Strategic Analysis of Hyundai Motors

Hyundai Motors Strategic Analysis

Introduction:            

Hyundai is among the leading and most popular automobile manufacturers of the world. The global vehicle brand has grown faster during the recent years mainly due to its focus on technological innovation ability to cater to people’s changing tastes. Apart from excellent technology and good quality products, Hyundai is known for its extraordinary manufacturing capabilities and global presence. The brand has grown very popular in the Asian markets. Asia Pacific region accounts for a very large part of its sales followed by North America. Hyundai’s retail sales had an impressive growth in 2016 and so did its revenue.

However, the competitive pressures in the automotive industry have also grown with time. the industry is itself undergoing a major transition. these changes have made it compulsory to place higher focus on technological innovation and marketing. Hyundai has an extensive and strong supply chain and distribution network. Apart from that, the brand is focusing on the development of eco-friendly vehicles to meet the changing demand of the customers. 2016 was a challenging year in several ways, however Hyundai’s performance despite the challenging situation was very good. These uncertainties in various markets are expected to stay for some years. However, Hyundai has planned to become a leading manufacturer of eco-friendly automobiles and is making heavy investments in this area. Below are some important stats and facts about Hyundai:

CEO & Chairman – Chung Mong Koo

President: Won Hee Lee

Number of Employees (2016): 118320

Number of vehicles sold (2016) globally : 4914000 approximately.

2017 Revenue: 96376 Billion Korean won

2017 Net Income : 4546.4 Billion Korean Won


An External Analysis of the Automotive Industry:

The condition of the global automotive industry has grown much better than it was some years ago during the recession. Since the recession, its sales and profits have recovered faster in US. In the Chinese market too, the automotive industry has seen stronger growth since the recession. It is expected that  the sales and profits of the automotive brands would have doubled by the year 2020. Several trends are shaping the growth of the automotive industry in this decade. The industry is going through a fast transition and its future will be shaped by electrical vehicles and autonomous driving. In future the focus will have shifted entirely to the customers and electrical driving and autonomous driving will have grown in importance.

According to a report published by the Euler Hermes Economic Research, the automotive market is on its course to have crossed the threshold of 100 million units by 2019. Even in 2019, it is expected that the global sales of automotive will have crossed 98 million units. In China and Russia, the current growth rate is expected to continue and faster recovery is expected in Russia and Brazil. Since the automotive industry is undergoing fast transition, it will be a major challenge before the brands to manage this transition. Automotive brands will need to continuously invest in new technologies and models including all forms of vehicle from low cost to premium and electrical vehicles to remain competitive. However, the growth of the industry is also being challenged by legal factors. Emission requirements have continuously grown and they are leading to higher production costs for the brands. Simultaneously, the demand for vehicles has also kept growing and is expected to keep growing in the future. The profitability of automotive brands is expected to grow higher because of the rising demand for premium cars and SUVs.

     

Hyundai Motors SWOT Analysis 2018

Strengths:

Brand image and equity: Brand image has become one of the strongest factors affecting sales of automotive brands in the 21st century. Customers can trust only the brands with a good brand image. Such brands attract higher sales and their customer base is larger. Hyundai has a strong customer friendly image globally that is based on trust and customer service. Its large product portfolio has products/vehicles for different income segments.

Global Presence: Hyundai is present globally selling from Asia Pacific to Europe and the Americas. Hyundai’s sales and distribution network is present globally from Brazil to North America. Its suppliers are there all around the globe from China to North America. It also makes vehicles locally around the world in several regions. This reduces the manufacturing costs and keeps product prices low.

Sales growth in Asian markets -: The brand acquired very high level of popularity in the Asian markets. Its China and India factories saw the highest production of vehicles in 2017.  Its new Hyundai Creta SUV was highly popular in the Indian market. Several other small family car models like i10 and i20 by Hyundai have also acquired high level of popularity in the Indian market. While Asian market are Hyundai’s strong hold, some of its models have grown very popular in the US market too. Its Elantra and Sonata models are popular in US apart from Santa Fe. However, the sales of these models has been under decline in 2017. On the other hand, Asia is the biggest market for Hyundai where it sold more than 1.88 million vehicles in 2017. Asian sales represented 38.4% of Hyundai’s entire global sales.

Large product portfolio -:  The brand has a large and varied product portfolio which  caters to the needs of a diverse customer base including customers from various income groups and tastes. Apart from the passenger cars, small family cars and SUVs, the brand also makes MPVs, eco friendly cars and the Genesis brand cars. Elantra, Sonata, Santa Fe, Tucson and Creta to IONIQ, Hyundai sells a very large range of highly popular vehicles. This product portfolio is meant to suit the needs and purchasing ability of a very wide customer base from those who want small cars for family use to those who like luxury cars and SUVs.

Focus on technological innovation -:  Another important strength of Hyundai is its special focus on Research and development. The brand has opened several research and design centres around the world.  Apart from its Namyang research centre in Korea, Hyundai opened several more research centres around the globe. In 2016, it spent 2352.2 Korean Won on research and development which was higher compared to its R&D expenditure in 2015. In 2015, it spent 2172.4 Billion Korean won on R&D.

Strong manufacturing capabilities and distribution network -: Its Ulsan plant in South Korea is the single largest automobile manufacturing plant in the world. It also has manufacturing plants in US, Brazil, Russia, China and India. Hyundai has built manufacturing plants worldwide for producing cars locally and to reduce the costs of manufacturing.

Weaknesses:

  Hurt image due to recalls -: Vehicle recalls can have a poor effect on a brand’s reputation and can damage the customers’ trust. In 2018, Hyundai had to recall more than 44000 vehicles in US which was because of defective steering wheels. The recalled vehicles included Santa Fe and Santa Fe sports cross overs. Apart from the recalled vehicles in US, Hyundai also recalled around 8000 vehicles in Canada. Such recalls hurt brand image and reduce the trust of the customers in the brand.

– Increased expenditure on marketing -: Due to the intensifying competition in the automotive industry, Hyundai’s expenditure in several areas like R&D as well as marketing has increased a lot. In 2016, its advertising and promotions expenditure increased to 2,233 billion Korean Won rising from 2071.8 Billion Korean Wons in 2015.

Opportunities:

– Digitisation and eco friendly innovation -: Automotive brands have several opportunities before them in terms of innovation. Digital technology offers new opportunities to improve supply chain and distribution network efficiency. Apart from that investment in digital technology can also help improve the brand’s production and sales network and after sales customer service. Increasing demand for eco friendly cars all around the globe presents  a major opportunity in itself. Investing more in development of eco friendly and low emission technologies can help Hyundai grow both its popularity and sales faster.

– Growing demand in Asian markets -:

The demand for cars in the Asian market and especially family and passenger cars and SUVs is growing fast. However, not just Asia, the demand for cars has increased globally and apart from Asia Pacific and Europe, North America also experienced a rise in demand for cars. This presents a significant opportunity for vehicle brands like Hyundai that can invest in better design and quality to bring cars as per the customers’ changing preference.

– AI and automated driving -:

The race for automated driving is intensifying every day. More and more vehicle brands are investing in AI and automated driving technologies to be their first. Hyundai too can invest more in these areas to provide its customers with better vehicles and a better overall customer experience.

Threats:

– Heavy competition -: The most remarkable thing about the automotive industry is the intense competition. In this intensely competitive environment, the pressure to invest in upcoming technologies as well as marketing and skilled human resources is very high. The race has become quite tough making car production costlier for existing brands while entry of new brands has become next to impossible. Heavy competition also means more pressure related to customer retention. All of this results in higher costs. Hyundai has to invest much in product quality and marketing to retain its market share.

– Legal regulation and compliance risks -: The legal and regulatory environment around the world is growing increasingly tough.  Compliance risks have grown bigger. From labor to environment there are several areas where compliance risks have grown. Increased pressure of compliance also means that the brands may face higher fines for non compliance which can translate into losses worth Billions as happened in the case of Volkswagen  in 2015.

– Currency fluctuations -:

Another major threat before the automotive brands is fluctuation in the currency exchange rate. 2016 became a challenging year for Hyundai because of ongoing currency fluctuations which also affected demand. Currency fluctuations coupled with slower than expected recovery in several markets like Brazil, Russia, Africa and the Middle East also led to lower demand. These threats affect sales and revenue of Hyundai.


Brief PESTEL Analysis of Hyundai:

Political:

The global business environment has grown highly complex due to increased government oversight.  Higher oversight and supervision has kept making the business environment complex. Apart from several forms of taxes, heavier oversight has led to higher pressure on businesses operating internationally. Political stability is required for a stable business and economic environment. Otherwise politically unstable environments may cause business disruption and financial loss. Chaotic or unstable environments may also cause supply chain disruption and problems with manufacturing and sales.

Strong trade relationships with other nations leads to better business performance in those markets/regions. Unfriendly relationships can lead to more taxes and greater barriers. Political forces and the changing political environment can have a direct impact on automotive businesses.  The political environment in the Asia pacific has remained mostly stable causing a rise in sales and revenue for Hyundai from these markets.

Economic:

The world market has been through a period of bitter recession some years ago. During the recession, not just economic activity but purchasing power of the customers too grew low causing lower demand for automotives and lower sales. Several of the automotive brands needed government help to be bailed out. Now, with the recession passed, economic activity has returned globally and it has led to higher sales of vehicles and higher revenue. With the economic activity surging, the level of employment and dispensable income in the hands of the consumers has also grown. It has led to increased demand for SUVs and luxury vehicles worldwide. Asian markets have seen growth in economic activity since after the recession and that has led to higher sales of Hyundai vehicles in these markets. In this way, economic forces can affect businesses directly and deeply.

Social:

Social factors too have grown important the context of business. Changing social trends can affect demand for certain products globally. If demand for the same product differs across different regions then it is mainly due to social or economic factors. Globally the demand for SUVs has grown including in the Asia Pacific markets. It is also a result of changing social trends. Social factors affect businesses in several other ways too. Automotive brands have to design their marketing strategies to suit the local societies and cultures of their markets. Changing demographic composition of the world population is also affecting how people shop and the kind of products they purchase. The millennials are interested in stylish and technologically advanced models of cars and SUVs. They want vehicles that fulfil their transportation and also cater to their lifestyle needs. Changing lifestyles have affected how brands design their vehicles and their marketing strategies. Small family cars and SUVs have grown in popularity in the Asian markets including India.   

Technological:

Technological factors are affecting growth of businesses in 21st century deeply. The new generation of customers is a tech savvy generation and will judge all aspects of a product before buying it.  They want cars that  are affordable and have low environmental impact. However, those with higher financial strength are also interested in style apart from advanced technological features. It is why automotive businesses including Hyundai invest large sums in research and development. Hyundai too makes a large investment in R&D in many areas including AI, sustainable vehicles and automated driving. In 2016, Hyundai invested around 2,352 Billion Korean WON on R&D. Over years, its spending on research and development has kept growing. Competition in the automotive industry has kept growing intense and it has led to brands investing more in technology and innovation. The race has kept intensifying and is expected to grow even intense in the future.

Environmental:

Nearly all countries in the world have created laws to check the menace of growing air pollution from fuel guzzling vehicles. It has led to higher pressure on automotive businesses related to vehicle safety and environmental impact.  Environment related laws have grown so stringent that recently Volkswagen had to pay a very heavy price in Billions of dollars for trying to escape emission related laws in US. This is also why all brands including Hyundai is focusing on developing hybrids and electrical vehicles, apart from  environment friendly vehicles with low environmental impact.

Legal:

Importance of legal factors can also be understood from the fact that non-compliance mostly results in hefty fines worth billions of dollars. It is why brands are now more careful about legal compliance and have large and dedicated compliance teams to watch compliance issues in the local markets and regions. Volkswagen’s example proves that noncompliance can be costly for business brands. Moreover, the legal net has grown tighter during the recent years and from environment to labor laws and several other areas laws have grown stiffer leading to higher oversight. It is why brands are focusing more on product quality, passenger safety and environment friendliness to remain competitive and be successful.


Five Forces Analysis of Hyundai:

Bargaining Power of Suppliers:

The bargaining power of suppliers of Hyundai  and that overall in the automotive industry is low. It is mainly because these suppliers are scattered all over the globe. Moreover, they are mostly small in size and cannot exert significant bargaining power. Other factors limiting the bargaining power of Hyundai suppliers are Hyundai’s immense financial strength and its brand image. Hyundai selects its suppliers based on  quality standards and ethics and not on another basis like race or geographical location. It partners only with suppliers who are qualified, value driven and experienced. Apart from that, Hyundai suppliers are required to follow the quality and sustainability standards that Hyundai has set for them.  The overall bargaining power of Hyundai suppliers is low.

Bargaining Power of Customers:

The bargaining power of the customers has continued to rise in the 21st century for several reasons. First of all, it is because the number of brands in the market is high and the level of competition intense. Several brands are competing for the same customer base. Moreover, these vehicle brands are investing a lot in marketing. They are more customer oriented than ever before and driven by quality and user safety. Another factor that has led to higher bargaining power of customers in the 21st century is the availability of information. Every customer has all the information he needs to evaluate and decide for a purchase available at his finger tips. These factors are making the race tough and competitive rivalry intense. The size of each purchase in the automotive industry is also substantially large and that  is why each and every customer matters. Brands are not just focusing on product quality but also on better after-sales and service. The factors that limit the bargaining power of the customers are brand image, financial strength as well as marketing strategy and the level of technological innovation. The overall bargaining power of the customers is high.

Threat of New Entrants:

The threat of new entrants in the automotive industry is insignificant because of the high barriers to entry. These barriers have kept growing higher due to several reasons. Apart from the initial investment required for infrastructure, human resources and marketing, there are other large barriers too in the form of legal regulations.  Any brand trying to enter the automotive industry would have to make a significantly large investment which runs in Billions. Moreover, exit barriers are also high. All these factors result in low threat from new entrants.

Threat of Substitutes:

The threat of substitutes for Hyundai is moderate. Apart from the products made by the rival brands, it is also the means of public transportation, which act as substitutes for the Hyundai products. There are  large number of car brands that serve various customer segments. From the lower end small car segment to the luxury market, there are several brands selling modern and stylish vehicles. Hyundai also sells to a very large customer segment. The factors that decrease the threat from the substitutes include its brand image, its financial strength and focus on technological innovation and driver safety. The overall threat from substitute products for Hyundai is moderate.

Intensity of Competitive Rivalry in the Industry:

The intensity of competitive rivalry in the industry has kept growing. While there are a large number of brands competing for market share, each one invests quite heavily in marketing as well as research and development. These factors have led to rising competitive rivalry. Moreover 21st century has brought an influx of new and innovative technologies. Apart from digital technologies and AI, focus is now higher on the use of sustainable materials and manufacturing processes. Brand image also became an important factor affecting the consumers’ choice of products. It is also the reason that automotive brands are investing a lot in branding and marketing. They try to maintain a good brand image by providing better after sales service and maintenance. CRM is also integral to maintaining a good brand image. Overall, the level of competitive rivalry in the industry is very high.

Value Chain Analysis of Hyundai Motors

Primary Activities:

Inbound logistics:

Hyundai’s suppliers are scattered around the world from which it sources good quality raw materials.

Operations:

Hyundai is known for being the owner of the world’s single largest manufacturing plant in Ulsan. Apart from that it has other plants in India, China, Russia, Brazil and Alabama.

Outbound logistics:

The vehicles produced at these plants are sent to the Hyundai dealers scattered throughout the various corners of the world.

Marketing and Sales:

Hyundai spends a lot on the marketing of its products and brand. In 2017, it spent 2460 Billion Korean won on marketing .

Support Activities:

Technology:

Hyundai invests a lot in technology. It has some of the best in class manufacturing plants and is investing in new technologies as well as research and development.

Human resources:

Hyundai also focuses on innovative Human Resources management. By the end of 2016, the company had employed 118320 employees of which 66890 were there in Korea.

Procurement:

The procurement team at Hyundai procures raw materials from around the globe.

Firm Infrastructure:

The firm owns a very large infrastructure from manufacturing plants to R&D facilities and more.

VRIO Analysis of Hyundai:

Resources & Capabilities of Hyundai:

Brand image & Equity:

Hyundai has maintained an excellent brand image globally. It has cerated very high level of trust and loyalty among its customers. It has the image of a responsible and technologically innovative brand that makes safe and reliable vehicles.

Global presence:

The brand is present globally from Asia pacific to Europe and the Americas. Moreover, its sales are growing at a fast rate and in the Asian markets its popularity is very high. In the American markets too some of its models are among the best sellers.

Large product portfolio:

Hyundai has a large product portfolio. It also owns Kia motors. In its diverse portfolio there are all kinds of vehicles from SUVs to small family cars.

Production capabilities:

Hyundai is also known for its excellent production capabilities. It owns the world’s most advanced vehicle manufacturing plant in the world and has several more plants located in several other corners of the globe.

HR& organisational culture:

Hyundai is also focusing on employee empowerment and creating an organisational culture of collaboration and inclusion as well as diversity.

Customer loyalty:

As the brand’s popularity has kept rising globally, it also has a very large and loyal customer base.

Resources/capabilities

Valuable

Rare

Inimitable

Exploited

Implication

Brand Image

Yes

yes

Yes

Yes

Competitive Advantage

Global Presence

Yes

Yes

No

Yes

Temporary Competitive Advantage

Product Portfolio

Yes

No

No

Yes

Temporary Competitive Advantage

Production capabilities

yes

Yes

Yes

Yes

Competitive Advantage

HR& Organisational culture

Yes

No

No

Yes

Temporary Competitive Advantage

Customer loyalty

Yes

No

No

Yes

Temporary Competitive Advantage

Financial Analysis of Hyundai:

 The total sales of Hyundai vehicles has declined from 2016 to 2017. Sales of vehicles stood at 4860 K units in 2016 and have fallen to 4490 K Units in 2017. However, sales revenue of the brand has still increased even in the face of declining sales. Sales revenue of the brand rose from 93649 Billion Korean Won to 96376 Billion Korean Won in 2017.  Profits of the brand declined by 20.5% in 2017 from 5720 Billion KRW to 4546 Billion KRW. Income before Income tax reduced from 7307 Billion KRW in 2016 to 4439 Billion KRW in 2017.  Operating Income of the brand also fell from 5194 Billion KRW to 4575 Billion KRW.

Suggestions:

– The focus of Hyundai must remain on strengthening its competitive advantage in the global markets and product quality given the falling profits.

– It must focus on making EVs since their demand is growing in the recent years.

– More focus needs to be placed on marketing and technological innovation so the brand can find faster growth in the Asian and European markets.

– AI, autonomous driving technology and supply chain digitisation are now more important than ever.

Sources:

https://www.hyundai.com/worldwide/en/about-hyundai/ir/financial-information/financial-highlights/annual

https://www.hyundai.com/content/dam/hyundai/ww/en/images/about-hyundai/ir/financial-statements/annual-report/HMCAnnualReport20160630.pdf

https://www.hyundai.com/worldwide/en/about-hyundai/corporate/networks/manufacturing

http://www.eulerhermes.com/economic-research/blog/EconomicPublications/Automotive-global-sector-report-feb18.pdf

https://www.just-auto.com/news/hyundai-motor-posts-2016-sales-and-profit-declines_id174538.aspx

 

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.