Hyundai Profitability Increase in the UK Car Market - Case Study Example

In What Ways can Hyundai Increase It’s Profitability in the UK Car Market? Table of Contents I. Introduction ………………………………………………………………. 3 II. Abstracts ………………………………………………………………….. 3 III. Key Words ……………………………………………………………….. 3 IV. Objectives and Purpose of the Project ……………………………….. 4 V. Justification for the Project …………………………………………….. 4 VI. Research Questions …………………………………………………….. 4 VII. Definition of Merger and Acquisitions ………………………………… 4 VIII. Overview of Appropriate Literature ……………………………………. 5 a. Merger and Acquisitions of Hyundai with Kia Motor and Asia Motor ……………………………………………………….. 5 b. Hyundai’s Management Strategies and Organizational Restructuring After the Merger …………………………..…. 6 c. Impact of Merger and Acquisitions on Hyundai’s Employees ………………………………………………………. 7 IX. Research Design ………………………………………………………… 8 X. Practical and Ethical Issues ……………………………………………. 8 XI. Conclusion ……………………………………………………………….. 8 References ………………………………………………………………………. 9 - 10 Introduction Hyundai Engineering and Construction, a Korean family-owned company, was founded by Chung Ju-Yung back in 1947. (Breakeryard, 2007) In line with the improvement on the quality of its products and services, the owner changed its business name as Hyundai Motor Company back in 1966. The car manufacturing plant of Hyundai Motor is located in South Korea. In line with the global financial success of Hyundai, the company opened its second plant in India. (AFP, 2008) Today, Hyundai Motor Company is considered as one of the top ten global automakers. For this study, the researcher will state the purpose of the project followed by justifying the reason behind choosing the subject matter. Eventually, the researcher will conduct a literature review as a way of examining whether or not mergers and acquisitions contribute to the increase in Hyundai’s profitability in the UK car market despite the tight global competition. Also, the researcher will discuss the importance of organizational restructuring in Hyundai Motor right after its merger with Kia Motor and Asia Motor. Prior to the conclusion, the researcher will discuss the practical and ethical issues behind the success of Hyundai Motor Company. Abstracts As a leader in the automobile industry, this study will tackle Hyundai’s strategic approach that contributes to the profitability of the business. Key Words Hyundai, UK car industry, automobile, leadership, corporate values, merger and acquisitions Objectives and Purpose of the Project The main objective of the study is to examine the key major factors that contribute to Hyundai Motor Company’s financial success despite the tight competition in the global market. Justification for the Project The fact that a total of ten automobile manufacturers are competing in the global market makes it even more difficult for any car manufacturer to implement a proper management in handling the company’s resources. Considering that Hyundai is a Korean-based company, issues related to the cultural differences in handling the business should be carefully studies. Aside from proper management and product strategy, the protection law on labor management should be considered in order to avoid operational damages caused by organizational conflicts with the labor unions. Research Questions What are the strategic approaches that enables Hyundai to increase its profitability despite the tight competition in the within the UK automobile industry? Definition of Merger and Acquisitions Acquisitions – the act of acquiring control over a corporation by purchasing stocks or exchange in order to receive the right to takeover. (InvestorWords, 2008a) Merger – combination of two or more business entities into one via purchase acquisition or a pooling of interests (InvestorWords, 2008); A corporate law on joinging togather of two corporations wherein one corporation transfers all of its assets to the other. (Hill & Hill, 2005) Overview of Appropriate Literature Merger and Acquisitions of Hyundai with Kia Motor and Asia Motor In line with globalization, Hyundai Motor won the acquisition contract with Kia Motors via public bidding. Prior to signing a contract with the Korean Development Bank, Hyundai Motor took over Kia group in November 1998. (Lee and Cho, 2008) In the process, Hyundai had to pay a total of 1.18 trillion won for the 51% shares of both Kia Motor as well as the Asia Motor. In general, a company is able to expand its business operations either through acquisitions or merger. The short-term effect of the merger and acquisitions on Hyundai is the financial difficulty paying back the 1.18 trillion won to the bank. On the contrary, the long-term benefit of mergers and acquisitions is the fact that Hyundai will gain more benefits from having better economies of scale. As a result, it is easier for Hyundai to meet the market demand within the shortest possible time. Having economies of scale is a good on the part of Hyundai’s profitability and an increased in the company’s competitiveness in the global market. As a profitability strategy, the company will be able to save more money in line with the fixed operational cost. In the process, the company could manufacture automobiles at a much affordable market price. In the process of entering merger and acquisitions, the company is expected to earn more profit since their products and services will become more competitive in the global market. (Gugler & Mueller, 2003) Hyundai’s Management Strategies and Organizational Restructuring after the Merger Right after the merger between Hyundai and Kia Group, the top management immediately implemented a total organizational restructuring in order to ensure the smooth flow within the merged companies’ operations. (Lee and Cho, 2008) For instance, many of the senior managers between these companies are no longer efficient in managing the business operations. (Cho, 2000) Failure to implement a thorough organizational restructuring could cause Hyundai to have a poor financial performance. Many businessmen finds merger as a solution to its current business crisis. Despite the promise of good profitability that merger and acquisitions transaction brings to the business owners, not all companies that enter into merger and acquisitions contract was able to experience a benefit in terms of profitability. In fact, the Department of Trade and Industry reported that approximately 50% of the companies that enter into merger and acquisitions transaction fail in the end due to the evidences that merger and acquisitions could decrease the productivity level of the company or may only result to a break-even profitability on those who purchase another company. (Cartwright & Cooper, 1992: p. 22) Most of them believe that entering merger and acquisitions transaction could help them cut the operational cost needed to increase the company’s revenue without realizing the negative consequences of merger and acquisitions. Studies show that the common failure behind merger and acquisitions lies behind the problem related to proper integration of the two companies. One of the most common factors that may contribute to the integration problem is the differences between two cultures present within the two companies involved. (Hopkins, 1999) The miscommunication between the shareholders of both companies often results to transactional errors related to production and delivery of goods. Impact of Merger and Acquisitions on Hyundai’s Employees Hyundai Motor Workers Union (HMWU) and Kia Motor Workers Union (KMWU) integrated themselves as a result of the company’s re-organization program. (Lee and Cho, 2008) Basically, mergers and acquisitions could affect the labor market in two different ways. First, a merger and acquisitions could lead to a decrease in the total output of a manufacturing company because of the sudden increase in a company’s output capacity related to the added technologies and machineries via acquiring or merging with another company. (Gugler & Burcin Yurtoglu, 2004) This happens when there is an increase in the company’s output capacity without increasing the demand for its goods and services. It is also possible for a company to be forced to find a strategic way of implementing a collective dismissal1 or a massive lay-off in case the profitability of the company suffers due to excessive man power such as in the case of Hyundai during the 1997 Asian crisis. (Cho, 1999) Laying-off excess human resources could cut down on its fixed operational cost in order to make the company survive financially. In rare cases, some companies end up using merger and acquisitions as a restructuring strategy to make them easily get loose from upholding the past contracts with its stakeholders including its employees. (Shleifer & Summers, 1988) Research Design The research design for this study will be purely qualitative approach. In the process of determining the major strategic decisions made by Hyundai, the researcher gathered related peer-reviewed journals to examine the possible impact of the strategy over the company’s short- and long-term profitability. Practical and Ethical Issues Being in-charge of managing merged companies such as in the case of Hyundai-Kia, it is ethically wrong to embezzle the corporate funds. (Maplecroft, 2007) In 2007, Chung Mong-koo – the chairman of Hyundai Motors was caught misusing as much as US$100 million of the corporate funds. As a result, he was sentence for a three years imprisonment. Conclusion One of the key factors that enable Hyundai to increase its profitability despite the tight competition in the global market is its decision to merged with other similar company such as in the case of Kia Motor and Asia Motor. Through merger and acquisitions, Hyundai was able to have economies of scale necessary in enabling the company to manufacture automobiles at a much lesser operational costs. In line with the merger, a good leadership is necessary in making the organizational restructuring program a success. Failure to encourage the employees to support the program could only result to a serious organizational problem. References: “AFP.” 2 February 2008. Hyundai Makes India Its Biggest Foreign Manufacturing Site. 12 March 2008. Available at: . "Breakeryard." 2007. History of Hyundai. 12 March 2008. Available at: . Cartwright, S. and C.L. Cooper. Mergers & Acquisitions: The Human Factor. UK: Butterworth, 1992. Cho, Hyung-Je. "The Employment Adjustment of Hyundai Motor: a Research Focus on Corporate-Level Labor Relations." Korean Journal of Labor Studies (1999): Vol. 5, No. 1, pp. 63 - 96. Cho, Sung-Jae. "Corporate Governance and Labor Relations: the Case of Kia Motor." Dissertation of Economics Department, Seoul National University. 2000. Gugler, K. and D.C. Mueller. “The Effects of Mergers: An International Comparison.” International Journal of Industrial Organization (2003): 21(5):625 - 653. Gugler, Klaus and B. Burcin Yurtoglu. “The Effects of Mergers on Company Employment in the USA and Europe.” International Journal of Industrial Organization (2004): 22:481 - 502. Hill, Gerald N. and Kathleen T. Hill. “Farlex.” 2005. Merger. 21 January 2008. Available at: . Hopkins, H.D. “Cross-Border Merger and Acquisitions: A Global and Regional Perspective.” Journal of International Management (1999): 5(3): 207 - 239. “InvestorWords.” 2008a. Acquisition. 21 February 2008. Available at: . “InvestorWords.com.” 2008b. Merger. 21 January 2008. Available at: . Lee, Byoung-Hoon and Sung-Jae Cho. "Merger and Reconfiguring of Hyundai-Kia." 2008. 12 March 2008. Available at: . "Maplecroft." 5 February 2007. Hyundai Chairman given Three Year Prison Sentence for Embezzling US$100m. 12 March 2008. Available at: . Shleifer, A. and L.H. Summers. Breach of Trust in Hostile Takeovers, in: A. Auerbach (ed.) Corporate Takeovers: Causes and Consequences. Chicago, IL: University of Chicago Press,, 1988. Read More