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

 
 

Hyundai’s Capabilities Play

Krafcik, the public face of Hyundai in the United States, is an unusual executive in an industry often characterized by bravado and swagger. He possesses two degrees: one in engineering from Stanford, the other in business from MIT’s Sloan School of Management. Despite his age (50) and gray hair, he still seems boyish. Yet he has succeeded in winning the confidence of Hyundai’s top brass in ways that his predecessors could not; a rapid succession of them had short stints at the company, but Krafcik has been with Hyundai since 2004, and he has been president of Hyundai Motor America since 2008. He offers an analytical perspective on one of the central riddles of Hyundai management: How does a top-down, hierarchical company manage to be as freewheeling and innovative as it is?

The key, he says, is that Hyundai excels in recognizing ideas that bubble up from U.S. designers and managers and embracing those ideas. The chairman has personally created a corporate culture that insists on innovative new ideas.

Krafcik also has been able to bridge the cultural gap with his Korean superiors and the coordinators the company assigns to key U.S. executives. These English-speaking Korean coordinators report directly to Seoul in the evenings, when the U.S. managers have gone home for the day. The common wisdom inside Hyundai is that a Korean coordinator’s day starts when a U.S. manager’s day is ending, at 5 p.m., because it’s early morning in Seoul and thus time for the coordinators to get on Skype with their counterparts back home and spend several hours hashing out issues. The coordinators, who often have been educated at U.S. universities and are thus more Westernized than their counterparts in Seoul, serve as a communications bridge and in some ways are the equals of the executives to whom they are assigned. The communication between them and the U.S. teams is not always smooth, but it’s far more engaging than the conventional approach in U.S. subsidiaries of Japanese companies, where a U.S. executive might speak to his or her Japanese superior only once every two weeks, often through a translator.

Krafcik’s subsidiary does not have full manufacturing or design responsibility, but it controls marketing and consumer relations. Besides the warranty deal, which still distinguishes the company from its competitors, the marketers have developed a knack for hooking customers who are considering buying a Hyundai, but need a way to rationalize the risks (along with the unfamiliarity of the company name). They met the 2008–09 recession with a campaign in which they offered to buy back new vehicles if owners lost their job. And they continue to focus on the kind of pragmatic, stylish, modest, and fuel-efficient cars that resonate with post-recession U.S. consumers.

What Happens Next

Building in large part on its North American success, Hyundai is rapidly moving to a global scale. The company now sells more vehicles in China than it does in the U.S., thanks to an aggressive expansion of manufacturing and design capacity there. Hyundai and its Kia brand are also charging into Europe. At the same time that Peugeot, Citroen, and nearly all other automakers are losing money in Europe—and suffering from a glut of excess capacity—new Hyundai and Kia dealerships are popping up throughout the continent. Together, they now make up the fifth-largest automaker in the world.

The biggest problem Hyundai faces in the short term is holding back on production to make sure that it continues to improve on quality. “I’m very proud that the company has made this decision to throttle its own growth,” says Krafcik. “Can you think of companies in any industry who have ever done that? We clearly have incremental demand in markets around the world, yet our company said, ‘We’re going to cap production this year at 7 million units.’” He estimates the company could have sold 10 to 15 percent more vehicles.

 
 
 
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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.
 
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