Supply Chain Management of Hyundai Group - January 10th,

2011
The Hyundai Group spent most of its history operating as one of
South Korea's largest chaebols, or conglomerates The group displayed
spectacular gro!th since its founding in 1"#$ and its rapid e%pansion&&
to a point !here its interests included car manufacturing, construction,
shipbuilding, electronics, and financial ser'ices&&reflected the
achie'ements attained during South Korea's economic miracle The
South Korean economy too( a turn for the !orse during the late
1""0s, ho!e'er, !hich prompted )resident Kim *ae Jung to launch a
series of reforms aimed at dismantled large, often corrupt, chaebols
+y 2001, much of the Hyundai Group had been dismantled ,oh -oo
Hyun, elected )resident in 2002, continues to reform the South Korean
business sector
Hyundai's gro!th !as lin(ed ine%tricably to South Korea's
reconstruction programs follo!ing .orld .ar // and the Korean .ar as
!ell as to the state&led capitalism that resulted in a polari0ation of the
country's corporate structure and the domination of the economy by a
number of conglomerates .orld .ar // left the country de'astated,
and the small reco'ery Korea had been able to ma(e follo!ing this
conflict !as re'ersed during the Korean .ar, !hich lasted from 1"10
to 1"12 The chaebols, !hich are similar to Japan's 0aibatsu, !or(ed
!ith the go'ernment in rebuilding the economy and formed an integral
part of Korea's economic strategy and its dri'e to build up its industrial
base
3ne man, 4hung Ju 5ung, stood at the center of Hyundai's progress
from 1"10 until he died in 2001 4hung, considered a founding father
of the Korean chaebol structure, left school at an early age and
de'eloped !hat has been described as an autocratic and
uncon'entional management style He noted those areas of industry
that the go'ernment had selected as crucial to economic de'elopment
and structured the group accordingly
6%plosi'e )ost!ar Gro!th
The foundation of Hyundai !as laid before the Korean .ar, in 1"#$,
!hen 4hung set up Hyundai 6ngineering 7 4onstruction 4ompany The
company !as in'ol'ed in the early stages of the country's reco'ery
follo!ing .orld .ar // 8fter the Korean conflict, de'elopment
intensified, and Hyundai !as 9uic( to ta(e on a (ey role, !or(ing on
ci'il and industrial pro:ects as !ell as housing programs /n 1"1;, it
set up Keum(ang 4ompany to ma(e construction materials< four years
later, !hen the first of Korea's fi'e&year de'elopment plans !as
launched, Hyundai !as !ell placed to !in a range of infrastructure
contracts This plan and its successors aimed to lay the foundations for
an independent economy by targeting sectors of industry for
e%pansion
8gainst this bac(ground, Hyundai e%panded its construction and
engineering operations as the economy's momentum increased /n
1"=#, it completed the *anyang 4ement plant, !hich in 1""0
produced !ell o'er one million tons of cement /n 1"=1, the company
undertoo( its first o'erseas 'enture !ith a high!ay&construction
pro:ect in Thailand Hyundai e%panded rapidly o'erseas, de'eloping a
mar(et !ith particular success in the -iddle 6ast /ts pro:ects in this
region included the >"21 million Jubail industrial harbor pro:ect in
Saudi 8rabia
/n 1"=$, the group too( one of its most significant steps, setting up
the Hyundai -otor 4ompany and thus so!ing the seed for !hat !as to
become the country's leading domestic car manufacturer /nitially the
company assembled ?ord 4ortina cars and ?ord truc(s T!o years
later, Hyundai too( another step abroad !ith the establishment of
Hyundai 8merica, incorporated in @os 8ngeles, to !or( on housing
comple%es and other ci'il pro:ects /n 1"$0, it further enhanced its
position in the construction sector by setting up Hyundai 4ement
4ompany to deal !ith increased demand at home and o'erseas
To!ard the end of the 1"=0s, the go'ernment had begun to promote
the hea'y and chemical industries 3il and steel !ere both targeted
The planners then turned their attention to the consumption of
indigenous steel and focused on shipbuilding, !hich !as then relati'ely
bac(!ard Aproducing only coastal and fishing 'esselsB, and on the
automoti'e industry The ambitious plans for these industries !ere to
be of great significance both to Hyundai and the nation as a !hole,
and the 1"$0s pro'ed to be a period of rapid de'elopment
6%pansion into ShipbuildingC 6arly 1"$0s
Hyundai's entry into shipbuilding !ould e'entually ta(e Korea's
shipbuilding industry to second position in the !orld, behind Japan /n
1"$1, 4hung decided to begin shipbuilding, and by the follo!ing year
the company's shipyard had held its ground&brea(ing ceremony in
-ipo +ay, Dlsan, on the southeastern tip of the Korean peninsula /n
the follo!ing year the yard !as incorporated as Hyundai Shipbuilding
and Hea'y /ndustries 4ompany
The Dlsan yard !as still at the planning stage !hen Hyundai !on its
first contract, for t!o oil tan(ers, from @i'anos, a Gree( shipo!ner
The order pa'ed the !ay to a loan from +arclays +an( of the Dnited
Kingdom 4hung had to borro! capital from foreign ban(s to build the
yard, !hich !as opened in 1"$# /n the follo!ing year, the Hyundai
-ipo *oc(yard 4ompany !as set up to do con'ersions and repairs
This sector de'eloped rapidly throughout the 1"$0s, but the group !as
hit by the first oil crisis and the conse9uent decline in demand for large
tan(ers Hyundai, ho!e'er, 9uic(ly !on four orders for large tan(ers
from the Japanese, its main competitors, and concluded technical
cooperation deals !ith Ka!asa(i Hea'y /ndustries of Japan and Scott
@ithgo! of the Dnited Kingdom +efore the mar(et collapsed, 12 large
tan(ers !ere built at the yards
This collapse forced Hyundai to turn to the building of medium&si0ed
'essels /t also too( steps to remain abreast of technological
de'elopments in the industry and to de'elop spin&offs /n 1"$1,
Hyundai Shipbuilding and Hea'y /ndustries created an industrial&plant
and steel&fabrication di'ision, and in the follo!ing year began to
produce marine engines carrying famous names such as Sul0er and
+7.
8 further collaboration !as clinched in 1"$$ !ith Siemens, of .est
Germany, !hich led to the creation of the electrical&engineering
di'ision /n the follo!ing year the company changed its name to
Hyundai Hea'y /ndustries 4ompany AHH/B to reflect its di'erse
operations 8t the same time it incorporated its engine and electrical
engineering di'isions into Hyundai 6ngine and -achinery 4ompany and
Hyundai 6lectrical 6ngineering 4ompany, respecti'ely
?ocusing on 8uto )roductionC -id&1"$0s
3ne of the most significant mo'es in Hyundai's relati'ely short history
!as made in 1"$1, !hen the group began constructing an integrated
car factory ad:acent to its hea'y&industry comple% at Dlsan /t !as to
be the foundation of Korea's largest auto company, one that !as to
dominate Korea's home and e%port mar(ets +y the late 1";0s, D+S
)hillips and *re! Global ,esearch Group ran(ed Hyundai 12th in the
!orld auto industry, !ith the production of ;1",000 'ehicles and 1"
percent of the !orld retail mar(et
The aim of this ambitious pro:ect !as to mo'e a!ay from car
assembly only and to produce, !ith go'ernment bac(ing, a Korean
car, a four&seat sedan called the Hyundai )ony To this end, it called
on o'erseas e%pertise and finance, a policy used not only by Hyundai
but by other Korean industrial groups as !ell George Turnbull, a
former managing director of +ritish @eyland, !ho !as then 'ice&
president of Hyundai -otors, !as in charge of the pro:ect The car !as
styled by the !ell&(no!n /talian designer Giorgetto Giugiaro, !as
po!ered by a -itsubishi -otor engine, and used DK components The
pro:ect !as financed largely by DK and Japanese sources
The 'ehicle !as launched in 1"$1 +y the follo!ing year, Hyundai !as
producing 20,000 cars, and by 1"$" the total had risen to 110,000
8lthough Hyundai could sell e'ery 'ehicle it produced in the protected
home mar(et, it soon sought to attac( e%port mar(ets by reser'ing
appro%imately one&fifth of its production for o'erseas sale The
company first tested the 6uropean mar(et, and its potential for
sophisticated mar(ets, by setting up a net!or( of dealers in the
+enelu% countries, !here there !ere no dominant local manufacturers
3ther areas of the group sa! intense acti'ity throughout the 1"$0s /n
1"$1, *ongsu /ndustrial 4ompany, a construction&material
manufacturer, !as created, follo!ed in the same year by Seohan
*e'elopment 4ompany, a !elding and electrode carbide ma(er Since
it !as so hea'ily reliant upon e%ports and se'eral essential imports,
the group in 1"$= set up Hyundai 4orporation, its trading arm The
corporation integrated the group's sales and mar(eting strategies,
imported natural resources through o'erseas in'estment and :oint
'entures, and pro'ided assistance to o'erseas operations The
corporation e'entually led the numerous member companies of the
group in sales 8t the same time, it created Hyundai -erchant -arine
4ompany, !hich concentrated on cargo ser'ices, chartering,
bro(erage, and related ser'ices The trading arm pro'ed to be an
important source of re'enue and 9uic(ly gre! into one of the country's
top e%porters
/n the same year, on the construction side, Hyundai formed Koryeo
/ndustrial *e'elopment 4ompany and Hyundai Housing and /ndustrial
*e'elopment 4ompany, !hose operations included construction design
and property de'elopment Hyundai )recision and /ndustry 4ompany
!as created in 1"$$ /ts acti'ities included auto parts, container
manufacture, and locomoti'e parts
8 year later the group turned its attention to the timber industry !ith
the formation of Hyundai .ood /ndustries 4ompany, !hich made !ood
products and furniture /n 1"$;, the group e%panded its hea'y and
chemical industries to include iron and steel manufacturing !hen it
absorbed /ncheon /ron 7 Steel 4ompany and 8luminum of Korea
Tough Times for HH/C 1";0s
The 1";0s brought problems for HH/ T!o of its (ey businesses,
shipbuilding and o'erseas construction Athe de'elopment of !hich had
been acti'ely encouraged by the go'ernment in the 1"$0sB,
encountered !orld!ide decline during the decade Korean shipbuilders
sa! ne! e%port orders in 1";1 slump to only >122 million, compared
!ith >22 billion the year before, !hile profits plummeted 3'erseas
construction orders also fell a!ay 9uic(ly after reaching a pea( of
more than >12 billion in 1";1 and 1";2
/n both cases, Korean industry had to discard its policy of gro!th at
any price There !ere :ob cuts and a mo'e to!ard more sophisticated
pro:ects such as industrial plant construction and impro'ed
technology /n addition, the company had to contend !ith damaging
labor stri(es, !hich hit its shipyards and other parts of the group,
notably the car factories HH/ instituted ma:or producti'ity
impro'ements at the beginning of the decade and stepped up its
di'ersification !ith the creation of the 3ffshore 7 Steel Structure
*i'ision in 1";0 Through this di'ision it launched a ma:or dri'e into
the offshore mar(et, into !hich it had bro(en in the late 1"$0s !ith
orders for the Jubail pro:ect in Saudi 8rabia The di'ision initially
operated one yard, but, as demand increased, a second !as added in
1";2
/n 1";2, HH/ too( o'er three dry doc(s from Hyundai -ipo *oc(yard
4ompany, !hich brought the total it operated to se'en Hyundai -ipo,
!hich loo(ed after the company's ship repair and con'ersion business,
!as reorgani0ed and mo'ed to a ne! repair yard t!o (ilometers a!ay
from HH/ 8 year later HH/ undertoo( further reorgani0ation by turning
its maritime&engineering di'ision into the special and na'al
shipbuilding di'ision, !hich no! concentrates on building na'al craft
such as destroyers, frigates, and patrol boats
The increased emphasis on ne! technology and inno'ation !as
reflected in the setting up of Hyundai .elding ,esearch /nstitute in
1";2&&!hose !or( has since been e%tended to ta(e in factory
automation&&and the creation of a research&and&de'elopment center,
the Hyundai -aritime ,esearch /nstitute, a year later .or( continued
on de'eloping products such as the ne! generation of 'ery large crude
carriers, the !orld's first semi&submersible drilling rig, deli'ered in
1";$, and a mi%ed container&passenger 'essel for a Eor!egian
operator in 1";; The company also bro(e into the gas&carrier mar(et
in 1";=
The latter part of the decade !as clouded by stri(es that !ere to
tarnish the Korean shipbuilding industry's image /n addition, the
company had to contend !ith higher !age costs that blunted the
competiti'e edge it had o'er its Japanese ri'als HH/ also became
embroiled in a legal !rangle !ith Sir 5ue&Kong )ao's .orld&.ide
Shipping Group in 1";; The dispute !as o'er an order for 'ery large
crude carriers, !hich it had agreed to build in 1";= !hen the mar(et
!as in a trough
The stri(es that affected the Dlsan yard in the latter part of the 1";0s
hit production and sales, and in 1";; HH/ !as to record its first&e'er
loss, that of .2" billion on sales that declined slightly to ."#1 billion<
this came after brea(ing e'en the pre'ious year /n 1""0, the yard
!as hit by further stri(es, although it managed to land a >=00 million
order for ten combination 'essels from a Eor!egian shipping group
4hallenges for Hyundai -otor in the 1";0s
The 1";0s !ere to pro'e e9ually e'entful for Hyundai -otor 4ompany
8fter the oil shoc( of 1"$", the go'ernment too( steps to protect the
industry, !hich had by then made large in'estments in plants and
e9uipment /t (ept a tight grip on the de'elopment of this sector and
in 1";1 di'ided the mar(et, restricting Hyundai to car and large
commercial 'ehicle manufacture These regulations !ere re'ised in
1";= follo!ing the reco'ery of the mar(et, and Hyundai !as able to
resume manufacture of light commercial 'ehicles
+y the middle of the decade, Hyundai had ta(en 4anada by storm /ts
)ony subcompact 'ehicle became 4anada's top&selling car less than
t!o years after entering the mar(et Hyundai's sales in 4anada, !here
it !as also selling the Stellar, shot from none in *ecember of 1";2 to
1$,100 units in the first nine months of 1";1, topping those of Honda
and Eissan combined Total production in 1";1 had risen to #10,000
/n 1";1, the company announced plans to build a car assembly plant
at +romont, near -ontreal, and at the same time decided to enter the
DS mar(et The entry into the DS mar(et, begun in 1";=, pro'ed
an immediate success /ts lo!&priced 6%cel model !as !ell recei'ed,
and of the 202,000 cars e%ported in that year, 1=;,000 !ere sold in
the Dnited States, !here sales !ere to increase to 2=2,000 the
follo!ing year Hyundai's initial success in the Dnited States, though,
faded before the end of the decade !hen sales began to flag )roblems
in the company's (ey o'erseas mar(et !ere attributed to the lac( of
ne! models, increasing competition in the !ea(ened DS car mar(et,
and the se'ere stri(es that hit the company in the latter part of the
1";0s and in 1""0
Hyundai decided to mo'e up mar(et !ith the introduction of the
Sonata, a four&door sedan, in late 1";;< initial sales, though, pro'ed
disappointing 8 year later, this car !as being manufactured at the
+romont plant, follo!ing the opening of the factory in 1";" /n the
same year, Hyundai signed a deal !ith 4hrysler 4orp to build 20,000
midsi0e, four&door cars for the DS company, starting in 1""1
4hrysler !as lin(ed to -itsubishi 4orporation, !hich in turn !as
affiliated !ith Hyundai, in !hich it held a 11 percent sta(e
Hyundai planned to increase production at the 4anadian plant to
100,000 by the time the 4hrysler deal came into effect 6%port sales,
!hich !ere also hit by the appreciation of the !on and the
depreciation of the yen, remained sluggish /ncreased !age costs also
affected the group but had the ad'antage of boosting domestic sales
that, for the industry as a !hole, increased 10 percent to 21=,000
units in 1";"
Hyundai in the 6arly 1""0s
The group became intent on reducing its dependence on the DS
mar(ets +y 1""0, the domestic mar(et !as pro'ing increasingly
important to the essentially e%port&oriented group +oth the car and
construction mar(ets !ere en:oying strong demand at the end of the
decade This situation helped Hyundai 6ngineering 7 4onstruction, li(e
the 'ehicle operations, to ta(e up the slac( created by declining
mar(ets abroad, particularly in the -iddle 6ast The group had
accumulated e%perience in a broad range of plant construction,
including Korea's first nuclear po!er plant -ean!hile e%ports in the
shipbuilding sector !ere sho!ing a mar(ed impro'ement
?ollo!ing the creation in 1";2 of Hyundai 6lectronics, Hyundai stepped
up its presence in the electronics field and produced semiconductors,
telecommunication e9uipment, and industrial electronic systems The
company, !hich focused on industrial mar(ets, sought to increase its
presence in consumer electronics, despite formidable competition from
domestic companies such as Samsung and Goldstar
The group as a !hole had pro'ed itself capable of ta(ing di'erse
mar(ets by storm and !as determined to maintain and e%pand its
mar(ets by stepping up research&and&de'elopment spending
Ho!e'er, the country's dri'e to!ards democracy brought ne!
uncertainties /n the changing economic and political en'ironment, the
group faced a labor force see(ing higher !ages, a less competiti'e
currency, and increasing competition in the all&important o'erseas
mar(ets
?aced !ith this changing political scene and a less fa'orable
international rate of e%change, Hyundai shifted gears in the early
1""0s /n automa(ing, its largest enterprise, it !or(ed to regain lost
ground in the Dnited States, !here demand for its lo!&priced 6%cel
and some!hat higher&priced Sonata models slumped in the !a(e of
!idespread consumer complaints and a depressed entry&le'el mar(et
Hyundai's ne! 6lantra sedan, selling for >",000, !as to be its lead
item in the DS mar(et The group's chairman at that time, 4hung Ju
5ung's younger brother, 4hung Se&yung, !as e%pecting a ne! day for
the group, as Korea itself matured !ith ne! labor and political
freedoms
8s Korea's second&largest conglomerate, !ith 1""0 re'enues
estimated at >21 billion, Hyundai Group !as clearly to play an
important role in the ne! Korea /ndeed, the Hyundai founder and
chairman, 4hung Ju 5ung, chose personally to play a ne!, political role
in that de'elopment, founding a ne! political party early in 1""2 !ith
a 'ie! to promoting open&mar(et policies 4hung's Dnification Eational
)arty ADE)B promptly !on 10 percent of Eational 8ssembly seats<
4hung himself then retired from his Hyundai chairmanship to set his
sights on the Korean presidency The Hyundai conglomerate, already
forced by the go'ernment to pay billions in bac( ta%es, came under
e'en more se'ere go'ernment pressures after 4hung formed his
party ,egulators charged illegal political contributions by one Hyundai
company and accused others of ta% e'asion /n addition, Hyundai's
ability to finance its operations !as threatened by other go'ernment
actions /n return, Hyundai, at this time headed by 4hung Se 5ung,
threatened to !ithhold huge in'estments planned for the coming year
/n 1""2, ha'ing finished third in South Korea's presidential election,
4hung Ju 5ung reportedly said that he !ould resume chairmanship of
the Hyundai Group and !ould reorgani0e the corporation into many
speciali0ed, independently run companies /n 1""1, his second&eldest
son, 4hung -ong Koo, !as named chairman of the group !hile 4hung
remained honorary chairman
/n auto and personal&computer sales, Hyundai companies mo'ed
aggressi'ely /n mid&1""2, Hyundai's ne! -otor 8merica president,
*al 3( 4hung, too( o'er in the ?ountain Falley, 4alifornia,
head9uarters 8mong other mar(eting de'ices, Hyundai offered
generous rebates and free t!o&year ser'ice !arranties that co'ered
e'en !indshield !iper blades +y early 1""2, Hyundai !as offering the
first auto engine it had designed and made itself, as opposed to the
Japanese&made -itsubishi engines that !ere used in its earlier models
-ore than e'er committed to the smaller 'ehicle, Hyundai !as selling
autos in more than 100 countries
/n personal computers, Hyundai in mid&1""2 too( a drastic step !hen
it mo'ed its entire electronics operation to the Dnited States, the
!orld's largest computer mar(et Hyundai /nformation Systems had
already entered the direct personal&computer mar(et, cutting prices
and offering toll&free telephone support and sales The ne! operation,
based in San Jose, 4alifornia, had entirely 8merican leadership,
headed by /+- 'eteran and former 4ompu8dd president 6d!ard
Thomas The 4alifornia ad'antage !as mainly pro%imity to the mar(et,
!hich meant lessened in'entory re9uirements These de'elopments
sho!ed the Hyundai Group to ha'e the same inno'ati'e and energetic
approach that had characteri0ed its earlier 'entures
The *ismantling of Hyundai
The latter years of the 1""0s brought !ith them economic turmoil for
South Korea /n order to restore the nation's financial health, )resident
Kim *ae Jung, !ho too( office in 1"";, launched a series of
restructuring programs designed to reform the chaebols, many of
!hich had become hea'ily debt&burdened His reforms included
changing the o!nership, business, and financial structures of the
region's large conglomerates +y this time, the Hyundai Group !as
responsible for appro%imately 20 percent of Korea's G*) 8s such, its
financial health !as directly related to South Korea's o'erall economic
condition
8s a result of go'ernment pressures, Hyundai and other South Korean
chaebols, including the *ae!oo Group, set plans in motion to sell off
many of their businesses in order to pay do!n debt and shore up
profits Hyundai's concentration remained on autos, electronics, hea'y
industry, construction, and finance 6'en as the group struggled under
its debt load, it strengthened its holdings !ith the purchase of Kia
-otors 4o @td and @G Semiconductor
*espite the go'ernment's in'ol'ement, Hyundai !as slo! to comply
!ith restructuring demands /ts 9uestionable accounting practices
often made it the target of negati'e publicity ,i'alries bet!een
members of the founder's family also led to bad press, lea'ing many
in'estors an%ious about the future of the group and its member
companies /ndeed, many Hyundai affiliates, including Hyundai
6ngineering 7 4onstruction and Hyundai 6lectronics, !ere nearing
ban(ruptcy as debt continued to spiral out of control +y 2001, total
group debt reached .21;$ trillion A>211" billionB
Hyundai -otor 4o, on the other hand, !as prospering as Korea's
largest car ma(er The auto concern officially separated from the
Hyundai Group in September 2000, signaling the start of s!eeping
changes that led to the e'entual dismantling of !hat !as once South
Korea's largest conglomerate /n 8ugust 2001, nine core Hyundai
companies, including Hyundai 6ngineering 7 4onstruction and Hyni%
Semiconductor /nc Aformerly (no!n as Hyundai 6lectronics
/ndustriesB, left the chaebol The separation cut Hyundai Group's
assets to :ust >20; billion and left it in control of 1; member
companies Hyundai continued to be pared do!n the follo!ing year
South Korea had bounced bac( from its economic crisis of 1""$ and
1""; to become a leading global force in the technology sector +y
2002, foreign in'estors o!ned o'er a third of the shares of companies
listed on Seoul's stoc( e%change *uring 2002, ,oh -oo Hyun !as
elected president of South Korea ?eeling the pressure from foreign
in'estors, he maintained that harsh reform !ould continue !ithin
South Korea's chaebols 8 -ay 2002 +usiness .ee( article supported
the efforts of the ne! president, !ho stated that Gslo!ly and steadily,
good go'ernance has been asserting itself in KoreaG /ndeed, it
appeared as though the po!erful, family&run Korean chaebols !ere a
thing of the past .hile this mar(ed an end to the Hyundai Group's
history, it pointed to a fresh start for many companies bearing the
Hyundai name
)rincipal 4ompetitorsC @G Group< Samsung Group< SK Group