Hyundai's Competitive Advantage & Strategy

Updated on September 1, 2014
Source

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% ofprofit earned by the top 30 conglomerates in 2013!

Hyundai Motor Group (not to be confused with Hyundai Group) was founded in 1998 after its acquisition of Kia Motors. The Hyundai Motor Group has a plethora of subsidaries, including notable ones such as Hyundai Motor Company and Kia Motors Corporation. The group is now 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.

Source

Natural Advantages

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 a competitive 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.

Acquired Advantages

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.

References

Lee, S. H. 2010. Companies Turn to South Korea for Product Testing. Available at:
http://www.nytimes.com/2010/11/11/business/global/11iht-sk-consume.html?_r=0

Do you think Hyundai's competitive advantages are sustainable in the long term?

See results

Questions & Answers

    Comments

      0 of 8192 characters used
      Post Comment

      No comments yet.

      working

      This website uses cookies

      As a user in the EEA, your approval is needed on a few things. To provide a better website experience, toughnickel.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

      For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://toughnickel.com/privacy-policy#gdpr

      Show Details
      Necessary
      HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
      LoginThis is necessary to sign in to the HubPages Service.
      Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
      AkismetThis is used to detect comment spam. (Privacy Policy)
      HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
      HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
      Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
      CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
      Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
      Features
      Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
      Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
      Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
      Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
      Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
      VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
      PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
      Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
      MavenThis supports the Maven widget and search functionality. (Privacy Policy)
      Marketing
      Google AdSenseThis is an ad network. (Privacy Policy)
      Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
      Index ExchangeThis is an ad network. (Privacy Policy)
      SovrnThis is an ad network. (Privacy Policy)
      Facebook AdsThis is an ad network. (Privacy Policy)
      Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
      AppNexusThis is an ad network. (Privacy Policy)
      OpenxThis is an ad network. (Privacy Policy)
      Rubicon ProjectThis is an ad network. (Privacy Policy)
      TripleLiftThis is an ad network. (Privacy Policy)
      Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
      Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
      Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
      Statistics
      Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
      ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
      Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)