Introduction
Hyundai Motor Company (HMC) has five main overseas production facilities. The company management realized that the establishment of a global production network is a catalyst for organizational development and learning(Wright, Chung-Sok, & Leggett, 2009). Particularly, the aspect would help the firm improve its absorptive capacity given the uncertainties that come with operating in unfamiliar cultural and economic environments. Although the company initially failed in its attempts, it learned major lessons and implemented new strategies that aided in making the process successful. The company’s experience encourages the need for organizational resilience as an aspect of organizationallearning (Wright, Chung-Sok, & Leggett, 2009). Part of the aspects that will be discussed in this paper are localization of production, internal transfer of experienced staff, Codification of experiences and Use of aggressive goal setting
Background Information
HMC was established in 1967 with the mission of assembling American designed cars for Korean consumption. The Company has since that time risen to be rated among the leading automobile manufactures in the world(Wright, Chung-Sok, & Leggett, 2009). It competes effectively with Ford, Toyota, General Motors, and other market leaders. Most of the success has beenattributed to the global production in the firm.
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Globalized Production in HMC
The firm’s progress towards globalized production followed the stage theory by Vahlne. HMC started with no exportactivities and then progressed to sales via independent representatives’ and then the establishment of sales subsidiaries overseas(Wright, Chung-Sok, & Leggett, 2009). Finally, the firm started overseas production units and the experience from each stage was used as preparation for the next. As the firm expanded its exports, there was a simultaneous growth in local sales.
HMC had three themes;first, its growth was dependent on the expansion of international sales(Wright, Chung-Sok, & Leggett, 2009). Secondly,the firm also began globalizing before building its competitiveadvantage. Thirdly, the experience of the firm in international markets was used in the development of competitive advantage. In short, HMC was not competing locally but globally; hence, its global success. The centrality of organizationallearning in HMC made it competitive. Particularly, it adapted and innovated the internal capabilities and resources in developing a competitiveadvantage.
The absorptive capacity of the firm or its abilityto recognize,apply and internalize new knowledge was a key competency in HMC(Wright, Chung-Sok, & Leggett, 2009). HMC acquired migratoryknowledge as a way of increasing the knowledge base and used the crises that were generated internally, mainlyin terms of short-term goals,to raise its learning effort. The above was a way of catching up with global competitors. The aspect was used to ensure that the firm did not imitatecompetitors but instead innovated from the learning process.
As HMC was in the process of establishing foreign production centers, it encountered many failures and setbacks. The firstoverseas production unit was established in Canada sincethe North Americans restricted motor importation. The company invested $382 million in the QuebecBranch since the government offered substantial grants and employee training. The promise from the government totaled to $100 million in a span of five years. However, HMC realized that the cost of production in the location was too high since transporting the parts from Korea to Quebec was too high. Transportation amounted to 5% of the total material cost, which was a very large portion(Wright, Chung-Sok, & Leggett, 2009). Consequently, the firm changed strategy, fetching materials from 15 local suppliers instead. By 1992, the local suppliers were 63 sincetransporting the locally fetched parts from Korea would have damaged the sensitive parts. However,the main components like engines were transported from Korea since the localprizes were too high. Hiring Canadian workers was also expensive since they demanded 30-40% more than the Koreans did; they also compromised the quality. At this point, Ford and Honda were more preferred by customers since HMC failed to investigate the consumers need well. All these problems led to the closure of the Bromontplant.
HMC did not stop trying; it opened a joint venture in Turkey in the same year. The company had a forecast of selling one million units by 2001 if Turkey joined the European Union. The aspect would help HMC gain access to the Asian market. Since turkey had good relationships with Middle East countries, Turkish exports would enjoy preferentialtariffs(Wright, Chung-Sok, & Leggett, 2009). An advantage was that the Turkishlabor force was cheaper to acquire than the Korean was;this caused the firm to introducelabor-intensive production. Despite that, the plant failed.
The third attempt was India.This time HMC used its earlier failures as a teacher. Firs it ensured that the location was appropriate and near the consumption market. The company also considered utility conditions such as water and electric power. Finally, the management settled for Chennai, which would enable cheap marine and railroad transport(Islam & Hossain, 2015). The lower wage rates allowed the firm to use labor-intensive production. The company transferred its own construction managers and constructors from Korea to oversee the construction of the plant(Wright, Chung-Sok, & Leggett, 2009). This time, they did it more locally. Moreover, the cars produced in India fitted the needs of the local market. Case in point, they heavy rain and poor drainage in the country influenced the water-resistant car designs made by HMC India branch. The firm used suppliers who provided 80% of the parts for economies of scale. The firm also worked with the suppliers and convinced them to relocate near Chennai for lower costs. The company recorded a high success in India. HMC also opened a successful branch in China and another one in the US(Mann, 2006).
The firm plans to expand to Europe by 2020 and to Australia by 2025. Finally, it also plans to venture into Africa since the economy there is highly rising. However, to avoid failure, it has sent teams to study the markets and establish the best locations(Wright, Chung-Sok, & Leggett, 2009).
References
Islam, M. S., & Hossain, M. I. (2015). Social justice in the globalization of production: Labor, gender, and the environment nexus .
Mann, C. L. (2006). Accelerating the Globalization of America: The Role of Information Technology . Washington: Peterson Institute for International Economics.
Wright, C., Chung-Sok, S., & Leggett, C. (2009). If at first, you do not succeed: globalized production and organizational learning at the Hyundai Motor Company. Asia Pacific Business Review , 15 (2), 163-180. Doi: 10.1080/13602380701698418
