Hyeseung Lee

IMS3310.0U1
Professor. Tyrah
8.5.2014
MNC Profile Report
How did Hyundai Motors adapt to Indian automobile market

1. Introduction
Hyundai Motor company (HMC) entered Indian market by establishing its wholly owned
subsidiary Hyundai Motors India Limited (HMIL) in 1996. While other foreign automobile
companies entered Indian market as joint venture, Hyundai took a risk and invested it directly
with innovative market analysis as well as strategy. HMIL has recorded a great performance in
Indian vehicle industry in a short period. Within a year of launch of its first product Santro,
HMIL had emerged as the second largest car company in India. It is making India the global
manufacturing base for small cars. In 2014, HMIL set the new company record by selling
207,380 from January to June, while the demand for automobile in India is gradually decreasing.
Its cumulative production broke 5,000,000 cars. (NaYunsuk, 2014)

2. Type of Investment
When Hyundai Motors decided to extend its business to India, the way of entry considered was
small scale production and joint venture with a domestic company that the strategy was used by
most advance mover companies. Top managers of Hyundai almost accomplished the venture
contract with the domestic company in 1995. Even though the large scale foreign direct
investment to India was unprecedented and risky, the company decided to invest directly.

Company

Foreign Investment Ratio

Production Begin

Capacity

Maruti

Suzuki 50%

1983

500,000

Hyundai

Hyundai 100%

1998.10

120,000

Telco (Tata)

DCX 10%

1998.12

270,000

Daewoo

Daewoo 96%

1995.7

110,000

Hindustan

n.a

1948

50,000

Ford

Ford 83%

1995

75,000

FIAT

Fiat 93%

1997

110,000

Honda

Honda 90%

1997.12

15,000

GM

GM 100%

1996.8

25,000 ( small )

Toyota

Toyota 87%

1999.12

50,000

Volvo

Volvo 100%

1998.8

4000 ( small )

Skoda

Volkswagen 100%

2000

10,000 ( small )

M-Benz

DCX 86%

1995

9000

It was because of the self-conceited national character. Indias high developed technologies at
nuclear, aerospace, and IT have been universally recognized. However in terms of manufacture
and assembly, Indian automobile industry lagged behind than foreign companies. It was needed
for foreign investors moving into Indian market as a joint venture to lead a management with
their higher technology, but some of them had been suffering from a relationship between a
foreign and domestic company.
For example, Maruti has held unchallenged position in Indian automobile market for a long time.
However there were significant conflicts between its partner company: Japanese Suzuki, and
Indian government. Conflicts delayed the consultation time for the decision and it became crucial
factor that Maruti lost its market share by later starter companies. Another example is that the
construction of Fords factory was delayed because of disagreement between Ford and the
partner.

It was difficult to cooperate with Indian domestic firms on favorable terms from the beginning.
Besides, direct investment enabled fast decision making because foreign company controlled the
entire management process. Innovative technology was able to be applied easily under this
system. In 1990s Maruti monopolized the vehicle market and had not released a new model for
10 years. So HMIL should minimize a decision making time to develop a new car doughtily that
could satisfy consumers changing demands.

3. Product
HMIL established strategy devloping new product to localize in Indian environment. Santro is
the Indian version of the successful Hyundai model Atos, which was sold in South Korea since
1997.

1) Tallboy Style
Many Indian people use a turban as a hair accessary. Because a turbun is significantly bigger
than a normal hat, it is frequently taken off when people take a car. So Santro was designed to be
a tall boy, which made it more comfortable for Indian driver to step in a car. Tallboy is one of a
style of car that higher height fives more space at headroom for tall people. Hyundai modified
existing Korean product; Atos to Indian model under the name Santro. Santro was hatchback
design with 1615mm/63.6 inch height while Atos was 1495mm/58.9 inch and representative
Korean small car named Matiz was 1485mm/58.5 inch. (Hyundai Santro1999, Atos1997,
Daewoo Matiz1998)

2) Road condition
India has roads total 3,000,000 km but the infrastructure is too poor to cover a rapidly increasing
number of cars. Monsoon in India is characterised by heavy downpours, flooding, and wind and
it creates seriously damaged road conditions: not only numerous pot holes but also flooding due

to poor drain system. However because of Indian government poor financial circumstances, they
dont fix and expand roads properly. Therefore Hyundai concerned the possibility of breakdown
cue to bad road condition. (Indian monsoons: need for better roads and infrastructure, 2012)
HMIL also improved the function of brake as well as horn. Even most national highways are two
lanes or less and a quarter of all roads are congested. Passangers frequently do jaywalks in cities
and Indians religious characteristic causes cows passing on a road with cars. Drivers should put
on a brake and honk a horn for being extra careful due to unfavorable condition. Santros drag
times showing the quality of break was 19.5 seconds to stop in speed 67 mph while Antos was
21.8 seconds. (India Transport Sector )

3) Climate characteristic
Heavy rain during monsoon cause clogging of the drains and this in turn leads to flooding on
roads. Whenever monsoon period finished, many customer claimed that cars didnt start because
engine got damaged since it had been sunk in water. The company moved up the engine center,
which was supposed to be at the bottom of Santro. Although they repaired cars temporally, it was
not a fundamental solution. Therefore HMIL developed waterproofing Engine Control Unit
enabling car in a water to start with no problem.
The summer weather is very hot at 48 degrees Celsius; 118.4 Fahrenheit and very humid in India.
Because this environment is likely to cause an engine overheating, Hyundai strengthened heat
exchanger making engine cool as well as A/C systems. (ChoiEunjin, 2003)

4) Driving Behavior
The average driving speed of Indian people is in a range of 40 km/h to 60 km/h (24.855 miles/h
to 37.282) but they drive aggressive such as extreme acceleration when overtaking other cars.
Therefore Hyundai applied a power train, which focuses on accelerating ability. (Hyundai
Santro1999, Atos1997, Daewoo Matiz1998)

Speed km/h

Time(S)

1. Santro

2. Atos

0-30

2.1

0-40

3.3

Speed km/h

Time(S)

0-50

4.5

0-30

3.1

0-60

5.7

0-40

4.1

0-70

7.4

0-50

6.1

0-80

9.7

0-60

7.9

0-90

12.1

0-70

10

0-100

15.2

0-80

13.2

0-110

20.3

0-90

16.9

0-120

26.8

0-100

21.6

0-110

28.6

0-120

48.4

5) Passenger capacity
Koreans normally use only front seats when they drive small cars. On the other hand, in India, it
is easily found that passengers ride a car over than available number of seats. Sometimes more
than 7 people take a small car, which allows 5 people. HMIL considered not only exceeding
capacity issue due to the overloading but also low ratio of paved road. So they enhanced
suspension system of a car.

6) Preference of Indian customers

Indian consumers preference was reflected in the design of Santro. When Hyundai entered the
Indian market at the beginning, Indian people had loved Maturi for 10 years and it could be
proved by the market share, which was 82.3% in 1998. In 1998, there was no competitor with
Maturi. People were used to and satisfied with its design. For these reasons, Hyundai made
Santro with no big difference with Maturi. Both vehicles tailgates, c-pillars, and radiator grills
are similar as an Indian consumers demand was analyzed and then applied to it.

( Santro1999, Atos 1997, Maturi 1998 )

4. Human Resource Management

1) Education
HMIL planned 8 times of education and training at Ulsan plant, which is Hyundais main
manufacturing plant in South Korea. Indian employees were sent to the main plant and learned
related techniques as well as knowledges. HMIL accredited 199 workers in 1997, 45 in 1998,
and 40 in 1999. The purpose of the program was training the techniue to make and manage cars
in a short period. Furthermore, although it was costly for the company to pay training abroad,
Hyundai tried Indian employees to experience how Korean employees work hard for the
company.
HMIL came up with effective countermeasures according to Indian workers common
characterstics. Indian workers absence rate had been 10% to 12% on average but it was
decreased to less than 2.5%. Because Indian people have week constitution, the firm selected
workers through checking phisical strength. They used a variety of education procedures to align
the attitude of its employees with Hyundais own corporate culture and strong work ethic to deal
with lack of observing the time and a belief of karma. New recruits are given two day basic
orientation training before being allocated to a specific department. Most of the initial work
skills are taught on the production line. There follows a job rotation program which exposes
workers to other parts of the plant operations. Much of the training beyond basic skills
development is used to promote employee loyalty and develop harmony at the workplace in
order to avoid internal conflicts. The image that Hyundai treats all employees fair was empasized
because Indian people took exclusive attitude to another social class based on influence of the

cast system. In addition, they were really sensitive at an wage with low loyalty and the sense of
belonging. So Hyundai compensated from 80% to 90% lower wage comparing to the other
companies in the same industry and raised it continuously according to their hard working. They
also persuaded them with providing the better welfare system such as insurance and working
conditions. (YoonDongjin, 2002)

2) Labor Relations
Hyundai Motors concerned about the labor relations issue in Idia when they invested to India. In
1990, total membership of Union was about 9 million. Politicians have often been union leaders
and they used stirkes and other labor protests for the interests of political parties rather than the
work force. According to the record by the Indian government, 1,825 strikes and lockouts in
1990. As a result, 24.1 million workdays were lost. On the other hand, South korean labor
relations were ranked 27th in national competitiveness and most people have a loyalty with an
idea of job for life. (Labour in India , 2014)
HMIL tried to stabilize the employee relations through the committee to avoid a risk due to
strikes. The human resource department also selected employees who just graduated from the
school and educated the culture and sprit of the company. Furthermore administrating technitians
by Indian managers reduced conflicts and HMIL tried to deal with complains quickly through
small committees such as welfare committee, cafeteria committee, safety committee, etc. A sense
of unity was improved by inviting Indian employees family to the plant. (YoonDongjin, 2002)
There are about 80 Korean staff, including interns, at HMIL. Hey try to harmonize with Indian
employees and share the power of management. According to Chief Coordinator CahngHuan
Han, HMILs basic concept is to harmonize and then to localize as they dont want to impose
Korean culture. All department heads are Indians, though they have Korean coordinators at the
group level instead of Koreans on top. He also said sales and marketing should be completely
left to Indian staff since it is HMILs policy to localize management as well. (MitraMoinak, 2014)

5. Marketing

Indian people had negative perspective to the foreign corporation because of self esteem for their
nation. If foreign companies seek only profits, they would antagonize Indian people. Therefore,
Hyundai wanted to express that they sincerely admitted India as a real compansion rather simple
business partner. These two brand images were empasized to Indian consumers.

1. Hyundai India contibutes to the development of the Indian economy and local society.
While other foreign automobile companies just assembled parts, which had been produced in
foreign home country and shipped to India for putting together, Hyundai established its own
plant and produced cars 100% in India. They tried to express themselves as the foreign based but
the Indian company for Inidan people.
Actually, HMIL participated several social activities to present a good image that the company
contributes an Indian society. They donated to events about Indian earthquake and war between
Inida and Pakistan, volunteered medical service, and supported schools near the plant. In
addition Pollution check-up campain created the image that Hyundai considers environment as
well as public interest beyond just seeking firms profit. Therefore its brand recognition and
reputation have been getting higher.

2. Hyundai produces new technology and high quality product.

Most foreign automobile companies produced older models, which had been already sold in
home country and become out of fashion. Because in 1990s there was an huge shortage
comparing to demand, automobile manufacturing companies didnt have to try their best to fulfill
consumers expectations. However, HMIL decided to study innovative technologies to ensure
the competitiveness even in surplus market. So it has been formed that Hyundai keeps Indians
pride with applying innovative new technologies to a car, even though is the foreign company.
(ChoiEunjin, 2003)

6. Supply Chain Management

Indian automobile part production had been protected with high tariff rate at 27% ~ 42%. It
resulted in small production scales as well as backward level of technologies. Furthermore,
widespreaded component companies caused expensive shipping cost and poor road condition
and transportation delayed delivery time. Some companies demanded increase of parts price after
occupying supply right with dumping price.
As a result, HMIL decided to produce components; engine, transmission, plastic bumper, and
cover in its own. Everything else were supplied from Indian subcontractor companies. The
company discovered appropriate local companies. They selected companies that had a supply
experience to Maruti over the other candidates. At this moment, HMIL induced Korean
subcontractors that made important compenets acquiring high quality and technologies to enter
to India together. Total 16 companies went into Indian market with Hyundai and not it became
43. HMIL set limits of subcontractors to 63 including 16 Korean companies in order to manager
subcontractors effectively and achieve the economy of scale.
Subcontractors were asked to locate nearby area if it was possible and 16 Korean companies
established their factorty in surrounding. Especially when subcontractor company, which
produce fragile components such as a glass, located far from the Hyundai plant, they let them
build assebly factory or warehouse in close distance. Consequently, 38 component companies
that were relevant to 88% of supplyment cost located within 31 miles and it took about 1 hours to

drive. HMIL was able to control the deadline of delivery due to neighboring subcontractors. If
they were informed that there would be a stroke by subcontractors or delivery related employees,
HMIL got supported from the part manufacuring department of the headquarter Hyundai Motors
Company in South Korea to expand component inventory period. (YoonDongjin, 2002)

7. Conclusion
Foreign direct investment took high risk of failure due to imperfect information, cultural
difference, tariff, high cost of foreignness, industry difference, etc. However, according to the
thorough market research and understanding of Indian market before the entry, Hyundai Motors
India Limited succeeded localization in Indian market with localized products, human resource,
marketing, and supply chain strategy. As a result, in HMIL had 451 dealerships and more than
647 Hyundai Authorized Service Centers in 340 cities across India. HMIL has the second largest
sales and service network in India and its sales has continuously increased.

References
Choi, E. (2003). Hyundai Motors and India.
Hyundai Santro1999, Atos1997, Daewoo Matiz1998. (n.d.). Retrieved from Automobile-catalog:
http://www.automobile-catalog.com/auta_details1.php
India Transport Sector . (n.d.). Retrieved from The World Bank:
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPTRA
NSPORT/0,,contentMDK:20703625~menuPK:868822~pagePK:34004173~piPK:34003707~theSite
PK:579598,00.html
Indian monsoons: need for better roads and infrastructure. (2012, 6 27). Retrieved from Indian Transport
Potal: http://indiatransportportal.com/2012/06/indian-monsoons-need-for-better-roads-andinfrastructure/
Labour in India . (2014, 6 12). Retrieved from Wikiperdia:
http://en.wikipedia.org/wiki/Labour_in_India#cite_note-79
Mitra, M. (2014, June 6). How Hyundai is harmonizing Korean work ethic in India. Retrieved from ET
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Na, Y. (2014, 7 11). Hyundai running fast in India . Retrieved from Hankook Economy:
http://economy.hankooki.com/lpage/industry/201407/e2014071117240870280.htm
Yoon, D. (2002). Entry strategy of Hyundai Motors to Indian Market . Business Education Study, 178.