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Hyundai Motor

Going Local, Giving Detroit a Drubbing


Going Local, Giving Detroit a Drubbing

Source:Ming-Tang Huang

Last year as leading Japanese automaker Toyota plunged into crisis, South Korea's Hyundai swiftly seized the day, surging to fourth place in global rankings. This incredible "Hyundai speed" has since become the model to emulate.



Going Local, Giving Detroit a Drubbing

By Elaine Huang, Hsiao-Wen Wang
From CommonWealth Magazine (vol. 448 )

Amidst the onerous traffic on the streets of Beijing, a casual glance at the endless parade of taxis whizzing past will inform the observer that they are virtually all Hyundai Elantras.

"It drives well and it's reliable," says a taxi driver named Xiao Ma, who traded in his aging Daihatsu Charade for a Hyundai Elantra under a 2005 Beijing plan to renew the city's taxi fleet.

About 40,000-plus other taxi drivers followed suit with Xiao Ma, trading in their old rides for a new Elantra, not only raising Hyundai's visibility in China, but also sparking a whirlwind across the globe.

Last year the global automotive industry was rocked as Japan's Toyota faced its biggest consumer crisis since its founding.

Unexpectedly rising from amidst a reeling industry was Hyundai, a maker specializing in compact cars, with combined revenue of NT$2.5 trillion, bucking global trends with 15 percent growth. Availing itself of the woes of the faltering automotive titans, Hyundai accelerated the pace of its advance, vaulting from fifth to fourth place in the rankings of the world's automakers.

Suddenly, the tables have turned, and "Hyundai speed" has become the strong suit that Toyota is seeking to emulate, just as Toyota was once the model for Hyundai.

"We always outperform our rivals in a time of crisis," Hyundai's senior vice president for marketing Kim Seong Hwan brashly states.

Lying on his desk is a stack of thick blue file folders; Kim, who made his bones performing market research, regularly reads 200-page market research reports cover to cover.

"We do research regularly, we do reports regularly, and we make decisions quickly," he says.

Speed is the deciding element in victory, Kim notes bluntly. Although the world's top five automakers all perform regular market research, Hyundai's management team is able to perform rapid-fire decision-making to get a timely grasp of new markets and new demands.

During the 1990s when Hyundai was finding the U.S., European and Japanese markets tough nuts to crack, the company was already at work in emerging markets – in a word, those that had yet to exist – laying its foundations in China and India. Last year, when China surpassed the U.S. as the world's largest motor vehicle market, Hyundai was there, ready to seize the opportunity.

The key to their success was speed and a precision "localized strategy."

Establishing Emerging China, India Markets

As recently as 15 years ago, India was a virtual desert for the automotive industry. But Kim quietly took up residence in Mumbai to perform market research. Shortly thereafter, amidst the Asian financial crisis, Kim recommended to corporate headquarters in far-off Seoul that the company build a plant in India to build cars with Hindi names for sale in the domestic Indian market.

The following year the Indian government announced that it was loosening regulations on foreign investment, and Hyundai immediately took the plunge with a massive investment in India, a nation of cities swarming with motorcycles and rural villages plied by electric-powered three-wheel vehicles.

Last year, Hyundai's market share in India reached 20.6 percent, second only to Maruti Suzuki, Japanese automaker Suzuki's joint venture in India, and leading even local automaker Tata Motors. To date, revenue at Hyundai's Indian operation accounts for nine percent of overall corporate revenue and continues to grow.

Korean businesses are clustered along Xiaoyun Road in Beijing's Chaoyang District, and the most imposing of these is the lofty and elegant Hyundai Building.

Sales for Beijing Hyundai Motor Company last year totaled 570,000 units, up 94 percent from the previous year, an achievement far surpassing the 54 percent growth in automobile sales for the industry as a whole, and setting the record for growth by a joint venture in the China market.

Hyundai also climbed from eighth to fourth place in the rankings of the top ten automobile makers in China. Revenue from Beijing Hyundai now accounts for 18 percent of Hyundai's total corporate revenue, and its biggest source of operating revenue outside of South Korea.

Beijing Hyundai has now manufactured two million cars in China since its first finished car rolled off the assembly line in 2002, taking just eight years to reach a production milestone it took joint venture competitors such as Volkswagen China and General Motors more than a decade to achieve.

"The China market will be an important driver of future growth for Hyundai Motor," Beijing Hyundai president Noh Jae Man frankly says in an interview with CommonWealth Magazine. Recently returned from a trip to corporate HQ in Seoul, Noh was busily supervising the company's third production facility in Beijing. Upon completion next year, the new plant will have a maximum production capacity of 1.2 million vehicles annually, which will make it the second largest base of production in Hyundai's global operation (its biggest is its plant in Ulsan, South Korea).

In fact the joint venture between Hyundai Motor and Beijing Auto Works was the latest and the last joint venture automaker to enter the China market. In 2002 China's auto market was dominated by sales of taxis and public service vehicles. Not only was the market dominated by the likes of Volkswagen and GM, but China was also in the nascent stages of trying to establish its own auto brands. At the time Hyundai's chances of breaking through were remote at best.

Hyundai Motor Group chairman Chung Mong Koo upped the company's production target from 20,000 to 50,000 vehicles and transferred Noh, who had served at Hyundai's Asan plant in South Korea, to serve as company president in Beijing.

Noh moved his entire family to the Beijing suburb of Shunyi, then a barren wasteland, taking up residence in the shadow of the Hyundai plant.

"When the chairman gave the order, I had no choice but to work day and night to help him reach the objective," Noh says idly. By the end of the year – in just six months – the energetic, compactly built Noh had successfully carried out the "mission impossible" Chung had set forth.

In fact, what made Hyundai's fame throughout China was the Beijing taxi fleet upgrade program initiated in advance of the Beijing Olympics.

In 2005 as Beijing was seeking to spruce up the city and upgrade its taxi fleet in preparation for the 2008 Olympics, Noh struck a deal with the Beijing City Government, agreeing to increase investment in Beijing and its industrial zones in exchange for Hyundai being named the official vehicle of the taxi upgrade program.

Virtually overnight Beijing was awash in about 40,000 new Hyundai Elantra taxis, whose drivers passed on favorable word-of-mouth reports about the cars' reliability and service warranty, instantly elevating the fame of the brand throughout Beijing. To accommodate the new demand, Noh had a second plant built at Shunyi, boosting production capacity to 600,000 vehicles annually.

To date, Beijing Hyundai has captured a seven-percent share of China's car market, and its sales volume has risen to fourth place nationwide, as its standing in Beijing has raised its visibility throughout the rest of China.

Assurance Program Conquers America

Aside from emerging markets, Hyundai has been applying its localized marketing in the U.S., prompting GM and Ford to respond in kind.

In February of last year, as Bank of America went belly up and prior to the U.S. government's "economic stimulus package," with the unemployment soaring to eight percent, Hyundai Motor placed advertisements during the American football Super Bowl championship game touting the company's "assurance program": Whoever had purchased a Hyundai on credit and then had the misfortune to lose their job could simply return the car to their Hyundai dealer for a refund. As soon as such a buyer began to make payments again on their loan, Hyundai would return the car to the buyer.

The assurance program boosted growth in Hyundai sales to double-digit figures for the period. Last year, as the American car market as a whole contracted 21 percent, Hyundai sales reached 435,000 vehicles, 8.3 percent growth over the previous year. Even more surprising has been that less than 100 cars have actually been returned.

"Hyundai Motors knows the American consumer better than the American brands," Ogilvy & Mather chairman and CEO Shelly Lazarus told CommonWealth Magazine, describing Hyundai's assurance program as "the smartest marketing campaign" of that year.

Behind such a bold after-market assurance program must stand reliable production quality; otherwise, the massive expenses involved would become an unwieldy burden.

Early last year, leading automotive consumer satisfaction ratings agency J.D. Power ranked Hyundai the number-one non-luxury automotive brand. Hyundai's flagship model the Sonata is now rapidly divvying up the American mid-size car market with competitors Toyota Camry and Honda Accord. But a company that grows too fast can end up with management resources spread thinner than grape jelly, potentially easily leading to careless slip-ups in production management. Toyota is the best example of that phenomenon.

Noting that Toyota's production leaped from 5.7 million in 2000 to a peak of 9.5 million in 2007, South Korean securities analyst Suh Sung Moon, in recent comments to Bloomberg BusinessWeek, cautioned that Hyundai could be at risk of overextending its management, if it continues to accelerate the pace of its expansion.

"There's a clear lesson to be learned from Toyota," Suh averred.

Up to now, Hyundai has used rapid action to create sales volume. In the future, as Chung Mong Koo candidly admits, will call for enhancing its quality and elevating its brand power.

Translated from the Chinese by Brian Kennedy

Hyundai Motor at a Glance

Founded: 1967

2009 consolidated revenue: 91.4 trillion won

2009 consolidated net profit: 4.04 trillion won

Market position: world's fourth largest automaker