Operations Strategy : Hyundai Automotive Industry

Operations Strategy : Hyundai Automotive Industry

Question 1.

The automotive industry is one of the main ingredients of the Korean national growth. In 2004, Hyundai Motor Company had $57.2 billion in sales in South Korea making it the country's second largest corporation. It is also the world's seventh largest car maker.

In 1998, Hyundai acquired rival Kia Motors. This acquisition brings the first element of the firm competitive strategy. The Hyundai motor company is today aiming to establish clear and distinct identities for the two brands so that they don't compete between each other in the market. The company competitive strategy is influenced by the differenciation strategy within the two brands in the same automotive group. However, this strategy also affects the overall strategy of the Hyundai Motor Company within the Automotive Market. The Hyundai brand is positioned as the "refined and confident" nameplate. Kia, on the other hand, has an identity of a sportier, more youthful brand. However, the competitive strategy is also influenced by the lower cost strategy. Whereas Kia previously built vehicles on Hyundai platforms to save money, the automaker is now developing "standardized integrated platforms" for both brands that allow for different styling.

Since the years 2000, because of high pressures at home (domestic market growing at under five percent and Korean government imposing heavy vehicle excise duty), Hyundai and the other Korean automakers have become more aggressive in terms of pricing and quality, and begun developing larger cars, and broadening their product ranges to meet diverse customer preferences. Hyundai is known for affordable line of cars and being an actor of the lower cost strategy. Nevertheless, the company is today changing the tried-and-true "value" tactic to "emotional," "high-quality" and "stylish" positioning.

Hyundai operating business model (OBM) has evolved over time, as the result of mergers, divestments or acquisitions like for Kia. The risk of such an OBM is that the model turns into a poorly co-ordinated mass of activity. However, it seems to work for Hyundai thanks to a product differentiation between the two brands and economy of scales. Furthermore, Hyundai aims at providing to its cutomers the best quality and stylish car. To do so, the Operating Business Model has moved to heavy research and development

activity (Investments in quality, design, manufacturing, and long-term research of its vehicles.)

The Korean automobile industry is today the 5th largest in the world in terms of production volume, (3.4 millions units in 2004) and the 6th largest in terms of export volume, although South Korea had a relatively late start. Korea is also the 13th Automobile Market in the world (1.1 Million units sold in 2004). In 2004 Korea produced 3.1 millions Sedan cars when China was producing only 2.3 millions units!

There is nowadays a global restructuring of the international automotive industry. The Korean automotive sector has been touched by a large number of mergers involving automotive industry companies and suppliers. Eight Original Equipment Manufacturer were doing business in Korea before the financial crisis in 1998. There are only 5 now (Hyundai, Kia, Daewoo, Ssangyong and Renault-Samsung Motor). Those Mergers cause a high rivalry among the few big firms that are left. Also it implies the industry sector to have a high power of suppliers.

Julien Moretton Id No2006950097

Operations Strategy : Hyundai Automotive Industry 2006/04/25

Question 2.

Hyundai has accelerating the learning curve and development cycle of their products really fast