Byoung-Hoon LEE, Sung-Jae CHO
The Korean auto industry continued to grow without a slump from the early 1980s to the mid of 1990s. As illustrated in <Figure 1>, the auto industry in Korea had shown a sustained growth in sales of domestic and overseas markets until 1996. Between 1981 and 1996, it recorded a notably high rate of averaged annual growth in production (22.7%), domestic sales (19.5%), and export (36.2%). However, it experienced an unprecedented downturn under a serious economic slump and the foreign currency crisis occurring in the period of 1997-1998. In this period, all the automakers but Hyundai reached serious financial crisis, which mainly resulted from their over-expansion of production facilities by relying on an exorbitant amount of debts and was partly caused by excessive domestic market competition among them (Lee 2001; Cho 1999; Yoon et al. 1998). Kia went bankrupt in the summer of 1997, whereas Samsung, Ssangyong, and Daewoo fell into an insolvency crisis in 1999.
Figure 1.- Trends of Auto Sales by Korean Automakers
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
(Source): Korea Automotive Research Institute (2000a)
In this context, the Korean auto industry has been experiencing the process of wholesale reconfiguring up to now. Kia and its affiliate, Asia Motor, merged into Hyundai, and Samsung was acquired by Renault, a French automaker. Both Daewoo and Ssangyong are now under the control of creditor banks and the government, which provided public loans for their continuing operation, and it is not yet determined whether to sell out the ownership of the two companies, or to restore these crippled auto makers on their own. Even Hyundai, which maintained relatively healthy financial performance, made a sudden reshuffle of top management in accordance with the Hyundai group owner’s succession plan. In addition, most automakers took a series of action to restructure business units and downsize its employment during the last four years (1997-2000). It is also notable that a number of auto parts manufacturers were taken over by foreign multi-national companies in this period. The restructuring of the Korean auto industry has led to intense confrontation, involving labor unions, management, and sometimes the government, and also produced some remarkable changes of employment relations practices in those auto makers. The focus of this study is on the merger of Hyundai-Kia and their business restructuring, which is a key part of recent reconfiguring taking place in the Korean auto industry. The paper reviews why Kia collapsed in 1997 and how it was taken over by Hyundai in 1998 (Chapter Two). This study also delineates what strategic action management at Hyundai and Kia have taken for reorganizing the two companies’ governance structure and pursing a synergy effect of various business operations, such as R&D, manufacturing, auto part procurement, and marketing, since their merger (Chapter Three). In Chapter Four, we examine how the labor unions at Hyundai and Kia have responded to management’s business reconfiguring strategies after the merger. In conclusion (Chapter Five), it is discussed what synergic effect the merger of Hyundai-Kia have produced and what challenges the Hyundai- Kia auto group have been confronted with. This study is largely based on our field interviews with the two companies’ managers and union officials, which were conducted between February and April 2001.
KIA’S COLLAPSE AND HYUNDAI’S ACQUISITION
Kia’s crisis and failure to survive
As demonstrated in <Figure 2>, the Kia Motor was the number two automaker in Korea between 1990 and 1997.1 It is also noteworthy that the Kia group was solely comprised of <Figure 2: Domestic Market Shares of Korean Automakers> auto-related companies and uniquely maintained a professional management system...