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The Hyundai Group Essay Sample

The Hyundai Group Pages
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Like many Korean chaebols, Hyundai was established only recently, in 1947 as a construction company. But by the end of the 1950s, Hyundai Construction grew to become one of the major construction companies in Korea. Then, Hyundai expanded businesses primarily in the construction, heavy industry and automobile manufacturing sectors during the next two decades to become the largest business group in Korea. During this period, Hyundai was a major business partner for the government, by gearing its corporate growth strategies to the government’s policies for economic development. During the development era (1961-1988), the Korean government insured or underwrote big business’ risky projects through its control over financial resources as well as myriads of discretionary licensing and approval powers, and big business actively capitalized on this insurance provided by the government. The government and big business needed each other, albeit for different reasons, and exchanged different resources to achieve common goals.

In the 1960s, Hyundai’s expansion mainly took place within the construction industry by winning highway construction projects and investing in large-scale cement plants. The Group also pioneered overseas construction markets during this period, which gave Hyundai a leading edge when it decided to enter the construction markets in the Middle East in the 1970s. The successful experience of Hyundai in the construction sector also turned out to be extremely helpful when the Hyundai Group entered the shipbuilding and related heavy industries in the 1970s. These two sectors were similar in production technology, employment, or marketing. Thus, the Hyundai’s entry into the heavy industry sectors could be viewed as diversifying into related businesses, an unusual experience in the early expansion history of Korean big businesses.

Hyundai also diversified into unrelated business in the 1960s and 1970s. This gained a momentum in 1967, with an entry into the automobile manufacturing sector. However, Hyundai Motors had a difficult time until the early 1970s, which was weathered out by the cross subsidies from Hyundai Construction, its parent company. This kind of cross subsidies across affiliates was a crucial means in the expansion history of most Korean big businesses. Soon after overcoming the early difficulties, Hyundai Motors built up its own brand, accumulated technological and management know-how, and secured parts and components through a strategic alliance with Japan’s Mitsubishi. With this experience, Hyundai Motors entered the world market en masse in the 1980s.

When the Park Chung Hee government started the Heavy and Chemical Industrialization (HCI) drive in the 1970s, Hyundai entered the shipbuilding and related businesses under Park’s support in 1973. Hyundai had its own HCI drive, parallel to Park’s, and consulted closely with the government from the very early stage of planning on its investment projects. The government responded positively, providing it with various financial and tax benefits, for example, by enacting the Law for Promoting the Shipbuilding Industry specifically to back its risky business projects. In addition, the government guaranteed Hyundai’s foreign borrowing from Barclay Bank. Having grown into an industrial empire with the capacity to independently raise resources by the 1980s, Hyundai diversified into even more unrelated business fields, 7 including electronics or financial services.

Interestingly, in these new business fields, Hyundai could not surpass the other rival chaebols and remained a second-tier performer. Most of these businesses encountered problems after the financial crisis of 1997. The Hyundai Group entered into electronics sector in 1983, but could not overcome the disadvantage of second mover; Samsung Electronics has maintained the advantage of first mover, superior technology and better management know-how. The Hyundai Group also had a similar experience in financial sectors like securities house, insurance company, or investment trust company. In general, after the 1980s when there already existed competent incumbents, the diversification of chaebols into unrelated business sectors did not produce as satisfactory outcomes as in the 1970s5 .

When many chaebols entered into unrelated business fields after the 1980s, they had to compete with the superior incumbents in those fields. Another example of the second mover’s disadvantage during this period was the entrance of Samsung into the automobile manufacturing industry. In retrospect, the remote first seeds of Hyundai’s difficulty after the economic crisis were sown when Hyundai diversified into unrelated business fields in the 1980s.

Another seeds of Hyundai’s post-1997 afflictions were sown when Hyundai’s founder, Chung Ju Yung, ran for the presidency in 1992, dissatisfied with his relationships with the government during Roh Tae Woo’s political rule (1988-1993). Chung Ju Yung organized his own political party, the Unification and National Party, and his electoral platforms emphasized economic development, criticizing the inefficiency of the Roh Tae Woo government in this regard. He mobilized various resources from the Hyundai Group. Key members in his own party were recruited from the Group, and a large amount of financial resources flowed from affiliates to the presidential campaign, which became the target of investigation by the government during and after the campaign. At the polls in December 1992, Chung Ju Yung was placed third with the 16.7 % of the total votes, about four million people. After his defeat in the campaign, Hyundai’s expansion was restricted by new President Kim Young Sam (1993-1998).

During this period, the government restricted  the Hyundai Group’s issuance of securities domestically and overseas. Note that at the time, the long-term capital markets were not fully liberalized, which meant that the government had discretionary powers over corporations’ issuance of long-term securities both domestically and overseas. In addition, the Korea Development Bank, a state-owned bank for long-term equipment investment loans, froze new loans to Hyundai for two years until October 1993. As a result, Hyundai Group’s affiliates were restrained in their new investment projects. Establishing new affiliates by the Group was also restricted: only two new companies were established in 1992-94.

Besides the restrictions on the Hyundai Group’s financing, the government limited Hyundai Construction’s access to public construction projects, which added to Hyundai Construction’s difficulty brought on by excess capacity in the construction markets during that period. The result was that Hyundai retrenched during the Kim Young Sam government, while the others expanded: <table 4> shows that the government policy against Hyundai contributed to narrow down the gap between Hyundai and Samsung’s asset size during Kim Young Sam’s political rule. Before the presidential campaign, the asset size of Hyundai Group totaled 19 trilion won in 1991; that of samsung Group was 14 trillion won. By 1997, however, the gap narrowed down to less than 4 % of 8 Hyundai’s total asset. In 1997, the Hyundai’s total assets were 54 trilion won; Samsung’s total assets increased rapidly to 52 trillion won.

I. Statement of Objectives
II. Central Problem:
* Lack of communication with its intermediaries.
III. Areas of Consideration
IV. Alternative Courses of Action
V. Strategy Formulation
VI. Plan of Action
VII. Potential Problems
VIII. Contingency Plans

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