Case: IB-91

Date: 09/24/08

At the turn of the twenty-first century, Korea‟s Hyundai Motor Company (HMC) announced
ambitious plans to become a global leader in the automotive industry, and established plants in
various parts of the world, including Europe, India, and North America. In 2002, HMC turned
its attention to China, one of the world‟s largest and fastest-growing economies. China‟s
burgeoning demand for automobiles was forecast to become the world‟s third-largest―even as
the worldwide auto market was stagnating. In this light, HMC had selected China to be site of its
largest, lowest-cost assembly and manufacturing base. So it was that HMC created a separate
China Business Division to lead its move into the Chinese market (Exhibit 1). In May of 2002,
HMC initiated a joint automotive project with Beijing Automotive Industry Holding Corp.
(BAIC) and by October the Chinese government had approved the joint venture, leading to the
establishment of “Beijing Hyundai.” By February of 2003, Beijing Hyundai rolled out its first
midsize sedan, the EF Sonata.

Yet many were skeptical of Beijing Hyundai‟s chances. A number of the world‟s major auto
makers were already established in the Chinese market, while Hyundai lacked an understanding
of the distinct characteristics of Chinese consumers, distribution channels, labor markets, and
parts suppliers. Moreover, while Hyundai enjoyed a strong reputation for quality in its home
market, the Hyundai brand was generally seen as lower status in China. Sung-Kee Choi, senior
executive vice president at the China Business Division of HMC, who was in charge of the
planning and development of Beijing Hyundai in the entry period, explained:

When HMC entered the China automobile market, responses from other major
automobile competitors and the media were lukewarm, as HMC‟s reputation was
not high and HMC‟s joint venture partner, BAIC, was also a very low rated
company when compared with competitors. They teased us as a marriage of two
low ranked classes, and lowered their guard against us.

Undaunted, Beijing Hyundai rapidly established itself in the Chinese market, growing faster in
its first few years than any other automaker in China (Exhibit 2), following the “quality
management” strategy of HMC corporate CEO Mong-Koo Chung. Sung-Kee Choi explained:

Professors Jae-Gu Kim and Mooweon Rhee prepared this case in collaboration with Professor William P. Barnett as
the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative
situation. Kisan Jo and Daegyu Yang served as research assistants.

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Hyundai Motor Company in China IB-91 p. 2

In 2003, the first year of our entrance to the China automobile market, the
company sold 50,000 units of the EF Sonata model. The company achieved this
result in a year, while such foreign automakers as Honda Motors took three years
to achieve the same result. In 2004, the Elantra subcompact was included into the
assembly line and both models combined sold 144,000 units, and then 234,000
units in 2005. With such a remarkable achievement, other major automobile
competitors became fearful of Beijing Hyundai, and we became a special target
for our competitors.

Bang Shin Kim, vice president in charge of strategic planning at Beijing Hyundai, described the
ensuing competition as resembling the “warring states period” prior to the unification of China
under the Qin dynasty. According to Kim, in 2008:

The China automobile market has become fiercely competitive, with no company
as the dominant market leader. Every automaker in the market has introduced
their latest models in an attempt to attain successful market dominance. The
excess supply of automobiles in the market has become a worrisome issue as the
market entrants have flooded the market with cars.

As competition intensified, in 2007 Beijing Hyundai experienced a decline in sales compared to
the prior year (Exhibit 3), and by 2008 a full-blown price war in China involved many of the
world‟s major automakers.

In response, in 2008 Beijing Hyundai launched its second plant in China, along with new plants
in India and Russia to complete a global production network across Korea, the U.S, China, India,
and Europe. Yung Yu Koo, deputy general manager at China Business Group of HMC,
described the thinking at Beijing Hyundai:

We are always thinking ahead as to how Beijing Hyundai can achieve sustainable
competitive advantages over other major competitors. We continuously revisit
forecasts of the future growth of the China automobile market to see what effect
this will have in Beijing Hyundai‟s market share both in the short and long term.
The first phase of achieving HMC‟s global competitiveness was obtaining
production and research capabilities, and the second phase is switching to a
market-focused strategy by enhancing marketing skills. While this can be a
difficult task, it is not an impossible task to achieve. If the company adopts
scientific approaches with future insight, we then strongly believe that by 2010
Hyundai can be a market leader in China, achieving the target of 1.03 million
units in sales with a 13 percent market share.

With this ambitious goal, Beijing Hyundai looked forward from 2008 at the challenge ahead. It
had increased production capacity to 850,000 units, but was on target to produce less than half
that during 2008. Yet its plans included continuing to introduce a variety of models across size
classes, even as Hyundai‟s reputation in China remained underdeveloped. Leadership at Beijing

Hyundai Motor Company in China IB-91 p. 3

Hyundai and HMC Corporate were committed to succeed in China, a key market in their global
expansion strategy, even as that market had become more challenging than ever.


Since the establishment of HMC in 1967 by Ju-Young Chung, and under the leadership of the
subsequent chairman, Se-Young Chung, HMC focused on developing overseas markets. With
the Korea economy on the verge of collapse during the 1997 Asian financial crisis, many Korean
conglomerates suffered a liquidity crisis and went into bankruptcy. In the midst of this dark
period, Mong-Koo Chung succeeded his uncle Se-Young Chung in the chairmanship and sought
to overcome the financial challenge through the acquisition of Kia Motors, another Korean
automaker, in 1998. In 1999, Mong-Koo Chung became chairman of the Hyundai–Kia Group
and reorganized HMC to reduce costs and share knowledge across Hyundai and Kia. He then
turned the company‟s attention to an ambitious plan for global expansion.

Starting in 2000, Chung aggressively sought to build automobile plants outside Korea. At that
time, combined sales for HMC and Kia Motors were 2.76 million units, of which 2.46 million
units were from sales in Korea. Overseas sales accounted for 300,000 units, and most of these
were KD (Knockdown) sales.2 Given that the domestic (Korea) market was small, Chung and
his leadership team decided that expanding into the overseas market was imperative for Hyundai
and Kia Motors. But moving beyond Korea confronted HMC with the need to do business in
markets where its reputation was not yet well developed.

Quality Management Improvements

One of the biggest challenges faced by Chung and his management team was Hyundai‟s
reputation in markets outside Korea. HMC‟s reputation was very strong in Korea, and its
product quality had been improving worldwide, albeit slowly, in the 1980s and 1990s. But the
company discovered that its reputation outside Korea was not changing along with its
improvements in quality. On a visit to the U.S. in 1999, Chung was shocked by the fact that
Hyundai cars were treated as shoddy products. Product quality had improved, yet public
perceptions of quality were slow to change. Apparently Hyundai‟s initial entry into that market
with lower-end vehicles was having an enduring affect on the company‟s reputation there.

In response, Mong-Koo Chung redoubled HMC‟s worldwide efforts at quality improvement. He
established the Quality Control Division, and chaired monthly quality control meetings with
senior quality management and executives to take control of product quality from the initial stage
of the automobile development. The “Quality Pass,” or so-called “Line Stoppage,” was also
developed at that time. This standard was devised to prevent the initiation and production of
automobiles on the assembly lines when potential problems in products were not resolved at the
quality control meeting, even if it meant a delay in the launch of a new model. Further, to
improve subcontractors‟ quality, the company initiated the “five-star rating program,” an
See “Hyundai Motor Company” GSB No. SM122 (written by Mooweon Rhee, William P. Barnett, and James G.
March) for detailed information on the historical and organizational background of HMC, as well as its operation in
the U.S. market.
Knockdown sales are of cars that are fully manufactured but not fully assembled in the home country, and then are
exported in kit form to be assembled in another country.

Hyundai Motor Company in China IB-91 p. 4

incentive program for subcontractors that demonstrates quality improvement gains, while
penalizing non-cooperative subcontractors. Finally, Mong-Koo Chung led the implementation of
the 10-10 policy (10-years, 100,000-mile warranty), in an effort to improve Hyundai‟s brand

In the wake of all these changes, published quality rankings improved greatly for Hyundai, as
shown in Exhibits 4 and 5. The 2004 report by the IQS (Initial Quality Study) ranked the
Sonata number one, over Toyota, in the U.S. midsize automobile market. In 2008, Hyundai‟s
small car, the Verna, was ranked number one in the IQS survey, over Toyota‟s Corolla. And
Hyundai‟s small-medium model, the Elantra, became the „Top Small Car‟ of the year 2008,
beating out the Honda Civic, according to Consumer Reports. These remarkable achievements
continued when Hyundai‟s midsize SUV, the Santa Fe, was also listed as a „Top Pick” of the
year 2008 by Consumer Reports. Meanwhile, across the world in India, Hyundai‟s major
compact model, the Santro, was ranked number one in the Vehicle Dependability Survey (VDS)
by J.D. Power and Associates. Yet worldwide perceptions of the Hyundai brand still seemed to
lag behind reality, as evidenced in this headline: “Man bites dog. The earth is flat. Hyundai
builds better quality cars than Toyota. ….. The impossible has happened.”3

Overview of HMC’s Global Expansion

United States
Mong-Koo Chung saw the need to establish automobile assembly plants in the United States.
This was mainly to position Hyundai as a „locally produced automobile maker‟ in the U.S.
market, and also to help the company mitigate any possible future trade conflicts. When HMC
planned to launch an assembly plant in the U.S., the company expected that the U.S. market
would grow by 4 percent annually until 2010, with especially expansive growth in the SUV
market. Based on their market projection, therefore, the company was interested in producing
highly profitable small and midsize SUVs, along with midsize sedans. In 2003, HMC selected
Alabama to manufacture the company‟s core models, the Sonata and the Santa Fe, by May of
2005. Chung used a mass introduction strategy to flood the U.S. market with the automobiles
assembled there, which he also expected would increase public awareness of HMC‟s production
in the United States. Despite the difficulties in producing automobiles in an unfamiliar territory
with culturally different human resources, the Alabama plant did not take long to stabilize its
assembly line. The Alabama plant manufactured and sold 236,000 units (amounting to $3,589
million) and 251,000 units (amounting to $3,830 million) in 2006 and 2007 respectively, with a
6.3 percent growth in number of units sold and a 6.7 percent growth in sales amount. In 2008,
HMC released new models, the Sonata F/L and the Genesis, and planned to focus on small car
sales, as fuel efficiency became a hot topic in response to the rising oil prices that year. HMC
also expanded its dealerships from 790 in 2007 to 820 in 2008, increased the number of
independent dealerships, and developed a range of dealer capability enhancement programs.

Towards the end of 2000, HMC also began basic preparations to build production sites in the
European market. While HMC already had an automobile assembly plant in Turkey with a
yearly production capacity of 60,000 units, the plant was too small to meet the demands of the

Excerpted from Automotive News, April, 2004.

Meanwhile.g. In 2004. Song. while its other model. which became the number one selling car in India in two years (see Exhibit 6). the Accent. In 1998. HMC in 2008 also established its Czechoslovakia assembly plant with a yearly capacity of 200. Chung often encouraged executives of other global divisions to benchmark the localization and productivity of HMI. which were Kia Motors‟ strengths. Also. was priced to increase profit margins.000 units in 2008.000 units in 2007 to 108. we were successful in a „sequential entry strategy‟ by having introduced two different models for two different purposes: one for market penetration and the other for profit margin creation. sales by the HMC Turkey assembly plant increased from 87. The company initially introduced a basic model to enhance brand recognition. HMC introduced a new model. the company needed to build an automobile assembly plant designed to produce small-sized cars. while the production capacity continued to increase from 250.Hyundai Motor Company in China IB-91 p. which would double the existing capacity. Since then. Inspired by such success. who was then responsible for the establishment of assembly plants in India: Our sales strategy was another success factor in the Indian automobile market. including the European and Middle East regions. India India was one of the first targets for HMC‟s global expansion.A. HMI management realized complementary product lines through the careful selection of car models and release periods. HMC constructed an automobile assembly plant in only 17 months. attractive because of its low costs and huge growth potential. he announced a plan to build a second assembly plant with a yearly capacity to produce 300. According to K. While HMC considered the possibility of expanding its assembly plant in Turkey and acquiring Daewoo‟s assembly plant in Poland. In order to be on top of the Maruti. for example. the Santro is the Indian version of the Atos). their feasibility analysis led to the conclusion that establishing a new assembly plant was more favorable. HMI‟s pricing strategy was structured to promote sales of the Santro. Hyundai entered the market at a 5-10 percent lower price than Maruti. In 1996-97. as well as India. HMI exported 100. Hyundai and Kia Motors have cooperated to penetrate the European market through this production facility.000 units in 2006 to 600.000 units. Kia Motors built its assembly plant in Slovakia. general manager at Global Command & Control Center of HMC. the Santro. 30 percent of total production. which had 80 percent market share.000 units in 2007.000 units. and poor road conditions. These designs took into consideration India‟s high temperature. . humid environment. During an inspection tour of the company's manufacturing complex in the southeastern port city of Chennai in 2005. For example. and within another six months Hyundai Motor India (HMI) ranked number two in the Indian market in quantity of automobiles manufactured. and then added other optional features onto the basic model to increase profit margins.6 percent. 5 entire European market.000 units in 2005 to 300.000 units.. By 2006. an increase of 23. HMI‟s success within India has been attributed to its development of Indian versions of the automobiles (e. He envisioned that HMI would be able to serve neighboring markets. That is. HMC‟s market survey in 2003 also concluded that to effectively target the European market.

Europe. Hyundai executives reported that the conscientious and hard-working habits of the southern Indians (Chennai is in South India) also were attractive. For the next 20 years. led local governments to build small automobile plants to manufacture imitations of foreign models. the Chinese government 4 Parts of this section benefit from the information provided by HMC and Hyun-Chul Kim. was established in 1953 with assistance from ZiL. Korea Productivity Association. contributed to the minimization of logistics costs and the standardization of parts supply. THE AUTOMOBILE INDUSTRY IN CHINA4 Development of the Chinese Automobile Industry The Chinese automobile industry got started during the 1950s with technical assistance from the former Soviet Union. a major Soviet Union truck and heavy equipment manufacturer. While the Indian labor market was experiencing a high labor turnover rate. But HMC‟s record of success would be dwarfed by its future growth rate if it could succeed in its ambitious plans for China after 2008. to accommodate diverse market needs (see Exhibit 7). 6 HMI‟s geographic location in Chennai.” in an attempt to reduce discrimination by social class and religious affiliation in the workplace. formed a stronger sales network. but leadership remained concerned about the possibility of increasing competition.S. but remained little developed until 1984. Once the assembly plant was established. In response. June 2008. The „Great Leap Forward. combined with a shortage of automobile supplies. The company also increased the number of dealers from 235 in 2007 to 300 in 2008. the Chinese automobile industry faced difficult times due to the deteriorating relationship between China and the Soviet Union. “The Marketing Case Study on the Chinese Market – Hyundai-Kia Auto Group. NO RELIGION. the company ranked sixth in the volume of production among global automakers (Exhibit 8). Chinese automakers had to find a way to develop their own automobiles without help from other countries. Towards the end of 1950s. This political shift. China‟s first automobile manufacturer. HMI diversified its product lines.. In order to promote economic and industrial development. the company initiated a slogan “NO CASTE. The production system of Di Yi Motors was vertically integrated.” 2007. and expanded corporate advertising to strengthen the company‟s brand. . HMI grew successfully in India. including more upscale models. India. and China. Muyok Publishing Company. Consequently. The SAIC (Shanghai Automotive Industry Corporation) and Beijing Motors (now BAIC) were two well-known examples to emerge during this period. which later had a significant impact on the structure of subsequent Chinese automakers.” International Seminar on the Productivity Innovation and Global Productivity in the Age of Limitless Competition. As of 2008.Hyundai Motor Company in China IB-91 p. Di Yi Motors (predecessor of the FAW Group). and Jangro Lee. including the U. “Recent Trends and the Future of Chinese Automobile Industry. HMI was able to keep its turnover rate lower than the industry average through the use of such human resource policies.‟ led by Mao Zedong from 1958 to 1960. HMC manufactured cars in different parts of the world. India. strengthened the authority of local governments.

in China the automobile market was growing rapidly due to the strong performance of China‟s economy. The China automobile industry has boomed since the introduction of the open economy policy in 1979. such as FAW Group and DMC. As the open economic policy continued and the Chinese economy grew rapidly. in 1991.S. and SAIC). In 1990. In response. During the period of the Cultural Revolution. Companies that were under municipal jurisdiction became independent. named the Dongfeng Peugeot-Citroen Automobile (DPCA). named FAW-VW. these forces created a unique automobile industrial structure: on top of the pyramid there were large automobile manufacturers. almost all global automobile makers sought to enter the China automobile industry through a variety of joint ventures. which resulted in a major overhaul of the industry worldwide. its automobile market suffered a severe shortage in the mid-1980s. The period from 1984 to 1990 has been called “the exploratory period.Hyundai Motor Company in China IB-91 p.” But this policy led to over-construction of automobile plants. Beijing. forming Jinbei GM. Toyota established a joint venture company with Tianjin Xiali. FAW Group formed a joint venture with a German company Volkswagen. the Chinese government established a policy aimed at localizing automobile manufacturing. a consensus was reached to introduce policies to foster the growth of the Big Three (FAW Group. next were medium-sized companies governed by the municipal governments (e. Beginning with the 10th Five-Year Plan in 2001. In the 1990s. and at the bottom were small automobile manufacturers overseen by municipal governments. which now ranks second among Chinese automakers.” during which there was a large increase in demand for automobiles. the world automobile market suffered excess supply and stagnant demand.g. DFM formed a joint venture with the French company Citroen. one assembly plant. In response. company AMC formed the first joint venture in China. a subsidiary of BAIC) and the U. designating the automobile industry as essential to the country‟s economy and giving it greater financial support from the government. In 1997. the Plan mandated . also established the Pan Asia Technical Automotive Center to develop next generation automobiles. Automobile plants were later scattered all over China due to the policy of “one province. Shanghai GM built an automobile plant with a yearly capacity of 100. In 1987.. for example.S. Dongfeng Motors (DFM). and many merged or were acquired by other domestic competitors. Nanjing). Between 1990 and 2000. Guangzhou Automobile Industry Group (GAIG). DFM. SAIC formed a joint venture partnership with Volkswagen. While the world market was in turmoil. in partnership with SAIC.000 units to manufacture GM‟s Buick series of automobiles. Shanghai. In 1985. at the China Executive Cabinet meeting. known as Beijing Jeep. company General Motors. In April of 1999. In 1984. controlled by the central government. For example. Over time. In 1997. Also in March of 1997. and in 1992. and in 1988 the policy was extended to include three additional companies (BAIC. the Jinbei Automotive Company joined with U. SAIC and GM formed a joint venture known as Shanghai GM. 7 saw the need to intensify the capacity of national transportation. since the 7th Five-Year Plan. and in 1998. and Tianjin Xiali). and impeded the effective division of labor within the industry as well as the standardization of auto parts. Beijing Automobile Works (BAW. the Chinese government reaffirmed its commitment to the utilization of foreign direct investments. GM America. was founded at the behest of Mao Zedong in 1968. the China automobile industry introduced the concept of the family automobile to the market. Honda Motors established a joint venture company with GAIC.

1 percent from 2007 to 2012. According to the SIC estimates. and from 2000 to 2006 was 38. The C2 models have enjoyed the fastest growth. and it was expected that personal consumption would account for 90 percent of total purchases by 2010. foreign direct investment might be the next step.4 percent upward adjustment from the 2006 estimate. according to the State Information Center of China (SIC)―a 9. The portion of SUVs sold also has demonstrated a continuous increase. the Chinese automobile market had become an arena of competition for the global automakers. One reason for the rapid growth since 2002 was a large increase in the purchase of personal automobiles.260. The SIC estimate of 2010 demand by automobile classes showed that the growth of car sales would be primarily in classes C2 and D cars. The portion of the C1 and smaller models (class A and B) showed a slight decrease. 8 that automobiles endorsed by the Chinese government should be adopted by the general public. though this was required to take place through a joint venture with a Chinese counterpart. Finally.2 percent. the estimated supply for 2010 was 7. which have focused on class A and B models. creating new opportunities for global automakers aiming to enter the Chinese automobile market because China‟s WTO entry was conditioned on liberalized market access for foreign companies in China. In 2004.814. the total annual demand would grow by an annual average rate of 13. By 2008. The Chinese automobile market was mainly driven by individual consumers. increasing the class of potential automobile purchasers. for example. The Chinese automobile makers. The normal process for an overseas automobile manufacturer to enter the Chinese automobile market was through its initiation of automobile exports.000 units.3 percent. China also expected a larger income gap. Experts‟ estimates on the prospects for the China market also continued to increase. Growth rates in automobile markets typically differ depending on the size class of vehicle. In 2006. From 2001 to 2006 the market grew explosively. so the portion of classes C2 and D sales was forecasted to increase.Hyundai Motor Company in China IB-91 p. Once the market was better understood. the Chinese government announced a new automobile industrialization policy. Sales expansion in the China automobile market has occurred in various classes of automobiles simultaneously. Exhibits 12 and 13 describe the growth rates of the various vehicle size classes using a classification system common in China.000 units. seven times more than in 2000 (Exhibit 10). as described in Exhibit 9. the importer would then shift to KD exports for assembly in China. the China market sold 4. were expected to release upper class models. particularly between city and rural people (see Exhibit 11). In the same year. SIC . China joined the World Trade Organization (WTO). The Chinese Automobile Market The average growth rate of the Chinese automobile market from 1992 to 2000 was 25. However. showing an increase from 33 percent in 2006 to 37 percent in 2007. in which vehicle and engine size increases as one moves from A through E. As of 2007. The Chinese economy had been growing rapidly up to 2008. through which the government hoped to enhance the market competitiveness of Chinese automobiles and restructure the automobile industry.

This competition.000 units. car prices dropped by approximately 35 percent on average since 2004. where the Chinese partner “offers the market and obtains the technology. For example. But VW did not upgrade the Santana for a long time. and 2. The SUV models were estimated to increase at a moderate rate. Shanghai GM entered the China automobile market with the same models as those sold in the U. 189. and even planned to manufacture the hybrid Prius in China. former market leaders Shanghai VW and FAW-VW saw their market shares fall. intensifying competition drove many foreign automakers to introduce newer models. such as Chery Automobile and Geely Automobile. and others entered the market.000 units. the government introduced the traditional “以夷制夷 (yi yi zhi yi: using barbarians to control other barbarians)” strategy. the Chery QQ. the company expanded its sales aggressively (85. The availability of newer technologies to be imitated. Geely maintained a top-ten spot since 2003. and was able to establish an image as the purveyor of advanced cars.140.Hyundai Motor Company in China IB-91 p. Although its model. Competition The period 2000-2008 saw the Chinese market become highly competitive. C2.S. The number of car models in the market increased from 46 in 2001 to 305 in 2008 (Exhibits 20 and 21). Chery Automobile was formed through the consolidation of five companies in the Anhui province. started to manufacture in 1997 and built its own independent models. in turn. while Honda manufactured its eighth generation Accord in China. As competition raged. in turn. Geely Automobile also expanded to overseas market with 18 dealerships and 108 stores in other countries. increased competition from private local automakers. initially produced the Santana. through a joint venture Shanghai VW. and 381. as the global automakers waged fierce price wars. despite the risk of low-quality imitations. By 2008. and its sales skyrocketed from 98. VW began to lose out to their newer models. as Shanghai GM took over the number one spot. Beijing Hyundai. as it advocated an “independent technological development model. Toyota began to produce its main model.000 units in 2003.” Global automakers have typically resisted transferring their technology to local makers by manufacturing only older models in China. In response. and local sourcing of auto parts. where easing the entry of multiple global automakers stimulated competition among them. and D cars would have more than doubled to reach 1. As a result. respectively.000 units in 2007. dissatisfied Chinese consumers.” This phrase refers to use of joint ventures with global automakers. the 2012 demand for classes C1. the Camry. an early entrant to the China automobile market. The Chinese government played an important role in the formation of this competition. Geely Automobile. Furthermore. 9 forecasted that compared to 2007. created disputes of being the “carbon copy” of GM Daewoo‟s Matiz. these newer models were selling for ever lower prices. which along with the poor quality of parts from local suppliers. market.000 units. . triggered the introduction of newer models with the latest technologies.000 units in 2005. 3. located in Wenzhou.520. Volkswagen.000 units in 2007). As Shanghai GM.580. a representative taxi model in Shanghai. Other later entrants were also aggressive in introducing their newest models.000 in 2004 to 218.

it was very important to attract consumers by improving brand recognition and brand position. Further. Beijing. Fujian. Chinese consumers had a tendency to value the brand image based on the country associated with an automaker. Because of this.” The 4S Shop referred to a large dealer shop that operated the functions of Sales. and Zhejiang were in the process of developing motorization as a result of economic development. Power Associates. Hence. and then spread inland. where they also received after-sales service and spare parts supplies after their car purchase. Chinese consumers obtained some knowledge on brands. while there were many other regions where motorization had barely begun. They often sought advice from others who were knowledgeable about cars. Such regional differences in the Chinese market led to differences in consumers‟ brand recognition and purchasing patterns. By 2008. This was due to the underdeveloped financial infrastructure and a high level of uncertainty in the Chinese economy. The vast majority of Chinese consumers purchased their cars from a 4S Shop. they tended to equate brand recognition with product quality. As of 2002. (Exhibit 16 presents the results of a survey study conducted by Beijing Hyundai regarding Chinese consumers‟ primary motives for automobile purchase. and Heilongjiang. including Shandong. These channels were also costly and resulted in the separation of after-sales service from sales. such makers as Beijing Hyundai suffer from a weak brand image compared to the actual quality and performance of their cars. Further. Chinese consumers were cautious when purchasing cars. and Survey simultaneously. Some regions. According to Bang Shin Kim at Beijing Hyundai: As a result of globalization.D. 10 Chinese Consumers Since Chinese consumers lacked experience with automobiles. Major cities such as Shanghai. Preference exists towards German. Distribution Channels Up until the mid-1990s. it was almost impossible to respond to the changing needs of customers in a timely manner. primarily due to the lack of public information on the evaluation of automobiles.Hyundai Motor Company in China IB-91 p. and Japan-made automobiles.) The Chinese market was geographically large and motorization was more developed in some regions than others.S. The 4S Shop resulted in more effective control of sales . Motorization first developed in the coastal area of the Southeast. making it difficult for automakers to control pricing and sales or to maintain a stable brand image and promotion activities. market have access to information from quality evaluation institutions such as Consumer Reports and J. Jiangsu. yet they are very sensitive to country brand. China‟s automobile distribution system was embedded in complex pyramid channels. Spare Parts. most of the global automobile makers in China had increased control over their channels by establishing “4S Shops. U. Hubei. but Chinese consumers do not.S. were in the beginning stage of motorization. and payment on credit was very rare. such regions as Guangdong. This system contributed to building brand image and attracting customers. Service. Consumers in the U. and Tianjin already showed significant progress in motorization.

Korea Institute for Industrial Economics and Trade Beijing Office. HMC‟s sister automaker Kia Motors formed its 50:50 joint venture with DFM. “Recent Trends and the Future of Chinese Automobile Industry. These differences led early on to some problems in the timing of Beijing Hyundai‟s market entry. the Starex. differences in country size. For example. the Santa Fe and the Terracan. Beijing Hyundai planned around an aggressive initial 5 Parts of this section benefit from the information provided by the following: HMC and Hyun-Chul Kim. HMC saw sponsorship as a way of enhancing the corporate image.. Such differences caused a difference in decision-making process. like VW. a governmental enterprise.” 2007. “Recent Trends and the Challenge of Korean Auto Companies in Chinese Automobile Market. since they were difficult to control. Rongcheng Huatai Automobile. Muyok Publishing Company. helped to manage this process.” China Industrial Economics Brief. BAIC.Hyundai Motor Company in China IB-91 p. 2005. Australia. . (Jianghuai Automobile used to manufacture Hyundai‟s van model. since the more independent dealerships gave access to certain regional distribution channels. Dealerships put brand image at risk. “Interrelationship between Internationalization and the Improvement of Competitive Advantage of the Firms from NICs : A Case of Hyundai Motor Company. focused more on the consensus among diverse interest[ed] parties. Meanwhile. through a technological alliance with HMC. a private enterprise. HMC. and also a more integrative approach to customers. Sung- Kee Choi explained: While China and Korea belong to the same East Asian belt. but BAIC. Municipal authorities in Beijing favored working with BAIC. but Hyundai‟s partner. “The Marketing Case Study on the Chinese Market – Hyundai-Kia Auto Group. HMC IN CHINA5 Initial Entry The process of gaining approval to enter the Chinese market could be difficult. the Chinese people are associated with caution while Korean people have a „chop-chop‟ nature. I also found a difference in the communication styles between the two groups. 2008. but the alliance was terminated: see Exhibit 18. Expecting rapid government approval. both Beijing Hyundai and Dongfeng Yueda Kia established their first assembly plants in 2002. produced Hyundai‟s SUV models. known as Dongfeng Yueda Kia. these authorities helped to gain central government approval for the operation of Beijing Hyundai.” unpublished PhD Dissertation. Jangro Lee et al. emphasized efficiency in the decision-making process.” International Seminar on the Productivity Innovation and Global Productivity in the Age of Limitless Competition. and Chul Cho. however. Korea Productivity Association. In turn. For example. historical experience. Some automakers. and cultural practices have produced different dispositions.) Yet HMC and BAIC discovered that there were some cultural gaps between the partners. but there is a discrepancy in communicating the solutions to the goals due to different experiences. Myung Hyun Nam. June 2008. In addition. operated both 4S Shops and local dealerships. but the Chinese counterpart doubted it. in technological and brand alliances with HMC. Consequently. 11 networks through tight contracts between manufacturers and dealers. the University of New South Wales. We share the same goals.

While the industrial infrastructure. to create a luxury image. As of 2008.Hyundai Motor Company in China IB-91 p. including the headliner. such as automatic transmission and ECU. The company also tried to maintain . For instance. Working with the expanded R&D organization of HMC Corporate. was not fully developed for Hyundai in China. into China made possible rapid quality improvements and cost reductions in the initial stage. This approach to design resulted in the reduction of production times and improvements in product quality. and also promoted plush interiors for the rear seats as it is common in China for owners of midsized cars to have a chauffeur. and all remainder are outsourced from local suppliers. car seats. wheel. The company also adjusted the structure and height of the cars to local road conditions.‟ cost reduction and quality improvement. which led to an increase in costs and the loss of trust. These geographical advantages enabled Beijing Hyundai to enter the market rapidly once government permission had finally been obtained. Then the company had trouble meeting facility and equipment contracts when the process went slowly due to BAIC‟s consensus approach to obtaining government approval. This capacity allowed Beijing Hyundai to develop its local supplier network methodically. such as auto parts supplies. and air conditioning units from suppliers in the Beijing area to save transportation costs. the company was able to use HMC‟s existing network of global parts suppliers in Korea. Bang Shin Kim at Beijing Hyundai made the following comment about how the management of local suppliers developed: One of Beijing Hyundai‟s competitive advantages over VW or other competitors is in the management of local subcontractors. accelerator. The major problem for VW was the poor maintenance of its relationships with local parts suppliers. and continued to modify this model to meet the needs of the Chinese market. and the door inner panel. Building the Production System Building the production system in China was helped by the geographic proximity of Korea and China.) The company also modularized about 10 core parts. 12 production schedule. This enabled us to „kill two birds with one stone. only 10 percent of auto parts. The simultaneous entry of HMC and its long-term Korean suppliers. tire. This really helps us reduce costs. Beijing Hyundai subcontracts such parts as engine. manual transmission. the company changed the outer appearance of the car to ensure that it would enhance the perceived status of its owner. such as technical and managerial training. Beijing Hyundai provided a lot of support and assistance to local suppliers. the EF Sonata. chassis. the front end. We ally with 118 suppliers in total and 57 suppliers are located in the Beijing area. and battery are supplied from other provinces. such as Hyundai Mobis. Consequently. while other parts such as audio. Beijing Hyundai made an effort to select appropriate car models for the initial entry to China in order to establish a quality reputation. (Exhibit 17 presents a brief summary of Beijing Hyundai‟s history. come from suppliers in Korea. At the initial stage of its entry to China. Beijing Hyundai first introduced its midsized model.

and east) and a “core cities expansion group” (northeast. In addition. southwest. but had to decide where the company should locate the shops. and logistics controls. encouraging them to promptly respond to Beijing Hyundai‟s needs and supplying them with updated estimates of market demand so they could adjust their production timelines if necessary. Whereas Honda‟s major criterion for making the selection was dealers‟ financial resources. and competition. With the hub and spoke approach for the “all cities” expansion group. Beijing Hyundai also held annual meetings with local suppliers and more regular monthly meetings for core parts suppliers. produced 63 units per hour. the implementation of “poly production” made it possible to assemble five different models from just one assembly line. As a result of its low brand image. The company then established a sequential channel expansion strategy. following a hub and spoke pattern. the company suffered from production delays due to the unanticipated influx of yellow dust and pollen to the factory. south. and subcontractors (parts quality). Asan plant. and east. east. Initially. Beijing Hyundai decided to adopt the 4S Shop model. for each of the two groups of regions. Building Distribution Channels One of the most important challenges for Beijing Hyundai was to develop distribution channels. and (3) no defective products are sold. Beijing Hyundai focused more on dealers‟ .Hyundai Motor Company in China IB-91 p. there was a difference in the selection of dealers. and around Guangzhou and Fuzhou in the south. and also played a crucial role in supporting spoke cities. northeast. identified based on the consideration of income level. and to decide where channels should be expanded geographically. The company classified the China market into seven regions. and Shanghai in the east. population. and northwest. the company also established a comprehensive quality assurance system to coordinate exchanges among R&D center (design quality). and northwest). Over time. Those hub cities served as the centerpieces of regional promotion. central. Hangzhou. south. waiting for possible growth opportunities there. north. These seven regions were then regrouped into two major categories. Although Beijing Hyundai benchmarked itself against Honda‟s distribution channel. Beijing Hyudai‟s plants produced 68 units per hour at consistently high quality. While the number one HMC plant in Korea. The hub cities were formed around Beijing and Qingdao in the north. The company then expanded its distribution channels to spoke cities. Beijing Hyundai‟s distribution channels made inroads into major hub cities in the north. The next phase of the hub and spoke approach was to enter 24 separate lower-level income areas cautiously. Beijing Hyundai initially had a difficult time obtaining 4S Shop dealers. an “all cities expansion group” (north. dealer education. central. assembly plant (production quality). Moreover. around Nanjing. production quality increased by the application of Hyundai‟s “3-D policy”: (1) no defective products are used. south. southwest. Quality production was difficult at first. These efforts paid off. but improved as Beijing Hyundai‟s facilities implemented quality control processes. 13 harmonious relationships with local suppliers through the sharing of information. (2) no defective products are manufactured.

including a raised bumper line and highlighted engine hood. the Yuedong. The two parties also had different views on the control over local auto parts suppliers. self-developed Alpha and Beta engines.000 dealers in China. Of particular concern were stagnant sales in class D cars (Exhibits 23. the company released the Chinese version of the Elantra.000 units. the dealers‟ passion and determination were also considered. although it saw a slight rebound in 2008. and the Yuedong).000.000 RMB. While the company set a dealer‟s minimum investment at 25. Sung-Kee Choi. HMC Corporate and Beijing Hyundai were exploring various strategies to overcome these obstacles. In addition. The Yuedong also was redesigned to appear more dynamic. Beijing Hyundai signaled its commitment to China by increasing production capacity there to 850. the company held dealer conventions twice a year and awarded outstanding sales people. Yet since 2006. systematic education and training were given to those with a special emphasis on advertisement and sales promotion.000 annual units by 2010 (Exhibit 19). the Yuedong was equipped with newly improved. 26. made possible by the opening of its second plant in 2008. Performance in class D was critical in establishing a luxury image. at the China Business Division of HMC. But BAIC was concerned about the decrease in profit margins as a result of increasing sales through price reductions. said: . increasing fuel efficiency by 8 percent compared to the previous model and in compliance with the Euro 4 emission standards. Sales of the Elantra were stagnant. 28 and 29). The company reinforced its commitment to a target of 1. from only one model in 2002 to six models in 2008 (the EF Sonata. and Honda‟s Accord were significantly outperforming Hyundai‟s Sonata. but Toyota‟s Camry. 25. 27. Of special note. many of the Beijing Hyundai dealers have ranked in contests among the top 50 of the approximately 25. BAIC complained about HMC‟s resistance to BAIC‟s attempt to develop its own models. determined to survive. the increased competition affected Hyundai sales in China. both parties to the Hyundai/BAIC joint venture feuded over how to react. Since 2004. the Elantra.100.Hyundai Motor Company in China IB-91 p. the Verna. Furthermore. and in 2007 Beijing Hyundai‟s overall sales decreased (Exhibit 23). in line with a younger target customer. Competition also spurred Beijing Hyundai to tailor its models to the Chinese market. The company also implemented a dealership sales training program to increase the influence of the sales force on customers‟ choice of car models and optional features. Beijing Hyundai Reacts to Competition As the China automobile market became more competitive. These incentive and training programs increased dealers‟ loyalty and strengthened the sales network. 14 past experience. the Tucson. In April 2008. Product lines were also expanded. which was equipped with an improved physical design. Once dealers were selected. Beijing Hyundai. was willing to cut prices to gain share. the NF Sonata. Beijing Hyundai sometimes outsourced training facilitators with extensive experience in global dealership to educate the dealers.

” “BMW = pleasure of driving. For example. However. and maintenance of customers. We lack local specialists who have expertise in market research and customer service. We now have some confidence in customizing our products to the local markets by using the latest technology….” and “Toyota = best quality globally and locally.Hyundai Motor Company in China IB-91 p. We know some role models. Most importantly. but was still seeking the appropriate balance between the protection of technology and the maintenance of trust. the company needs to establish a localized corporate image through various charities and public services to the Chinese society. Highly talented hires from the United States and Europe and the expansion of our R&D center have continued to enhance the quality of Hyundai cars.” HMC was rebuilding its partner relationship. VW added chrome line to the Passat cars. service. Myung-Hyun Nam. the company was challenged to attract the high-quality human resources needed to localize its distribution channels. Beijing Hyundai needs to establish its own unique product identity through a consistent product development. 15 As a result of the recent intense competition. Toyota increased the size of the Camry in response to the Chinese norm that links car size to social status. Worse. Beijing Hyundai is still relatively weak in marketing. Toyota has priced the Camry lower than competing models of other automakers. Under the motto “We are Beijing Hyundai. In addition. Hyundai will also try to introduce more customized models. . HMC also needed to resolve the problem of how to cooperatively deal with the transfer of technology to BAIC. It is also important to reflect social norms in product development for a higher brand image. Hyundai Beijing is competing with other global makers in China to attract and retain local experts.” Such unique product identity will lead to a high level of brand recognition as a global brand. explained: HMC‟s global management has flourished with successful accomplishment of overseas production and overseas R&D. Despite its high brand image. Paying attention to the fact that the China society values intricately decorated items. Hyundai also needs to carefully watch the growing price competition. But. Beijing Hyundai needs to release new models continuously and establish an efficient distribution channel. sales. In addition to a global corporate image linked with product quality. given the insufficient supply of high- quality human resources. such as “Jetta = durability. director of Brand Strategy Team at HMC.

Hyundai Motor Company in China IB-91 p. 16 Exhibit 1 Organization Chart of HMC HMC – the 14th Division Staff Sales Corporate Planning Office Domestic Sales Division Auditing Office CL Business Unit Management Supporting Office International Business Division Legal & Judicial Office Public Relations Office China Business Division Corporate University Commercial Vehicle Division Production Planning & Management Ulsan Plant Production Management Division Planning & Coordination Office Jeonju Plant Information Technology Division Management Supporting Division Research and Development Financial Management Division R&D Division R&D Planning & Coordination Office R&D Supporting Division Vehicle Development Center 1/2/3/4 Advanced Technique Center Design Center Commercial Vehicle R&D Center Power Train Research Center Electric Development Center Commercial R&D Center Co Pilot Center Product Strategy Development Division Purchase & Quality Management Procurement Division Quality Division Source: HMC .

* The data of 2008 is collected in the first half of the year. D-Nissan (Dongfeng Nissan). D-PSA (Dongfeng Peugeot Citroen).137 164.Hyundai Motor Company in China IB-91 p.011 231. C-Ford (Changan Ford). B. B- 5 144 K-Honda 203 290 K-Honda 295 165 Hyundai Hyundai Hyundai 6 Charade 130 Charade 190 K-Honda 260 F-Toyota 281 D-Nissan 159 7 C-Suzuki 110 Cherry 189 F-Toyota 223 D-Nissan 272 K-Honda 142 B- 8 Cherry 93 D-Nissan 158 Geely 204 231 Chery 125 Hyundai 9 D-PSA 89 Geely 149 D-Nissan 203 C-Ford 218 C-Ford 117 10 Geely 87 D-PSA 140 D-PSA 201 Geely 218 D-PSA 103 Notes: The unit is a thousand. K-Honda (Guangzhou Honda). F-Toyota (First Toyota). F-VW (First Volkswagen).668 290. S-VW (Shanghai Volkswagen) Source: HMC and Kim (2008) . C-Suzuki (Changan Suzuki).792 Notes: * Sales in the first half of the year Source: Beijing Hyundai Exhibit 3 Top Ten Automakers’ Ranks in China Market and Their Sales Performance 2004 2005 2006 2007 2008 * Rank Maker Sales Maker Sales Maker Sales Maker Sales Maker Sales 1 S-VW 354 S-GM 298 S-GM 413 S-GM 500 S-VW 272 2 F-VW 300 S-VW 245 S-VW 352 F-VW 456 F-VW 269 3 S-GM 223.8 F-VW 238 F-VW 345 S-VW 436 S-GM 239 B- 4 K-Honda 185 234 Cherry 305 Cherry 381 F-Toyota 200 Hyundai B. 17 Exhibit 2 Beijing Hyundai’s Sales Performance in China Automobile Market Year 2002 2003 2004 2005 2006 2007 2008 * Sales 1.128 144. S-GM (Shanghai GM).090 233.003 52. Abbreviation: B-Hyundai (Beijing Hyundai).

2) (3.5) 7 Nissan Porsche Porsche Audi Audi (89) (74) (76) (74) (68) (2.7) (20.1) (21.0) (21. Source: HMC .4) 11 Lexus Nissan (92) (98) (3.6) (21.8) (23.5) 9 Nissan Hyundai Porsche Porsche (90) (84) (80) (75) (2.3) (20.1) (3.0) (18.1) (4.9) (18.8) (21.0) (21.5) (3.0) (9.0) (13.6) 3 Toyota Toyota Toyota Toyota Ford BMW BMW BMW BMW (20) (15) (14) (12) (14) (17) (16) (15) (13) (12.1) (15.0) 5 Honda BMW BMW BMW BMW Ford Ford Ford Ford (24) (23) (19) (20) (19) (19) (22) (30) (41) (11.9) (6.2) (36.0) (6.6) (14.1) (19.4) (17.8) (21.4) (5.6) (19.8) (3.6) (15.9) (15.4) (22. 18 Exhibit 4 Brand Valuation of “Global Top-100 Firms” Rank 1999 2000 2001 2002 2003 2004 2005 2006 2007 1 Ford Ford Ford Benz Benz Toyota Toyota Toyota Toyota (5) (7) (10) (10) (10) (9) (9) (7) (6) (33.8) (27.2) (4.9) 8 Audi Audi Hyundai Hyundai (81) (79) (75) (72) (3.3) (15.6) (7.4) (15.1) Notes: The value in the first parenthesis is the rank in global top-100 firms in the given year.3) (18. The unit of value in the second parenthesis is a billion in US dollars.5) (3.2) 10 Nissan Nissan Lexus (85) (90) (92) (3.6) (6.9) (4.6) 4 BMW Honda Honda Honda Honda Honda Honda Honda Honda (22) (20) (18) (18) (18) (18) (19) (19) (19) (11.6) (3.6) (7.1) (3.8) (4.8) (17.2) (14.4) (30.Hyundai Motor Company in China IB-91 p.1) (13.7) (24.9) (32.7) (4.1) 2 Benz Benz Benz Ford Toyota Benz Benz Benz Benz (12) (12) (11) (11) (11) (11) (11) (10) (10) (17.2) (6.0) 6 VW VW VW VW VW VW VW VW VW (31) (31) (42) (38) (42) (48) (56) (56) (54) (6.1) (15.1) (14.5) (13.9) (14.3) (3.2) (11.1) (21.9) (17.3) (7.0) (20.

Hyundai Motor Company in China IB-91 p. 19 Exhibit 5 Brand IQS Scores in North America Automobile Market Porsche 87 Luxury Brand Infiniti 98 Lexus 99 Benz 104 Upper Rank (13) Toyota 104 Mercury 109 Honda 110 Ford 112 Jaguar 112 Audi 113 Industry average Cadillac 113 118 Chevrolet 113 Hyundai 114(13th of 38) Pontiac 114 Brand Rank excluding luxury brand Lincoln 115 Buick 118 Toyota 104 Kia 119(17th of 38) Mercury 109 Middle Rank (13) Acura 119 Honda 110 Nissan 124 Ford 112 Chevrolet 113 Volvo 124 Hyundai 114 (6th of 24) BMW 126 Pontiac 114 GMC 127 Buick 118 Mazda 127 Kia 119 (9th of 24) Volkswagen 128 Nissan 124 Hummer 132 GMC 127 Subaru 133 Mazda 127 Scion 138 Volkswag 128 Dodge 141 Subaru 133 Chrysler 142 Scion 138 Dodge 141 Lower Rank (12) Mitsubishi 149 Saab 149 Chrysler 142 Suzuki 152 Mitsubishi 149 Suzuki 152 Saturn 157 Saturn 157 Land Rover 161 163 Mini Mini 163 Jeep 167 Jeep 167 Smart 135 Smart 135 Isuzu 143 Isuzu 143 Source: HMC .

626 83. Elantra 3.337 MCI 06Aug.205 16.451 Verna 99 Jan.331 1.269 2.748 107. 58.367 156.464 14.421 66. 1.854 104.140 04 Mar. Tucson 05 Mar.172 I10 07Nov.006 Getz 04Aug.174 200.971 2.615 15.079 186. 14.264 946 806 506 668 Sonata 05 Jul.267 20. 8.238 26.Hyundai Motor Company in China IB-91 p.091 1.800 120.318 81.205 140.003 25.002 24. 1.087 29. 20 Exhibit 6 Hyundai Motor’s Sales in India Automobile Market Model Entry 1999 2000 2001 2002 2003 2004 2005 2006 2007 Point Santro 98 Sep.629 65.796 16.495 6.396 80.927 376 07 May EF 01 Jul.689 16.932 102. 922 533 262 Total 60.351 19.412 Source: HMC .120 139. 5.679 136.706 93.

030 2.520 2.3 Kia 1. Total 3.720 #1 100% 300 Sonata 1998.630 Verna etc.12 Elantra etc.3 share 100% 270 Sportage 2006.830 6.11 Start of NF HKMC Capa Model Operation 100% 300 Sonata 2005.Hyundai Motor Company in China IB-91 p.7 HKMC share Operation Santa Matrix EF 100% 300 Fe 2009.600 1.12 Avante Turkey Near Istanbul Izmit (Hyuandai) Capital Start of USA (Georgia (Kia) HKMC Capa Model CHINA Beijing Hyundai (Hyundai) Operation Capital Start of share Capital Start of Capa Model Accent Capa Model HKMC share Operation 50% 100 1997. #2 50% 300 Elantra 2007 India Tamilnadu (Hyundai) Capital Start of CHINA Changsu Yenchung (Kia) Capa Model HKMC 2008 Total Capacity HKMC share Operation Capital Start of Capa Model Santro HKMC share Operation Domestic Overseas Total EF Cheollima Hyundai 1. Cerato #2 50% 300 2007 #2 100% 300 i10 2007 etc Notes: The unit is thousand.12 Sonata Sorento #1 50% 300 2002.350 etc.800 3.920 1.9 #1 50% 130 Optima 2002. Source: HMC . 21 Exhibit 7 Global Management of HMC HKMC Global Plants & Capacity Czech (Hyundai) Capital USA Alabama Montgomery (HMMA) Start of Capital Start of HKMC Capa Model Slovakia (Kia) Capa Model Operation HKMC share Operation share Capital 100% 200 130 2008.

4% 74.0% 10.0% 278. Renault.2% 26.2 15.4 100 10.0% 200 21.0% 2001 2002 2003 2004 2005 2006 2007 No 2001 2002 2003 2004 2005 2006 2007 1 GM GM GM GM GM Toyota Toyota 2 Ford Ford Toyota Toyota Toyota GM GM 3 Toyota Toyota Ford Ford Ford Ford Ford Renault. Renault- 5 Volkswagen Volkswagen Volkswagen Volkswagen Volkswagen Nissan Nissan Hyundai.Hyundai Motor Company in China IB-91 p.8 30. Hyundai- 9 Honda Honda Honda PSA PSA Kia Kia 10 Fiat Fiat Fiat Fiat Suzuki Fiat Fiat Source: HMC .0% 150 15.1 0 0. Renault.8 50 4.5 29.4 249.2% 29 5.4 257.0% 250 236.3 10. Renault- 4 Volkswagen Volkswagen Nissan Nissan Nissan Nissan Nissan Renault.8 276.5 14.0% 48. 22 Exhibit 8 Hyundai-Kia’s Global Production and World Automakers’ Sales Domestic Production Oversea Production Oversea Production Ratio 300 35. Hyundai- 7 PSA PSA PSA DCX DCX Kia Kia Hyundai- 8 Honda Honda PSA PSA Honda Honda Kia Hyundai. Hyundai- 6 DCX DCX DCX DCX DCX Kia Kia Hyundai.3% 116.6% 25.0% 100.2 269. Renault.0% 20.8 282.3% 5.

12% Germany. 9% Hyundai-Kia. 23 Exhibit 9 Multinational Automakers’ Market Share in China Automobile Market (May 2008) Nations‟ market share France. 3% Automakers. 2% Suzuki. 3% Mazuda. 3% Chinese Citroen.. 19% Japan. 5% Honda.Hyundai Motor Company in China IB-91 p. 30% Automakers‟ market share Ford. 28% USA. 2% etc. 3% Korea. 8% China. 18% General Motors. 9% Source: Beijing Hyundai . 9% Volkwagen. 28% Nissan. 8% Toyota.

24 Exhibit 10 The Growth of China Automobile Market (Passenger Car) 800 713 700 646 600 560 508 500 426 400 315 300 249 215 200 126 57 61 78 100 39 49 16 25 0 1992 1994 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Notes: The unit is ten thousand.Hyundai Motor Company in China IB-91 p. Source: Compiled by author from data obtained from State Information Center of China (2006). . Values for 2007-2010 are forecasts.

50% 9.32 0.20% 8% 8.90% 8.10% 10.41 0.32 0.4 0.33 0.40% 10.50% 10.80% 9.2 0.4 0.40% 10.30% 8.10% 7.60% 8.5 0. .10% 11.33 0.35 0.90% 7.40% 8.4 0.36 0.30% 8.1 0 2007F 2008F 2009F 2010F 2015F 2017F Source: Beijing Hyundai Note: All values from 2007 on are forecasts in both figures.41 0.60% 6% 4% 2% 0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Urban area Rural area 0.10% 9.20% 10% 10.3 0.Hyundai Motor Company in China IB-91 p.43 0. 25 Exhibit 11 China’s GDP Growth and Gini Coefficient Prediction 12% 11.00% 9.43 0.

472 8% 6% 326.130 E 154.864 4% 4% 208.873 4% 220.824 762.315 D1 C2 238.896 15% MPV 185. 26 Exhibit 12 China Automobile Market Segmentation Change in 2007 5% 7% 335.902 308.638 6% D2 612.695 17% 15% 690.813 A 1.Hyundai Motor Company in China IB-91 p.701 8% 6% 350.669 299.385.489 6% 298.090 33% C1 37% B 1.233 4% SUV 15% 220.575 2006 2007 2006 2007 Source: Beijing Hyundai .184 779.862.

4 46.5 35.8 A 1.8 31. Source: Compiled by author from data from State Information Center of China (2007).0% 17% 16% 16% 16% 16% 16% 184.4 D1 13.7 41.6 949.9 C2 14.1 152.8 49.4% E 4% 4% 4% 4% 4% 4% 22. .0 113.5 51.5 51.2 618.2 C1 12.1 93.9% 15% 15% 16% 16% 16% 16% 21.7 266.1% Demand Notes: The unit is ten thousand.1 36.2 56.5 295.4 125.7 35. F denotes forecast.7 57.1 113.6 138.8 30.8 325.8 B 7.3 MPV 18.6 40.Hyundai Motor Company in China IB-91 p.2 223.8 36.1 781.1 38.3 37.6 37.1 42.7 29.2% 5% 5% 4% 4% 4% 4% 86.0 37.7% 6% 17% 16% 16% 16% 16% 76.3 139.9 30.0 25.0 35.2 14.3 706.9 34.7 SUV 13.4 861.4 126.3 39. 27 Exhibit 13 Predicted Growth and Change of China Automobile Market (model class) Class 2007 2008F 2009F 2010F 2011F 2012F Annual Average 34.0% 4% 4% 4% 5% 5% 5% 30.4 D2 14.2% 36% 36% 38% 38% 38% 38% 32.8 357.5% 6% 6% 5% 5% 6% 6% Industry 514.1 61.3 152.8% 7% 7% 5% 5% 4% 4% 26.6 33.9 43.3 102.1 37.6 13.4 26.

8% 58.9% 28.2% 36.3 Jetta 15.0 Chang‟a Buick Santana 9 Audi A6 3.6% 40.0 Camry 17.2 Xiali 13.5 QQ 13.3 Corolla 6.3 Excelle 11.6 Top-10 Ratio 74.6 9.7 Excelle 19.1 2 Santana 9.3 Focus 12.4 Charade 8.5 QQ 11.0 Jetta 17.8 Passat 7.5 Merrie 7.1 Qirui 5.2 Corolla 13.4 Passat 12.0 ZX 3000 8 Alto 3.4 Passat 11.1 126.3 Elantra 10.0 Santana 9.6 Accord 10. 28 Exhibit 14 Top Ten Models’ Sales and Overall Share in China Automobile Market 2001 2002 2003 2004 2005 2006 2007 Rank Model Sales Model Sales Model Sales Model Sales Model Sales Model Sales Model Sales 1 Jetta 9.9 9.3 Accord 8.0 2000 2000 4 Passat 6.3 Santana 13.2 Bora 7.7 94.2 Charade 11.3 Bora 5.0 Total Sales 78.9 Santana 12.3 Passat 6.0 Santana 10.5 Santana 9.1 507.3 Santana 5 Charade 6.3 Accord 11.6 Charade 16.4 248.0 9.2 Accord 11.7 8.3 Elantra 17.1 114.1 5.4 426.0 2000 Citroen Buick 6 5.8 Alto 4.2 Elantra 17.1% 43.1 7.0 Passat 7.0 6.4 73.0% Notes: The unit is ten thousand Source: HMC .6 Qiyun 10.3 Sail 5.1 Jetta 14.0 Excelle 9.5 ZX Regal Citroen Santana 7 Accord 5.8 142.3 Bora 6.3 Jetta 14.8 215.0 100.4 Accord 12.7 Excelle 17.8 131.7 Corolla 8.6 Total 58.4 Charade 9.7 Jetta 12.8 315.7 Santana Santana 3 7.0 9.4% 30.Hyundai Motor Company in China IB-91 p.5 Passat 12.9 Audi A6 5.8 n Alto Regal 3000 10 Sail 2.7 Jetta 20.4 Charade 18.1 Elantra 12.

C- 307. Polo HB. Sylphy. Lacrosse. Hyundai Santa Fe Jianghuai Refine Qiche (Starex) Bora. Terracan. F-Toyota Vios Corolla Reiz Crown Landcruiser RAV4 (‟07) Highlander G-Toyota Camry Previa(‟08) (‟07) D-Honda Civic CR-V Stream(‟08) City. C-Ford Fiesta Focus Modeo Volvo Mazda2(‟08) Chery QQ Cowin A5 Eastar Tiggo V5 Abbreviation: B-Hyundai (Beijing Hyundai). GM. 29 Exhibit 15 Main Automaker Line-Ups A B C1 C2 D E SUV MPV B. D-PSA(Dongfeng Peugeot Citroen). H-Hyundai (Huatai Hyundai). K-Honda Accord Odyssey Fit HB Sunny. Magotan Audi A4. Trailblazer Spart Sail. S-GM (Shanghai GM). C-Ford(Changan Ford). S-VW Polo NB Octavia Santana Touran Golf (‟07) 3000 GM. Passat. F-Toyota(First Toyota). K-Honda (Guangzhou Honda). Elysee C4(‟07) C2 407(‟07) C-Suzuki Alto Swift HB Swift NB S-Max(‟07).Hyundai Motor Company in China IB-91 p. D-PSA Fukang. S-VW (Shanghai Volkswagen) Source: HMC . Picasso. Excelle Royaum GL8 Buick Regal Lova. Golf. D-Kia (Dongfeng Yueda Kia) D-Nissan (Dongfeng Nissan). F-VW (First Volkswagen). D-Nissan Hote(‟07) Tiida Teana. Geniss HB/NB Bluebird 206. C-Suzuki (Changan Suzuki). G-Toyota(Guangzhou Toyota). F-VW Caddy Jetta. Epica Chevrolet (‟07) Aveo Pardo. Triomphe. Elantra Accent NF Sonata Tucson Hyundai HD(‟08) Optima D-Kia Cerata KM(‟07) Carnival MG(‟08) H. (‟07) A6 Sasgitar Santana.

30 Exhibit 16 Chinese Consumers’ Motives for Automobile Purchase Symbolic High Class.Hyundai Motor Company in China IB-91 p. Success Value Emotional Freedom Comfort Safety Value Time Commute Picnic Functional Effici Conve Security Cleanness Value -ency -nience Cost Shopping Travel Transportation Independent Attribute Space Source: Beijing Hyundai .

31 Exhibit 17 Beijing Hyundai’s History Year Events Model Introduction 2002 May MOU conclusion EF Sonata(December) September State Council‟s ratification of MOU October Establishment of Beijing Hyundai 2003 July Certification of ISO 9001 Attainment of sales 50.000 sales of Elantra Elantra (January) Elantra was certified as “Most ideal car for Chinese family” 2005 May Accomplishment of 300.000 production line for the Tucson (June) first plant NF Sonata (September) 2006 April The start of the second plant construction Accent (March) September Certification of ISO 14001 environmental management 2007 December Attainment of 100.Hyundai Motor Company in China IB-91 p.000 in the first year of China market entry 2004 December 100.000 engine production Elantra Sports (March) 2008 February Attainment of 1 million sales and production Elantra Yuedong (April) April The completion of the second plant construction Source: Beijing Hyundai .

38% 2006 May China Capital Steel Second engine plant 33.100 Notes: The unit is thousand. “Hyundai-Kia strengthens local development and purchasing capability for million sales in China.Hyundai Motor Company in China IB-91 p. Figures for 2009 and 2010 are forecasts. 32 Exhibit 18 HMC’s Car and Engine Production Bases in China Establishment Plant Location Investment Ratio (Operation) First plant 2002 Oct.030 Rongcheng Huatai 10 10 30 70 70 70 70 70 70 70 Total 60 210 230 320 500 500 650 850 950 1. Source: Fourin.) First plant 2002 July Kia 50% Dongfeng Yueda Jiangsu sheng Dongfeng Qiche Kia Second plant (2007 Dec.) Yancheng city 25% Yueda Group 25% Shandong sheng technology & brand Rongcheng Huatai Qiche 2000 Sep. HMC 50% Second plant (2008 May) Beijing Qiche Beijing Hyundai First engine plant 2004 April Beijing city 16. “Hyundai-Kia strengthens local development and purchasing capability for million sales in China. Anhui sheng Hefei city (agreement terminated) Source: Fourin.” 2008 July Exhibit 19 HMC’s Production Capability Change in China 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 First 0 150 150 150 300 300 300 300 300 300 Beijing Plant Hyundai Second 0 0 0 0 0 0 0 200 300 300 Plant First 50 50 50 100 130 130 130 130 130 130 Yueda Plant Kia Second 0 0 0 0 0 0 150 150 150 300 Plant Sub Total 50 200 200 250 430 430 580 780 880 1.62% (2007 Sep.” 2008 July . Rongcheng city granting Technology granting Jianghuai Qiche 1999 Sep.

” 2008 June . “Considering the influence of fuel tax on market and industry. “Considering the influence of fuel tax on market and industry. 33 Exhibit 20 The Number of New Model Production in China Region or Country 2001 2002 2003 2004 2005 2006 2007 2008 China 3 11 22 13 16 27 35 53 Japan 2 3 11 5 8 11 6 10 Europe 2 4 8 3 5 6 5 9 North America 2 0 5 1 9 4 4 5 Korea 1 2 1 2 4 2 2 5 Total 10 20 47 24 42 50 52 82 Source: Fourin.Hyundai Motor Company in China IB-91 p.” 2008 June Exhibit 21 The Total Number of Models Produced in China Region or Country 2001 2002 2003 2004 2005 2006 2007 2008 China 19 30 51 60 74 95 128 173 Japan 8 11 22 27 35 39 45 52 Europe 10 14 22 24 28 33 34 39 North America 7 6 11 11 19 18 21 24 Korea 2 4 4 5 9 11 12 17 Total 46 65 110 127 165 196 240 305 Source: Fourin.

100 3.000 69.420 4.3% global market share (A) China‟s proportion 2.4% 7.000 76.9% 7.6% 370 7.720 5.1% China market share (B) 2000 17.5% 10% 16.000 Hyundai-Kia‟s 2.300 9% 13. 34 Exhibit 22 HMC’s China Business Ratio 2001 2007 2010 2015 Global demand 56.4~ 0. Figures for 2010 and 2015 are Hyundai objectives.5% Hyundai-Kia‟s 21. not forecasts.000 84.3% 1000 13.Hyundai Motor Company in China IB-91 p.4% 6.000 7.6% Notes: The unit is thousand.000 15. Source: HMC .7% China business ratio (B/A) 28.000 8.7% 5.080 7.7% 1500 13.7% 3.5% of global demand Hyundai-Kia‟s 12 0.

Hyundai Motor Company in China IB-91 p. 35 Exhibit 23 Beijing Hyundai’s Sales of Models MC Elantra Sonata NF Tucson (unit: 1.000) 200 177 180 170 160 140 120 120 100 80 71 60 45 45 40 37 40 28 30 26 27 20 13 14 12 9 10 3 5 0 0 2005 2006 2007 2008 Q1~Q2 Notes: The unit is thousand Source: Beijing Hyundai .

665 3% 88% 10 Ziyoujian 50. .935 10% -37% Sub total 590.505 9% 28% 2 Livina 64.000 6% 41.800 9% 71.686 4% 61% 9 Accent 50.000 5% 93.395 5% 34% 8 Weizhi 51.129 9% -12% 5 Mazda2 55.Hyundai Motor Company in China IB-91 p.528 0% 3532% 6 Qiyun 55.000 6% 68.000 5% 31.007.000 5% 79.000 5% 26.500 6% 1.800 5% 39.701 100% 32% Source: Beijing Hyundai.415 12% -41% 7 Vios 52.000 6% 63.150 100% 762. 36 Exhibit 24 C1 Class Models in China Market Rank Brand ’08 Planning ’08 M/S ’07 Sales ’07 M/S Growth Rate 1 Lova 91.319 8% -5% 4 City 60.100 59% 516.918 68% 14% C1 Total 1.341 5% 55% 3 Fit 60. The 2008 figures are forecasts.

328 93% 3% L-C2 Total 1.333 12% -21% 6 Junjie 80.449 3% 94% 8 A5 37.311 9% -3% 7 Elysee 61.131 21% -8% 3 Cerato 110.010.923 2% 67% 10 F3-R 20.786 7% 75% 4 Santana B2 100.000 6% 31.250 100% 964. 37 Exhibit 25 L-C2 Class Models in China Automobile Market Rank Brand ’08 Planning ’08 M/S ’07 Sales ’07 M/S Growth Rate 1 Excelle 205. .124 7% -47% 9 Vision 30.000 9% 120.000 2% 5.000 91% 894.443 1% 267% Subtotal 923.742 20% 4% 2 Jetta 185.000 18% 201. The 2008 figures are forecasts.Hyundai Motor Company in China IB-91 p.000 10% 106.000 11% 62.086 11% -6% 5 Elantra XDC 95.000 3% 17.000 8% 82.550 100% 5% Source: Beijing Hyundai.000 4% 70.000 20% 196.

200 17% 65. 38 Exhibit 26 H-C2 Class Models in China Automobile Market Rank Brand ’08 Planning ’08 M/S ’07 Sales ’07 M/S Growth Rate 1 Corolla 178.500 5% 63.000 5% 21. .844 8% 171% 2 Tiida 116.930 100% 866.661 7% -4% 8 Mazda3 59.323 9% 5% 7 P307 61.000 6% 63.000 8% 81. - 5 Sagitar 85.696 76% 38% H-C2 Total 1.000 11% 123.000 5% 35.700 84% 654.000 9% .000 8% 74.078.991 14% -10% 4 HDC 100.461 100% 25% Source: Beijing Hyundai. . The 2008 figures are forecasts.844 4% 65% 9 Corolla EX 57.000 10% 124.Hyundai Motor Company in China IB-91 p.310 14% -6% 3 Focus 112.999 7% -10% 10 SX4 50.379 2% 134% Subtotal 903.345 9% 14% 6 Civic 85.

.000 3% 6. .000 6% .000 7% 23. The 2008 figures are forecasts.528 8% 76% 6 Besturn 30. - 8 Zunchi 25.222 100% 33% Source: Beijing Hyundai.279 7% 29% 7 F6 25.000 6% 32.182 17% 1% 5 Sonata 45. 39 Exhibit 27 D-1 Class Models in China Automobile Market Rank Brand ’08 Planning ’08 M/S ’07 Sales ’07 M/S Growth Rate 1 Santana3000 90.048 29% -7% 2 Epica 73.000 13% 57.000 100% 335.000 10% 25.829 94% 39% D1 Total 447.000 98% 315.702 12% 75% 3 Octavia 62.000 16% 41.802 9% 95% 4 Sylphy 58.Hyundai Motor Company in China IB-91 p.000 20% 97. - 10 Optima 12.000 4% .588 10% -23% 9 Binyue 20.700 2% 79% Subtotal 440.000 14% 31. .

299 6% 8% 10 C Triomphe 40.000 18% 170.600 8% 71.000 6% 37.803 5% 59% 8 Mondeo 60. The 2008 figures are forecasts.375 6% 35% 9 Reiz 49.024 15% 51% 2 Camry 175.990 100% 27% Source: Beijing Hyundai.000 9% 27. .Hyundai Motor Company in China IB-91 p. 40 Exhibit 28 D-2 Class Models in China Automobile Market Rank Brand ’08 Planning ’08 M/S ’07 Sales ’07 M/S Growth Rate 1 Accord 178.314 4% 28% 11 NF 30.300 100% 785.900 5% 46.462 15% -17% 4 Magotan 90.994 7% 11% 7 Teana 60.882 2% 116% Subtotal 924.000 10% 120.000 18% 118.000 3% 13.294 22% 3% 3 Passat 100.000 4% 31.500 93% 735.000 6% 44.500 9% 14% 6 Mazda 6 60.235 3% 230% 5 Lacrosse 81.182 94% 26% D2 Total 997.000 6% 53.

301 100% 110% Source: Beijing Hyundai.729 38% 34% 3 Santa Fe 35.605 8% -17% 8 Captiva 5.000 13% .000 27% 45.000 25% 44.Hyundai Motor Company in China IB-91 p.686 39% 42% 2 Tucson 60.721 2% 231% 7 Paladin 8. 41 Exhibit 29 SUV Class Models in China Automobile Market Rank Brand ’08 Planning ’08 M/S ’07 Sales ’07 M/S Growth Rate 1 CR-V 65.384 1% 261% M-SUV Total 244. .000 100% 116. .000 12% 5. The 2008 figures are forecasts.463 6% 442% 4 Xiaoke 32. - 5 Sportage 30.000 2% 1.000 4% 2.000 3% 9.000 14% 6.713 5% 425% 6 Oting 9.