Stakeholders in Automotive Industry in Korea - Case Study Example

Institution : xxxxxxxxxxx Course : xxxxxxxxxxx Title : Stakeholders in automotive industry in Korea Tutor : xxxxxxxxxxx @2010 Introduction The Korean automobile industry can be rated as the fifth larges globally, in terms of the volume of production. Furthermore on basis of export volume the industry can be rated as the sixth largest. Korea has been expanding its automotive industry over the years, for instance in 2009 in despite of the global crisis, the country produced a total of 3, 512,926 vehicles which was a relatively lower performance. However the Korean economy was able to effectively sustain the challenges of the global downturn, therefore the automotive industry is expected to recover positively in 2010.The automotive industry in Korea still faces challenges that threaten the continued existence of this particular industry, this has resulted to several restructuring strategies within the industry. It is essential to take note of the fact that the automotive industry can not only rely on the sale of cars, no matter how much the industry may shift the business to large scale production and selling of stocks, for effective business responsiveness, the key stakeholders have to play a vital role in the management of the organization in order to enhance better performance (Report South Korea 2009). Stakeholders in automotive industry in Korea The automobile industry in Korea basically fits the frame work of a global automobile industry. The industry is governed by several stakeholders who make the running of the organization more functional and service delivery effectively attained. The main stakeholders in the industry include manufactures, logistic service providers, customers and the government. Manufactures Korea has attracted a lot of attention in terms of its manufacturing capabilities, both globally and domestically. The automotive industry in Korea is mainly supported by domestic players. In despite of the existence of foreign manufacturing companies, the key players in this market are particularly local manufactures. They include; GM SSA, KIA, NG-YOUNG -DAE-WOO, RENAU-SAMSUNG, HYUNDAE The Hyundai Motor Group which is linked to the Kai brand is significantly the fastest developing international auto group. The Korean automotive industry bases its Car making activity on collaboration with supplier’s .This increases the competitive advantage of the car makers. According to a review based on Resources, when a firm has inadequate resources, its capability to maintain the competitive advantage becomes difficult, therefore the aspect of strategic alliance or collaboration is very much essential. For instance in order to manufacture the Toyota brand , most manufactures in Korea utilize technological capability and knowledge that is acquired from suppliers , through building a wide network for knowledge sharing . The collaboration between manufacture and suppliers assists car makers to deal with the rapid changes in technology. New car developments basically requires the utilization of quality design, however the increasing complexity of car parts drives the basic need of collaboration . Such collaboration can be perceived to result to the gain of developing monopoly and creating value. The car maker’s general performance is calculated in respect to aspects such as quality competitiveness, cost, product diversity and customer satisfaction. Through the collaboration strategy the Korean automotive industry has to great extent tried to reach this particular targets (Yin 1994). The significant growth in the emerging markets has assisted the domestic car makers in Korea such as the Hyundai to still remain profitable. In actuality the aspect of successful vehicle manufacturing requires global influence. Many manufactured vehicles consist of a significant volume of parts and components that are imported. Therefore manufactures aim to continue to seeking for the best quality and price for the components they produce. U.S manufactures buy Korean components for over $500 million annually. In addition the Korean manufactures usually outsource the activity of production of many components and parts to foreign companies, this gives reason as to why most vehicles in the country are assembled using licenses from foreign agreements. It is essential to take note of the fact that the automobile industry is basically an international industry and no particular country can have enough capacity to protect its domestic manufactures. The global nature of the industry is also demonstrated in the Korean manufacturing industry. For instance the Hyundai which is a Korean production entered the technology sharing and licensing agreement in 2001 with Partners from Japan. This actually reveals the global nature of the industry as well as the increased demand for Korean automobile products. Analysts argue that the continued expansion that is taking place within the domestic market will intern efficiently support production (Dean 2004). The key successful factors of the Korean automobile manufactures include aspects such as the merging of firms in both oversees and domestic markets. The initiative has focused on; Developing a strong brand image that uses leading technology and good design Having strong independence and ownership Maintaining of good relations between employee and employers The Korean Government The Korean government has enforced regulatory measures which aim at assisting the Korean automotive industry. One of the major contributions is the establishment of incentives that majorly aim to facilitate the sale of cars. For instance the transport affairs minister made an announcement in December 2009, that the government enacted the vehicle management bill which allows the selling of electric cars with law speed in various regions within the country. This move will accelerate the use of electric cars which is expected to hit the Korean markets by 2010 (Fujimoto1996). Tax reduction is another essential government incentive that has evidently assisted in the expansion of the automotive industry in Korea. The Korean government is considering the initiative of offering tax breaks considering the expansion of Korean automobile products. In 2009 June , the Korean ministry of Economy made announcement on its plan to give tax breaks on the buying of hybrid cars , this move would make a shift on the extent at which Electric vehicles will become highly probable. The initiative is aimed at the improvement of environmental standards in the country however the government will have developed an additional bonus in the aspect of supporting the domestic automotive industry in Korea. The Korean government has also utilized the strategy of tariff protection in protection of the Korean automobile domestic market form foreign exploitation. This initiative has been undertaken by the government and to great extents it has meet the objective of protection of domestic industries. However the single and most important action that should be taken by the Korean government is to reduce or eliminate the 2.5% of the present 8% tariff that is imposed on vehicles that are imported. Financial analysts in the country highlight that no particular action will bring a multiple, positive and immediate effect on the disadvantaged price of foreign vehicles when compare to the domestic vehicles , while tying to send an equally positive message to Koreans to purchase imported cars. Customers The Korean automobile industry has three customers, private customers, commercial customers and the government For the private customers, the demand from cars is equally becoming more demanding in terms of search for quality service. The experience of car buying can sometimes be demanding in terms of the tension that exists between the sales person selling the car and the preference of the customer. The Korean consumer auto financing market was liberalizes in 1997 for both foreign and domestic products. In addition in 1999 there was the introduction of mortgages for vehicles which were offered to private customers. This facilitated increased demand for domestic vehicles. A survey was conducted concerning the perception of Korean consumers in 2009 by a foreign manufacturer and importer, depicted that , in despite of the fact that customers generally prefer imported cars, the number one factor that makes Korean customers not purchase foreign cars is linked to social stigma. Most people tend to fear criticism and tax audits that arise from buying foreign cars. The findings of this research indicated that the Korean customers play a significant role in terms of provision of market for their domestic automotive industry. The government is also a core customer for the automotive industry in Korea. The government promotes domestic sale through purchasing of vehicles from the local industries (Doran 2003) Logistics service providers in Korean automotive industry It is vital that organizations determine logistic requirements and goals prior to taking up 3PL. The specifications made by the defined objectives assist in the establishment of the 3PL selection criteria. Some of this includes aspects such as service quality, IT capability and customer relationship (Yin 1994). The Korean automobile industry has managed collaborate with various partners who form part of the logistic process. The main players include the transportation segment; one of such companies is DB Schenker Korea Ltd, which is a corporate entity that deals with all the logistical and transportation activities on land, sea and air. The organization facilitates transport activities using its 88,000 employees who are located 130 countries all over the world. The company has greatly assisted in expansion of both local and international trade through supporting the automotive industries transport requirements. Other companies that undertake shipping operations in Korea include HyunDae shipping, Han-Jin Mearsk, and CMA CGM The Logistic practices in relations to the IT in Korea have been useful in expansion of the automotive industry, however not much investments have been enforced in the development of the new facilities in the IT sector. One of the key issues is linked to the aspect of poor data in terms of the projected volumes. As a result the logistics firms get different information from suppliers on the required volumes. For instance, most of the logistic carriers (out board) complained of inadequate data for planning delivery (Freeman 1984). Other important players within the logistic process include the warehouse department which is majorly government owned, Port facilities, insurance companies and custom department which plays a significant role within the chain of supply. Affected Parties if the Industry collapses If the automotive industry in Korea collapses, the major players to be affected will be the five main manufacturing companies. The Korean automobile industry has experienced restructuring in manufacturing companies which has lead to financial difficulties. Therefore the collapse of the automotive industry will result to fierce completion of between these local manufacturing urgencies and the international automakers such as the French automakers that have lately acquired the Samsung Motors (Gao 2000). Labor unions will also be gravely affected by the collapse of the automotive industry. Several workers union significantly influences the decisions concerning the plight of workers in different automotive firms. For instance the Ssangyong Motor Company began their full time strike after demanding for the reinstatement of the 555 sacked workers. The trade unions greatly assisted the workers in this particular endeavor , therefore if the automotive industry collapses the workforce in the automotive industry will be forced to move to other sectors as a result, more problems linked to human resource issues arise and thus the trade unions will have more challenges in addressing the needs of workers in Korea. Tier suppliers, at all supply levels 1, 2, 3 will also be affected. The main impact on all the three sections is that the suppliers will be excluded from the business process, in addition, there will be great uncertainty concerning the type of technology that should be invented in future and the existing position of the of network of supply. Stakeholder’s levels of power According to the global view the most noticeable or important stakeholders have one or more attributes within the three relations attributes which are legitimacy, power and urgency. Mitchell (1997) gave a definition to power as the ability of a party or a group to have influence over another. Legitimacy can be described as a desire to extend social good, urgency on the other hand it is based on criticality and sensitivity which is measured in terms of the stakeholder’s relationship to the organization. Through he combination of this particular attributes the types of powers for the various stakeholders in the automotive industry can outlined as follows Current stakeholder salience in the automotive industry Stakeholder and attributes Characteristics (Level of power) Type of power 1. Customer Power Legitimacy Urgency Low: They have to rely on switching dealers in order to meet their preference LOW; based on tools of self configuration which raise customer influence on dealers Low: Many customers do not receive their preferred vehicles due to high stocks of vehicles in the pipelines High: Delivery services have slightly been improved. current order-to-delivery capability is 40 days Demanding 2. Dealer Power Legitimacy Urgency Low: Key aspects such as production, deliver and pricing strategies are governed by manufactures High: There objective is to enhance excellent services to customers and promote a repeat of business High: Future depends on the capability to provide the services the dealer wants Dependant 3.Vehicle manufacturer Power Legitimacy Urgency High: Control almost all processes such as scheduling , production and power to manufacture High: Have ability to justify their hierarchy and are centralized High: Must handle issues of capacity and profitability Low; Legacy systems can not be transformed overnight Dominant 4.First-tier supplier Power Legitimacy Urgency High- first tier are developing and adopting , many of the competencies are acknowledged by manufactures High: Consolidation of suppliers means greater power for barging Low: even with rising levels of responsibility and outsourcing Dangerous 5.Second- and third-tier suppliers Power Legitimacy Urgency Low: Reliant on manufactures High: design is useful for the products architectures integrity High: one of the biggest fears is causing the assembly line to shut down Low: due to poor component quality or unreliable delivery Dependent Logistics Power Legitimacy Urgency Low; directed by price not service Low cost switching Is not linked manufactures Outbound logistics given using minimum information Short –term agreements from vehicles Low activities linked to legislations: emissions , safety and routes High: in Charge of maintaining product flow High; logistics close to customers which requires efficient use of services Demanding Conclusion The automobile industry in Korea has rapidly developed however the domestic market saturation has resulted to intense competition within the domestic market and oversees. It is therefore essential for all the stake holders in this particular industry to effectively play their role in order to maintaining service provision and product delivery. Bibliography Dyer, J, H, Nobeoka, K, 2000, Creating and Managing a High Performance Knowledge- Sharing. Dean, J, W, Snell, S, A, 2004, Tier 0.5 manufacturers, where are you? - Management briefing: New world order, Chris Wright. Doran, D, 2003, Supply chain implications of modularization. Freeman, R, 1984, Strategic Management, Pitman, London. Fujimoto, T, Iansiti, Clark, 1996, External integration in product development, Oxford University Press, NY121-161. Gao, J, X, Manson, B.M, Kyratsis, P 2000, Implementation of concurrent engineering in the Suppliers to the automotive industry. Report South Korea, 2009, includes 5 year forecasts, Business Monitor International, London. Yin, R, 1994, Case Study Research, Design and Method,, Invest Korea Journal Read More