HYUNDAI MOTOR COMPANY IN CHINA
At the turn of the twenty-first century, Korea‟s Hyundai Motor Company (HMC) announced ambitious plans to become a global leader in the automotive industry, and established plants in various parts of the world, including Europe, India, and North America. In 2002, HMC turned its attention to China, one of the world‟s largest and fastest-growing economies. China‟s burgeoning demand for automobiles was forecast to become the world‟s third-largest―even as the worldwide auto market was stagnating. In this light, HMC had selected China to be site of its largest, lowest-cost assembly and manufacturing base. So it was that HMC created a separate China Business Division to lead its move into the Chinese market (Exhibit 1). In May of 2002, HMC initiated a joint automotive project with Beijing Automotive Industry Holding Corp. (BAIC) and by October the Chinese government had approved the joint venture, leading to the establishment of “Beijing Hyundai.” By February of 2003, Beijing Hyundai rolled out its first midsize sedan, the EF Sonata. Yet many were skeptical of Beijing Hyundai‟s chances. A number of the world‟s major auto makers were already established in the Chinese market, while Hyundai lacked an understanding of the distinct characteristics of Chinese consumers, distribution channels, labor markets, and parts suppliers. Moreover, while Hyundai enjoyed a strong reputation for quality in its home market, the Hyundai brand was generally seen as lower status in China. Sung-Kee Choi, senior executive vice president at the China Business Division of HMC, who was in charge of the planning and development of Beijing Hyundai in the entry period, explained: When HMC entered the China automobile market, responses from other major automobile competitors and the media were lukewarm, as HMC‟s reputation was not high and HMC‟s joint venture partner, BAIC, was also a very low rated company when compared with competitors. They teased us as a marriage of two low ranked classes, and lowered their guard against us. Undaunted, Beijing Hyundai rapidly established itself in the Chinese market, growing faster in its first few years than any other automaker in China (Exhibit 2), following the “quality management” strategy of HMC corporate CEO Mong-Koo Chung. Sung-Kee Choi explained: Professors Jae-Gu Kim and Mooweon Rhee prepared this case in collaboration with Professor William P. Barnett as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Kisan Jo and Daegyu Yang served as research assistants. Copyright © 2008 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. To order copies or request permission to reproduce materials, e-mail the Case Writing Office at: firstname.lastname@example.org or write: Case Writing Office, Stanford Graduate School of Business, 518 Memorial Way, Stanford University, Stanford, CA 94305-5015. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business.
Hyundai Motor Company in China IB-91
In 2003, the first year of our entrance to the China automobile market, the company sold 50,000 units of the EF Sonata model. The company achieved this result in a year, while such foreign automakers as Honda Motors took three years to achieve the same result. In 2004, the Elantra subcompact was included into the assembly line and both models combined sold 144,000 units, and then 234,000 units in 2005. With such a remarkable achievement, other major automobile competitors became fearful of Beijing Hyundai, and we became a special target for our competitors. Bang Shin Kim, vice president in charge of strategic planning at Beijing Hyundai,...