HYUNDAI

Prasanthkumar,
Aakshy pai,
Essakiraja .A.P
Rajagopal.G

CASE STUDY
CASE STUDY ON LABOUR PROBLEMS IN THE EARLY
2000S AND BEAT THE BEAR MARKET WITH BEHAVIOURAL

Abstract:
Hyundai Motor Co., formed in 1967, was a part of the large South
Korean Chaebol - the Hyundai Group - until the group split in
September 2000. In the last four decades, Hyundai managed to
establish itself all over the world as a company producing reliable,
technically
sound
and
stylish
automobiles.
In the 90s, the company started aggressive overseas expansion
programs. By the late 90s, when Southeast Asian crisis struck, the
company like all the other chaebols, faced serious financial problems.
To survive, it had to cut its labor force. The company offered various
retirement schemes, unpaid leave for two years, etc. to workers, and
expressed its inability to support its entire workforce in the slack
period.
The unions refused to compromise and the management too held its
ground. Finally, the government intervened to force a negotiated
settlement between the union and the management.

"If the company refuses to accept our demands, we have no choice but
to go on a full-fledged strike. As the union leader, I cannot control the
anger of the union."

-Hyundai union leader Kim Kwang-shik, July 1998.

"Laws and principles, along with dialogue and compromise, should be
adhered to in dealing with labor issues."
-Choi Kil-seon, president and CEO of Ulsan-based Hyundai Heavy
Industries in an interview to The Washington Times, June 2003.

Introduction
The Hyundai Motor Co. (Hyundai), South Korea's largest automobile
manufacturer was in the midst of acute labor problems in the late
1990s and early 2000s. Until the mid 1990s, Hyundai had been
successful in handling South Korea's traditionally disruptive labor
unions. It had kept strikes at bay with nearly double-digit pay hikes
and other benefits. But the Southeast Asian crisis and the general
slump in the automobile industry in the late 1990s forced the
company to restructure and cut down jobs. However, the Hyundai
labor union and workers rebelled against the management's efforts to
restructure the organization and the company faced strikes and
worker unrest repeatedly from late 1990s to early 2000s.
Members of the Hyundai group such as the Hyundai Construction and
Engineering and Hynix Semiconductor were also facing financial
troubles at the time, and were on the brink of insolvency.
Founder chairman of the Hyundai Group, Chung Ju-yung
commented, "We are losing our international competitiveness."
Regretting the continuous labor unrest, he said, "Wages have doubled
in
three
years
and
productivity
has
gone
down."
The labor problems Hyundai faced were not an isolated case in South
Korea. By the late 1990s, the chaebols had grown into large
mismanaged structures with many having several unprofitable units.
During the economic slump of the late 1990s, most of these chaebols

felt the need to downsize.

There was also mounting pressure from the IMF on the South Korean
government to undertake strict economic reforms and restructuring
measures. The labor unions, which have traditionally been very
strong and influential in South Korea, felt threatened.
Since jobs were being cut, social unrest and a feeling of insecurity
among the labor class was rising. The unions resorted to extreme
measures in an effort to establish their authority. Although, all over
South Korea, companies were facing labor unrest, Hyundai was
among those that were hit the most.
An Overview of the South Korean Economy
Until 1960, South Korea focused on agricultural development. But a
series of five-year plans, the first of which was implemented in 1962,
greatly altered the economic structure of South Korea. Starting from
1962, economic policies were geared towards industrial growth.
Export promotion and import substitution were the key elements in
South Korea's growth plans. The industries of electronics,
telecommunication, automobile production, chemicals, ship building
and steel were the major thrust areas.
Business in South Korea was predominantly controlled by a few large
conglomerates or chaebols. Chaebols were industrial groups that were
established after the Korean War in early 1950s. They differed from
other corporate organizations in the sense that they were still largely
controlled by their founding families and were not managed by
professional
corporate
managers.
All decisions, expansion plans and company policies were made by
the members of the founding families, who occupied the top positions

in the chaebols. In 1995, the top 30 chaebols alone accounted for

nearly 16% of South Korea's GDP.
The top four chaebols at that time - Samsung, Hyundai, Daewoo and
LG contributed 9% of GDP. South Korea has shown an incredible
growth pattern. Between mid 1960s and mid 1990s, the annual GDP
expanded
by
more
than
nine
percent
annually.
From being at par with some of the poorer countries of Asia and
Africa in 1960, its GDP per capita in 2003 was seven times that of
India eighteen times that of North Korea and at par with some of the
less
prosperous
economies
of
the
European
Union.
This remarkable success has been a result of close cooperation
between the government and the chaebols. Government policies were
framed keeping the industrialists' demands - availability of credit,
import restriction, sponsorship of specific industries, import of raw
material and technology, encouragement of savings and investment
over consumption - in mind. To encourage domestic industry, the
markets were heavily protected by quotas and tariffs...
Labour Problems in the Late 1990s
The slump in the South Korean economy in late 1990s was bound to
have an effect on Hyundai also. The automobile segment was among
the first to be hit by the downslide in the economy. The domestic
automobile sector had negative growth of almost 55% in 1998
compared
to
the
previous
year.
Hyundai was responsible for almost 50% of total automobile
production in South Korea and was therefore badly hit. The domestic
sales of the company fell by 55% in the year 1998 and its exports
crashed by 74 percent to only 15,056 units . Hyundai recorded a 200
billion won loss in 1998.

According to company officials, Hyundai's six assembly plants with a

yearly production capacity of 1.65 million vehicles, were operating at
only 40 percent of their capacity. In May, 1998, Hyundai reacted to
this grim situation by announcing plans to lay off 27 percent of its
46,000 workforce in South Korea and to cut pay bonuses and benefits
in
a
bid
to
save
230
billion
won.
Unfortunately for the management of the company, Hyundai had one
of the most powerful and militant unions. The decision of the
company to lay off workers sparked off agitations not only in Hyundai
but in other companies too. The unions were particularly offended at
the
government's
approval
of
Hyundai's
decision.
In a demonstration in Ulsan, where Hyundai has its biggest
automobile plant, 32,000 employees participated in rallies. All across
South Korea almost 1,20,000 employees from about 125 companies
participated in demonstrations against Hyundai and the government's
decision. The government had to deploy nearly 20,000 riot police to
control the demonstrators...
Labour Problems in the Early 2000s
On September 1, 2000, Hyundai officially cut ties with the Hyundai
Group and had relocated its head office to Yangjae-dong, Seoul,
Korea - a move that was seen as symbolic of its rebirth as an
independent automotive business group. In December 2001, Hyundai
forecasted its highest profits ever - $900 million for the year.
In the same year, it posted 23.4 percent growth in unit sales and a 74.5
percent improvement in net income. Most importantly, Hyundai
vehicles were being accepted as a technologically advanced, stylish
and reliable in overseas markets like the US and Europe. In the
United States, the world's largest auto market, Hyundai recorded a 42
percent
sales
increase
in
2001.
This was an era of growth, reorganization and new market
exploration. But the success story was marred by another strike threat

in Hyundai.
Workers at the Ulsan plant went on a two-day strike in December
2001, demanding higher wages and higher bonuses. They also
demanded a 30% share in the profits that year as a performance
bonus.
The management clarified, that though the company had done well
that year, it could not afford performance bonuses to the tune of 30%
of profit. The reasons given were: firstly, the increased influx of
imported cars into South Korea was bound to hurt Hyundai's market
share
and
margins
in
South
Korea.
Secondly, General Motors' purchase of Daewoo was a threat that
could not be ignored or taken lightly, and the company had to gear
itself up to be able to compete with General Motors, and lastly, the
most important reason stated was that due to the appreciation of the
Korean won, Hyundai cars were becoming less competitive in
international markets and profitability consequently would be hurt...
Marketing
Hyundai Beat the Bear Market with Behavioural
In an effort to take the bull by the horns in this bear market, Hyundai
used behavioral segmentation to identify what was keeping prospects
from buying. Using this information, the company then developed a
strategy enabling customers to part with their hard-earned dollars
more easily.
What can you learn from their example: In every market change, even
a downturn, behavioural segmentation is a powerful toolone that
can make your product or service stand out.
Talk to Target Prospects

Each news cycle brings a tsunami of information impacting your

customers' purchasing decisions. The smart marketer understands
every change in the marketplace is an opportunity to capture new
customers. How do you seize that opportunity and grow your
business?
Relying on secondary data or past segmentations isn't a realistic
option. Even in these tough times, resist the urge to repeat a smaller
version of last year's marketing strategy and tactics. Use voice-of-thecustomer research to talk to prospects you are currently winning, as
well as those you would like to win. You can't overestimate the value
of talking to your customers. Ask new, open-ended questions. Focus
on learning the following information:

What their reason is for buying. How is it changing?

What their needs are. How have they been impacted by recent
events?

What's keeping them from buying?

What they think of your product versus the competition's product.

What would change their perception of your product versus the

competition's.

How they rate your product against alternative solutions.

Sort Findings
Take a hard look at your data and sort groups with similar
characteristics to determine which segments to target. Hyundai
discovered as the market changed so did their segmentation.
Significant numbers of prospects were no longer focusing on gas
mileage performance and they weren't necessarily looking for more
discounts. Armed with strategic customer insight, Hyundai identified
a business opportunity.
Define Segment
The company determined fear of losing a job was a barrier preventing
prospective buyers from purchasing a car. After defining the segment,
Hyundai developed and aligned sales and marketing strategies to
reach this new segment. By targeting prospects concerned about job
security, Hyundai broadened their audience and increased the number
of customers who looked at their cars.
Noted David Zuchowski, the companys vice president of national
sales, in a New York Times article: "It doesn't matter how many
zillion dollars you put in rebates, or what APR you give them. If
people are worried about their job, they don't really care and they're
just not going to get off the fence."
So, how did Hyundai motivate customers to move off the fence?
Target New Segment
The company developed a strategy to ease the fears of this segment.
Hyundai's Assurance Program releases customers from car payments
without harming their credit score. As Jonah Bloom stated in
Advertising Age, "right there, is an honest-to-goodness big marketing
ideaHyundai confronts the recession head-on and does something
tangible to tackle its effects."

Create Messages
Craft messages to address the specific concerns of your customers.
Hyundai advertising used straight talk that resonated with customers.
The company said, "We're introducing Hyundai Assurance, to show
you the faith we have in you. Right now, finance or lease any new
Hyundai, and if in the next year you lose your income, we'll let you
return it. That's the Hyundai Assurance."
Test
With some creativity, almost all new segmentations and strategies can
be tested, either in a small geographic area or among a select group of
customers. Its crucial to verify your strategy is on track before
launching a new program nationwide. This gives you an opportunity
to make corrections to your messages as well as validate the strategy
to make sure your investment will pay off.

How can you take the bull by the horns and send the bear packing?
Use behavioral segmentation to identify what's meaningful to your
customers, then apply that information in strategy development. When
January sales came out, it was official: Hyundai's Assurance Program
had hit a home run. The company was one of only a few automakers
to post an increase in sales.
Corporate social responsibility
In 2008, Hyundai Motors established a committee to oversee its
Corporate Social Responsibility program. Among the program's
initiatives have been the "Happy Move Global Youth Volunteers
Program".
The Hyundai Motors' India Foundation (HMIF) has invested more
than 20 million rupees in various corporate social responsibility
programmes in India. In 2011 it started the "Go Green" village

adoption project in Tamil Nadu. Its aim was to promote

environmentally friendly products, increase the forest cover in Tamil
Nadu, and improve living and hygiene conditions in the region's
villages. A number of schools have been adopted for improvement
with the HMIF donating around 450 benches to government schools
and drilling 10 bore wells. It has been ranked as 43rd most trusted
brand in India by The Brand Trust Report, India study 2011.