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Hyundai Motors and Kia Motors Restructuring

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Tonio Ton

on 26 May 2015

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Transcript of Hyundai Motors and Kia Motors Restructuring

Risky Option
Kia Motors
1944 foundation in Korea

8th most popular brand in the US

Sells 80% of production in foreign markets

Mid 1990s disinvestment lead to heavy losses

1997 July 15th declared bankruptcy

Korea's Automobile industry
1. Market Overview

2. Company and Case Introduction

3. Effects of the Acquisition

4. Restructuring of Kia Motors

5. Outcome and Prospects

6. Discussion
Hyundai Motors
1947 established as a construction company

1967 foundation of “Hyundai Motors” by Chung Ju-yung in Seoul, Korea

Holds 80% of automobile sales in Korea
The Acquisition and Restructuring of Kia motors by Hyundai Motors
Global Market

Mid 1990s: Automobile industry faced global oversupply
Shifting consumer preferences => substantial increase in R&D costs
Thus the automobile companies around the world responded by:
Increasing production efficiency
Restructuring and entering strategic alliances
More M&A than ever before

Korea's Automobile Industry

In this situation, why should Hyundai motors takeover Kia motors ?
The Acquisition of Kia Motors
Effects of the Acquisition
Economies of Scope
Kia offered Hyundai:
Requisite expertise for building a global network
Necessary infrastructure

Hyundai anticipated info on markets that have not been entered yet through Kia’s technology training institute in China

Economies of Scale

What impact will the reorganization of the Automobile Division have on the company's management ?

Hyundai / Kia Automotive Group
Founded in September 2000 in Seoul
5th largest auto manufacturer
Chairman and CEO: Mong-Gu Chung
Low cost pricing strategy
VISION: “Together for a better future”
Great synergy effects resulted of the acquisition

What do you think would be the effects
of this acquisition?

Use of common parts
Integrated quality control
Shared functional improvements
Cost reduction by purchasing large

Improve Competitiveness

Restructuring Kia Motors and Hyundai Motors

Inducing foreign capital

Independent Chaebol
What challenges would a company
face when restructuring ?
Construction of a Global Network
Integration of Management
Mixed board from both companies
Main managers from Hyundai

Installation of the ADPCC
Coordination of resources
Mixed management
From dualistic to unified model

Business Division
Coordination of the Business Division
Management facilitation of Kia Motors through sales and liquidation
Hyundai and Kia motors management merger
Two single Umbrella Kia and Hyundai motors

Organizational Changes
Direct management changed after in Horizontal one
Coordination committee
Joint R&D
Downsizing and Cultural Integration

Layoffs and relocation
Production ability and manpower increase 63%
Production per worker decrease (exhibit 6)
Approval of bankruptcy leads to closed down of some KIA factories that reduced overlapped workforce caused by the M&A
9000 out of 33000 employees were fired

Integration of Organizational Cultures
New Strategy
Work Exchange
Field Work System
Hyundai Motor's Strategy
What do you think about making an acquisition of a bankrupt competitor during a financial crisis ?

More companies were interested into buying Kia

Acquired in 1998 October 19th
Economies of scale

Economies of scope

Construction of a global network

Hyundai: cars, buses, and trucks
Kia: commercial vehicles and minivans
An integrated Hyundai/Kia creates diverse product ranges
Hyundai absorbs Kia’s R&D, business divisions and HR, thus creating new value and reducing costs for both

Automobile Division
Revitalized Business Performance

Sales: KRW 7.9 trillion

Profits: KRW 135.7 billion

Reborn as blue chip company

Debt-equity rate decreased to 148%

Domestic sales increased 72% from 1999 to 2000

Export sales increased 53% over the previous year
Domestic and Overseas
Strong synergy was achieved with the acquisition of Kia Motors
Hyundai's revenue grew 26% from 2010-2012
Global Auto Executives 2012 Survey
Restructuring of Kia Motors was a success

Daily ordering system
KIA – monthly and weekly ordering system
Gradually expanded to all lines in both factories
This affect the production planning cycle
The new system was set up with on-demand production
This system show the weakness of planned production that was adapted before

Promotion of commercial Vehicle Division as a Seperate Corporation
Redesign KIA’s Gwangju factory as a specialized factory for commercial vehicles
Integrating Hyundai Motor’s Jeonju factory for truck and special purpose vehicles -> want to spin off this one and do a joint venture with DaimelerChrysler to manufacture full-sized truck
Pregio (minivan) and Frontier (one ton truck) transferred to Gwangju factory in 1999 (focused investing)
Prevent quality problem in early stages by using a quality innovation initiative
Changes in Plant Operation
In this situation, the acquisition of Kia motors by Hyundai motors is necessary to avoid competition and strengthen its position in the foreign markets.
Generally, when a company acquires another company, it expects three main effects; the economies of scale, economies of scope and more particularly, the construction of a global network.
While restructuring, a company will face many challenges such as:
- Company culture integration
- Organizational restructuring
- Lack of debt capacity for lending
- Increased complexity of company structure
- Recessionary climate challenges
The main impact was the urge of resource coordination, the need of mixed management integration of Hyundai's and Kia's leadership, and the change of human resource management model.

The risk to see a decrease of local sales and local demand driven by the financial crisis.

The acquisition of a bankrupt company implies different needs for your company such as financial stability and the ability to increase the acquired company's previous profits and revenue.

Thrive control of the debt rate evolution from the acquired company's government

Acquisition of a bigger network and thus a bigger market.

Depreciation of company's domestic currency.

Increase of revenue from international sales.

Complementary R&D division; permit to cut cost and acquire new technologies

Opportunity of Development
Full transcript