The Korean Automobile Industry: Challenges and Strategies in the Global MarketAuthor(s): Dong-Ok Lee, Keunchul Lee, Jae-Jin Kim and Gill-Chin LimReviewed work(s):Source: Journal of International Marketing, Vol. 4, No. 4 (1996), pp. 85-96Published by: American Marketing AssociationStable URL: http://www.jstor.org/stable/25048673 .Accessed: 18/09/2012 06:27
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Executive Insights: The Korean Automobile Industry? Challenges and Strategies in the Global Market
ABSTRACT This article deals with the current challenges and future strategies for the Korean automobile industry in the global market. To under stand its strengths and weaknesses, the trends of the world market
for motor vehicles and the development of the Korean automobile
industry are discussed. In the first part, Korea's automobile produc tion in the world market is examined. A brief overview of the pro
duction and consumption of automobiles is provided along with a
description of the four-stage development of Korean car produc tion. In the second part, various forces of production are identified that affect Korean automakers' competitiveness in the global mar
ket. Capital formation, labor relations, the role of government, management style, production technology, research and develop ment, and workmanship are discussed briefly. Finally, in light of current observations, some of the challenges for the Korean auto
mobile industry in the future are pointed out and some recommen dations for automakers, labor, and the government are offered.
Dong-Ok Lee Keunchul Lee Jae-Jin Kim
Gill-Chin Lim
Motor vehicle production in Korea reflects various ways in which the automobile industry has been integrated into the global scheme of manufacturing at differing times. While Ko rea's industrialization took different forms of integration into the global economy, ranging from the export of high-labor contents to low-labor contents, the production techniques in
creasingly adopted higher levels of technology and capital input. Figure 1 (World Motor Vehicle Production 1946-93) shows the long-term trends in automobile production in the global context. In 1946, total production was only about 3.9
million vehicles. Despite short-term fluctuations in total out
put over time, the overall long-term production of automo biles increased steadily, reaching about 48.4 million in 1993. This growth of production was due to innovation in produc tion techniques and the improvement of labor productivity.
Korea's Automobile Production in the
World Market
In the late 19th century, passenger cars were made by the craft production system. It was not until 1914 that an in crease in productivity was realized by the mass production system. Henry Ford and Alfred Sloan were instrumental in developing this new approach, which led to the American domination of the world automobile industry through most of this century. Japan's market share was very small in the early 1960s but eventually grew through the 1980s to be as large as that of the United States and Europe. It is widely ac knowledged that the phenomenal growth of Japan's share is due mainly to the high productivity achieved by the lean
Submitted June 1995 Revised December 1995
February 1996
? Journal of International Marketing Vol. 4, No. 4, 1996, pp. 85-96 ISSN 1069-031X
85
production system pioneered by Kiichiro Toyota and Taiichi Ohno of Toyota (Womack, Jones, and Roos 1990).
Figure 1. World Motor Vehicle
Production, 1946-93
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
year
Source: Ward's Automotive News, Marketing, and Data Book. 1976-1994
The relative decline of the American automobile industry and the rise of the Japanese automobile industry have also been accompanied by the widespread emergence of interna tional equity arrangements, joint ventures, supply relation ships, marketing, technology, and assembly arrangements among various companies around the world. The interrela
tionships among the world's major automakers reflect how the Newly Industrialized Countries (NICs) have entered the
world market. As shown in Figure 2 (Shares of World Vehicle Production by Region, 1946-93), Korea's share of automobile production increased gradually during the 1970s and 1980s.
Figure 2. Shares of World Vehicle
Production by Region, 1946-93
Western Europe
20
o) *- fo m
Source: Ward's Automotive News, Marketing, and Data Book. 1976-1994
86 Dong-Ok Leef Keunchul Lee, Jae-Jin Kim, and Gill-Chin Lim
Sources of Global Competitiveness: Forces of Production
There have been several stages of development in the Korean automobile industry since 1962, centered around the indige nous automakers, including Kia, Hyundai, Daewoo, and
Samsung. Using previous analyses (Korea Automobile Manu facturers Association 1993, Hyun 1989, Lee 1993a, 1993b, and 1993c, Tomisawa 1987), we present the following four stage development model of the Korean automobile industry.
Stage One (1962-1967): Semi-Knockdown Assembly Two Korean automakers(Kia and Hyundai) began pro duction.
Local content was near zero.
Technology and auto parts were supplied by obtaining foreign licenses and joint ventures.
Stage Two (1968-1974): Complete Knockdown Assembly Daewoo began production and established a joint ven ture with General Motors.
Hyundai assembled Ford Cortina with 21 percent local content.
Kia produced Brisa.
Stage Three (1975-1981): Mass Production with Increased Local Content
Substantial growth of per capita GNP. Local content of Korean-made cars increased substan
tially to 85 percent. Some mass production techniques were introduced, in cluding the Toyota production system.
Stage Four (1982-present): New Product Development and Export
The auto industry began product diversification and in house R&D.
Hyundai began exporting Excel to the North American market.
The Samsung group started to build automobiles. Kia and Daewoo also entered the United States car market.
The increased mobility of capital along with the rising power of transnational cooperation has altered the nature of the
worldwide division of labor over the past three decades. While the experience of developing countries shares some characteristics with that of more advanced economies, Ko rea's case provides interesting insights on how such waves of global change have altered traditional industrial relations, thereby engendering various sources of innovation. It is the purpose of this section to examine some of the salient fea tures of competitiveness necessary for the Korean automobile
Executive Insights: The Korean Automobile Industry? 87 Challenges and Strategies in the Global Market
industry to succeed in the global market. Particular attention is paid to critical dimensions of automobile production, in cluding capital formation, labor relations, the role of govern
ment, management style, production technology, research and development, and workmanship.
Capital Formation. An important distinction between the capital markets of the United States and Japan and that of Ko rea hinges on the proportion of foreign ownership. The motor vehicle industry of both the United States and Japan partici pated in capital markets in Korea, although the extent of their participation was limited by government regulation. The Ko rean government provided various incentives to induce capi tal formation through national financial markets. Major
Korean automakers have enjoyed very little equity capital in vestment from automakers of the United States and Japan. Daewoo had 50 percent capital participation of GM through a joint venture which ended in 1992, and Hyundai operates
with 13 percent capital of Mitsubishi. For the formation of capital, the interlocking structure of Korean industry itself fa cilitates a reliable financial market for the Korean industrial conglomerate (chaebol). The ownership of domestic au tomakers is managed by shared stockholding with other com
panies in the same chaebol (Steers et al. 1989). For example, the shareholder of Hyundai Motor Company is also the share holder of Hyundai Precision & Industries Company Limited (HPICL). Both companies belong to Hyundai Chaebol group,
and both manufacture motor vehicles, parts, and compo nents. It was only in the 1970s that the Korean government supported formation of a national stock market and encour
aged Korean chaebol to release some of their shares into it. The chaebol structure and associated production linkages fa cilitate extra-market flexibility. For example, HMC purchases some components exclusively from HPICL through subcon tracting, although the quality and market price may not be competitive in national and foreign markets.
Labor Relations. Because labor enjoys substantial flexibility in terms of cost and efficiency, it may be the most critical ele
ment in the long-term
