Introduction Of Hyundai Motor Company

Published Date: 02 Nov 2017

A manager was considering buying a new car. He had driven Jaguars for some time. However, he thought it would be a good idea to review the options systematically. He obtained the brochures for a range of luxury car makes, identified the major factors that were important to him and considered all the performance indicators for each of the cars against these. He even allocated a weighted score to the factors that meant most to him. The analysis told him that a BMW or a Mercedes might be a better choice that a Jaguar.

This surprised him; and he didn’t much like the answer. He had always driven a Jaguar, he was used to it, felt it had an especially English character and that it suited his personality. He was also looking forward to having the new model. So his inclination was to buy another Jaguar.

Actually he ended up buying a convertible Mercedes sports. This was because his wife thought he needed to liven up his image and liked the idea of driving it on holidays. With some reluctance he bought the new Mercedes. This proved to be a good decision. They both liked the car and it depreciated in value much more slowly than a Jaguar.

So what are the lessons? The planning and analysis was there, and if it didn’t end up informing the decision directly, it did indirectly. His wife justified the purchase of the Mercedes in part on the basis of that analysis. He would have ended up with another Jaguar; a continuity of what he was used to. He actually chose what (to him) was a novel, innovative option that, in the long run, significantly changed his approach to car buying. Of course, if his wife had not intervened, his inclination to the Jaguar based on past experience would probably have prevailed. This depended on him and his circumstances- the context. Some ideas get through, some do not, depending how attractive the ideas were to him. Or it could have been that the power of analysis had been such as to overcome this. All these had to do with the strategy formulation, planning, evaluation and selection, and finally, the implementation. So it is with organizations.

Tasks:

Select an organization of your choice and present critical internal and external environmental analysis based on the following tasks:

1. Give a meaningful definition of the contexts of business strategy and discuss a company’s external environment using Porter’s 5-Force Analysis and PEST analysis. (LO 1)

2. Discuss the company’s internal environment using value chain analysis and SWOT analysis. (LO 2)

3. Review the existing strategy or strategies practiced by this company and propose a better strategy for this company based on available options. (LO 3)

Table of Contents

TITLE

PAGE

Introduction

4

Task 1

5-10

Task 2

11-17

Task 3

18-20

Conclusion

21

Bibliography

22-23

Introduction

Business as we know is an economic activity of generation income through buying and selling, manufacturing and rendering auxiliary services to trade. Thus, business in a system made up of all environmental which require the business to adopt new strategy. Business environment refers to these surroundings of business enterprise which affect its operation and determines its effectiveness. Now-a-days modern business is not independent. It cannot work in isolation. It is the economic and social organ of the society. So it must achieve its economic goal. It cannot ignore the interest of the society. The government of the country has also the interest in business affairs. It enacts legislation, formulates business policies and controls business in the best interest of people. (publishyourarticles.net, 2013)

Business environment is a direct relationship between successful management and the influence and impact of environment change. Business decisions are influenced by internal factors (internal environment) and external factors (external environment). Internal business environment is the set of elements or forces which affects an organization’s or firm’s behavior, such as personnel, finance, marketing, productions, operational research and so on. On the other hand, external business environment is a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business, and that can potentially have both a positive and a negative impact on the business. (Slideshare.net, 2013)

Task 1: Give a meaningful definition of the contexts of business strategy and discuss a company’s external environment using Porter’s 5-Force Analysis and PEST analysis.

1.0 Definition of Business Strategy

Business strategy is a long term plan of action designed to achieve a particular goal or set of goals or objectives such as mission and vision of the organization. Strategy is management's game plan for strengthening the performance of the enterprise. It states how business should be conduct to achieve the desired goals. Without a strategy management has no roadmap to guide them. A business strategy typically is a document that clearly articulates the direction a business will pursue. In a standard business plan, the business strategy results from goals established to support the stated mission of the business. A typical business strategy is developed in three steps: analysis, integration and implementation. Strategy can also define as management's game plan for strengthening the performance of the enterprise.

The strategy needs to be frequently reviewed against prevailing external and internal environment (SWOT analysis). This is where business intelligence comes in where you need to constantly monitor how the strategy and the objectives are being executed. Every 5 to 15 years most companies suffer from some unexpected misfortune. Indeed one part of a strategy should be to build in sufficient buffer or slack to be able to ride out any storm. (Rapid Business Intelligence Success.com, 2013)

External environment surrounds the business operations and the internal environment of business as well. Importantly, the external environment highly influences the organization's performance. It is everything that happens outside the firm that affects the firm's operations and prospects.

1.1 Introduction of Hyundai Motor Company

The beginning of Hyundai Motor Company dates to April 1946 when founder, Ju-Yung Chung established Hyundai Auto Service in Seoul, South Korea at the age of 31 years. In Korean, Hyundai means modernity. The company chose to depict a logo which is a slanted and stylized letter H, symbolizing two people (company and customer) shaking hands. After that, the company immediately partnered with the Ford Motor Company to produce the Cortina compact car in 1968. Hyundai focused on manufacturing quality economy cars and began exporting the Excel to the United States in 1986. Today, Hyundai consistently ranks among the top quality import cars in the United States and Europe. (eHow.com, 2013)

1.2 Definition of Porter’s 5-Force analysis

Porter’s 5-Force named after Michael E. Porter, this model identifies and analyzes 5 competitive forces that shape every industry, and helps determine an industry's weaknesses and strengths. Porter's model can be applied to any segment of the economy to search for profitability and attractiveness. (Investopedia.com, 2013)

Porter’s 5 forces include three forces from ‘horizontal’ competition and two forces from ‘vertical’ competition. The three forces from ‘horizontal’ competition are threat of new entrants or barriers to entry, threat of substitute products or substitutes and threat of established rivals or competitive rivalry. Two forces from ‘vertical’ competition are the bargaining power of buyers or buyers and the bargaining power of suppliers or suppliers. (Businessteacher.org.uk, 2013)

1.3 Porter’s 5-Forces analysis of Hyundai Company

(a) Barriers to entry

The first force for the company is barriers to entry. It is not that easy for an entrant to enter into a car industry because of the brand loyalty of customers. New entrants from China and Japan are always a threat to the company, which may take away some of the company’s market share. (scribd.com, 2013) Secondly, automobile company will face the barriers of resources. The auto manufacturing industry is considered to be high capital and labor intensive. Hyundai motor industry needs to have the huge factories, labor, automobile parts, and other resources to ensure customer demands can be fulfill from time to time. Company need to build transportation and delivery network, such as trucks, drivers, warehouse, management and others. Company must maintain competitive technology amongst many firms, such as improving safety, reduce breakdowns, higher performance, hybrid technology and so on. Government policies and taxation are next barriers for company to entry the industry. Government policies such as obtaining trade rights, and tax burden on import and export goods to limit others country company to get into the industry. Besides that, company need to altering their products to match to the country laws and regulations, such as driver sit is on the right in Malaysia. For all company, earning brand image is difficult and it may take years in automobile industry. The company must creating their own unique designs and unique names to differentiate their product from competitors in the same industry.

(b) Bargaining power of buyer

The second force is bargaining power of buyer, such as switching costs. For example, if switching to another product is simple and cheap, the customers do not think much before doing it. Nowadays, there are many different brands and models of cars to choose. The appearance, quality, price, and environmental effect can make or change customer buying decision. Therefore, company must design the new and nice look cars, cheaper but good quality car, more saving gas, good in protecting safety and others to attract buyers. (dianasunblog.blogspot.com, 2013) The bargaining power of buyers is high and the buyer may shift to some other manufacturer if buyer is not satisfied with the price. (scribd.com, 2013)

(c) Supplier bargaining power

Third force is supplier bargaining power, some parts of the cars are supplied by some other companies, these companies may bargain for a high price. (scribd.com, 2013) The bargaining power of suppliers is low and the manufacturer may shift to some other supplier.

(d) Threat of substitutes

For Hyundai motor, the threat of substitutes is not high. It is true there are many of transportations substituting automobiles, this threat may be from such as bicycles, trains and buses. Besides that, the threat that consumer will switch to a substitute product if there has been an increase in price of the product or there has been a decrease in price of the substitute product. (businessteachers.org.uk, 2013) It is not a big threat to automobiles, because most of the consumers nowadays increase their demand for car whether it’s for convenience purpose (eg: when it was bad weather) or own car to show their prestige in life (eg: luxury car such as Hyundai Sonata). This demand on car will lower the threat of others substitute to replace car.

(e) Rivalry

The last force is rivalry, huge price competition leading to extensive need to differentiate, leading to more resources devoted to marketing brand. Among competitors, they introduce the newest and best technology to compete with each other. All strategies are highly monitored and, in many times, copied among rival firms. As there is high competition in this industry one should increase their market share by taking away it from their competitors. (scribd.com, 2013)

1.4 Definition of PEST analysis

PEST is a strategic planning tool used to evaluate the impact political, economic, social, and technological factors might have on a project. It involves an organization considering the external environment before starting a project. The advantages of PEST are its simple and only costs time to do. It provides an understanding of the wider business environment, and encourages the development of strategic thinking. It may also raise awareness of threats to a project. PEST can help an organisation to anticipate future difficulties and take action to avoid or minimise their effect and help an organisation to spot opportunities and exploit them. (gazhoo.com, 2013)

1.5 PEST analysis of Hyundai Company

(a) Political

Hyundai was using PEST analysis to analyze the strategy of the company. For political, with the Korean President announcing that from 2008, government will use ‘green growth’ plan which is designed to use 22 new engine technologies (Kim, 2008), which includes Fuel Cell. Considering the high levels of automobile pollution, the government aims to combat this by introducing more green technology and especially by incentivising the building up of more hydrogen-refuelling stations. With Hyundai also being a member of California Fuel Cell Partnership programme, it gets even more incentive and technology to go the fuel-cell way. (StrategyPaper.com, 2013)

(b) Economic

Economic factor Korean economy is 97% dependent of foreign imports for energy and per capita energy consumption has already crossed that of Japan and Germany (Lee, 2008). With prices of conventional fuels rocketing, the government is looking for ‘green plan’ to reduce the traditional technologies with new ones, thereby also increasing jobs of about 150,000 by about 2018 and reducing 8% of petroleum consumption by then. It is common knowledge that eco-friendly transportation would be the driving force of the economy and thus Hyundai’s plans to go that way. It started in 1991 with producing Sonata electric cars, started hybrid production in 1995 and plans to mass produce hybrids by 2009, increasing production eventually to 3,000,000 by 2015 (Hyundai Company, 2013).

(c) Social

The Korean society has a traditional patriarch way of performing business expressed by obedience and personal loyalty (Biggary and Guillen, 1999). Hyundai is owned by this family system and in a need to survive, it must change and bring in elements of meritocracy and this change is being reflected in its strive for greener cars. (StrategyPaper.com, 2013)

(d) Technological

The Ministry of Education, Science, and Technology (MEST) and the Ministry of Knowledge Economy (MKE) are the key players involving in Korea’s fuel cell Research and Development (R&D) project since 2004 (Lee, 2008). After two years, they launched two aggressive monitoring projects for fuel cell vehicles so that they can promote the hydrogen infrastructure by validating and demonstrating for fuel cell cars and hydrogen refuelling stations at the same time. Accordingly, due to the technology supports by government, Hyundai will have fuel cell cars road tests in 2009 which is earlier than many car companies, like Ford and Toyota. (StrategyPaper.com, 2013)

Task 2: Discuss the company’s internal environment using value chain analysis and SWOT analysis.

2.0 Definition of Value Chain Analysis

Value chain analysis looks at every step a business goes through, from raw materials to the eventual end-user. The goal is to deliver maximum value for the least possible total cost. (Investopedia.com, 2013). It is a systematic approach to examining the development of competitive advantage. The most basic breakdown of primary functions includes inbound logistics, operations, outbound logistics, sales and marketing and service. People should use the other models and frameworks within this software to further differentiate between, and add to, these domains. Product Innovation is one area that is not normally included in the de jure model but is often included in the de facto model. Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings. Those primary activities and support activities. (Jim Riley, 2013) Following is the diagram of Value Chain Analysis:

Value Chain Analysis of Hyundai

2.2.1Primary Activities

Primary Activities are directly concerned with creating and delivering a product. (Jim Riley, 2013)

Inbound Logistics

Here Hyundai received goods from their suppliers. They will stored the goods until they are needed on the production line, and the goods will moved around the organizations. The raw meterial of Hyundai motors is purchase from all around the world. Company’s goal is to maximize their availability of raw material, and maintain good relationship with their suppliers. Hyundai use JIT (Just In Time) approach for handling of raw material.

Operations

Operation is where goods are manufactured or assembled. Individual operations could include organizing the parts to make new cars & the final tune for a new car's engine. (scribd.com, 2013). Hyundai motors are known for their reliability which comes from efficient operations. Currently, the company has increased its production capacity. Also, they have separate departments for activities like painting, welding etc.

Outbound Logistics

It means that the products are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Hyundai sells vehicles in 193 countries (ehow.com, 2013), and they manage their own Showrooms in different countries. The company make their product easily assessable.

Marketing and Sales

Hyundai Motor Group supports diverse sports events and teams ranging from soccer, baseball and tennis to cricket, ski jumping and motor sports, as a means to communicate with people around the world. On the other hand, they want to make more people to know about their company. In true customer oriented fashion, at this stage the Hyundai motors prepares the offering to meet the needs of targeted customers. They also promote their products through Road Shows. This area focuses strongly upon marketing communications and the promotions mix. (scribd.com, 2013)

After sales service

This includes all areas of service such as final checking, after-sales service, complaintshandling, training and so on. Hyundai value their customers. Here is including warranty.

2.2.2 Support Activities

Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. (Jim Riley, 2013)

Procurement

This function is responsible for all purchasing of goods and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. Hyundai motors will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations), and e-Purchasing (using IT and web-based technologies to achieve procurement aims). As company plans the production for the next 3 months and enters into their software, the order for the raw materials automatically reaches to every vendor. Purchase Department checks the quality and quantity of raw material and transfer to stores department. They have also an appropriate capacity to store their raw materials.

IT/ R&D

This is an area that is concerned with technological innovation, training and knowledge that is crucial for most companies today in order to survive. (coursework4you.co.uk, 2013) Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage.

HRM

Human resources are increasingly becoming an important way of attaining sustainable competitive advantage. Hyundai has about 120,000 employees including staff and managers. Large number of organization is used strategies to overcome the competition from the competitors. Hyundai consider their employees as human capital. Training and development is the next main policy has regulatory impact on human resource of Hyundai Motor. This covers not only activities which improve job performance and also growth of personality. It helps in the process of individual towards maturity and actualization of the potential capacities so that they become not only good employees but also good human being. (ukessays.com, 2013)

Infrastructure

This includes planning and control systems, such as finance, accounting, and corporate strategy etc. (Lynch, 2013). It includes and is driven by corporate or strategic planning. The infrastructure at the plants supports production of automobile and its parts for the domestic as well as overseas market. Hyundai use mechanisms and MIS (Management Information System) for planning and control in different departments.

2.3 Definition of SWOT Analysis

SWOT is a tool for strategic analysis. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. (guides.newman.baruch.cuny.edu, 2013) The SWOT analysis provides information that is helpful in matching the company’s resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection. (quickmba.com, 2013)

2.4 SWOT analysis of Hyundai Company

(a) Strengths

The quality advantages

Hyundai owners experience fewer problems with their vehicles than any other car manufacturer. The Santro was chosen the best in the premium compact car segment and the Getz in the entry level mid - size car segment across several parameters. This study measures owner in terms of design, content, layout and performance of vehicles across several parameters. (studymode.com, 2013)

A Buying Experience like no other

Hyundai has a sales network of 250 state-of-the-art showrooms across 189 cities, with a workforce of over 6000 trained sales personnel to guide customers in finding the right car. The high sales and customers care standards led company to achieve higher nameplate in the J.D. Power CSI (Customer Service Index) Study. (studymode.com, 2013)

Quality Service across 1036 Cities

In the J.D. Power CSI (Customer Service Index) Study Hyundai scored the highest across all 7 parameters: least problems experienced with vehicle serviced, highest service quality, best in-service experience, best service delivery, best service advisor experience, most user-friendly service and best service initiation experience. The 92% of Hyundai owners feel that work gets done right the first time during service. The J.D. Power CSI study also reveals that 97% of Hyundai owners would probably recommend the same make of vehicle, while 90% owners +would probably repurchase the same make of vehicle. (studymode.com, 2013)

(b) Weaknesses

Commodity Price Risks

Hyundai commodity price risks to higher costs due to changes in prices of inputs such as steel, aluminium, plastics and rubber, which go into the production of automobiles. In order to mitigate these risks, the company continues to attempts to enter into long term contracts based on its projections of prices. In a volatile commodity market, where your company gives top priority to ensuring smooth availability of inputs, long term contracts are helpful. They also help minimize the impact of growing input prices. Conversely, long term contracts dilute the benefits, if any of a decline in input prices. (studymode.com, 2013)

Exchange Rate Risk

The company is exposed to the risks associated with fluctuations in foreign exchange rates mainly of import of components & raw materials and export of vehicles. The company has a well-structured exchange risk management policy. The company manages the exchange risk by using appropriate hedge instruments depending on the prevailing market conditions and the view on the currency. (studymode.com, 2013)

(c) Opportunities

Leading Growth

As the market leader, company led the growth in the passenger car sector last year. Hyundai sales went up 30% to 472,000 units. This, as I said earlier, is the highest annual sale since company began operations 20 years ago. Hyundai also gained market share, mainly on account of its performance in the competitive A2 segment where it increased its share from 40.3% in 2005-06 to 47.7% in 2006-07. The record sales performance was reflected in the financials. Net Sales (excluding excise) grew by 31% to Rs 93,456 million. Operating Profit Margin increased from 0.8 % in 2005-06 to 4.7 % in 2006-07. Profit after Tax jumped 270% to Rs 5421 million. (studymode.com, 2013)

(d) Threats

Risk Factors

In the course of its business, Hyundai is exposed to a variety of market and other risks including the effects of demand dynamics, commodity prices, currency exchange rates, interest rates, as well as risk associated with financial issues, hazard events and specific assets risk. Whenever possible, we use the instrument of insurance to mitigate the risk. (studymode.com, 2013)

Business Risks

The automotive industry is very capital intensive. Such investments require a certain scale of operation to generate viable returns. These scales depend on demand. Although 2005-06 was year of continued growth for the Indian economy, whether this growth momentum will continue has to be seen. (studymode.com, 2013)

Task 3: Review the existing strategy or strategies practiced by this company and propose a better strategy for this company based on available options.

3.0 Diagram and Definition of Ansoff Product/ Market Matrix

http://vpofstrategy.files.wordpress.com/2011/09/ansoff_product_market_matrix.png?w=451&h=393

Source: www.vpofstrategy.com

The Ansoff Product / Market Matrix is a standard Business Plan tool for evaluating Growth Strategy opportunities and formulating a Business Development / Partnership Strategy. Developed by the "father of strategic management" Igor Ansoff, the matrix frames the opportunities for growth in the context of products (new and existing) and markets (new and existing). The result is four distinct growth strategy options. Organizations utilizing the Ansoff Product-Market Matrix will "plug-in" elements of their own situation with information relevant to their current, near-term and long-term marketplace environment. Once the exercise has been completed for each of the four growth strategy options, they should be compared and then ranked in order of most likely to see tangible results in the near term. (vpofstrategy.com)

3.1 Ansoff’s Product/ Market Matrix of Hyundai Motor Industry

3.1.1 Market Development (new markets, existing products)

Here Hyundai market their existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. (rapidbi.com,2013) Hyundai is planning to exporting and marketing the product in a new region. Company goal is to increase revenue by moving beyond the immediate customer base, attracting new kinds of customers for existing products.

3.1.2 Market Penetration (existing markets, existing products)

In this category, Hyundai market their existing product to their existing customers. This means that, they are increasing their revenue by, such as promoting the product, repositioning the brand and so on. However, the product is not change and company do not seek any new customers. Hyundai plan to increase market share in the current marketplace by winning a higher percentage of new business opportunities, and / or taking customers from competitors.

3.1.3 Diversification (new markets, new products)

This is the most risky of the four strategies and the least attractive option unless there is a unique circumstance that would warrant such a move. This is where Hyundai market completely new products to new customers. Two types of diversification, There are related and unrelated diversification. For related diversification, Hyundai remain in a market or industry with which they are familiar. The diversification of Hyundai can be horizontal, vertical and lateral diversification.

3.1.4 Product/ Service Development (existing markets, new products)

This is a new product to be marketed to company existing customers. This often happens in Hyundai Motors Company where existing models are updated or replaced and then marketed to existing customers. (rapidbi.com, 2013) Hyundai goal is to increase market share in the current marketplace by increasing revenue per customer, and attracting new customers in the current marketplace with new product options.

3.2 Purposed Strategy – Ansoff’s Product/ Market Matrix

In my opinion, product and service development is better category for Hyundai Motors Company. Hyundai was produced many different types and models cars. They were also keeping changes their technology to achieve their customer demands. For example, Hyundai Pony was the first car solely produced by Hyundai. In year 1990 the Hyundai Excel, already in production, was considered the Pony's replacement. Hyundai keeps upgrading their product until now Sonata and Elantra. With almost all of the Hyundai line up revamped with new product, two of the few remaining "old Hyundai" models are the Santa Fe and Vera Cruz crossovers. Replacing both those products for 2013 is an all-new Santa Fe, with a new platform, modern styling and the choice of either a two-row Sport model or a three-row Long Wheelbase version. (autoguide.com, 2013)

The advantages gain by company, if they continue stay in existing market is company able to understand the needs of current market consumers. Company can invest in R&D to produce better new product according to consumer’s needs. Consumer will be attracted by company new product which can fulfil their needs. Hyundai goal is to increase market share in the current marketplace by increasing revenue per customer, and attracting new customers in the current marketplace with new product options. In this situation, company will gain their market share.

4.0 Conclusion

As a conclusion, business environment helps firm to identify opportunities and getting the first mover advantage. So that, company can early identification of opportunities to helps the company be the first to exploit them instead of losing them to competitors. Company can use business environment to identify threats and early warning signals. The company that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period. An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very necessary for the survival and growth of the business enterprise.