billion KRW. Today, the employees of Hyundai Motor remember this catastrophe as the "Bourgmont nightmare."

   The Resurrection of Hyundai Motor, 1999-Present

   In 1999, immediately after the "Rebel of Princes" (3), Chung Mong-koo eventually became the CEO of Hyundai Motor. At the time, nobody thought that Hyundai Motor would become one of the best automobile companies of the world. Previously, Hyundai was cited as an example of why South Korea could never become another Japan; hence, its transformation, which enabled it to be placed in the same league as Japan's top auto manufacturers, attracted considerable interest from business scholars. When Chung assumed responsibility as the CEO, he aggressively pursued quality management. (4) Chung, who strongly believed that the add-value of an organization is yield from the quality of a product, reorganized his company to match the global automobile quality standard. In 2000 Chung, proclaimed "Quality management" as the most important motto of his corporation, and also combined the operation, sales, and after-sale service etc. units into a single department by centralizing all departments related to "Quality". Since the beginning of Chung's regime, the change in Hyundai Motor's performance has been revolutionary. The sales volume in year 2009 was 4 million 890 thousand vehicles and was ranked in the 6th place among other automobile companies. The overseas sales volume increased from 1million 110 thousand cars (1999) to 3million780 thousand (2009). Since the sales volume jumped higher and higher, the production level also increased as well. In year 2009, almost 41% of the automobile production took place in overseas factories. Then, how was it possible that Hyundai grew so rapidly? According to the sustainability report of Hyundai, it is reported that such rapid economic growth of Hyundai was based solely on "Speed management" and the "philosophy of Quality". Thanks to the "Speed" of Hyundai and the philosophy of Chung Hyundai Motor overtook Toyota and was ranked in the 7th place in North America Initial Quality Study (IQS)-year 2004.5 (See EXHIBIT 1 and EXHIBIT 2). Then what made Hyundai's resurrection possible?

   2.2 What made HMC's resurrection possible in the Global recession. The Philosophy of Chung Mong-koo

   Hyundai Motor has increased its share of the export market as well as the domestic market. Hyundai produced 1,684,000 units and exported 1,131,000 units, despite the economic recession in 2009. The proportion of exports as a share of total production was 56.7 percent in the same year. Hyundai's share of the US market--the world's most competitive auto market--has also continued to increase. Hyundai Motor estimates that it accounted for 7.1 percent in the US market in 2009 (this figure includes Kia Motor Company).

   The increase of Hyundai's market share in the US reflects the success of its ambitious marketing strategy. Hyundai has used unique marketing strategies such as a 10-year, 100,000-mile warranty and the "Hyundai assurance program," which allows a customer to return his car if he loses his job. However, these strategies would not have been possible without high-quality products. Hyundai's production model has decisively contributed to the increase of its market share by continually improving quality. (EXHIBIT 3)

   After Chung Mong-koo took the helm of the South Korea's largest automobile company, Hyundai Motor, he didn't express any grand vision for the auto business. After all, with his experience in running Hyundai's after-sales service unit, Chung realized that the added value of a corporation was created by the customers. Something had to be done and he knew exactly how to rehabilitate the shriveling industry since he knew that customers were mainly concerned with a product's quality.

   In August 2003, Chung drove the new "Oprirus" through the Namyang research center to test the quality of the new car. During this test, Chung was able to catch the "whine nose," which the research associates failed to detect. Chung commanded that this noise be eliminated even if it meant postponing the date for exports and this consequently resulted in a delay of 40 days. Therefore Chung is usually called the "General Manager in Quality" among the employees in yangjedong and the partners of Hyundai. He personally check the automobile parts for his partners, and emphasizes that "production and quality can always be improved." He also combined all the units related to quality into a single department and named it the "head office of quality". He expected that such an integrated department may help the employees communicate actively about quality issues. He also visits the "head office of quality" and participates in meetings regularly to share knowledge about quality and to communicate with the officers and research associates face to face. Thanks to the integration of quality related departments, it was more comfortable and faster to communicate with each other, and in so doing, the time required to get direct feedback from the CEO decreased. The Integrated quality department enhanced people's information sharing and motivated each other to improve quality. In his 2010-new year recession, Chung announced that Hyundai should react to the change in the global trend and must continuously improve the quality of its automobiles. In essence, his philosophy regarding quality has not changed.

   "This year, we have to react actively and creatively to the upheaval changing automobile market. Moreover, it is expected that...