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

 
 

Hyundai’s Capabilities Play

This type of move is possible only for a company with a long-term view. Already, the capabilities that Hyundai has built for itself have allowed it (along with a few other businesses, such as Samsung Electronics Company) to transcend the perception of Korean companies as purely low-cost producers. Hyundai’s executives expect to see the company’s brand position rise higher in the U.S. market because Hyundai is targeting younger, better-educated buyers with higher credit scores. Reflecting that demographic shift, Hyundai dealerships that once offered coffee and doughnuts to potential customers now serve cappuccino and croissants.

The goal obviously is to secure the company’s reputation for quality and set the stage for continued global gains. “We almost certainly will be better off 10 years from now by taking this pause in growth and solidifying our quality processes and getting the right customers,” Krafcik adds.

A central challenge is maintaining its entrepreneurial pace. The Koreans have pushed U.S. managers and workers very hard. Krafcik says he typically spends only a handful of evenings at home each month. It would be only natural to slow down the tempo. “We’ve had a period of success,” says Krafcik. “And it’s after a period of success like this that companies frequently go wrong. They make missteps. We are ever mindful of complacency and arrogance. We can’t relax.”

Another potential disruption on the horizon is that the chairman, Chung Mong-Koo, is 74 years old. His only son, Chung Eui-Sun, is vice chairman and boasts a master’s degree from the University of San Francisco. He speaks English well, and is gradually asserting more influence over how the company operates. But there is always a chance that when Chung Mong-Koo steps down, there will be a hard-to-fill gap in upper management.

In addition to these issues, the auto industry remains brutally competitive. Japanese and U.S. carmakers still wield huge power globally. Toyota, in particular, has Hyundai in its sights; it is now offering 0 percent financing, plus a $500 check, on some models. Toyota, which has cash reserves of more than $40 billion, can afford to virtually give away cars to regain market share—for a while. Its U.S. sales in September reflected that strength, surging 42 percent. Japan’s Big Three manufacturers—Toyota, Nissan, and Honda—are also signaling that they will move more production from Japan to other countries to counter the impact of the strong yen.

Krafcik can see the first glimmers that the Japanese will try to compete on the basis of design. When he attended the New York International Auto Show in April 2012, he extended his stay for a day to examine the more stylish, aggressive looks of the new Toyota Avalon and Nissan Altima. “This is not a game-over situation,” Krafcik says. “Folks are figuring out what we have done.” He is right to be looking over his shoulder. In the global auto wars, no one wins forever.

Reprint No. 00162

Author Profile:

  • William J. Holstein is a contributing editor to s+b and author of The Next American Economy: Blueprint for a Real Recovery (Walker & Company, 2011) and Why GM Matters: Inside the Race to Transform an American Icon (Walker & Company, 2009).

 

 
 
 
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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.