1997 Asian Financial Crisis and Hyundai Motor Corp

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Hyundai Motor Company-Beijing Automotive
Joint Venture Case Study

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Topics in Emerging Markets
Prof. Mei
April 9, 2003

Michael Cheng- mpc238@stern.nyu.edu
Richard Lee- rl392@stern.nyu.edu
Kevin Park- kgp203@stern.nyu.edu

Table of Contents:

Executive Summary: 3 Case Study:
Introduction: 4
Case Background: 5
Hyundai Motor Corp Background & History: 6 South Korean Macro Study:
Economic Background: 7
Social Climate: 9
Political Condition: 10
China Macro Study:
Overview: 12
China and the WTO: 13
Korean Foreign Direct Investments in China: 14
Current Chinese Automotive Industry: 15
China’s Automotive Industry Outlook: 16
Asian Financial Crisis:
Summary: 17
Recovery: 18
Hyundai Motor Corp Financial Analysis:
Introduction: 20
Detailed Financial Analysis: 21
Equity Valuation: 24
Conclusion: 24
Case Solution:
Project Valuation: 25
Input Descriptions: 25
Conclusion: 27
Exhibits:
Hyundai Motor Corp Financial Statements 29
Bibliography: 32
Executive Summary:

In this case study, we will examine the probability of success of Hyundai’s new joint venture with Beijing Automotive in China. On February 5, 2002, Hyundai announced a 50-50 venture to set up a production facility in China. The joint venture plant to be set up in Beijing will initially produce 100,000 units of Sonatas and Elantras, then gradually increase to 200,000 units by 2005 and will cost an estimated $250 million. If the venture is a success within these years, then Hyundai will invest an additional $1.1 billion to increase production to 500,000 by 2010’s year-end.

Hyundai, established in 1967, has come along way from its humble beginnings. Riding the wave of South Korea’s economic growth in the past three decades, Hyundai has become a global player in the automotive industry. In 25 years, Hyundai grew from producing a few hundred cars per year, to exporting cumulative shipments of over 5.5 million units. As such, it is imperative that Hyundai strives to continue to expand and diversify in other countries, namely, emerging markets. Attributing to this growth are joint ventures with other automotive manufacturers.

We believe that there is tremendous opportunity to be realized in these strengthening Asian economies; China is one of the leaders in receiving foreign direct investments in the world, and this is a strong testament to its economic potential in the near future. This case will introduce students to two of the strongest emerging markets and will explore the automotive relationship between Korea and China. Our hope is that students will recognize this potential and take advantage of it as they embark on their professional careers.

Hyundai Motor Corp Case Study:
Building a Car Manufacturing Plant in Beijing

Introduction:

Towards the end of a monthly board meeting, Richard Lee, CEO of Hyundai Motor Co., leaned over the table towards his CFO, Guan Woo Park, and asked, “Do you think we should invest the projected $1.1 billion in 2005 in our newly-constructed manufacturing plant in China to boost production to our desired 500,000 units per year by 2010?” Mr. Park confidently replied, “Let me get a team together and run the numbers, and I will have my recommendation on your table in no time at all.” “Ok, get to work on that, and have a...
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