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Published: February 26, 2013
 / Spring 2013 / Issue 70

 
 

Hyundai’s Capabilities Play

Hyundai is also recognized for its ability to spread design features among its product lines. It routinely moves technological features from high-end luxury automobiles into much less expensive vehicles. Push-button ignition, rear-vision video monitors, and automatic headlights—features that once appeared only in high-end marques such as Mercedes and Cadillac—are now widespread on Hyundai vehicles costing $20,000 to $30,000. This means, of course, that the company has to keep improving its more expensive cars or their sales will be cannibalized. And even though the company is pouring such expensive “content” into its vehicles, it enjoys an estimated 9 to 10 percent profit margin, which is considered high in the auto industry. The company achieves those margins partly because it limits promotional discounts for buyers in the industry; the cars are sufficiently in demand that the company doesn’t currently need incentives to persuade buyers. It also boasts the best fleet fuel efficiency, according to the U.S. Environmental Protection Agency, and the best ownership repurchasing rates, a key test of loyalty, according to J.D. Power and Associates. “We’ve got the whole package right now,” says executive vice president Frank Ferrara at Hyundai Motor’s North American sales headquarters in Costa Mesa, Calif.

Some observers suspect that Hyundai’s recent successes may be anomalies, abetted by the difficulties that the company’s U.S. and Japanese competitors faced after the global economic crisis, the rise in the yen’s value, Toyota’s wave of recalls, and the 2011 earthquake and tsunami in Japan and Fukushima nuclear disaster. Others say that the company’s highly protected home market has enabled its growth, allowing Hyundai to establish a global presence while its domestic competitors restrict themselves to tiny slivers of the Korean market.

But the single factor that has made the most difference is the company’s own interest in building world-class capabilities. Starting in 1998, Hyundai’s leaders set out to develop the kind of prowess the company would need to become a global automobile powerhouse, able to hold its own in the United States and other fiercely competitive markets. Early on, that meant offering a comprehensive warranty and taking specific steps to dramatically improve its quality ratings. Once customers were convinced of the brand’s reliability, Hyundai added other capabilities, such as design, which led to a more diversified product line and more stylish features. Meanwhile, it developed a knack for getting the word out through clever, consistent marketing.

The result is a coherent mix of quality improvement, design, and marketing that gives Hyundai a clear advantage over its industry competitors. Although these are required capabilities at all automakers, Hyundai has excelled at combining them over the past decade, and its sales numbers reflect this success. The company’s effort to become a world-class automaker is beginning to pay off, and it’s far enough along that its story can be credibly told.

The Quality Edge

No matter how big and global it becomes, Hyundai will always rightfully be seen as a Korean company in its business culture and operating style. The company’s founding brothers, Chung Ju-Yung and Chung Se-Yung, endured the devastation of the Korean War after fleeing to South Korea from North Korea in 1947. They began their career by forming a construction firm; in the 1960s they expanded, opening first a repair shop and then a machine shop. All along, the Chungs were determined to build a chaebol, or industrial consortium of allied companies. (Patterned in part on the Japanese keiretsu model, these family-owned consortia are dominant in the South Korean economy.) The Chungs soon revved up companies in steel, shipbuilding, and construction. They started Hyundai Motor Company in 1967 and launched their first car, the Cortina, in 1968.

 
 
 
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Resources

  1. William Barnett, James March, and Mooweon Rhee, “Hyundai Motor Company,” Stanford Graduate School of Business, 2003: A case study of the company’s struggles to establish itself in the United States.
  2. Brian Collie, Scott Corwin, and Arjun Kakkar, “Optimism Returns to the American Automotive Industry,” s+b [online only], June 4, 2012: The U.S. auto market is recovering, and other automakers will be competing fiercely with Hyundai.
  3. Detroit Free Press, “Hyundai Leapfrogs Toyota in Quality,” June 8, 2006: An early article describing how Hyundai was successful in improving its quality.
  4. William J. Holstein, “Convincing Consumers to Spend Again,” s+b [online only], Apr. 7, 2009: A look at how Hyundai achieved a marketing breakthrough in a moment of economic fear.
  5. John Pearley Huffman, “The 2012 Hyundai Accent GLS: So Perfectly Ordinary That It’s Extraordinary,” New York Times, Apr. 13, 2012: A sampling of how automotive critics describe Hyundai’s success.
  6. Alex Taylor III, “Hyundai Smokes the Competition,” Fortune, Jan. 5, 2010: A rare conversation with Chairman Chung Mong-Koo.
  7. For more thought leadership on this topic, see the s+b website at: strategy-business.com/auto_airlines_and_transport.