My Way or the Highway at Hyundai

MGM 280

Areeg Barakat

Group 8

Ryan HobbyMark Pelersi

Christian HuberJarred Antonucci

Pat Grimaldi

My Way or the Highway at Hyundai

Brief Description of the Case:

The Korean motor companies Kia and Hyundai have been growing in the United

States for many years. With this growth the need for more upper level management

persists. Having the corporate headquarter overseas in Korea can also be a challenge.

Within recent years the upper level management established in the United States has not

been working well with the headquarters in Korea. They have been firing top American

executives left and right over the past few years. Many of these occurrences have come

to a surprise for the American executives and their co-workers. According to the passage

“There is a king, he rules and everyone curries his favor. It’s very militaristic.” This is

the way they describe the management style of Kia and Hyundai. They are also trying to

enter new form of the car market as low-end luxury vehicles, which is clearly neither one

of these companies’ reputations. Even seeing failing numbers in these sections upper

management continues to push for this. Not only do the Korean and American

executives face conflict they also share cultural differences. The Korean management is

unwilling to let the Americans take over marketing and other aspects of the company for

United States sales. With little cross-culture outreach and development there have been

conflicts on things such as marketing schemes, price range, and future goals for the

company. With the Korean upper management being at the top anyone who contradicts

their ideas simply gets fired and they hire someone else.

Concepts and Issues Involved in the Course:

Kia and Hyundai are experiencing lots of organizational conflict between their

executives in Korea and their upper level management in America. Organizational

conflict arises when the goals, interests, or values of different individuals or groups

become incompatible and those individuals or groups block one another’s attempts to

achieve their objective. In this case the Americans are blocking the Koreans and the visa

versa. The Koreans believe that their cars should be being sold at higher prices and be

more luxurious. Where as the Americans see Kia and Hyundai and cheap affordable cars

that will not be able to sell at higher prices in the luxury car market. Also the Americans

were marketing these cars as fun and sporty. When the Koreans came to check on things

in their American headquarters they did away with this marketing scheme and

implemented one of seriousness and quality. In doing so they fired the Kia American

CEO along with the marketing vice president. The Koreans are simply using

organizational politics to resolve these conflicts in their favor by firing the American

executives. Organizational politics are activities that managers engage in to increase

their power and use that power effectively to achieve their goals and overcome resistance

or opposition. The American executives are not making themselves irreplaceable

therefore they are not maintaining their power. The Koreans simply have no problem

hiring new executive or higher-level managers when something is not going the way they

would like.

Identification of the main problem:

The main problem is the differences in goals and interests of the company. The

American managers simply see Kia and Hyundai as growing car companies that are

mainly sold on the lower end of the price scale. The Koreans view their company as one

that should be taking a turn towards higher end and more luxurious cars. The Korean

executives also do not listen to or take advice from any of the subordinates or even

American executives. They control the company and their way goes. This is the main

problem. The Americans know much better than the Koreans on how to market their cars

in the United States and could potentially have good ideas on how integrate them into the

luxury class. The Koreans instead do not care what they have to say and only care to see

their own goals met and achieved. A prime example of this is their Confucius-influenced

corporate culture. The ways of the Confucius teaching conform to the lines of “Father

knows best”. In the case of these two companies any goals the Korean executives wanted

to reach, that is what was going to happen. For example American executives warned the

Koreans that their cars could not sell above the price range of 12,000 to 25,000 dollars.

The Korean executives ignored this statement and continued to manufacture and attempt

to sell the Kia Amanti (just one of the vehicles in the line up) for a price tag upwards of

30,000 dollars. Their goal was to sell 20,000 of them within a year, and instead they only

sold 5,500 of these sedans priced near 30,000 dollars. Americans keep encouraging to

reduce production and pull back but the Koreans plan to keep pushing forward.

Specification of Alternative Solutions and Evaluation of Each Solution:

Before alternative solutions can be determined for Kia and Hyundai’s situation

one must look at how the companies are being handled currently. As of right now Byung

Mo Ahn is handling the companies with an authoritative approach, leaving very little

power in the hands of the upper level managers in the United States. Whenever there is

any sign of weakness in the American based companies or any sign of decrease in sales

that manager is fired and a new one is brought in. This approach really discourages

workers because they all know that at any point they could be the next one to go. The

only upside to this approach is that the managers are constantly looking for ways to

increase sales at a rapid pace because they know that if they do not produce they will no

longer be with the company. The most current situation of these two companies is that

they are trying to move into a new segment of the car market and doing a poor job doing

so. Ahn’s extremely high goals and authoritative technique of management seem to be

failing him at this point in time and there obviously needs to be a change.

One of the first options that Kia and Hyundai have is to continue their pursuit of

changing the main segment of the company into upscale luxury cars, but if they choose to

do so Ahn must understand that his management techniques and high set goals might

have to change. In order to make the change into this segment of the market successful

Ahn must understand that he has to give more control of the company to his American

managers and trust that they are capable in their field of work. For example, Ahn fired

Ian Beavis, Kia’s vice president of marketing, mainly because of a commercial that came

out that was funny and depicted the old play flashdance (Jones & George, 626 – 627).

Most Americans enjoy comedy and to see it in a car commercial probably caught the

attention of many television watchers out there, the only problem is Ahn is unable to

understand this. So for this solution to work Ahn would have to let go of some of his

authoritative ways and come up with realistic goals for the company.

By choosing this solution one of the main advantages is that the companies will

be moving toward a more upscale class of cars that will be able to compete with other

competitors such as BMW and Mercedes. This is great for these two companies because

to be compared to such companies will definitely raise consumer interest in Kia and

Hyundai, which would eventually lead to more sales. The only problem with this is that

eventually is not now, so sales goals would have to be decreased and Ahn must come to

the realization that the only way to make this work would be to lower goals and stick to

what is working now. Another advantage to this solution is that with Ahn being less

hands on and controlling, American managers will feel more comfortable in the

workplace and be less stressed. This will lead to more creative and innovative thinking,

which more than likely would lead to better ideas in ways to increase profits in the

upscale car market. The only problem that could possibly come about from Ahn not

being as controlling is that American workers could become too comfortable and begin to

slack in the workplace.

Another possible solution for Hyundai and Kia is to pretty much keep everything

the same and not attempt a shift into the luxury car market. By doing so Byung Mo Ahn

would be able to keep his authoritarian style of management while still producing a

quality car. This solution has worked in the past as seen in the company’s sales, which

have both nearly doubled over the past ten years. Through constant mixing up of who is

in charge on American soil, managers in the United States are looking for ways to

produce the most sales because they understand that if they do not they will be let go.

The glaring advantage of this is that by staying in the same market over the past

ten years their sales have doubled and there is nothing in the market to say that this trend

will not continue. By continuously making improvements on the quality of car they

design people are finding Hyundai and Kia more and more appealing cars to purchase

and sales will more than likely continue to increase. But with this does come a few

problems that the company must still face. Firstly, there will still be a lot of tension

between Ahn and American managers, this tension will lead to a bad corporate culture

and possibly the firing of once again American managers. The second negative result will

be that Ahn’s goals will not change, so even though the company’s sales may be

increasing Ahn will still be having the manufacturers overproducing cars. By

overproducing cars their inventory becomes piled up and when this occurs it costs the

company money to store these cars until they are sold, which leads high inventory costs.

Lastly, Kia and Hyundai will never be compared to such brands as BMW and Mercedes

if they do not pursue a luxury vehicle. By not producing an upscale car these companies

lose out on the chance of having the same sort of customers that BMW and Mercedes

possess.

One last solution that could help Kia and Hyundai would to use a combination of

the other two solutions and combine it into one. This solution would consist of really

staying primarily in the mid range car market but slowly make a transition into the luxury

and upscale car segment of the market. While by doing this would be a good idea, Ahn

would also have to change his ways somewhat. While unlike in the first solution where

Ahn would be giving up the majority of his control and setting goals quite low, he should

look to give a little more free reign to American managers but not too much because his

techniques for the mid range cars have worked in the past. Also he should set his goals a

little lower because this too would relieve some pressure of American managers.

There are many advantages that come along with is solution. First off by staying

predominantly in the same segment of the market Kia and Hyundai’s sales should stay

nearly the same and this will allow them to start their slow descent into the upscale car

market. Along with this if Ahn would be able to relax in some of his management ways

such as his somewhat unrealistic goals, the company’s profits would increase. Because by

lowering the sales goals and the actual amount of cars produced, these two numbers

might actually be closer to each other than they have been in the past and by these two

numbers being closer it leads to less inventory costs and ultimately higher profits. Once

again a disadvantage could be that Ahn is losing some control of the company, but if

profits are increasing this should not be that big of a deal to Ahn. Secondly and probably

the biggest disadvantage of all is that Kia and Hyundai cannot be sure that by entering

this new market segment they will have greater profits. This move could ultimately lead

to losses in the future in this market, which would also ultimately lead to losses

throughout the company as a whole.

Choosing the Best Solution and Justification of the recommendation:

Of the previously stated solutions, only one of them would really make sense for

Byung Mo Ahn to go forward with. By continuing his current transformation into the

luxury car market, Kia and Hyundai would be worse off than ever. He is moving way too

fast and his goals are near impossible. Ahn obviously just thinks that by raising the prices

of cars, people will assume they are higher end and that is not how it’s going to work. On

the other hand, he could choose not to change anything about the company at all since

they were doing just fine. This, however, also would not be a good solution because if

they continue their success, Kia and Hyundai’s brand equity would stay on the rise and

consumers would be willing to pay more money for one of their sedans. So if Byung Mo

Ahn were to choose to stay as a mid range car for now and slowly move into the high end

of the car market to compete with brands such as BMW and Mercedes, it might be for the

best.

A main part of Hyundai Chairman Chung Mong Koo and Kia Chairman Byung

Mo Ahn’s management style that has been heavily criticized, is whenever they see a

problem, small or large, it usually ends up with the firing of American CEOs. Former

sales executive Bob Martin stated, “It’s a very feudal approach to management…There’s

a king, he rules, and everyone curries his favor. It’s very militaristic.” (Jones & George

626). Their management style is undoubtedly going to be different than any American

manager, considering both Ahn and Koo are both of Korean descent and culture there is

quite different than in the United States. But not all ex-employees have the same views as

Martin. “Even some of the executives who have departed praise the companies’

management culture. “Being aggressive doesn’t make them bad,” says Robert Cosmai,

who was CEO of Hyundai’s American unit for two years before getting fired.” (Jones &

George 627). Even with critics and ex-employees saying that Ahn and Koo are too strict

do not have good managerial styles, the numbers say otherwise. For over ten years now,

Hyundai and Kia have been rapidly improving and there is no reason why they should

change their ways.

Despite all of the negative talk of Ahn and Chung’s authoritative management

style, it has been working more than just fine for them. In 2000, Hyundai sold about

23,000 cars in the United States and now, ten years later, they are selling double that

number. Even in the global market Hyundai and Kia have been moving up; last year their

revenues increased by seven percent, making their profits $63.5 billion. The numbers had

not just been increasing out of nowhere, however. Although it has been said that Chung

does not listen to his employees, it is apparent that he listens to everything his customers

have to say. In the 1990’s he had begun to hear complaints from numerous customers

concerning the quality of Hyundai’s vehicles. He saw this as a threat to the company’s

name and did everything he could to fix it and in a few years Hyundai was among the

highest rated mid range cars for quality.

Staying in the mid range segment of the car market for the time being will

definitely prove to be a smart choice for Hyundai and Kia. As stated before, both cars

already do extraordinarily well competing against mid ranged cars, due to the

management of Ahn and Koo. If profits continue to soar then moving up into luxury cars

should strongly be considered, however a completely different approach would have to

be taken. In Hyundai’s attempt to move upscale, Koo had made way too many mistakes.

His first mistake was raising the price of cars so rapidly. In order to get into this market it

would have to be a slow transition, it cannot happen overnight. This may be why

Hyundai has about 32,000 Sonata sedans sitting in lots with no orders. In addition, his

authoritative style may have worked well in the mid range market but he has to loosen his

grips on the company a little in order to move up. Listening to input from employees and

spreading out the workload would be a good start to this. Executives from the United

States had been telling executives in Korea that Kia and Hyundai would not be able to

sell for much more than $25,000, but they were ignored and Korean executives soon

found out that it should not have been done so quick (Jones & George 628). About ten

years ago Hyundai was in a similar situation. They did not have much market share in the

mid range car market and knew that something needed to be done to become a serious

competitor. “Hyundai made a big splash back in 1999 when it launched a 10-year or

100,000 miles power train warranty on top of a five-year, bumper-to-bumper warranty.”

When this new warranty was implemented, Hyundai was suddenly one of the top brands

in that specific market. Less than a year later, Kia put forth the same warranty. Soon

after, everyone was copying them because of how well it was working. Now if Ahn and

Koo are serious about going into the luxury car market, they need to do something big.

Customers need a reason to spend so much extra money on a car. They have been selling

consistently well and the brand equity is there, now they could just be one big move away

from reaching their ultimate goal.

The Implementation of the Solution and Short and Long Term Effects:

The solution for Hyundai, and for its subsidiary company Kia, is to stay at the

level of mid-range car, then gradually change their style of cars from a mid to lower class

vehicle, to more of an upscale car maker, in the style of BMW or Mercedes. The current

perception of the brand is a reliable yet inexpensive car. The change to an upscale vehicle

would redefine the brand entirely, something the public is probably not ready for.

Another needed change is a lessening of authoritarian control by presidents of both Kia

and Hyundai, Byung Mo Ahn and Chung Mong Koo respectively. Their management

style is effective in certain ways, but in order to change the perception of a brand, a more

alternative and non-orthodox marketing plan would have to be implemented, something

neither of the two would allow, as shown by the firing of Len Hunt and Ian Beavis for a

commercial parodying the movie Flashdance (George & Jones, 627). A lessening of this

top-down management approach would allow American companies to have a marketing

campaign that would appeal to American consumers.

Maintaining the current style of car that both the brands make would be a no-

brainer, and require no effort. Changing the brand to more upscale cars on a mechanical

level would be a relatively simple change as well. Over a ten year period, a few new car

brands could be introduced, like the Kia Amanti, with prices and quality comparable to a

BMW sedan. Introduction of features that appear on both comparable Mercedes Benzes

and BMWs that are usually included in luxury cars such as heated seats and navigational

controls should also be included.

However, despite the relative simplicity of changing the car, Hyundai and Kia

have a large hurdle to overcome. The perception of both brands for most American

consumers is that Hyundai and Kia produce reliable, working cars that last long, but are a

lower class vehicle aimed a lower social class. While that reputation is not entirely

deserved, there has been very little done to change that perception, and just making a

better vehicle won’t fix the problem either.

Allowing the American sectors to control their own marketing campaigns without

fear of repercussion would give the chance for Hyundai and Kia to remake their image.

It’s been shown through companies like Geico and Apple that humorous commercials

will get the attention of consumers, and don’t damage the brand’s reputation. Rather than

making the company look childish, they make it look more appealable. Giving American

marketers the leeway to market to their audience will allow the image of the company to

change markedly in a shorter amount of time than by just changing the style of the car.

The short-term effects of the move would probably be very unnoticeable, as the

company would continue making the same cars they always have. Changing the opinion

of people toward the brand is a very involved process, as shown by the lackluster sales of

the Amanti (George & Jones, 628). However, with a different marketing campaign,

directed at the American audience, sales should increase. Once the perception of the

brand has changed, then possibly it would be safe to start building upscale cars and

aiming for a more luxury market.

The long term is where the change in the company really is noticeable. With a

different marketing campaign, opinion on both Kia and Hyundai should change, making

the brands on a level with Nissan or Honda, rather than seen as the bottom of the barrel

and lower class. If Ahn and Koo decide to allow American CEOs to make their own

decision about marketing, as well as other things directly involving operations in

America, they will see that Americans are very good at selling cars to one another, and

both the Kia and Hyundai brands will change. If they reach a point where they feel

perception has changed enough, they can start implementing changes to start selling cars

at the $25,000 and higher level.

To their credit, Kia and Hyundai have made a lot of progress in recent years in

gaining a share of the American market. But, with a continuation of selling mid-range

cars for the time being, and allowing American CEOs to make their own decisions about

marketing without fear of being fired, they will see a slow but definite transformation of

the brand from a mid-range collection with low appeal, to an affordable and luxurious

brand that has captured the attention of the American population.

Questions From The Book

1. What are the sources of conflict between Korean top executives at Hyundai and

Kia and their North America counterparts?

The many source of conflict between Korean top executives and Hyundai and Kia

and their North American counterparts is the Korean style of management. The Korean

top executives do not like to listen to what the North Americans have to say. The North

Americans have a hard time giving input on certain problems because the Korean style of

management. The Korean top executives use a much more extreme authoritarian style

then the North American CEOs. One of the main problems is that top executives keep

canning North American Talent. “And many of the American executives who do stay

find parent Hyundai Motor’s corporate culture to be suffocating.” According to Chung

Mong Koo, “his team micromanages details, rarely listens to advice from local managers,

and displays little tolerance for disagreement.” This gives the North American

counterparts very little input making the business extremely narrow-minded and closed

for suggestions.

2. How is the conflict (in question 1) being managed?

The conflict is being managed rather heavily. The Korean top executives are

keeping with there unhealthily and aggressive management style. However the two

companies Hyundai and Kia now have fewer layers in their management style. Which

means they have fewer layers to up hold decisions. More and more North American

counterparts are being fired but when they leave they tend to praise the companies

management humanities. One major action that was taken would have to be the firing of

Kia American CEO Len Hunt and marketing vice-president Ian Beavis. Dealer owner Ed

Tonkin said, “The danger is that every time you get a new person, they will go with

different marketing and advertising.” The time that is wasted adopting these styles could

turn out to be valuable. Hopefully they will not waste too much time, otherwise they

many fall behind in the rapidly growing automotive market. But the companies keep

moving forward and pushing their aggressive sale goals.

3. What are the sources of conflict between Korean executives and Hyundai and Kia

dealers in the United States?

The many source of conflict between Korean executives and Hyundai and Kia

dealers in the United States is the goals that the tops executives have in place are

stretched passed their limits. These stretched goals are making the dealers extremely

stressed out because the dealers are unable to meet them. If the dealers were to meet their

goals the top executives would have to make a decision on whether or not to give them a

vacations. But when they did not meet the standards the dealers were asked, “what are

you going to do to get your numbers up?” Since the goals were so high they had to find a

way to bring in more money and a way to get their numbers and sales up. This may seem

like a simple objective but it is easier said then done.

4. How is the conflict (in question 3) being handled?

The conflict is being handled with aggression and change to product style. Hyundai

decided to expand its horizons by entering the oversaturated field of luxury business cars.

They agreed to enter at the lower end of the field to try to get an edge. Their plan was to

sell the car for a price range near or above 30,000. With no hesitation Hyundai and Kia

both released a slate of vehicles in that range. For example in 2005 Kia launched the

Amanti with a requirement to sell 20,000 a year. With only selling a little more then

5,000 sedans priced between 25,000 and 30,000, Hyundai and Kia did not come even

close to their mandated goals set in the beginning. It is important to set goals that are not

to high because you many never reach them. The idea was a complete bust I guess it is

back to the chalkboards for the top executives.

Work Cited

Elsworth, Peter C.T. "Kia Is Sporting a Rugged New Image." Projo.com Top

Photos of the Day. 13 Nov. 2010. Web. 14 Nov. 2010.

<http://www.projo.com/projocars/content/CA-KIA_11-13-

10_EFKSD69_v19.2089491.html>.

Jones, G.R. & George, J.M. 2009 (6th Ed.). Contemporary Management,

McGraw-Hill/Irwin.

Lazarony, Lucy. "Warranty Wars Benefit Car Buyers." Mortgage Rates Credit

Cards Refinance Home CD Rates by Bankrate.com. 24 Feb. 2003. Web. 9 Nov. 2010.

<http://www.bankrate.com/finance/auto/warranty-wars-benefit-car-buyers.aspx>.