Hyundai Group Business Information, Profile, and History

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Hyundai Corp. is preparing to leap over the world's top-ranking companies through the utilization of business network experience and know-how to create a new business model for the 21st digital era.

History of Hyundai Group

The Hyundai Group spent most of its history operating as one of South Korea's largest chaebols, or conglomerates. The group displayed spectacular growth since its founding in 1947 and its rapid expansion--to a point where its interests included car manufacturing, construction, shipbuilding, electronics, and financial services--reflected the achievements attained during South Korea's economic miracle. The South Korean economy took a turn for the worse during the late 1990s, however, which prompted President Kim Dae Jung to launch a series of reforms aimed at dismantled large, often corrupt, chaebols. By 2001, much of the Hyundai Group had been dismantled. Roh Moo Hyun, elected President in 2002, continues to reform the South Korean business sector.

Hyundai's growth was linked inextricably to South Korea's reconstruction programs following World War II and the Korean War as well as 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, stood at the center of Hyundai's progress from 1950 until he died in 2001. Chung, considered a founding father of the Korean chaebol structure, 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.

Explosive Postwar Growth

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; 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 $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.

Expansion into Shipbuilding: Early 1970s

Hyundai's entry into shipbuilding would 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.

Focusing on Auto Production: Mid-1970s

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. The corporation integrated the group's sales and marketing strategies, imported natural resources through overseas investment and joint ventures, and provided assistance to overseas operations. The corporation eventually led the numerous member companies of the group in sales. At the same time, it created Hyundai Merchant Marine Company, which concentrated on cargo services, chartering, brokerage, and related services. The trading arm proved to be an important source of revenue and quickly grew 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 included 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 made 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.

Tough Times for HHI: 1980s

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 $522 million, compared with $2.3 billion the year before, while profits plummeted. Overseas construction orders also fell away quickly after reaching a peak of more than $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 that 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 $600 million order for ten combination vessels from a Norwegian shipping group.

Challenges for Hyundai Motor in the 1980s

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. Problems in the company's 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 was linked to Mitsubishi Corporation, which in turn was affiliated with Hyundai, in which it held 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, 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.

Hyundai in the Early 1990s

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, sought to increase its presence in consumer electronics, despite formidable competition from domestic companies such as Samsung and Goldstar.

The group as a whole had proved itself capable of taking diverse markets by storm and was determined to maintain and expand its markets by stepping up research-and-development spending. However, the country's drive towards democracy brought new uncertainties. In the changing economic and political environment, the group faced 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 younger brother, 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. Chung's Unification National Party (UNP) promptly won 10 percent of National Assembly seats; Chung himself then retired from his Hyundai chairmanship to 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 said that he would resume chairmanship of the Hyundai Group and would reorganize the corporation into many specialized, independently run companies. In 1995, his second-eldest son, Chung Mong Koo, was named chairman of the group while Chung remained honorary chairman.

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.

The Dismantling of Hyundai

The latter years of the 1990s brought with them economic turmoil for South Korea. In order to restore the nation's financial health, President Kim Dae Jung, who took office in 1998, launched a series of restructuring programs designed to reform the chaebols, many of which had become heavily debt-burdened. His reforms included changing the ownership, business, and financial structures of the region's large conglomerates. By this time, the Hyundai Group was responsible for approximately 20 percent of Korea's GDP. As such, its financial health was directly related to South Korea's overall economic condition.

As a result of government pressures, Hyundai and other South Korean chaebols, including the Daewoo Group, set plans in motion to sell off many of their businesses in order to pay down debt and shore up profits. Hyundai's concentration remained on autos, electronics, heavy industry, construction, and finance. Even as the group struggled under its debt load, it strengthened its holdings with the purchase of Kia Motors Co. Ltd. and LG Semiconductor.

Despite the government's involvement, Hyundai was slow to comply with restructuring demands. Its questionable accounting practices often made it the target of negative publicity. Rivalries between members of the founder's family also led to bad press, leaving many investors anxious about the future of the group and its member companies. Indeed, many Hyundai affiliates, including Hyundai Engineering & Construction and Hyundai Electronics, were nearing bankruptcy as debt continued to spiral out of control. By 2001, total group debt reached W35.87 trillion ($25.59 billion).

Hyundai Motor Co., on the other hand, was prospering as Korea's largest car maker. The auto concern officially separated from the Hyundai Group in September 2000, signaling the start of sweeping changes that led to the eventual dismantling of what was once South Korea's largest conglomerate. In August 2001, nine core Hyundai companies, including Hyundai Engineering & Construction and Hynix Semiconductor Inc. (formerly known as Hyundai Electronics Industries), left the chaebol. The separation cut Hyundai Group's assets to just $20.8 billion and left it in control of 18 member companies. Hyundai continued to be pared down the following year.

South Korea had bounced back from its economic crisis of 1997 and 1998 to become a leading global force in the technology sector. By 2003, foreign investors owned over a third of the shares of companies listed on Seoul's stock exchange. During 2002, Roh Moo Hyun was elected president of South Korea. Feeling the pressure from foreign investors, he maintained that harsh reform would continue within South Korea's chaebols. A May 2003 Business Week article supported the efforts of the new president, who stated that "slowly and steadily, good governance has been asserting itself in Korea." Indeed, it appeared as though the powerful, family-run Korean chaebols were a thing of the past. While this marked an end to the Hyundai Group's history, it pointed to a fresh start for many companies bearing the Hyundai name.

Principal Competitors: LG Group; Samsung Group; SK Group.

Chronology

• Key Dates:
• 1947: Chung Ju Yung forms Hyundai Engineering & Construction Company.
• 1958: The company sets up the Keumkang Company to make construction materials.
• 1965: Hyundai Engineering & Construction begins its first overseas venture--a highway project in Thailand.
• 1967: The Hyundai Motor Company is formed.
• 1973: The group's shipyard is incorporated as Hyundai Shipbuilding and Heavy Industries Company.
• 1975: The group begins construction on an integrated car factory and launches a new Korean vehicle.
• 1976: Hyundai Corp. is established as a trading arm.
• 1978: Hyundai Shipbuilding changes its name to Hyundai Heavy Industries Company (HHI).
• 1983: Hyundai Electronics is formed.
• 1998: Korea's economic crisis forces the group to begin restructuring efforts, which include selling off subsidiaries and focusing on five core business areas.
• 2001: The Hyundai Group conglomerate continues to be dismantled.