Fostering Global
Automotive Parts Makers

The global automobile industry is facing difficulties in many aspects. A serious supply glut has sent automakers lowering their prices, and the cycle of releasing new products is faster due to customers'diverse tastes. They have to cough up more costs in investing technology development as governments across the globe strengthen regulations on safety and the environment. As the demand from North American, Japanese, Western European markets is diminishing, Western automobile giants are turning to newly emerging markets like Asia, Central and Southern America and Eastern Europe.
Amid these harsh circumstances, Korea chalked up production of 3.7 million cars last year that also catapulted them to the fifth place in global rankings. The nation, which climbed up one notch compared to last year, recaptured the fifth berth in four years after it slipped to sixth due to a rapid rise of the Chinese automobile industry. The Korean automobile industry has made remarked strides in terms of not only quantitative, but also qualitative growth, as Korean cars had been given a good reception by such global quality survey organizations as J.D. Power. The Korean automobile industry has made a spectacular leap to the extent that Korean-made cars could compete with any foreign model, departing from the "cheap car"image.
Behind this remarkable achievement the Korean automobile industry has made is the result of automobile manufacturers'strenuous efforts toward quality improvement, technology development and cost reduction, with Hyundai Motor and Kia Motors, leading the Korean automobile industry. Given the fact that a car is made with more than 20,000 automotive parts, you can realize that the surprising feat of the domestic automobile industry can be done by the endless efforts by not only automobile manufacturers also automotive parts makers.
The domestic automobile industry may face bigger, harder stumbling blocks than the ones they have so far overcome. In the future, they may not only pose a threat to the domestic automotive parts manufacturers, considered to be smaller in size, but also serve as opportunities for us to evolve into global players: the Korean industry stands at the crossroads either an optimistic or pessimistic path. If they have its own unique edge by linking their move to improve quality with efforts to foster the parts industry and beef up technology development, Korean automotive producers can boost their sales in the advanced countries as well as newly emerging markets. However, they also might face a crisis because they are sandwiched by late-comers with a price competitive edge and advanced companies armed with high added-value technology. Whether the Korean automobile industry is doomed or cannot be better depends on how well our automotive parts producers do.
In order for the domestic industry to head for the way it hopes, the first thing we have to do is to strengthen the constitution of individual automotive parts producers. A look into the front-runner Japan suggests that Japanese can survive competition with advanced Western counterparts only when they reach stages equivalent to those of their competitors in terms of competitiveness of such basic categories as quality, manufacturing capability, technology, product portfolio and durability. However, we are running short of time because such later-comers like China are striving to foster the automobile industry as one of their mainstay industrial fields. Our companies will have to strengthen our exporting capabilities through enhanced competitive edge before such countries as China join the pack of automobile exporters.
Secondly, it is essentially for us to create more competitive things creative ones competitors cannot copy in order to survive the automobile war. In the past, the United States had an edge in the economy of scale; Germany excelled in design and machinery technology; and Japan secured an edge in the mileage and quality. Korea has reached a world-class level in mobile telecommunication and Internet, leading the ongoing "digital revolution."If it can make the most use of the IT and electronic fields where it is playing a leading role, Korea could make cars that could create their Korean own value, an essential factor for determining the future of the domestic industry.
Thirdly, Korean firms have to aggressively go global. Korean automotive parts makers are at an infant stage compared to globalization of advanced firms. Hyundai Motor and KIA Motors recently successfully advanced to Indian, Chinese and U.S. markets, and they are considering their entry into Europe and other regions. Fortunately, localization in the areas where Korean firms have advanced is successfully in progress. Korean automotive parts makers will have to secure world-class management capability through aggressive globalization to realize a goal of evolving into advanced companies.
Fourthly, rationalization need to be pushed. Japanese firms'stellar rise in the global automobile market turns out to be owed to the "lean production method"aimed at removing waste thoroughly. Japanese companies have beefed up rationalization efforts to get rid of wasting factors in the course of all process ranging from product development, parts procurement to assembly. These efforts have made Japanese a driving force behind their rise to the top. A look into the collapse of such companies as Delphi indicates that securing a competitive cost structure is essential for the survival of automotive parts producers. Our companies are experiencing a lot of hardships due to the appreciation of the Korean currency against the dollar, but the waste, the side-effects of Korea's remarked economic growth remains piled up. We badly need to remove manpower and equipment waste as well as organizational inefficiency.
Lastly, it is a prerequisite for the domestic automobile industry to forge a cooperative, constructive relationship between management and labor for its leap into a world-class level. GM's 1998 strike lowered U.S. GDP by 0.6 percentage points. In the case of Korea, Hyundai Motor's trade union went on strike for 11 days between August and September last year, causing a huge loss disruption of producing 40,000 units and a loss of about 600 billion won in sales.
In particular, given the management woes of U.S. automobile manufacturers, caused by management-labor ties, both parties should recognize they would evenly shoulder the damages. Recognizing the fact that Korean automakers would fall behind foreign counterparts in all aspects, including quality, productivity and flexible working hours without changing the labor-management relations paradigm, management and labor have to build up cooperative, mutual partnerships.
The external and internal challenges facing the Korean automobile industry seem to be urgent, but not too serious that they can't be overcome. It is said that a crisis may be translated into an opportunity. Considering the present as a crisis and instilling a sense of crisis into organizational operations is the key to advanced companies'sustainable management. Accordingly, if Korean automotive parts makers beef up its internal capabilities that can adapt to a changing environment on a voluntary basis, it would guarantee the bright future of the local automotive parts industry. nw

By Chung Nam-ki, vice president of Hyundai Mobis