Hyundai Group - Company Profile, Information, Business Description, History, Background Information on Hyundai Group

140-142, Chongno-gu
Republic of Korea

History of Hyundai Group

Hyundai Corporation is the trading arm of Hyundai Group, one of South Korea's largest chaebols, or conglomerates. The corporation integrates the group's sales and marketing strategies, imports natural resources through overseas investment and joint ventures, and provides assistance to overseas operations. The corporation leads the numerous member companies of the group in sales. Since the companies belonging to the Hyundai Business Group are closely linked, the history of Hyundai Corporation must be viewed as part of the story of the group.

Hyundai Business Group has displayed spectacular growth since it was founded in 1947. The group's rapid expansion--to a point where its interests include car manufacturing, construction, shipbuilding, electronics, and financial services--reflects the achievements attained during South Korea's economic miracle. The company has grown to a formidable strength in several areas, and its rise to prominence in the construction, shipbuilding, and automotive sectors has taken the world by surprise. The specialized divisions are now run as independent affiliated companies.

Hyundai's growth was linked inextricably to South Korea's reconstruction programs following World War II and the Korean War, and to the state-led capitalism that resulted in a polarization of the country's corporate structure and the domination of the economy by a number of conglomerates. World War II left the country devastated, and the small recovery Korea had been able to make following this conflict was reversed during the Korean War, which lasted from 1950 to 1953. The chaebols, which are similar to Japan's zaibatsu, worked with the government in rebuilding the economy and formed an integral part of Korea's economic strategy and its drive to build up its industrial base.

One man, Chung Ju Yung, has been at the center of Hyundai's progress since 1950. Chung, honorary chairman in 1990, left school at an early age and developed what has been described as an autocratic and unconventional management style. He noted those areas of industry that the government had selected as crucial to economic development, and structured the group accordingly.

The foundation of Hyundai was laid before the Korean War, in 1947, when Chung set up Hyundai Engineering & Construction Company. The company was involved in the early stages of the country's recovery following World War II. After the Korean conflict, development intensified, and Hyundai was quick to take on a key role, working on civil and industrial projects as well as housing programs. In 1958 it set up Keumkang Company to make construction materials, and four years later, when the first of Korea's five-year development plans was launched, Hyundai was well placed to win a range of infrastructure contracts. This plan and its successors aimed to lay the foundations for an independent economy by targeting sectors of industry for expansion.

Against this background Hyundai expanded its construction and engineering operations as the economy's momentum increased. In 1964 it completed the Danyang Cement plant, which in 1990 produced well over one million tons of cement. In 1965 the company undertook its first overseas venture with a highway-construction project in Thailand. Hyundai expanded rapidly overseas, developing a market with particular success in the Middle East. Its projects in this region included the US$931 million Jubail industrial harbor project in Saudi Arabia.

In 1967 the group took one of its most significant steps, setting up the Hyundai Motor Company and thus sowing the seed for what was to become the country's leading domestic car manufacturer. Initially the company assembled Ford Cortina cars and Ford trucks. Two years later Hyundai took another step abroad with the establishment of Hyundai America, incorporated in Los Angeles, to work on housing complexes and other civil projects. In 1970 it further enhanced its position in the construction sector by setting up Hyundai Cement Company to deal with increased demand at home and overseas.

Toward the end of the 1960s the government had begun to promote the heavy and chemical industries. Oil and steel were both targeted. The planners then turned their attention to the consumption of indigenous steel and focused on shipbuilding, which was then relatively backward (producing only coastal and fishing vessels), and on the automotive industry. The ambitious plans for these industries were to be of great significance both to Hyundai and the nation as a whole, and the 1970s proved to be a period of rapid development.

Hyundai's entry into shipbuilding was to provide the country with a sharp increase in shipbuilding capacity and eventually take Korea's shipbuilding industry to second position in the world, behind Japan. In 1971 Chung decided to begin shipbuilding, and by the following year the company's shipyard had held its ground-breaking ceremony in Mipo Bay, Ulsan, on the southeastern tip of the Korean peninsula. In the following year the yard was incorporated as Hyundai Shipbuilding and Heavy Industries Company.

The Ulsan yard was still at the planning stage when Hyundai won its first contract, for two oil tankers, from Livanos, a Greek shipowner. The order paved the way to a loan from Barclays Bank of the United Kingdom. Chung had to borrow capital from foreign banks to build the yard, which was opened in 1974. In the following year, the Hyundai Mipo Dockyard Company was set up to do conversions and repairs.

This sector developed rapidly throughout the 1970s, but the group was hit by the first oil crisis and the consequent decline in demand for large tankers. Hyundai, however, quickly won four orders for large tankers from the Japanese, its main competitors, and concluded technical cooperation deals with Kawasaki Heavy Industries of Japan and Scott Lithgow of the United Kingdom. Before the market collapsed, 12 large tankers were built at the yards.

This collapse forced Hyundai to turn to the building of medium-sized vessels. It also took steps to remain abreast of technological developments in the industry and to develop spin-offs. In 1975 Hyundai Shipbuilding and Heavy Industries created an industrial-plant and steel-fabrication division, and in the following year began to produce marine engines carrying famous names such as Sulzer and B&W.

A further collaboration was clinched in 1977 with Siemens, of West Germany, which led to the creation of the electrical-engineering division. In the following year the company changed its name to Hyundai Heavy Industries Company (HHI) to reflect its diverse operations. At the same time it incorporated its engine and electrical engineering divisions into Hyundai Engine and Machinery Company and Hyundai Electrical Engineering Company, respectively.

One of the most significant moves in Hyundai's relatively short history was made in 1975, when the group began constructing an integrated car factory adjacent to its heavy-industry complex at Ulsan. It was to be the foundation of Korea's largest auto company, one that was to dominate Korea's home and export markets. By the late 1980s UBS Phillips and Drew Global Research Group ranked Hyundai 13th in the world auto industry, with the production of 819,000 vehicles and 1.9 percent of the world retail market.

The aim of this ambitious project was to move away from car assembly only and to produce, with government backing, a Korean car, a four-seat sedan called the Hyundai Pony. To this end, it called on overseas expertise and finance, a policy used not only by Hyundai but by other Korean industrial groups as well. George Turnbull, a former managing director of British Leyland, who was then vice-president of Hyundai Motors, was in charge of the project. The car was styled by the well-known Italian designer Giorgetto Giugiaro, was powered by a Mitsubishi Motor engine, and used U.K. components. The project was financed largely by U.K. and Japanese sources.

The vehicle was launched in 1975. By the following year, Hyundai was producing 30,000 cars, and by 1979 the total had risen to 110,000. Although Hyundai could sell every vehicle it produced in the protected home market, it soon sought to attack export markets by reserving approximately one-fifth of its production for overseas sale. The company first tested the European market, and its potential for sophisticated markets, by setting up a network of dealers in the Benelux countries, where there were no dominant local manufacturers.

Other areas of the group saw intense activity throughout the 1970s. In 1975 Dongsu Industrial Company, a construction-material manufacturer, was created, followed in the same year by Seohan Development Company, a welding and electrode carbide maker. Since it was so heavily reliant upon exports and several essential imports, the group in 1976 set up Hyundai Corporation, its trading arm. At the same time it created Hyundai Merchant Marine Company, which concentrated on cargo services, chartering, brokerage, and related services. The trading arm has proved to be an important source of revenue and has grown into one of the country's top exporters.

In the same year, on the construction side, Hyundai formed Koryeo Industrial Development Company and Hyundai Housing and Industrial Development Company, whose operations included construction design and property development. Hyundai Precision and Industry Company was created in 1977. Its activities include auto parts, container manufacture, and locomotive parts.

A year later the group turned its attention to the timber industry with the formation of Hyundai Wood Industries Company, which makes wood products and furniture. In 1978 the group expanded its heavy and chemical industries to include iron and steel manufacturing when it absorbed Incheon Iron & Steel Company and Aluminum of Korea.

The 1980s brought problems for HHI. Two of its key businesses, shipbuilding and overseas construction (the development of which had been actively encouraged by the government in the 1970s), encountered worldwide decline during the decade. Korean shipbuilders saw new export orders in 1985 slump to only US$522 million, compared with US$2.3 billion the year before, while profits plummeted. Overseas construction orders also fell away quickly after reaching a peak of more than US$13 billion in 1981 and 1982.

In both cases Korean industry had to discard its policy of growth at any price. There were job cuts and a move toward more sophisticated projects such as industrial plant construction and improved technology. In addition, the company had to contend with damaging labor strikes, which hit its shipyards and other parts of the group, notably the car factories. HHI instituted major productivity improvements at the beginning of the decade and stepped up its diversification with the creation of the Offshore & Steel Structure Division in 1980. Through this division it launched a major drive into the offshore market, into which it had broken in the late 1970s with orders for the Jubail project in Saudi Arabia. The division initially operated one yard, but, as demand increased, a second was added in 1983.

In 1982 HHI took over three dry docks from Hyundai Mipo Dockyard Company, which brought the total it operated to seven. Hyundai Mipo, which looked after the company's ship repair and conversion business, was reorganized and moved to a new repair yard two kilometers away from HHI. A year later HHI undertook further reorganization by turning its maritime-engineering division into the special and naval shipbuilding division, which now concentrates on building naval craft such as destroyers, frigates, and patrol boats.

The increased emphasis on new technology and innovation was reflected in the setting up of Hyundai Welding Research Institute in 1983--whose work has since been extended to take in factory automation--and the creation of a research-and-development center, the Hyundai Maritime Research Institute, a year later. Work continued on developing products such as the new generation of very large crude carriers, the world's first semi-submersible drilling rig, delivered in 1987, and a mixed container-passenger vessel for a Norwegian operator in 1988. The company also broke into the gas-carrier market in 1986.

The latter part of the decade was clouded by strikes, which were to tarnish the Korean shipbuilding industry's image. In addition, the company had to contend with higher wage costs that blunted the competitive edge it had over its Japanese rivals. HHI also became embroiled in a legal wrangle with Sir Yue-Kong Pao's World-Wide Shipping Group in 1988. The dispute was over an order for very large crude carriers, which it had agreed to build in 1986 when the market was in a trough.

The strikes that affected the Ulsan yard in the latter part of the 1980s hit production and sales, and in 1988 HHI was to record its first-ever loss, that of W29 billion on sales that declined slightly to W945 billion; this came after breaking even the previous year. In 1990 the yard was hit by further strikes, although it managed to land a US$600 million order for ten combination vessels from a Norwegian shipping group.

The 1980s were to prove equally eventful for Hyundai Motor Company. After the oil shock of 1979 the government took steps to protect the industry, which had by then made large investments in plants and equipment. It kept a tight grip on the development of this sector and in 1981 divided the market, restricting Hyundai to car and large commercial vehicle manufacture. These regulations were revised in 1986 following the recovery of the market, and Hyundai was able to resume manufacture of light commercial vehicles.

By the middle of the decade, Hyundai had taken Canada by storm. Its Pony subcompact vehicle became Canada's top-selling car less than two years after entering the market. Hyundai's sales in Canada, where it was also selling the Stellar, shot from none in December of 1983 to 57,500 units in the first nine months of 1985, topping those of Honda and Nissan combined. Total production in 1985 had risen to 450,000.

In 1985 the company announced plans to build a car assembly plant at Bromont, near Montreal, and at the same time decided to enter the U.S. market. The entry into the U.S. market, begun in 1986, proved an immediate success. Its low-priced Excel model was well received, and of the 302,000 cars exported in that year, 168,000 were sold in the United States, where sales were to increase to 263,000 the following year. Hyundai's initial success in the United States, though, faded before the end of the decade when sales began to flag. Its problems in its key overseas market were attributed to the lack of new models, increasing competition in the weakened U.S. car market, and the severe strikes that hit the company in the latter part of the 1980s and in 1990.

Hyundai decided to move up market with the introduction of the Sonata, a four-door sedan, in late 1988; initial sales, though, proved disappointing. A year later this car was being manufactured at the Bromont plant, following the opening of the factory in 1989. In the same year Hyundai signed a deal with Chrysler Corp. to build 30,000 midsize, four-door cars for the U.S. company, starting in 1991. Chrysler is linked to Mitsubishi Corporation, which in turn is affiliated with Hyundai, in which it holds a 15 percent stake.

Hyundai planned to increase production at the Canadian plant to 100,000 by the time the Chrysler deal came into effect. Export sales, which were also hit by the appreciation of the won and the depreciation of the yen, have remained sluggish. Increased wage costs also affected the group but had the advantage of boosting domestic sales that, for the industry as a whole, increased 50 percent to 356,000 units in 1989.

The group became intent on reducing its dependence on the U.S. markets. By 1990, the domestic market was proving increasingly important to the essentially export-oriented group. Both the car and construction markets were enjoying strong demand at the end of the decade. This situation helped Hyundai Engineering & Construction, like the vehicle operations, to take up the slack created by declining markets abroad, particularly in the Middle East. The group had accumulated experience in a broad range of plant construction, including Korea's first nuclear power plant. Meanwhile exports in the shipbuilding sector were showing a marked improvement.

Following the creation in 1983 of Hyundai Electronics, Hyundai stepped up its presence in the electronics field and produced semiconductors, telecommunication equipment, and industrial electronic systems. The company, which focused on industrial markets, was seeking to increase its presence in consumer electronics, despite formidable competition from domestic companies such as Samsung and Goldstar.

The group as a whole has shown itself capable of taking diverse markets by storm and is determined to maintain and expand its markets by stepping up research-and-development spending. However, the country's drive towards democracy has brought new uncertainties. In the changing economic and political environment, the group faces a labor force seeking higher wages, a less competitive currency, and increasing competition in the all-important overseas markets.

Faced with this changing political scene and a less favorable international rate of exchange, Hyundai shifted gears in the early 1990s. In automaking, its largest enterprise, it worked to regain lost ground in the United States, where demand for its low-priced Excel and somewhat higher-priced Sonata models slumped in the wake of widespread consumer complaints and a depressed entry-level market. Hyundai's new Elantra sedan, selling for $9,000, was to be its lead item in the U.S. market. The group's chairman at that time, Chung Ju Yung's son, Chung Se-yung, was expecting a new day for the group, as Korea itself matured with new labor and political freedoms.

As Korea's second-largest conglomerate, with 1990 revenues estimated at $35 billion, Hyundai Group was clearly to play an important role in the new Korea. Indeed, the Hyundai founder and chairman, Chung Ju Yung, chose personally to play a new, political role in that development, founding a new political party early in 1992 with a view to promoting open-market policies. This Unification National Party (UNP) promptly won ten percent of National Assembly seats; and Chung himself, then retired from his Hyundai chairmanship, set his sights on the Korean presidency. The Hyundai conglomerate, already forced by the government to pay billions in back taxes, came under even more severe government pressures after Chung formed his party. Regulators charged illegal political contributions by one Hyundai company and accused others of tax evasion. In addition, Hyundai's ability to finance its operations was threatened by other government actions. In return, Hyundai, at this time headed by Chung Se Yung, threatened to withhold huge investments planned for the coming year. In 1993, having finished third in South Korea's presidential election, Chung Ju Yung reportedly has said that he will resume chairmanship of the Hyundai Group and will reorganize the corporation into many specialized, independently run companies.

In auto and personal-computer sales, Hyundai companies moved aggressively. In mid-1992 Hyundai's new Motor America president, Dal Ok Chung, took over in the Fountain Valley, California, headquarters. Among other marketing devices, Hyundai offered generous rebates and free two-year service warranties that covered even windshield wiper blades. By early 1993, Hyundai was offering the first auto engine it had designed and made itself, as opposed to the Japanese-made Mitsubishi engines that were used in its earlier models. More than ever committed to the smaller vehicle, Hyundai was selling autos in more than 100 countries.

In personal computers, Hyundai in mid-1992 took a drastic step when it moved its entire electronics operation to the United States, the world's largest computer market. Hyundai Information Systems had already entered the direct personal-computer market, cutting prices and offering toll-free telephone support and sales. The new operation, based in San Jose, California, had entirely American leadership, headed by IBM veteran and former CompuAdd president Edward Thomas. The California advantage was mainly proximity to the market, which meant lessened inventory requirements. These developments showed the Hyundai Group to have the same innovative and energetic approach that had characterized its earlier ventures.

Principal Subsidiaries: Hyundai Heavy Industries Co. Ltd; Hyundai Motor Company; Hyundai Engineering and Construction Co. Ltd; Hyundai Corporation; Hyundai Petrochemical Co. Ltd; Incheon Iron and Steel Co. Ltd.

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