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 / Spring 2013 / Issue 70(originally published by Booz & Company)


Hyundai’s Capabilities Play

To keep improving the quality of its vehicles, Hyundai continually experiments with technological process advances. For example, Frye and deputy plant manager Craig Stapley carry smartphones that display performance information about each assembly line as well as the welding and paint shops. In an environment where information is ubiquitous and instantly available, quality problems are quickly flushed out. Every vehicle is tracked from inception to final sale.

“All of the people I meet at Hyundai are hell-bent on making sure the quality is getting better all the time,” says Michael Dunne, a noted expert on the Asian auto industry, based in Hong Kong. “This special mind-set, which works particularly well with companies on the way up, says that ‘we will be best at what we do, wherever we go and whatever it takes.’ It makes incumbents seem flat-footed by comparison.”

The quality emphasis is visible in Hyundai’s manufacturing plants, such as the one in Alabama. Its level of vertical integration is rare in the industry; coiled rolls of steel are welded into bodies on-site; engines are also built there. The factory’s F-shaped assembly line allows trucks to pull up and deliver parts where they’re needed; electronic data links to suppliers help track customized parts and ensure they match.

The factory was designed to produce 300,000 units a year, but volumes have been running above that; it made about 345,000 vehicles in 2012. The plant has been running flat out since 2010, and workers have been putting in as many as 60 hours per week, which is considered a burnout rate at most car plants. The pace is possible in part because the workers tend to be younger than the average worker at U.S. company plants—and even younger than workers at Japanese-owned plants in the United States. Hyundai added a third shift in August 2012 to ease the pressure.

The entry-level wage is $16.25 an hour, rising to $25 an hour after two years, which is modest by international standards but generous in the depressed Alabama economy. Workers rebuffed an effort by the United Auto Workers (UAW) to organize the plant. Reflecting Japanese-style lean manufacturing, the plant is managed in a horizontal, egalitarian fashion. Everyone eats in the same cafeteria. No cursing is allowed.

Although the original Hyundai chaebol was broken into three groups, the Hyundai Motor Group still includes 42 companies, and it leverages those connections energetically. Known as Hyundai Motor, this consortium includes the smaller automaker Kia, parts maker Mobis, logistics specialist Glovis, financing company Hyundai Capital, and Hyundai Steel. Hyundai is also the only automaker in the world to produce its own steel. Chung Mong-Koo has personally been involved in supervising the construction of an $8 billion steel complex about 90 minutes southwest of Seoul on the Yellow Sea, which is now nearing completion. Hundreds of engineers are assigned there to find ways of making better steel so that Hyundai cars can become lighter and more fuel-efficient. Visitors describe the docking of Hyundai ships carrying iron ore from around the world. Workers laboring around the clock use conveyors to transport the materials into two giant indoor domes. “It’s like visiting the Grand Canyon,” says new North American design chief Chris Chapman, a recent recruit from BMW. “That is where you sense the scale of this company.”

Hyundai’s plants in the U.S., including Alabama, use chaebol companies as suppliers but are not limited to them. This is a key to understanding how the company operates. The Alabama plant also buys from some non-chaebol Korean companies that have traditionally supplied Hyundai; Daechung, Guyoung, Smart, Hwashin, and Sejong have all set up businesses in Alabama to supply components. The plant uses Lear for rear seats, PPG Industries for glass, and Continental, a German company with a plant in Illinois, for tires. Overall, it has 80 suppliers in the U.S., Canada, and Mexico, including 28 Korean companies that have established North American operations. By encouraging robust competition among group suppliers and non-group suppliers, Hyundai avoids being obligated to do business with an internal supplier that is not up to global standards, but it keeps its chaebol relationships intact.

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  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:
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