Colt is a longtime freelance writer who's always been interested in examining businesses to help inform others.
The Hyundai Motor Group is a large business conglomerate, often known as a Chaebol in South Korea. Chaebols in South Korea are extremely powerful organizations that exert strong influence, dominate the economy and are usually controlled by founding families (and passed down through the years). According to Nikkei, the 4 largest chaebols in South Korea generated 90% of profit earned by the top 30 conglomerates in 2013!
Hyundai Motor Group (not to be confused with Hyundai Group) was founded in 1967 and has a notably complex ownership structure. The Hyundai Motor Group has a plethora of subsidiaries, including noteworthy ones such as Hyundai Motor Company and Kia Motors Corporation (the second largest automobile manufacturer in South Korea) and Genesis Motor. As of 2019, the group is the largest automobile manufacturer in South Korea and the third largest chaebol after Samsung and LG.
Hyundai's success and continual growth is not a matter of mere coincidence. This article will explore Hyundai's sustained competitive advantage and strategy that has allowed it to cement itself as one of the largest multinational conglomerates in the whole world.
Demanding Nature of Koreans: The demanding nature of Korean consumers is an example of a natural advantage. Lee (2010) explains that many companies use South Korea as a product testing ground as consumers in the country are believed to be the most demanding globally. In order to satisfy the domestic company, it will push the company to seek continual product improvement that can provide an advantage over competitors globally.
Weak Currency: The weak Korean Won in the past years is also a natural competitive advantage for Hyundai. The favorable international exchange rate reduces the price for exported cars to consumers globally. Ihlwan (2008) describes how a weaker Won has led to an increase in operating profit for both Hyundai and its affiliate, Kia Motors.
Effective Labor: The country has an abundance of cost-effective labor and knowledge workers with lower wages than other advanced economies. The presence of such labor forces and human resources in the country is a comparative advantage for Hyundai.
In addition to the natural advantages that Hyundai employs to succeed, there are also a number of acquired advantages as well.
Industrial Cluster: One such acquired advantage is attributed to the measures undertaken by the Korean government to attract a cluster of suppliers and manufacturers. The formation of such a substantial industrial cluster locally provides Hyundai with an acquired competitive advantage.
Geographical Diversification: Another acquired advantage is Hyundai’s geographical diversification strategy. The company expanded globally (and rapidly), employing FDI, building plants, R&D centres and marketing subsidiaries, etc., for location-specific advantages. As such, Hyundai was able to acquire advantages such as greater access to the markets, cost-effective labor and spread its business risk.
For example, when Japanese car-makers suffered production and supply constraints from the aftermath of the 2011 Tōhoku earthquake, Hyundai was not affected as much due to its diverse production line. Hyundai also acquired a cost advantage over its rivals due to a combination of factors such as low-cost labour and parts sourcing and joint ventures with foreign partners.
The Factor Proportions Theory
According to the factor proportions theory, a country exports products and services that make use of factors of production it holds in abundance. Factors of production can include both natural resources and developed resources such as labor and technology. For example, the island nation of Singapore exports maritime-related services such as ship repairs, port services and marine insurance which it holds in abundance.
Joint Ventures: Hyundai exports its high-end technology in automobiles globally. Hyundai has established R&D centres in locations such as Europe, Japan and North America. Moreover, joint ventures have allowed the company to leverage knowledge sharing and further enhance its technological capabilities. For example, technology exported from its headquarters and research centres worldwide has facilitated development of cars that are catered to the local market, such as the i10 Grand for the Indian market.
Strong Local Workforce: Other factors of production that are of great abundance to Hyundai are the availability of cost-effective labour and knowledge workers in the country. Back home, Hyundai has access to a highly skilled and diligent workforce with relatively low wages. The Economist (2011) explores this high quality workforce, with the average worker putting in more than 2,200 hours of work annually.
In its worldwide operations, Hyundai also makes use of its knowledge in utilising cost-effective labour. Establishments in emerging markets such as China have allowed it to tap into a pool of skilled and inexpensive labour. In addition, its highly trained workforce or knowledge workers allowed it to internalise its production and drive innovations globally.
Financial Capability: Lastly, Hyundai’s financial capital has driven its aggressive global expansion. It makes use of this capital for FDI abroad, for operations such as manufacturing, research and development etc. Hyundai Motor has grown to be the 5th largest carmaker in terms of annual sales globally and was the 2nd largest company in Korea in terms of market cap in 2012.
Branding: Another noteworthy mention is Hyundai’s social capital or its brand value. Despite hiccups in the early 1990s, Hyundai has become one of the world’s fastest growing brands since 2005. Its brand value is definitely an abundant factor that it leverages to sell its automobiles worldwide. For a consecutive 10 years, it has claimed a spot in Interbrand’s Best 100 Global Brands, reaching global top 40 in 2014 for the first time.
Lee, S. H. 2010. Companies Turn to South Korea for Product Testing. Available at:
Are These Advantages Sustainable?
This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.
© 2014 Geronimo Colt