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Hyundai Motors and Kia Motors Restructuring
Transcript of Hyundai Motors and Kia Motors Restructuring
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
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
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
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
Restructuring Kia Motors and Hyundai Motors
Inducing foreign capital
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
From dualistic to unified model
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
Direct management changed after in Horizontal one
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
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
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