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Republic of the Philippines Tarlac College of Agriculture Institute of Business and Management Malacampa, Camiling, Tarlac

HRDMEL03 Special Topics in HRDM HR Problems in Hyundai Motor Corporation

Group 3 Marphie Daus Jonathan Obispo Iekinella Duran Krysa Marie Daaco Krystal De Leon

Submitted to: Silverio Ramon DC. Salunson, MBA

Abstract: Hyundai Motor Co., formed in 1967, was a part of the large South Korean Chaebol - the Hyundai Group - until the group split in September 2000. In the last four decades, Hyundai managed to establish itself all over the world as a company producing reliable, technically sound and stylish automobiles. In the 90s, the company started aggressive overseas expansion programs. By the late 90s, when Southeast Asian crisis struck, the company like all the other chaebols, faced serious financial problems. To survive, it had to cut its labor force. The company offered various retirement schemes, unpaid leave for two years, etc. to workers, and expressed its inability to support its entire workforce in the slack period. The unions refused to compromise and the management too held its ground. Finally, the government intervened to force a negotiated settlement between the union and the management. Issues: » Damage that unhappy management-labor relations can cause to an organization Key Words: Hyundai Motor Co., Labor Unions, Southeast Asian Crisis, Hyundai Group, Chaebols, International Monetary Fund (IMF), Daewoo Group, Federation of Korea Trade Union (FKTU), Korean Confederation of Trade Unions (KCTU), Voluntary Retirement Schemes, Corporate Restructuring, Ulsan Plant, General Motors, Compensation Plan, Management-Union Relationship.

Company Profile HMC HISTORY AND ORGANIZATION HMC was established by Ju-Young Chung in 1967 as a subsidiary of Hyundai Corporation, the biggest Korean Chaebol until the late 1990s. HMC increased its size by acquiring Kia Motors (another Korean auto company) in 1998, although Hyundai and Kia continued to operate independently. HMC was the auto sales leader in the Korean domestic market and exported vehicles to over 190 countries. HMC operated the world’s largest integrated automobile manufacturing facility in Ulsan, on Korea’s southeast coast. In 1995 and 1996, HMC began production at its new Chunju plant (in southwest Korea) and Asan plant (southeast of Seoul). With a total global production capacity of 2.4 million units per annum, Hyundai had acquired the necessary economies of scale to compete on an equal footing with the world’s leading automakers. As of 2002, these three plants accounted for 1.9 million units while overseas capacity was 500,000 units, led by Hyundai’s plants in India, Turkey, and China. Hyundai also operated eight Korean and four international research centers, including the new Hyundai-Kia Motors Design & Technical Center in Irvine, California, which opened in February of 2003. Hyundai’s automotive technology centers employed approximately 4,100 researchers (of which 100 were located in California), with an annual budget of 5 percent of current revenues. In February 1986, Hyundai launched its U.S. subsidiary, Hyundai Motor America (HMA), in Garden Grove, California, and sold its first car, the subcompact Excel, in the U.S. market. In the early years, Hyundai concentrated its sales efforts primarily on the west and east coasts, as well as in the southern states. In 1987, Hyundai expanded into the central portion of the United States, opening a central region office near Chicago. As Hyundai diversified and upgraded its product line, the company began to build nationwide operations and service networks to more effectively

serve the needs of dealers and customers. In 1988, HMA opened a $21 million, 300,000 squarefoot parts distribution center in Ontario, California. A year after that, HMA opened a $16.6 million, 342,000 square-foot office complex and parts distribution center in Aurora, Illinois. In 1990, it moved its national headquarters to a new 18-acre site in Fountain Valley, California. In addition to corporate offices, this headquarters also housed HMA’s western regional office. As of 2002, Hyundai had four regional offices and approximately 600 dealerships nationwide. In April of 2002, Hyundai broke ground in Montgomery, Alabama for its first U.S. automobile assembly plant, a $1.14 billion investment scheduled to open in 2005 and employ 2,000 people. The facility, to be built on 1,600 acres, was expected to produce 300,000 vehicles per year at maximum capacity. Hyundai planed to increase the capacity to 500,000 by 2010. This plant was regarded by Hyundai and outsiders as a key element in Hyundai’s plan to become one of the world’s top five manufacturers by 2010. Finbarr O’Neill, the president and CEO of HMA, noted that Hyundai would “go from having a 4-month pipeline (from Korea) to a much shorter time period.” Suk-Jang Lee was also full of confidence and emphasized a symbolic advantage. The company took a major step to becoming a full-line automotive importer/distributor in 1989 with the introduction of its midsize sedan, the Sonata. In 1995, after 10 years in the U.S. market, the Excel was replaced by the all-new subcompact Accent. The compact Elantra sedan debuted in 1991 as a 1992 model, and it quickly became Hyundai’s best-selling model in the U.S. In 1997, Hyundai introduced the sporty Tiburon coupe, which emerged from the Hyundai California Design Center’s two concept roadsters, HCD-I and HCD-II. In the fall of 2000, HMA added two new vehicles to its lineup: the Santa Fe sport utility vehicle and the XG300 sedan. For 2002, the engine displacement of the XG300 moved from 3.0 (XG300) to 3.5 liters (XG350). As of 2003, Hyundai marketed a full line of vehicles including six models in 16 trim levels. The vehicles

were developed exclusively by HMC and were fitted with engines and transmissions designed by the Hyundai California Design Center as well as HMC. In recent years, Hyundai Corporation has further diversified its business portfolio by expanding into new businesses. Notably, it has become a world-class player in the shipbuilding industry by establishing Qingdao Hyundai Shipbuilding, a Chinese subsidiary specializing in the construction of mid-sized commercial vessels. Hyundai Corporation is also working with select partners to bring Hyundai-branded electronics and other consumer products to households worldwide, and has seen remarkable growth in the sale of mobile phones, digital cameras, and home audio/video systems. At the end of 2009, Hyundai Corporation became an affiliate of Hyundai Heavy Industries, the world’s undisputed leader in shipbuilding, heavy equipment, and emerging technologies such as solar and wind power. Hyundai Corporation is now well-poised to become one of the world’s top solutions providers for any number of commercial and industrial needs, with resources, sector and regional expertise, and individual talents second to none.

Introduction The Hyundai Motor Co. (Hyundai), South Korea's largest automobile manufacturer was in the midst of acute labor problems in the late 1990s and early 2000s. Until the mid 1990s, Hyundai had been successful in handling South Korea's traditionally disruptive labor unions. It had kept strikes at bay with nearly double-digit pay hikes and other benefits. But the Southeast Asian crisis and the general slump in the automobile industry in the late 1990s forced the company to restructure and cut down jobs. However, the Hyundai labor union and workers rebelled against the management's efforts to restructure the organization and the company faced strikes and worker unrest repeatedly from late 1990s to early 2000s. Members of the Hyundai group such as the Hyundai Construction and Engineering and Hynix Semiconductor were also facing financial troubles at the time, and were on the brink of insolvency. Founder chairman of the Hyundai Group, Chung Ju-yung commented, "We are losing our international competitiveness."Regretting the continuous labor unrest, he said, "Wages have doubled in three years and productivity has gone down." The labor problems Hyundai faced were not an isolated case in South Korea. By the late 1990s, the chaebols had grown into large mismanaged structures with many having several unprofitable units. During the economic slump of the late 1990s, most of these chaebols felt the need to downsize. There was also mounting pressure from the IMF on the South Korean government to undertake strict economic reforms and restructuring measures. The labor unions, which have traditionally been very strong and influential in South Korea, felt threatened.

Since jobs were being cut, social unrest and a feeling of insecurity among the labor class was rising. The unions resorted to extreme measures in an effort to establish their authority. Although, all over South Korea, companies were facing labor unrest, Hyundai was among those that were hit the most. An Overview of the South Korean Economy Until 1960, South Korea focused on agricultural development. But a series of five-year plans, the first of which was implemented in 1962, greatly altered the economic structure of South Korea. Starting from 1962, economic policies were geared towards industrial growth. Export promotion and import substitution were the key elements in South Korea's growth plans. The industries of electronics, telecommunication, automobile production, chemicals, ship building and steel were the major thrust areas. Business in South Korea was predominantly controlled by a few large conglomerates or chaebols. Chaebols were industrial groups that were established after the Korean War in early 1950s. They differed from other corporate organizations in the sense that they were still largely controlled by their founding families and were not managed by professional corporate managers. All decisions, expansion plans and company policies were made by the members of the founding families, who occupied the top positions in the chaebols. In 1995, the top 30 chaebols alone accounted for nearly 16% of South Korea's GDP. The top four chaebols at that time - Samsung, Hyundai, Daewoo and LG contributed 9% of GDP. South Korea has shown an incredible growth pattern. Between mid 1960s and mid 1990s, the annual GDP expanded by more than nine percent annually.

From being at par with some of the poorer countries of Asia and Africa in 1960, its GDP per capita in 2003 was seven times that of India, eighteen times that of North Korea and at par with some of the less prosperous economies of the European Union. This remarkable success has been a result of close cooperation between the government and the chaebols. Government policies were framed keeping the industrialists' demands - availability of credit, import restriction, sponsorship of specific industries, import of raw material and technology, encouragement of savings and investment over consumption - in mind. To encourage domestic industry, the markets were heavily protected by quotas and tariffs. A. Existing Problem Labor management disputes arise from late 1990’s to early 2000’s. The management group HMC was drawn into the unprecedented vortex of labor strikes in 1987 and 1988 which resulted in huge sales losses. Moreover, workers at the Ulsan plant went on a two days strike in December 2001, demanding higher wages and higher bonuses. HMC also suffered from nearly seven weeks of labor strikes in summer 2003 and caved in to virtually all the union’s demands to end the strike. Labour Problems in the Late 1990s The slump in the South Korean economy in late 1990s was bound to have an effect on Hyundai also. The automobile segment was among the first to be hit by the downslide in the economy. The domestic automobile sector had negative growth of almost 55% in 1998 compared to the previous year.

Hyundai was responsible for almost 50% of total automobile production in South Korea and was therefore badly hit. The domestic sales of the company fell by 55% in the year 1998 and its exports crashed by 74 percent to only 15,056 units. Hyundai recorded a 200 billion won loss in 1998. According to company officials, Hyundai's six assembly plants with a yearly production capacity of 1.65 million vehicles were operating at only 40 percent of their capacity. In May, 1998, Hyundai reacted to this grim situation by announcing plans to lay off 27 percent of its 46,000 workforce in South Korea and to cut pay bonuses and benefits in a bid to save 230 billion won. Unfortunately for the management of the company, Hyundai had one of the most powerful and militant unions. The decision of the company to lay off workers sparked off agitations not only in Hyundai but in other companies too. The unions were particularly offended at the government's approval of Hyundai's decision. In a demonstration in Ulsan, where Hyundai has its biggest automobile plant, 32,000 employees participated in rallies. All across South Korea almost 120,000 employees from about 125 companies participated in demonstrations against Hyundai and the government's decision. The government had to deploy nearly 20,000 riot police to control the demonstrators. Labour Problems in the Early 2000s On September 1, 2000, Hyundai officially cut ties with the Hyundai Group and had relocated its head office to Yangjae-dong, Seoul, Korea - a move that was seen as symbolic of its rebirth as an independent automotive business group. In December 2001, Hyundai forecasted its highest profits ever - $900 million for the year.

In the same year, it posted 23.4 percent growth in unit sales and a 74.5 percent improvement in net income. Most importantly, Hyundai vehicles were being accepted as a technologically advanced, stylish and reliable in overseas markets like the US and Europe. In the United States, the world's largest auto market, Hyundai recorded a 42 percent sales increase in 2001. This was an era of growth, reorganization and new market exploration. But the success story was marred by another strike threat in Hyundai.

Workers at the Ulsan plant went on a two-day strike in December 2001, demanding higher wages and higher bonuses. They also demanded a 30% share in the profits that year as a performance bonus. The management clarified, that though the company had done well that year, it could not afford performance bonuses to the tune of 30% of profit. The reasons given were: firstly, the increased influx of imported cars into South Korea was bound to hurt Hyundai's market share and margins in South Korea. Secondly, General Motors' purchase of Daewoo was a threat that could not be ignored or taken lightly, and the company had to gear itself up to be able to compete with General Motors, and lastly, the most important reason stated was that due to the appreciation of the Korean won, Hyundai cars were becoming less competitive in international markets and profitability consequently would be hurt. B. Causes of the Existing Problem Since Hyundai is part of Chaebol, their culture is one of the factors that cause labor – management disputes. The HMC is a family oriented corporation, final decisions resides to the family. The top management was occupied by the family members. The autocratic leadership style present in the company, hierarchical organizational structure and centralized decision making of the company were some causes of the problem. External forces which include the economic environment (economic recession, South Asian crisis and general slump of the automobile industry), political environment (government’s approval to the decision of the company to restructure and cut down jobs), and its competitors, who are also facing labor unrest, triggered the problems faced by the company. Moreover, the internal forces also cause the

problem. It includes the employees who are aggressive and powerful, restructuring the company, and downsizing. These are the causes of the labor – management disputes in the Hyundai Motor Company. C. Effects of the Problem The first labor union was in the Ulsan Plant in the year 1987. The Hyundai Motor Company suffered strikes from its labor. Labor union, are threatening to take action unless they receive better pay and reduced work hours. They also want to see 30-percent of total company net income be returned to employees in the form of bonuses. Hyundai’s sales fall due to the labor management disputes and the strikes made by the labor union. Also the reputation of the company had been stained due to the poor performance of the labor which leads to poor quality performance and a decline in the production. D. SWOT Analysis Strength (Solution) 

Flexibility Hyundai Motors is still considered to be small in American market. Given that, Hyundai can be very flexible, financially and strategically, in many different situations. Therefore, whenever Hyundai chooses to implement its strategy, it can be quicker and more efficient than its rivals.

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Direct Training The company should conduct direct training to rebuild and institutionalize positive values and attitudes. Successful training can serve the company as its strength in coping to the problem of the organization.

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Have a method of settling disputes  Cooperative problem-solving It is a positive effort by the parties to collaborate rather than compete to resolve a dispute. It is most commonly used when a conflict is not highly polarized and prior to the parties forming "hard line" positions. This method is a key element of labor-management cooperation programs.

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Empowerment The company should empower its employees for the employees to be motivated and feel valued and important in attaining the success of the company. It would be strength of the company if the employees are empowered. They would work hard in return they would have a good performance and increase in quality production and sales.

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Equitable Wage The company should pay the employees which is compensable and equitable to its job. It would be strength of the company if it had a equitable wage. The wage of the employee is equal to the responsibilities of the employees.

Weakness 

Labor Management Disputes Labor – Management disputes present in Hyundai Motor Company is there weakness in competing to their competitors. It would be a constraint in attaining the success that the company desires. Having this would affect the productivity of the company also to their sales and revenues. Moreover the production process will gradually decrease due to the unhappy labor management relationship present in the organization.

Opportunities 

Strikes The frequent shutdown of plant operations due to strikes pushed the company to find plant sites abroad.

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Financial Crisis The financial crisis experienced by the US could be an opportunity for the company to purchase other businesses and to be more diversified in their business. Hyundai’s financial aspect is not that bad compare to the other companies affected by the Southeast Asian Crisis and general slump in the automobile industry.

Threats 

Overflow of Used Vehicles Current U.S. used car market is very saturated due to the huge influx of lease returned vehicles and car owners looking to sell their vehicles. This causes an overall drop of all used car available.

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General Motors General Motors' purchase of Daewoo. Hyundai was threatened because Daewoo was purchase by General Motors. Thus the company cannot afford to give the demand of the labor to have performance bonuses to the tune of 30% of profit.

Culture Chaebols are corporate organizations that where still largely controlled by their founding families. HMC is part of the Chaebols. So it is their culture to be a family oriented. All the decisions, expansion plans and company policies were made by the members of the founding family. The top management was occupied by the family members and final decisions reside to the family. Management HMC have an authoritarian leadership style because it is a family oriented company. It has a centralized decision making which makes all decision making process slow due to its hierarchical organization structure. The kind of management that the companies have contributes to the causes of labor management disputes because employees do not have that much freedom to express their ideas due to the authoritarian leadership style of the company. External and Internal Forces Southeast Asian crisis and general slump in the automobile industry makes US experienced economics recession and financial crisis. Thus, the companies need to take actions in order to leverage the performance of their businesses. Hyundai decided to restructure the company and cut down jobs to leverage their performance. This decision of the company was approved by the government. The labor union rebelled against the management action. So the company faced strike and worker unrest repeatedly. Well in fact, it is not only Hyundai who faced labor unrest; even the other companies face labor unrest.

Restructuring the organization allows the company to downsize and lay off employees. Hyundai have collective powerful employees. Moreover they have aggressive union thus the labor union was against the management efforts to restructure and cut down jobs. The company faced labor strikes and worker unrest. The aforementioned factors – culture, management, internal and external forces – causes the labor management disputes in the Hyundai Motor Company in late 1990s to early 2000s. Conclusion The Hyundai Motor Corporation is one of the four chaebols in South Korea. Chaebols are corporation organizations that were still largely controlled by their founding families. All decision, expansion plans and company policies were made by the members of the founding families. Who occupied the top positions in the chaebols. The Labor Management Disputes faced by HMC was the result of their action to restructure the company and cut down jobs due to the Southeast Asian crisis and the general slump in the automobile industry. Though culture is really hard to change, the top management should empower the employees in order to boost their morale and be more motivated to deliver their jobs. Top management should give importance to its employees. Management should improve its strategies to steer and manage the Human Resource in the way that harmonious relationship between management exists. The internal and external factors that may affect the management labor relationship should be treated seriously to prevent labor management disputes. These factors - culture, management, internal force and external force - should be given careful attention in order to ensure a well organized harmonious labor management relationship.

Skilled workforces were necessary key to decisions about how to organize production and arrange the process of product development. Labor must be committed to the effective functioning of the production system to maintain and improve rapidly adjusting production processes. The company should improve their management style and strategies in dealing to their employees. Having a harmonious labor – management relationship would lead to the success of the company. It would help the company to attain a competitive advantage using Human Resource.