Global Strategy of Hyundai-Kia & Mutual Growth

Bo Sung Lee

Plenary Session 3: Global Cooperation and Cluster Internationalization

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Global Strategy of Hyundai-Kia & Mutual Growth- Together for the better future with Hyundai-Kia

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Contents at a glance

03.

Strategies and systems for Mutual growth

Vision for Mutual growth06.

01.

Importance of Mutual growth in automotive in-dustry

04.

Main programs

05.

Results

02.

Globalization and Mutual growth

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Importance of Mutual growth in automotive indus-try

01 Mutual growth with auto part suppliers is a source of competitiveness

for automakers- Quality of auto parts leads to quality of finished cars

Importance of Mutual growth

95% of total parts are purchased from part sup-pliers

Long-term relationshipsare needed

Competition para-digm is changing

Changes in cooperation

Past PresentClose

dManufactur-ingVertical

OpenedDesign/Develop-

mentHorizontal

TransactionRole of suppliers

Relationships

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CzechRepublic30>

Turkey10>

India63>

Russia23>Slovakia31>

DongfengYueda Kia55>

BeijingHyundai104> Geor-gia37>

Alabama40>

Brazil17>

Kia159>Hyundai185>

(in ten thousand units)

9countries 32Plants

Overseas:4.42M

55%Domestic:3.58

M

45%

Total Production Capacity : 8M units (2014)

Globalization and Mutual growth

02 32 plants in 9 countries –Overseas productions of 55%

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Location requirements

Able to customize manufacturing systems

Government support

Globalization of suppliers

Establishing wholly new plant

Acquiring plants owned by local firms

Green Field

Brown Field

ConsPros

Economy of scale– Able to start

production immediately

– Less cost of training

Take long period of time– Construction– Training

Limited options Cost of acquisition Unable to

customize manufacturing systems

HKMC

Renault-Nissan

Consideration of government support and infrastructure– (Russia) tariff, road,

electricity support– (USA) road, railroad support

Growth through M&A– Nissan(’99), Samsung(’00),

Avtovaz(’12)

Ford Resold after M&A– Aston Martin, Jaguar, Land

Rover, Volvo

Concept ExamplesCharacteristics

Globalization and Mutual growth

02 Rapid new plant construction Competitiveness of suppliers is a key

success factor

Globalization Strategies

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Strategies and systems for Mutual growth

Strategies for Mutual growth < Global competitive-

ness >Improve product quality ofsuppliers• Product quality• Productivity• Technology

< Mutual growth systems >

Support corporate culturepolicies• Cooperation network• Tier-2·3 suppliers support• Mutual growth culture

< Sustainable growth >

Management support• Infrastructure• Globalization

03 Improve competitiveness through Mutual growth with

suppliers

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Partners & systems

Tier-1 300 firms ▶ Supply parts to HKMC

Tier-2,3 5,000 firms ▶ Supply parts to tier-1 suppliers

Others 3,000 firms ▶ Facilities, etc.

Exclusive Organization

< Foundation of Korea Automo-tive Parts Industry Promotion >

•Founded in July 2002•Aims to improve auto partsquality

< R&D support group >

Technological Support

< Mutual growth team >

Procurement support

Strategies and systems for Mutual growth03

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04

(1) QualityMain programs

Founded “KAP” to support part suppliers (Jul 2002) : Subsidy of 5~8billion won per year

Foundation of Korea Automotive Parts Industry Promotion

• Technical support• Quality evaluation training

• Organize advisory group• R&D/manufacturing con-sulting (3~12months)

• Quality/Technology school• Financial aid

Quality/Tech-nology

Support Group

SupplierSupport Group

Others

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04

(1) Quality

5Stars pro-gram

※ Provide incentives by evaluating quality, technology, delivery of sup-pliers

Main programs

Improve global competitiveness and provide incentives by 5star program

Technology

• Fundamental• Implementation• Future technology• Performance

Quality • Quality management• Claim cost• Fraction defective

(1) Quality improvement(2) QM cost reduction(3) Export capacity

Effect

Delivery

• Delivery for aftersales parts• Delivery for CKD parts

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04

(2) Technology

R&D quality improvement• Quality mind• Claims prevention

R&D Capacityimprovement

• R&D capacityimprovement support

Customized Technology• R&D analysis• Technical support

Communication / Cooperation

• Cooperation committee

R&D Support group

Main programsSupport technology support through HKMC R&D support group

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04

(4) Infrastruc-

ture

Suppliers job fair

Venture plaza※ Joint development led by venture team

Venture

Joint development through Idea con-

test

Technologytransfer

Transferring technol-ogy

developed by venture team

• 348 firms participated2012 • 348 firms participated

2013Job

Fair

Suppli-ers

Main programs HR support : Suppliers job fair Joint development & Technology transfer

2014• 367 firms participated

Supplyparts

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20 ~ 30yrs 30 ~ 40yrs More than 4010 ~ 20yrsLess than 10

1%

21%

37%

31%

10%

28yrs>11.1

yrsHKMC average

(2014)Manufacturing

industry average(2013)

Relationship of more than 11.1years : 98%

=98%• More than 20 years : 78%• More than 40 years :10%

Relationship of more than 11.1years

Results05

(1) Long-term relationships

Average length of relationship : 28years (2.5 times longer than in-dustry average)

Long-term relationships

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’07 ’10 ’13’04‘01

3.2

times

Average sales per sup-plier

733억

2,337억

33.5%↑

(3.2 times larger than in 2001) CAGR of 10.2%

05

(2) Increased average sales

Average sales per supplier : 237.3 billion won(2013) (3.2times larger than in 2001)

Average sales per supplier

34.4%↑

32.8%↑

33.8%↑

Results

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05

(3) Increasing larger-sized sup-

pliersSMEs to Large-sized firms

Large-sizedFirms

(Mid-sized firms)

SMEs

23%39%

‘01 ’13

46(16%)(37(13%))

243(84%)

137(50%)(111

(38%))

137(50%)

46 firms in 2001 → 137 firms in 2013

Large-sized firms

times

37 firms in 2001 → 111 firms in 2013

3.0SMEs

3.0

Suppliers by size

times

Results

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05

(4) Globalization

Number of globalized suppliers

17 19 57 116 172 218 232 23917 22 65 171 247 310 344 360

1st-tier2nd-tier

‘97 ‘00 ‘02 ‘04 ‘05 년 ‘08 ‘10 ‘13

34 41 122287

419528 576 599

1st-tier : increased by 222 (17 in 1997 → 239 in 2013)2nd-tier : increased by 343 (17 in 1997 → 360 in 2014)

Increased by 565 in total

Support globalization of 599 suppliers : 239 1st-tier suppliers, 360 2nd-tier suppliers

Results

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05

(5) Global supplier network

Europe 33 firms1st-tier 192nd-tier 14

Russia11firms1st-tier 11

Turkey 11firms 1st-tier 82nd-tier 3

India 71firms1st-tier 422nd-tier 29

China 417firms1st-tier 1212nd-tier 296

Brazil 11firms 1st-tier 82nd-tier 3

USA 45firms1st-tier 302nd-tier 15

Results

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▶ Suppliers special-ization▶ Support Global-ization▶ New Technologies

▶ Quality ▶ Technology▶ Productivity

Mutual growthHKMC Suppliers

Vision for Mutual growth Together for the better future“ ”

Sales growth / increased part supply / profit growthIndependent growth of suppliers / Quality improvement

HKMC and suppliers share vision of being a “Global leader in automo-tive industry”

We understand that growth of suppliers leads to growth of HKMC.

HKMC will eager to create virtuous circle of Mutual growth with suppli-ers

06.

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Thank youTogether for the better fu-ture with Hyundai-Kia