SOUTH KOREA AUTOMOTIVE

AND AUTO PARTS INDUSTRY

RATANA BINTI JABIR The Korean automobile industry is currently the fifth largest in the world in terms of production volume and the sixth largest in terms of export volume. While its initial operations were merely the assembling of parts imported from Japan and the United States, Korea is today among the most advanced automobile-producing countries in the world. Annual domestic output exceeded one million units in 1988. In the 1990s, the industry manufactured numerous in-house models, demonstrating not only its capabilities in terms of design, performance, and technology, but also signaling its coming of age. Entering the 90s, Korean exports on automobile industry rose rapidly particularly to the American market as well as to the emerging markets known as BRICs. However, domestic market is still become the focus of demand since made in Korea car became the major selection of most Korean where foreign car could only cover approximately 5% of current domestic market. One of the factors that help the success of the national car was according to the R& D which being aggressively developed through the cooperation between government, industry and university indeed. During the one week study trip to the automotive and auto parts industry in South Korea, the study tour covers three significant areas which are Busan, Ulsan and Seoul to see the actual situation of the industry there. Busan and Ulsan are two cities that labeled by the nation as the auto valley that function as the R& D center which involved government, industry and university. And meantime, Seoul is the main domestic market for the automotive industry. Busan city is located strategically in the southern part of the peninsular which facilitates with international airports and seaport developed as the new area after Ulsan city for the R& D center for automotive and auto parts industry in South Korea. The clustering theory of the industry is applied in developing the area whereby enhance the direct interaction between people who involved in the industry through face to face communication, and the networking among them as personal or group interactions mutually benefit them in terms of healthy competition in the objective to grow the industry. The similar theory concept actively applied in Japan where Kyushu Island focus on the growth of the auto parts industry with three main players of Japan local auto makers which are Nissan Motors, Toyota Motors and Daihatsu Motors. These three main players already very successful in local as well as international markets for automotive and auto parts industry. The cooperation between Japan and South Korea

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auto industry already started for a long time and with the economic liberalization through FTA, this area projected to emerge as the largest production center in the world. In Busan, the excellent cooperation given by Busan University, Busan City Hall and Busan Technology Support Center to our study group during the trip obviously showed that the linkage between these three authorities is strongly applied. The supportive factors to this concept are centripetal force and centrifugal force developed the specific area with high investment and return eventually will support the other area nearby to develop as well in regards to the automotive industry. The focus of R&D is through the technological innovation and supports to the SMEs. The participation of SMEs in developing the technology supported through the assistance of university researchers, technology support center (in this trip is Busan Technopark), and the attractive incentive from the government. The technological innovation is very important to rise up the competitiveness of product. The product required this factor to keep the existence in the industry and competitiveness as well as the challenges from foreign products. Therefore, the cooperation between these three authorities is very important to enhance the information sharing within the industry players, value added to the products and human potential development, cooperation and competition through human networking and recognition of merits and demerits for the industry. The significant impact from the trip to Busan Technopark was the facilities that equipped with advance and high-tech facilities which stressed the high quality and accuracy of product development. Becoming memberships of the support center gave SMEs the benefits such as 75% of technical support fees and 20% reduction for the charging fee of facilities usage in the Technopark center. The technical supports are welcome to local and foreign company as well. In Ulsan, for the 1 st session, the trip to Hyundai Motor Company main plant was tremendous. Hyundai plant was established in a very huge area with in house suppliers, logistics and distribution center, health and safety facilities, assembly plants, and R&D center as well as loading port for international export purpose. With the capacity of 34,000 employees and 2,000,000 units of yearly production volume, Hyundai Motors developed their operations to international markets in 21 countries worldwide and American market is their biggest export demand. Hyundai Motors putting their focus to the emerging markets particularly to BRICs countries as well. Foreign plants contributed 40.3% of yearly production volume and existing domestic plants cover 20.4% for local demand and 39.3% for export purpose. During the visit to the assembly plant, the production lines were design in

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U shape layout with the capacity of producing one unit of complete vehicle in less than one minute takt time. Both man and machine are widely use in the production line where there are several different colors of uniform to differentiates the level of employees who are working during the assembly process of the vehicle. However, there are few scenarios that we could not see in Japan but probably it is not a taboo in Hyundai plant such as reading newspaper between the time to wait for the next vehicle to assemble arrive and being idle and just sit next to the moving production line. The usage of fool proof or poka-yoke in andon form was not clearly recognized from the walking area for visitors which is above the production line and wondered how they rectify should any default occurred during the assembly process. The Q& A session was organized in a very limited time and chances to ask questions had to be given fairly to everyone as well. However, it is worth for second visit to discover in more details about the assembly process in Hyundai plant. The next visit in the afternoon session to the Ulsan Automotive Parts Innovation Center in Ulsan Industry Promotion Technopark where heavy machines facilities were equipped in the support center was impressive as well. This R& D center equipped with the environmental test lab for the product development towards season change, sensor room in bigger scale to test on temperature and vibration, road simulator test equipment and CT scan X-ray lab. However, unfortunately the crush test for that day was not in schedule for us to witness the actual test for vehicle and only able to see the mechanism of the test. In Seoul, the study trip covers with various activities which involved the mini symposium with colleagues in the same study interest from Seoul University, Catholic University and the visit to Hyundai Motors headquarters, Korea Auto Industries Coop. Association and Renault Samsung Motors. The current situation and future plan of Korean automobile industry is the main discussion topic during the visit. Additionally, we had a very informative discussions and exchanging ideas related to the development and challenges of auto industry as well during the mini symposium organized at Seoul University and Catholic University respectively. The current global economic crisis do contributed big impact to the Korea automobile industry particularly in terms of production and export volumes. With the economic slump which hit American market earlier, Korea do experience the impact from the economic downturn that hit their automobile industry with approximately 30% decreased of market demand. The demand for all range of cars including the favorite line-up of SUVs is down in American and China market but remain stable in European market. However, the smaller range of SUVs still becomes the market choice for BRICs market due to the fuel consumption effectiveness and price competitive factors.

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The M&A between Hyundai Motor Company and KIA Motors made them top players to the domestic market which portion of 50% by Hyundai Motor Company line-ups and 25%~30% by KIA Motors line-ups. Models of engine capacity below 1600cc are the main choice of the domestic market. At the international market share, Hyundai Motor Company ranked at fifth place with the strong demand of American market towards Korean automobile. The depreciation of Yen value to USD said to be the factor of this scenario where Japanese cars are more expensive comparatively. According to KAICA report, the existing numbers of auto parts companies which approximately 900 companies which focus on the development of auto parts quality and cost competitiveness definitely one of the success factors for the quality improvement of Korean cars and increase the international market demand. However, the competition and challenges of China products is one of the issues to be study further for Korean car remain competitive locally as well as globally. Future forecast in the next ten years for the Korean automobile industry in the objective to remain competitive globally are through the technological and educational support with profit maintain, global expansion, labor relation improvement, mutual development and cooperation with SMEs. The marketing strategy to the emerging markets particularly to the BRICs market must be strengthen and establishment of foreign plant for cost competitiveness with the global image for Korean car as the value for money could be the key factors to challenge Toyota Motors as top automaker in todays global market.

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ULSAN AUTOMOBILE CLUSTER KARN PRATIVEDWANNAKIJ

This trip could provide very unique opportunity to learn and investigate the decision making of the government agencies in Korea in the area of economic development. Korean government and the local Ulsan investment agency together decided to draft and execute the area development plan in Ulsan city. Based on the presentation at Ulsan Automotive parts Innovation center and Ulsan Metropolitan City, The Korean government has invested in Ulsan Auto Valley Project for approximately 400 million US dollars. The project was established in Maegok- dong, Buk- gu, Ulsan. The Korean government and local Ulsan City had the strategy to develop the Ulsan Automobile Valley into the world class production base for world class Automobiles. Currently Ulsan became the strategic production base for the Hyundai Motor Corporation. Based on the information of the Ulsan Metropolitan City, Ulsan Automobile factories could create parts and assembly vehicles for approximately 25.7 per cent of the total nationwide production capacity. The Ulsan Auto Valley project actually comprised of the 6 major projects starting from Maegok Automotive parts and Raw material Complex, Modular Standardization Complex, Automotive Parts Innovation Center, Ulsan Auto Plaza, Automotive Theme Park, and Graduate School of Automotive Technology. Each main project would be explained more as follows. First, the national government of Korea invested and focused on the innovation center in the Ulsan industrial area initially. We could simply notice that all of the production bases and factories would start and use the services of Automotive Parts Innovation Center. The Automobile parts manufacturing companies first step would be to visit the Automotive Parts Innovation Center to help solve the design problems and utilize some precision equipment. After they produce their parts (products), they revisit the Automotive Parts Innovation Center again to test the quality of their produced parts. Therefore the Automotive Parts Innovation Center seems to be the center of this Automobile Cluster. This center initially received the funding and significant supports from MOCIE (Ministry of Commerce, Industry, and Energy) and Ulsan Metropolitan City. Second, Maegok Automobile parts and Raw material Complex seems to be the main area for producing the automotive parts. Based on the Automotive Parts Innovation Center, this industrial zones main tenants are mostly Korean and some foreign manufacturers. This industrial zone has been sponsored by the Ulsan Metropolitan City

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with the property size of 552,068 square meters. Third, Modular Standardization Complex also could be easily seen as another important industrial zone to produce the automobile main parts and assemble some main modules for the Automobile companies. This industrial area also received the huge supports from the Ulsan Metropolitan City, providing the space of 849,590 square meters. Fourth, the Ulsan local government established the Graduate School of Automotive Technology in order to develop the engineers and skilled labor forces to supply for the Ulsan Auto Valley in the long run. This school would be expected to fully open in 2010. The automotive school should benefit from the location, which is close to the Ulsan Automobile Cluster by easily exchanging the real needs of the real sectors (automobile parts makers) and the academic opinions to develop the new standards and methods of more efficient production. Fifth, the City planer, at the beginning, planed to construct the world Automobile Plaza to support the marketing activities of the world automobile parts industry. However, during this Korea trip, we could not see any progress of this project infrastructure. The government agency would like to fund this project by lending the hands of venture capitalists. According to the investment information provided by the Korean Institute for Industrial Economics and Trade and the author financial calculation, the payback 8 of this Automobile Plaza project might be approximately 14.5 years. The internal rate of return of the project for 20- year investment is about 9.5 per cent. In addition, with the calculated discounted rate of Korean Institute for Industrial Economics and Trade, the Net Present Value of the 20 th year investment is approximately 22.4 million US dollars. When comparing with the original project investment of 200,385,000 US dollars, the return is too low and its project risk could be unacceptable. Lastly, Ulsan Metropolitan City would like to build not only the mentioned world Automobile Plaza but also the Auto Theme Park. The developers planned to find the huge venture capital money to invest on the Automobile related entertainment theme park. However since currently economic downturns suddenly occurred from the results of American Sub- Prime loan crisis, the project risk (implied discounted rate) seemed to be increased significantly and push the project reaching definitely negative Net Present Value in terms of financial evaluation. Personally the author believed that the implied discounted rate should be at least 12 per cent. Some venture capitalists normally expect the returns of new project investment at about discounted rate at
Because of lack of original data, the author applied the Present Value of Project Cash flow to estimate the payback period.
8

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100 per cent. Based on the investment valuation of the Korean Institute for Industrial Economics and Trade, when this theme park project applied the discounted rate at 12 per cent, the Net Present Value (NPV) went to the negative zone at 3,543,077 US dollar. This could indicate that the discounted rate at 100 per cent could clearly show lower Net Present Value. The negative Net Present Value represented unacceptable investment. Currently Ulsan finally implemented 4 out of total 6 mega projects. Clearly the facilities that were invested could create the most advanced Automobile Cluster in the world. However, when applying the Michael E. Porters Diamond model, this industrial zone still is facing their problems. Basing on Diamond model, the author would like to summarize the situations of Ulsan Auto Valley as follows. 1.) The context for the firm strategy and rivalry in Ulsan Cluster could be noticed as less competition in the inside industrial zone. However we still have to understand the facts of the high competition in the world automobile market. The Automobile vehicles from Ulsan Auto Valley do not only compete with local rivals but also those from outside, especially Japanese and Chinese car makers. Because Ulsan Metropolitan City constructed the Auto Valley following the cluster concept, the new automobile and parts companies thus seem to be easier to entry into this industrial zone by uses the advantages of current infrastructure and comparative lower capital investment budget. 2.) The factor (Input) conditions could be separated into many aspects from the human resources, materials, until funding of the existing companies. Because the Ulsan automotive school has not fully opened yet, we could expect the temporary shortage of labor in the Ulsan area. (At least, for the investors opinion, this could indicate the employment problems of automotive skilled workers). Because of the port location, we might be able to expect the good accessibility for the Automobile and parts companies in this industrial zone to acquire the necessary materials. In terms of funding resources, according to this Korean observation trip, there is at least one bank supporting the businesses in this industrial zone. We found one of Korean banks operating in the Ulsan Automotive Parts Innovation Center. 3.) According to this observation trip, the demand condition in this automotive cluster still is comparative low since there seems to be only one Korean Automobile maker (Hyundai Motor) operating their completed assemble line in this area. In addition, with the affect of the world economic difficulties, the demand of the car units decreased significantly and forced the parts companies in Ulsan Auto Valley to operate under harder circumstances. 4.) Relating and supporting industries in the Ulsan Auto Valley are quite completed

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and organized since the Korean government and Ulsan Metropolitan City local investment agency have been together investing and promoting the relating and supporting industries of the automotive industry. For example, according to Ulsan Metropolitan City information, Ulsan city also originated the plans to create the petrochemical, plastic, and metal industries in the areas closed to the Auto Valley Project. In short, this trip was beneficial because we could experience first-hand how the national government and the local government cooperate together to create and improve their industries to reach global competitiveness. This opportunity could help us to understand the concept of country development clearly and learn how to think and develop the rational idea, which relates to our studies.

The pictures above illustrate the Technology support centers in Ulsan Metropolitan City. The left picture is the Automotive Parts Innovation Center, while the right picture is the campus of Ulsan University.

These pictures show the new cars, which were ready to be exported. This seaport belongs to Hyundai Motor Company. All Hyundai cars that were produced from Ulsan plants will be shipped from this port.

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Hyundai Marketing and Production Strategies In this trip, we have the good chance to visit Hyundai Motor Corporation in Seoul. The company gave us the explanation about the companys financial performance and for us to see the new models of cars, which currently are sold in the Korean market. According to the companys brief information, the Hyundai Motor merged with Kia Motor in 1998 and formed the 6 th largest automobile producer in the world. Based on Hyundai Motor information (Figure 1), Hyundai could actually maintain the stability of its sale volume by opening and developing the new markets in both home country and overseas. Hyundai penetrates the new generation markets by designing the colorful concept cars, which could answer the needs of teenagers. The company has aggressively expanded its markets to many emerging markets, especially Middle East and Africa. According to figure 2, recently the Hyundai Motor vehicles were sold in three major markets- Europe Market, Middle East and Africa Market, and North America Market. The Middle East and Africa Market currently shares approximately 30 percent of total export volumes, while North America Market, which was the most important market of the company, could represent only about 23 percent of the company export structure.

Figure 1 (left) and 2 (Right), Source: Hyundai, calculating by Prativedwannakij (Feb 2009) According to the companys data (Table 1), Hyundais the most favorite vehicles are the PC (Passenger Car) type vehicles. In Korean domestic market, PC category NF Sonata has been ranked number 1 when comparing to other Hyundai models in terms of sales volume since January 2004. While in the overseas market, PC typed GETZ (Click) has become the most favorite car from Hyundai production. For the RV (Crossover SUV) type vehicles, Hyundai Tucson has been ranked number 1 in this

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category in both domestics and overseas.

Table 1, Source: Hyundai, calculating by Prativedwannakij (Feb 2009) In terms of production strategy, Hyundai has decided to expand its production capacities and gain market opportunities to many regions around the world. Hyundai has manufacturing operations in North America (Alabama plant), Asia (China- Beijing plant and India plant), and Europe (Turkey and Czech Republic plants). Hyundai Motor has not only developed the production capacity but also developed its own technology for its vehicles. For examples, Hyundai has developed some engine parts by itself which can be seen in the Hyundai Motor Companys headquarter. It has developed its own engines for heavy vehicles such as tanks and high speed trains. During this trip, we could easily notice that Hyundai Motor tries to apply many Japanese concepts into its production system to upgrade production standards and efficiency rate. In the visiting trip of Ulsan plant, Hyundai is applying many concepts from Japan such as the Kanban system, and etc. However the group of researchers could notice that the participating levels of the Hyundai workers seem to be significantly lower than the participating levels of the workers in Automobile companies in Japan. With the discussion with other researchers, the motivation levels of Hyundai motor workers even seem to be lower than the motivation levels of the workers in the Japanese manufacturing in Southeast Asia. Based on our opinions, Hyundai might need to solve the motivation problems of its workers in the long run.

These pictures above illustrate the technology development in Hyundai Motor

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Company. In the left picture, it is the model of the Hydrogen based vehicle, while the right picture is the sample of the electric car.

Engine produced and developed by Hyundai for use in heavy vehicles such as military tanks.

Cut-out structures of the engines of the heavy vehicles. Notice that all parts in these engines are bigger in term of size and could be more efficient in withstanding pressure compared to the normal parts of automobiles.

Engine parts of the High Speed Train KTX developed by the Korea Automobile industry.

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THE STUDY OF SOUTH KOREAN AUTOMOBILE AND AUTO PARTS MANUFACTURING INDUSTRY AGUSTIN TRISTAN LEO DALLO 1.Introduction The South Korean Auto industry had its humblest routes after the Korean War when the country produced its first car, the Sibal, which similar to the Philippines Jeepney, was based on a modified version of a US army all-purpose Jeep. From then on joint ventures in developing the local automobile industry produced numerous companies. Development was further helped when the South Korean government put into law policies which both promoted and protected the emerging industry in 1962. Importation and sale of foreign automobiles were restricted. Foreign automakers were barred from operating in South Korea unless they entered into technology sharing and joint ventures with local automobile companies. This protectionist policy helped create the South Korean brands that are seen today. In the beginning, their operations though (South Korean auto makers) were limited to assembling parts imported from Japan and the United States, manufacturing re-badged models from Japanese joint venture partners and Low-grade type vehicles. 2.Current Situation Major Korean Government Policies regarding the Korean Automotive Industry Policies to boost the auto industry Financial Support for auto parts suppliers and car loan/finance industry Temporary tax reduction: 30% reduction of Individual Consumption Tax for a period covering until second half quarter of 2009. Subsidy for car owners who scrap their old cars in favor or purchasing smaller vehicles (currently under study) Hybrid Vehicle tax incentives: Max. Of (KRW) 3.1 million Won per vehicle ($2,000USD/\195,000 JPN). Policies to push eco-friendly Green Growth Promote and spread the use of Hybrid and bio-fuel consuming vehicles. Encourage and educate eco-driving habits Implement policies for achieving high-fuel efficiency and support green car development. Green transportation system Engagement of FTA (Korea-US, Korea-EU, Korea-India CEPA agreements plus others) Due to the effect of the global economic crisis, South Korean automakers are realigning their strategies to fit the current situations. The Hyundai Automotive

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Group composed of Hyundai and Kia Motors are seen as the most resilient as they have a bigger chance to ride out the current situations because of their robust performances overseas particularly the US market. The effect are slowly affecting the industry but the company is more posed to ride out the current downturn but as the situation seen with Ssyang Yong Motors, which is facing collapse, the situation can still be volatile. 3.Automotive Parts Innovation Center Part of the highly envisioned Ulsan Auto Valley complex, the Automotive Parts Innovation Center serves as a proposed hub for globalization of the automotive parts industry. Through its network with University of Ulsan, Hyundai Motor, Hyundai Mobis and other Institutions, the center seeks to create a conglomeration of talent that will help develop a facility in the region in which car-makers would be willing to tap. The sole purpose of the center is to create an optimum industrial infrastructure that covers manufacturing, R&D, marketing, creation and promotion of new business opportunities, all related to automobile manufacturing. This is available to both domestic and foreign companies, creating a global village of sorts for carmakers. Even though the major presence is Hyundai Motors, which is the largest investor and employer in Ulsan, the facility itself is open to any automobile and parts manufacturing industries willing to invest and use the facilities being offered. Its close proximity to Hyundais largest manufacturing facility, Busan City, Sea and Airports, and its location in the Ulsan Auto Valley, makes the facility an attractive location. The facilities themselves include several state-of the art testing equipment. Offering reliability test, R&D, Parts Development and Safety Test services, this creates a cluster for quicker access and quality improvement facilities in one area. The centers cooperation with the local Ulsan University provides for bright talents who are able to provide expertise to automobile and parts makers. The advantages of the facility itself can be found in the amount of investment by Ulsan City and the South Korean Ministry of Commerce, Industry and Energy. Due to the facilities just being established and the relatively new equipment, the center can offer better services and lesser investment needed for those who want to establish a regional presence. In the current situation of the crisis, competitiveness is the key point for such a facility to be significant to investors in the South-eastern region. The relevance of the facility though lies on the successes of the Hyundai Automotive Group (Kia and Hyundai Motors). Currently Hyundai and Kia, though not surpassing current American and Japanese makers, have made significant strides around the world

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including emerging markets like China, Russia and India. As the major employer in the area, the center must rely on Hyundai succeeding. Second is the success of foreign car manufacturers from Japan or the United States, who might need to lower cost and investment by utilizing this facility if they invest in the region. The facilities themselves are already up to par with that of American and Japanese testing facilities for automobiles. If 20 years ago, such facilities would be unheard of in Korea, today it is a must. As South Korean automakers and parts manufacturers make in-roads in the global market, so thus their localization and testing methods must be improved. The equipment that they have possess years of technological know-how accumulated through huge investments and years of R&D. Companies who make use of the center can cut cost by making use of the facility.

Automotive Parts Innovation Center located in close proximity to the Port and other vital networks

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Noise and Vibration Measurement System (Reliability Test Facility) 4.Hyundai Automotive Group (Hyundai Motors and Kia Motors) Background: Currently South Koreas foremost automotive group, this was result of the marriage of two strong companies Hyundai Motors and Kia Motors, with the latter having the controlling stake of the group. Beginning with joint ventures with US companies like Ford and R&D support from Japanese Automaker Mitsubishi Motors, both have emerged from their lackluster image from 20 years ago as unreliable vehicles. Observations: Hyundai operates the worlds largest integrated automobile facility in Ulsan, capable of producing 1.6 million units annually. This self contained facility is the lynchpin of Hyundais success. In conjunction with its close proximity to the Ulsan Auto Valley, providing much needed R&D to improve quality and technology of vehicles, the company has a strong infrastructure to work with. Hyundai itself enjoys brisk sales of its vehicles overseas with a 4.9% sales gain compared to Toyota which is 36 % down in the beginning of this year, 2009. Their aggressive marketing strategies as well have given them an edge over rivals. They have been able to hold down U.S. prices because of a 29% drop in the value of the Korean Won against the US dollar in the past six months, this compared to the Japanese Yen which gained 8.3% further crippling exports.(Bloomberg news: Hyundai Gains in US as Job-Loss Concerns Aid Sales 2009-03-04) As seen below during the facility tour in Ulsan, the port is in full capacity for shipments overseas, in sharp contrast to the current dismal situations at Japanese auto manufacturers ports which have remained half full or empty in recent months as they try to get rid of overstocks. This successful strategy can also be attributed to a smart move to focus on smaller vehicles and hybrid technology. As the economic crunch has led people to save on fuel consumption, customers prefer gas-sippers which often are small bodied vehicles such as sub-compacts. Investment in Hybrids is also a must to survive in the current scenario as customers shun large vehicle which are often viewed a polluting because of their emission and huge consumption of fuel. Electric is slowly being favored as the next step in automobile evolution and hybrids offer that next step as consumers are slowly being weaned off of oil for their power needs. This one step in which the South Korean automaker is making strides in it development. Though the expertise in producing smaller, fuel efficient vehicles and the existence of researches into alternative energy vehicles are commendable, increased attention should be emphasized and distribution should be hastened for such technology to capture certain markets. Hyundai itself is now strong in emerging markets like Russia,

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China and India.

Hyundai Sub-compacts for export (Hyundai Port, Ulsan Industrial District) Technological Advances

Hyundai Verna Hybrid

Kia Soul Subcompact

Hyundai Fuel Cell Concept (Hydrogen Vehicle) Renault-Samsung Motors Background Originally part of the Samsung Group, it represents one of South Koreas venture into industrialization as the automobile was seen as the pinnacle of development. Together with other big companies, Samsung Motors suffered under the Asian Financial Crisis and was later sold by its mother company to Renault which started its rescue and revitalization plan. The company in its inception had technical assistance from Nissan Motors which also supplied engines. This was one factor which influenced Renaults decision to pursue the purchase as Samsung already had a working

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relationship with Renaults Alliance partner. The companys vision is based on a three pronged approach. First it seeks to create a unique identity as a premium image car company and become a full fledge auto company. This can be seen in its efforts to become a sedan and upper range specialist in the Alliance. It also seeks to be a global player by increasing not only its domestic but its overseas volumes as well. It also plays a vital role for its parent Renault as it expands into Asia. With little or no Renault owned factories and R&D centers; Samsung is seen as the best performer in the Alliance to help in the expansion in emerging markets It currently operates a facility with an area of 1,650km 2 plant facility and 330,000 km 2 infrastructure in the port city of Busan and boasts of a harbor which is a mere 4 km away. Capacity at its peak is 300,000 vehicles produced on a 3 shift basis (130,000 vehicles per shift). The location is an authorized Free Economic Zone. Observations Renaults entry to help Samsung Motors has injected much needed R&D and allowed for it keep up with better rivals. Renault together with Alliance partner Nissan has made strides in helping the ailing South Korean automaker. Currently all the platforms of sedans for Samsung are based on Nissan vehicles as demonstrated below by the Samsung SM5 and Nissan Teana, with the Samsung SUV QM5 based on the Renault Koleos and Nissan Qashqai platform. This allows the company to access much needed R&D to leverage the brand not only in South Korea but also overseas. Technical sharing allows the company to cut down cost. The amount of its SM5 models on the road in South Korea gives an indication how the brand enjoys relative success in its home market.

2009 Samsung SM5 Conclusion

2008 Nissan Teana (J31 model) (Source: Renault-Samsung Motors, Nissan Motors)

South Korean auto makers have done well in improving their image from cheap and value for money, to reliable, modern and progressive. Once considered inferior, they have pulled themselves up and are now catching up if not level with current world car manufacturing standards. The image 20 years ago of South Korean cars as unreliable

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is slowly being replaced as they push up their standards and quality. This is a big leap for the South Korean automotive industry. For the period now, the focus is survival. Riding on its strength in emerging markets as well as the US, the Hyundai Automotive Group compose of Hyundai and Kia motors are focusing more on exports as domestic demand wanes. Emphasis on launching new models and construction of overseas plants are seen as the best strategy to take advantage of the weakness of its competitors. Launching its Hyundai Avante and Kia Forte Hybrids will also place it as a serious contender among the eco-friendly cars from Honda and Toyota. This is in complete contrast to competitor GM Daewoo as it tries to minimize cost and expenditures. The troubles of its parent company is slowly affecting it as it tries to reduce it workers and production. All companies plus their respective parts suppliers, including those which were not visited must keep themselves in tune with the times and must have facilities and product line which are quick to adapt to changing conditions in the automotive industry. Those who are quick to re-tool and churn out cars based on market demands will be able to survive. And the current market trends demand more compact fuel-efficient cars, eco-friendly car and alternative powered cars. A good example would be Honda, which was quick to re-tool its factory from producing larger SUVs to more suitable and eco-friendly and gas-sipping compact vehicles. Those in the South Korean auto industry should take head or suffer the same fate as that of Ssyang Yong motors, which got stuck manufacturing gas-guzzling SUVs and is now facing the prospect of bankruptcy. Automotive Parts Innovation Center The involvement of many institutions and individuals like government and university is astounding as it builds a support network for the auto industry in South Korea. Government support for industries are necessary in its initial stages, including technology and quality improvement plus situating the facility in close proximity to the car industry it caters to is the most positive aspect of the project. Similar to the ideas found in parts supply system in Japan, the idea of just-in-time and close interaction of manufacturer and part supplier within a relatively small amount of time is necessary to improve both quality and efficiency. Hyundai Automotive Group Hyundai has taken great strides in improving both its automotive technology and brand image. Huge investments into facilities not just in Ulsan, including Asan and Jeonju but also overseas in America, China, Turkey and Russia have made it a global brand.

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As global automotive company, Hyundai has made improvements in corporate social responsibility and expanding it further. Becoming a more globally recognized company comes with social responsibility as well. Adding to this is the idea of how to communicate a good product is also important together with R&D. Its recent recognition as one of the best global automobile brand, a first for any South Korean Automobile company is a vast improvement over years of image building. But this does not cement its hold on its top rank. The next step would be leveraging that new found brand image and maintaining it. Improving on technology and R&D is mostly necessary. Though the gap is narrowing, it still must concentrate to close that gap because, even though Hyundai cars are at par or even surpassing those of the American manufacturers as mentioned in the recent Consumer Report 2008 list of quality cars, it still plays catch up with European and Japanese makers, who still set the benchmark to follow in the industry. Providing energy efficient vehicles for emerging markets and eco-friendly cars for the major markets like US and Europe should be the trend. Renault-Samsung Motors Its recovery from the period of the Asian financial crisis is commendable as it avoided the pitfalls of the industry. The involvement of Renault re-vitalized the company and infused much needed technology and investment for it to return to profitability. Though together with Renault, its reliance on its parent can both be interpreted in two ways. One, a strong product line-up backed up with great technology from Alliance stalwarts Nissan and Renault, which can help the company save on much needed cash by acquiring much needed R&D and leap frog to better technology. This, for the company is good. Second though is different. The company would be saddled and remain dependent on its parents for its tech know-how. This will stifle growth and wont allow the company to develop its own line of vehicles and to a point, its own image. It can also be analyzed though, through careful management the company may use the marriage of both scenarios to play to Samsung Motors advantage. This can be done by creating a strong independent image by improving on the assistance provided by the Renault-Nissan alliance. Sources: -Hyundai Motor 2008 Annual Report and CSR brochure -Automotive Parts Innovation Center Investor brochure, -Bloomberg News -Renault Motors and Nissan Motors -Ulsan Auto Valley Investor report

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