The people from Korea are proud of their nationality and of their identity. Koreans are warm, friendly and very hardworking and disciplined in nature. Family, interpersonal relationships and respect for the elders is core to their culture. These cultural traits get reflected in organization cultures. All large family controlled business conglomerates known as Korean Chaebols like Hyundai, LG, Samsung & others enjoy special treatment from Government.
An interesting case on Hyundai Motor India Ltd. (HMIL) was presented to our strategy class at Tasmac on 27
Dec 2010. The team’s analysis was insightful – result of an extensive research. The key issues presented by them are highlighted in this post.
Hyundai Motor Company with headquarters at Seoul Korea along with Kia (acquired 1998) is the world’s fifth largest and fastest growing automaker. It operates the world’s largest integrated automobile manufacturing facility and employs about 75,000 persons around the world. Hyundai vehicles are sold in 193 countries through some 6,000 dealerships and showrooms worldwide. Hyundai has 5 R&D centers worldwide in South Korea, United States Germany, Japan and Hyderabad, India.
To break out of a ‘cheap product’ image in 1998 Hyundai began to establish itself as a world-class brand. Koreans are tech-savvy, very hard working and highly disciplined and accept an authoritarian work culture. The Hyundai Motor Group invested heavily in the quality, design, manufacturing, and long-term research of its vehicles to add value and innovation.
Global Branding:
Yukitoshi Funo, chairman of Toyota Motor Sales U.S.A., at a Detroit show in 1986 sounded apprehensive about the competition – “Our main competitors here are essentially Honda, Nissan and Hyundai, but Hyundai is the one we are very carefully watching. We’re worried about them”. Hyundai sold far more cars than Volkswagen, Mazda Motor and Subaru in the United States that year.
The oval Hyundai logo symbolizes the company desire of global expansion and the stylized H as shaking hands with its customer. It plans to replace its tagline “Drive your Way’ by focusing on improved customer service, more innovative marketing, and a better look and feel to the vehicle. Hyundai’s ‘Assurance program’ proved a game-changing move for the US market in 2009 where the company dramatically shifted its brand focus from the car to the customer.
Passenger car scenario in India
Auto industry is one of India’s core industries. Liberalization of the economy that started in 1980 has also had a positive impact on the Indian Auto industry. India is considered as a crucial business destination for reputed automotive players across the globe. The automotive sector in India is growing at around 18 per cent per year.
With de-licensing in 1991, the industry witnessed a remarkable growth as the economy started opening up and was allowed automatic approval up to 51% for foreign ownership.
The automobile policy of 2002 permitted complete foreign equity investment in manufacturing of automobiles and components. This led to entry of international players like Hyundai, Honda, Mercedes Benz, Volkswagen, Toyota, Ford, General Motors, Mitsubishi, Daewoo and Daimler Chrysler for manufacturing and sourcing components. In recent years, these companies have a strategic move to the small car which is growing rapidly.
Domestic demand for over 1 million small cars annually is helping India emerge as the global hub for small car production. But unfortunately manufacturing has barely kept pace with demand. To capture a share of the world markets, local manufacturing must grow exponentially. True integration will entail at least half to 75% of production for the world markets.
Hyundai Motor India Ltd. (HMIL)
Hyundai’s India entry mode was to establish alone without an Indian partner. Multinationals entering emerging markets often form joint ventures (JV) with local partners and make a guarded and cautious entry. They introduce models which were successful in other countries with little customization – first as assemblers and convert to manufacturing. But the track record of JVs in the auto industry is not encouraging. A recent McKinsey article mentioned, of the 25 major joint ventures established from 1993 to 2003, only 3 survive. However Hyundai followed a different route.
Hyundai successful India entry in 1996 was based on the flowing strategic reasons:
(a) Commitment: It demonstrated a bold commitment by making heavy investments to straight-away set up sophisticated production unit near Chennai. They selected the right segment in 1999 by introducing a small car (Santro) that offers value for money to the country’s price sensitive consumers. The
Santro (later upgraded to Santro Xing) became one of the most popular cars in the Indian market by crossing the 15 lakh units in Dec 2009. Hyundai was fastest than any other brand to reach the 25 lakh landmark – a reflection of customer trust and confidence in its value for money proposition. Hyundai also plans to make India a global manufacturing hub that can serve other countries.
(b) National responsiveness:Hyundai did not transplant their global models in the Indian markets. They spent almost a year studying the customer needs to customize Santro to cater for poor road conditions and preferences of the Indian consumer. Realizing that Indian consumers attach much importance to lifetime ownership costs, Hyundai reduced the engine output of the Santro to keep its fuel efficiency high, priced its spare parts reasonably, and made various changes to the product specifications to suit Indian market conditions.
(c) Market positioning: ‘Accent’ was launched in 2000 for the C segment (Honda City, Opel Astra etc) with the tagline ‘The next step’ has been perceived as a value for money car. Sonata in E and Elantra in D
segment is well positioned as inspirational brands. The recent i10 is a big hit and gained immense popularity. Some say it may even erode Santro’s market share. Verna’s new model looks stylish.
(d) Entry mode: Hyundai could maintain focus on manufacturing with little distraction from JV partner issues. Hyundai’s hi-tech know-how with Indian workers skills helped build core competencies and competitive advantage.
(f) Indigenization: Unlike many of the global auto manufacturers in India which source only about 60 to 70 percent of their components locally, Hyundai buys 90 percent.
(g) HQ –Subsidiary integration: The Global Command and Control Center (GCCC) at HQ in Seoul is a 24 hours hi-tech communication hub that controls and integrates all subsidiaries worldwide and the value chain.
Branding – India
Maruti is the undisputed market leader had a head start and established a widespread dealer and service network. Hyundai now emerges as a real threat to the market leader.
Hyundai attempts to replicate Maruti by focusing on the 70% small car segment of the Indian car industry. It has cars in most segments and efficiently differentiates each brands with sharp taglines: Hyundai Accent – Executive, Hyundai Getz – Prime Drive global, Hyundai i10 – Catch the i, Hyundai i20 – I got it all, Hyundai Santro Xing – The sunshine car, Sonata Embera – Undoubtedly Distinguished, Hyundai Tucson – Your spirit of adventure, Hyundai Verna – Feel it.
Growing market share reflects its successful marketing strategies. In 2005 market share stood at 17%, and despite rising competition Hyundai market share today is nearly 20%.
Hyundai India slips
In 2004 HMIL lost leadership in all segments due to aggressive competition from Maruti and Tata Motors. Feed back in the D segment indicated lack of focus in its value proposition to target customer. The premium segment Hyundai could not match expectations of value for money and lost the No 1 position to Accord (Honda) and Camry (Toyota). Competing better in overseas markets is an issue that needs attention.
Hyundai India has had serious labor unrest affecting its production targets. This resulted in low production and demands not being met thereby disappointing customers.
To dispel perceptions of slow model changes & innovations HMIL must come out with quicker model changes and speed up innovations.
Impact of higher lending rates for automotive loans had an adverse impact on car purchases.
Hyundai at the corporate level in Korea has had its share of woes with Chairman Chung being convicted in 2007 for embezzlement in company funds. For any worldwide organization ethics and morale must be spotless as it undermines the spirit and trust of an organization.
Hyundai India on comeback trail – issues and actions
The competition is fierce with Chevrolet, Nissan, GM, Ford, Volkswagen, entering the small size segment. Hyundai Motor India reported move to make a car smaller than the Santro, needs to be speeded up. Need to shift attention from balancing exports and domestic sales to a significant increase in domestic sales to meet the growing demand.
Decision making at HQ in Seoul relating to overseas operations plants must be quickened for building change & responsiveness. The authoritarian management a reflection of the Chaebol hierarchy and top down culture is not ideal for innovations. Decentralization issues may need to be addressed.
The company may need to liaise with Banks and with dealers to offer loans at more attractive rates. Options to extend Hyundai’s global auto finance for India is already under consideration. Exchange schemes have also been introduced for some models.
In conclusion it appears HMIL’s strategy is to create a stronger brand & a large pool of satisfied customers rather than be obsessed by the No.1 position which they feel will come naturally.
[…] An interesting case on Hyundai dilipnaidu.wordpress.com […]
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dear mr dilipjee
thanks for your reply …….your cases and the discussions are indeed very interesting and as when possible i will add some of my expereinces (which i often share with mgt students)from my travels and actual situations ………trust we can keep it very interesting
thanks for your fine work
prof natrajan
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Dear Prof… its indeed very gracious of you … we value your rich inputs which are experiential ..
With kind regards!
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[…] hyundai better than a mazda dilipnaidu.wordpress.com […]
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I think the success of Hyundai comes from its strategy of new product development. Hyundai currently carries a very loyal pool of buyers in certain specialized markets, such as used car markets, low-income consumers and retired seniors. Given that the size of these markets have not decreased, but is predicted to increase in the next few years, Hyundai can find itself with more consumers in its loyal target markets.
Lacking experience in automobile production at the outset, Hyundai formed a taskforce in 1967.By drawing some team members from its construction division who had strong projectManagement and engineering background, and recruiting some from other auto producers who Had production experience, Hyundai ensured requisite variety in taskforce experience and Knowledge. The recruited engineers brought in migratory knowledge that raised Hyundai’s level Of tacit knowledge related to automobile production.
India has evolved into global hub for small-car manufacturing. Currently, India is one of the largest producers of small cars with the small car segment accounting for about three-fourths of the Indian car market. We have companies like Renault, Nissan, Toyota, Ford and Hyundai in India. With the launch of Tata Nano, the stage is set for around a dozen new small and compact cars to be launched in India in years to come.
Regards
Gaurav R Arora
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Hi Gaurav you point on ‘drawing some team members from its construction division’ for the automobiles is a very interesting piece of info. It shows that their corporate level strategies are leveraging the strengths of the Hyundai Chaebol’s divisions to maximum advantage.
Its true India has emerged as a global hub for compact manufacturing next to China. I addition they are learning the low cost manufacturing skills too.
Great comments. Regards.
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Did a wallpaper pattern in a Paris hotel room inspire the famous Chevrolet Bowtie emblem? Does the blue and white BMW roundel really symbolize a propeller and sky? And was the Porsche logo first sketched on a napkin in a New York City restaurant? In the world of automobile logos, truth can be stranger than fiction—though a good story can go a long way toward embellishing a brand’s corporate identity.
From Ferrari’s Prancing Horse to Cadillac’s crest, automobile logos appear on everything from steering wheel hubs to giant billboards, and even the lapel pins on the suits of company executives. This kind of flexibility is one of the design elements needed for an effective and strong logo, says Jack Gernsheimer, Creative Director of Partners Design Inc. and author of Designing Logos: The Process of Creating Symbols that Endure.
Arsenio Hall the famous American Talk show host once took a shot at Hyundai by saying, “Why don’t they improve their damn cars rather than spend money on their new logo?”Well, Hyundai has improved their cars, and it’s time to improve their logo design. Now that they have become the world’s fifth largest automaker which would have been impossible for them to achieve this feet had they not improved the quality of their cars. Therefore, they should certainly rework their logo. A new logo would also help them to overcome the psychological barrier that they are still an inferior car maker which exists in the minds of customers all over the world.
As for customers in India, a new logo is most likely to rejuvenate their interest in them resulting in marginal if not substantial increase in sales. Hyundai India do know their marketing strategy and a new logo would certainly add enthusiasm in their dealers and employees alike.
Thanks & regards!!
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Hi Navin,
An interesting take on ‘Logo’s’ and their power in reinforcing a firms identity. Great stuff on American view on Hyundai quality and yes Hyundai have improved globally.
I always wondered why Hyundai India Logo did not have a India feel about it. Like Unilever. What I feel is that they prefer to invest in Hyundai logo as a global brand. And by investing in improving their quality and customer service just as mentioned in the ‘American Talk’.
Many thanks for you insightful response and wish you all the best.
Cheers!
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dear sirs
excellent article …..many years ago in the year 1980 i used to work in saudi arabia in project management and i used to be on the west coast at yanbu………several leading korean construction companies used to be our neighbours in the residential area……..at times when i used to see their workers lining up for company buses with discipline i used to be wonderstruck
i had a korean guy with very little english who used to be my neighbour and he had a car a korean car which i remember was called pony and used to look dilapated …it used to stutter and i once made fun of it…this korean took offence and said to me that you will the koreans totally take the winds out of the sails of the japanese in auto segment ……give us two decades……..how prophetic
rgds
prof natrajan
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Dear Prof. Ram,
We at this end are indeed blessed to receive inputs from academicians with international experience. Sir your story of the Korean spirit has truly ignited this post and freshened it. I myself was delighted as I am an admirer of these amazing people.
Thank you and wish you well!
Dilip Naidu
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Great insights on Hyundai, Thank you Sir.
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its a very good article
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very nice car post
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wow amazing
Your article is very good, your article must be read
Thank you very much
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