Organization Analysis for Hyundai Motor Company - Example

Name Organization Analysis for Hyundai Motor Company Instructor Course Date Table of Contents Cover Page…………………………………………………………………………. 1 PASTEL Analysis………………………………………………………………….. 2 Porter’s Five Forces Analysis of Hyundai Industry…….…………………………. 4 Analysis of Position of Key Competitors in Hyundai Industry………………….. 6 Resource and Capability (VRINS) Analysis of Hyundai……………………………... 8 SWOT Analysis of Hyundai………………………………………………………… 10 Value Chain Analysis for Hyundai………………………………………………….. 12 Conclusions and Recommendations………………………………………………….. 14 Works Cited…………………………………………………………………………. 15 PASTEL Analysis of Hyundai Table 1: PASTEL Analysis of Hyundai Political Economic Socio-cultural Technological Ecological Legal > Energy policy > Political stability > Political support for globalization > Political pressure for increased wages > Stability of European economies > Decreasing rate of unemployment in countries like U.S. > Fluctuation in exchange rates > Intense competition > Culturally diverse market > Worldwide penetration and increased income levels > Healthy lifestyle trends > Rapid technological developments > Growth of e-commerce and digital marketing > High internet access and application of smartphones > Fuel shortages > Rising raw material prices > Global demand for ecological vehicles > Emphasis sustainable development > Tight labor global laws and regulations > Enhanced labor relations and laws > Tax law reforms in some countries PASTEL factors either promote or compromise its success and competitive advantage (Kim et al., 2013, P.41). Politically, increased political support for globalization coupled with political stability in many global economies is significant incentives for Hyundai to boost its international strategy so as to exploit more market segments such as Europe. However, energy policies and mounting political pressure for better wages threatens its profit margin as they constitute extra cost the firm has to incur (Kim et al., 2013, p.41). For instance, the corporation faced lawsuits for overstating gas mileage attracting financial damages. Economically, stability of European economies and the decreasing rate of unemployment in countries like U.S. imply opportunities the firm can exploit for more gains. However, intense competition and fluctuating exchange rates threaten its profits because it earns a large percentage of its revenue outside South Korea (Acharya, 2014). Particularly, fluctuation of KRW against, for example, U.S. dollar reduces its profit. Socio-cultural factors impact consumer perception that affects brand reputation. To effectively perform in the dynamic global market, the corporation needs to leverage culturally diverse markets, global penetration, increased discretionary income, and healthy lifestyle trends. Also, densely segments with growing population are other opportunities the company can exploit. Technological advancement catalyzes competition in automotive industry by promoting innovation of new improved cars (Lee, 2011, p. 430). Nonetheless, Hyundai can leverage rapid growth of e-commerce and digital marketing baked with high internet access and application of smartphones among consumers for more profits. Ecological issues including fuel shortages, rising raw material prices, global demand for ecological vehicles and emphasis sustainable development as well as legal concerns like tight labor global laws and regulations, labor relations and laws, and tax law reforms in some countries are significant issues Hyundai must articulate in its international strategy to improve its performance (Lee, 2011, p.478). Porter’s Five Forces Analysis of Automotive Industry Table 2: Porter’s Five Forces Analysis of Hyundai Industry Entry Buyer Bargaining Power Supplier Bargaining Power Substitutes Rivalry > Significant entry barriers > Difficulty to build reputation > Many automakers > Many substitutes > Little to no cost of switching to rival products > Increased access to industry information > Low cost of switching companies > Limited government restrictions or legislation > Low fixed costs > Availability of resources > Insignificant loyalty to certain brands > Many rival products > Increasing public transportation > Increasing secondary transportation > Price sensitive consumers > Many buyers > Ease of switching to substitutes > Extreme price competition necessitating differentiation > Competition in technological adoption and innovation > Keen strategy monitoring resulting into high imitation The threat of entrants into the automotive industry is relatively insignificant due to an array of barriers to entry which a prospective has to overcome before establishing itself (Tanwar, 2013, p. 12). This is because the automotive is a resource-intensive sector where huge resources have to be invested, including necessary resources for establishing huge factories and delivery networks, as well as high marketing and contract costs (Thompson et al., 2013). Furthermore, technology is a significant barrier as entrants have to maintain competitive technology to achieve improved quality, safety, gas mileage, performance, and ecological cars. These barriers are complicated by product extreme differentiation where entrants have to invest in innovation and advertising to increase brand popularity. Also, government restrictions in terms of acquiring trade rights and adjusting product lines to match national and global laws are another headache (E. Dobbs, 2014, p. 35). Existence of many car manufacturers (such as Toyota, Nissan, GM, BMW, Ford, Chrysler, etc), substitutes and information on industry trends strengthen bargaining power of buyers since they can always settle for complement products. In fact, customers have more power in dictating product pricing and quality (Tanwar, 2013, p. 13). Equally, supplier bargaining power is insignificant because automotive producers strive to maintain aggressive cost strategies leaving suppliers with no other choice than competing for contracts among themselves. Therefore, Hyundai is in better position as the existence of many suppliers bears little impact on its profitability. However, besides existence of multiple automotive makers, increasing public transportation and secondary transportation (including motorcycles and seaways) as substitutes to cars accelerate competition within the industry. The threat of substitutes is enhanced by price sensitivity among car buyers, many buyers, and the ease of switching to substitutes (Thompson et al., 2013). Besides that, similarity of products among businesses intensifies market rivalry thus exerting more downward pressure on the industry’s profitability. This is depicted in advertising and price wars that are hurting most of the firms’ bottom line. Strategic Group Analysis for Hyundai Firms in the automotive industry manufacture products of different quality, charge different prices, offer their products to different geographical market segments, and appeal to varied kinds of consumers. Some automotive makers are attractively positioned compared to their rivals because they leverage weaker competitive forces and/or they are less adversely affected by forces driving the automotive sector. There exist different strategic groups that are largely defined by distinct competitive strategies and positions in the global automotive sector. Industry driving forces (such as technological advancement, product differentiation, effective marketing, brand reputation, market positioning, investment in R&D, etc) promote other strategic groups as well hurt others. The global automotive industry is characterized by intense competition among the many automakers, product differentiation, government restrictions and legislations, price/quality range, geographical coverage, and product-line breadth, among others. These characteristics delineate strategic frameworks that are employed in different strategic groups in the industry. The key success factors (KSFs) include successful marketing strategies, price competitive strategies, technological advancement, shorter life cycles, narrower product-line breadth, and more focus on R&D that yield innovative, high quality, reliable, durable, environment-friendly cars (Thompson et al., 2013). Therefore, companies that are identical in a number of these factors are close competitors falling within a particular strategic group while those that are less identical in these factors are distant competitors (Thompson et al., 2013). As a result, there are several strategic moves that Hyundai can pursue to increase its competitiveness and profit margin. If a firm is not keen on strategies and situations of its market rivals as well as possible strategic moves they might be intedning to make, it might “fly blind into the compatitive battle” (Thomon et al., 2013). The consumer behavior in this sector is shifting to safe, innovative, high quality, reliable, durable, and ecological vehicles. This is a brighter industry outlook for Hyundai because its focus on R&D and efective resource allocation are geared towards achieving these objectives (Mayyas et al., 2012, p.1850). Considering the nature of competitive rivalry among major industry players, innovation and effective resource allocation are signfiicant resources and competitive capabilities the corporation can leverage to be competitively successful. Some shortcomings pose a greater risk to the firm as they can potentially put it at a compatitive disadvantage. These include issues regarding market competition, product recalls, negative publicity, rising cost of raw materials, and weak exchange rates (Hyundai Motor, 2016). Resource and Capability Analysis Hyundai Major company competitive assets include Financial resources valued at $ 70.226 billion in 2011 (Hyundai Motor Company, 2013). Better technological assets due to its focus on R&D and effective resource allocation Diverse and competent workforce Relative strong brand reputation Effective marketing and brand management Better relations with suppliers and retailers Core resources and capabilities are competitively valuable as they are aligned with Hyundai’s business strategy, less rare, and strongly supported by the organization leading to a generally temporary competitive advantage. VRIN framework posits that if a firm holds and exploits valuable, rare, inimitable and non-substitutable competitive assets (resources and capabilities); it stands higher chances of realizing sustainable competitive advantage. Hyundai’s competitive resources are relatively valuable because they enable the corporation to implement competitive approaches different from those of its rivals (Thompson et al., 2013). From Porter’s point of view, the company’s resources and capabilities can be said be valuable because they enhance the corporation’s ability to create to create value for its customers that possible surpass the cost of their creation (E. Dobbs et al., 2014, p.33). The term value can be conceptualized as what consumers are willing to pay, and superior arise from offering lower prices compared to rivals for similar utility or distinct utility at a higher price (Thomson et al., 2013). Hyundai integrate these two points as it does not only produce cheaper products, but also unique features such as quality, reliability, durability and environment-friendly. Although some resources are less rare and inimitable (like raw materials and technology developments), most of its capabilities like innovation, marketing, brand management, and supply and distribution chain management because these are a resource bundle that is virtually knowledge-based, residing in Hyundai’s workforce and in its intellectual capital. For instance, innovations are subject to patent rights and protection hence rare and inimitable. As such, it is a resource of competitive advantage to the corporation. A resource that is difficult and costly to copy by rivals has a more competitive advantage (Thompson et al., 2013). However, rapid technological advancement can compromise the difficulty of resource and strategy imitation (Thompson et al., 2013). Also, since some competitors can produce relatively high quality or cheaper cars, for example by setting plants in countries with low wage rates with a more skilled labor force, the firm’s competitive assets are very substitutable. SWOT Analysis of Hyundai Table 3: SWOT Analysis of Hyundai Strengths Weaknesses Growing brand reputation Strong focus on R&D Effective resource resources Increased growth in Europe Effective marketing Product recalls Limited presence in Asian countries Negative publicity Opportunities Threats Increasing fuel prices Worldwide demand for ecological vehicles Changing customer needs Unstable exchange rates Rising cost of raw materials Stiff competition Saturated economies Overflow of used cars Since its entry Hyundai has witnessed unprecedented brand reputation growth making it named the second fastest growing brand in this sector with a 24% value growth (Hyundai Motor Company, 2013. This performance is attributed to its focus on R&D and innovation enabling its deliver high quality, reliable, lasting and safe vehicles. Also, it allocate resources effectively with its ROE standing at 20.6% for the 2011 fiscal year, compared to 19.9% and 4% for GM and Toyota, respectively (Hyundai Motor Company, 2016). Other considerable strengths are effective exploitation of the European market and effective marketing (like outstanding CSR) enhance its brand popularity (Hyundai Motor Company, 2016). However, product recalls, limited presence in countries like Japan, and negative publicity harm its efforts to achieve strategic goals. Besides facing lawsuits for inflating fuel economy numbers in 2012, the corporation recalled over 300,000 in 2012 vehicles due manufacturing and design flaws (Hyundai Motor Company, 2016). These events not only damage its brand reputation, but also weaken its competitive edge. Besides that, fluctuating exchange rates, rising cost or raw materials, stiff competition, decreasing fuel prices, saturated markets and increasing second cars are further significant threats to the corporation’s profit margin and competitiveness. For instance, the automotive industry is concentrated with many established players, which from Porter’s perspective increases market rivalry, thus a serious threat. Nonetheless, increasing fuel prices coupled with global demand for environment-friendly cars provide more market opportunities for Hyundai’s hybrid, electric and hydrogen driven cars (Kim et al., 2013, p.41). This is particularly imperative considering that changing consumer needs are increasingly drifting towards cheaper and ecological cars due to the knowledge that large amounts of CO2 make air dirt and adversely impact the environment. Value Chain Analysis of Hyundai Hyundai’s primary and secondary value chain activities include Inbound and outbound logistics Product R&D Technology and internal system development and advancement Supply chain, operations, and distribution management Services Procurement Human resource management Sales and marketing Profit margin calculation Logistics constitute the most critical aspect to Hyundai’s value chain analysis, which employ JIT (Just-in-Time) production framework to lower inventory expenses, optimize assembly and production, and minimize wastage. Since it relies on suppliers for raw materials, it has to maintain good relations with suppliers for uninterrupted supply of raw materials. Also, it controls the distribution process to ensure that final products are delivered at the right destination and time through direct dealers. Operations involve manufacturing and assembling process as well as other specific activities like motor and engine tuning and configuration of parts (Hahn et al., 2000, p.33). Hyundai’s well-designed and regulated operation process enable it to produce quality, reliable and durable cars hence reinforcing its brand reputation and competitive advantage in the global automotive industry (Hahn et al., 2000, p. 33). Marketing and sales activities of this corporation focus on well planned promotion mix and marketing communication strategies that focus their vehicles to specific customer segments. Marketing strategies like event sponsorship baked with its effective CSR are appropriate for meeting both company and clients expectations. Service like after-sales service, maintenance, and training, among others help the firm to enhance value to their products and generate useful feedback from their customers. These end service foster service excellence and enhanced customer satisfaction which translate to greater competitive edge. Also, digital procurement enables the firm to outsource quality raw materials which help reduce the cost of buying and delivery. Technological development is another important support activity which stresses appropriate integration of improved technologies into company infrastructure and processes to guarantee quality and safe products, thus constantly improving their competitive advantage (Lee, 2011b, p. 1217). Besides that, effective HRM is competitive asset Hyundai leverages to develop a dynamic, competent and motivated workforce. They employ diverse employee development approaches including training and material support primarily to boost their capacity, capability, efficiency, and motivation hence improved task performance (Hahn et al., 2000, p. 36). Conclusions and Recommendations Focusing on passenger cars and commercial vehicle production, Hyundai faces intense competition from other established competitors as Ford, Chrysler, Nissan, GM and Toyota subjecting it to stiff competition. Its competitive strategy is largely based on price as opposed to differentiation which compromises the company’s profits. Nonetheless, the corporation needs to purse several strategies to enhance its competitiveness in the global automotive sector as well as realize better profit margin. The first imperative strategy the corporation might consider embracing is market differentiation. Particularly, the management should determine the specific niche of the automotive market that the firm is going to compete in as it generally focuses on diverse groups of consumers that are purchasing cars for many different purposes. Targeting a particular market niche with a comparatively small line-up of vehicles can work for Hyundai because the firm will be more flexible to make decisions regarding expansion and cutting costs since its production is relatively small compared to other massive automakers. Second, price discounting (setting low price) is a viable strategic alternative Hyundai ought to consider. The firm can realize low price advantage by manufacturing vehicles characterized by selective features that stress reliability and practicality. Since it does not ship vehicles to markets like North America, it subject to similar wages like its rivals hence has no price advantages over them. However, producing less extravagant vehicles can help the firm achieve low price by eliminating unnecessary utilities. Additionally, Hyundai should invest more in R&D and innovation in order to keep up with the dynamic change in consumer tastes and preferences as well as rapid technological developments in the automotive industry. In the contemporary corporate world, firms are not just expected to innovate, rather they are to continuously introduce new quality products to meet the ever-changing consumer landscape. Works Cited Acharya, Chitra. "Study on Macro Analysis of Automobile Industry with special focus on Four Wheeler Segment." (2014). E. Dobbs, Michael. "Guidelines for applying Porter's five forces framework: a set of industry analysis templates." Competitiveness Review 24.1 (2014): 32-45. Hahn, Chan K., Edward A. Duplaga, and Janet L. Hartley. "Supply-chain synchronization: lessons from Hyundai Motor Company." Interfaces 30.4 (2000): 32-45. Hyundai Motor Company. “HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014.” Kim, Hwa-Jin, Seung Hwan Lee, and Stephen M. Woodcock. "Favoritism and Corporate Law: The Confused Corporate Opportunity Doctrine in the Hyundai Motor Case." Mich. J. Private Equity & Venture Cap. L. 3 (2013): 41. Lee, CHOONG Y. "„The Rise of Korean automobile industry: Analysis and suggestions‟." International Journal of Multidisciplinary Research 1.6 (2011): 428-480. Mayyas, Ahmad, et al. "Design for sustainability in automotive industry: A comprehensive review." Renewable and Sustainable Energy Reviews 16.4 (2012): 1845-1862. Tanwar, Ritika. "Porter’s generic competitive strategies." Journal of Business and Management 15.1 (2013): 11-17. Thompson, Arthur, et al. Crafting & Executing Strategy 19/e: The Quest for Competitive Advantage: Concepts and Cases. McGraw-Hill Education, 2013. Read More