The purpose of this study
is to analyze the factors which led for the Hyundai Motor Company to expand successfully its sale marketing to the United States and intercultural management issues faced by offshoring because the mix of foreign and domestic employees and diverse human resource practices present always both opportunities and challenges. While most existing research papers have studied on the Hyundai’s technological operation system strategy which contributed to its success abroad, I examine on intercultural issues caused for Hyundai to divert its strategy in offshoring its production facilities and organizational changes of HMMA have contributed to the successful bottom line profit in the United States.
As the view of global marketing analyses, most manufacturing organizations have chosen their offshoring site in cheap labor wage countries such as China, India and Eastern Europe. However, in 1980-2000, many big auto manufacturing enterprises have transferred its subsidiaries to the United States which is the most developed and relatively high labor wage country. The Hyundai Motor Company was one of the countries sought in expanding the bottom line profits overseas. Therefore, I select HMMA as a role model of successful offshoring organization in the intercultural management practice.
The factors Hyundai chose Alabama for its subsidiary plant site
There were several factors appeared in Hyundai’s decision in selecting Alabama. According to research by McClenahen, factoring into Hyundai’s selection of Montgomery were the presence of a high-quality workforce, proximity to markets, an established automotive parts supply chain, and commitments made by the state of Alabama and the city of Montgomery which the Alabama legislate approved a $118 million incentives package in hopes of attracting Hyundai, and the state and local incentives approved total $234 million (McClenahen, 2002).
HMMA’s relocating to the U.S. is to circumvent trade barriers and to move closer to their market by responding to growing the U.S. protectionism in the 1980s (Jung, 2006). Many other foreign auto assembly plants arrived to the Alabama State because it was cheaper to ship parts to assembly plants than to ship finished vehicles across the country (Jung, 2006). Alabama’s low wages and union-free environment, local government incentive package, the availability of a workforce, and the site location which provided an easy access to market played major roles in being selected (Jung, 2006). In historically, the Hyundai Motor Company had experienced market-seeking expansions in many countries before transferring to the United States, such as Canada, Turkey, and India (Wang et al., pp. 15). One most distinguished feature of HMC’s investment in the U.S. plant was the creation of North American R&D, engineering and design facilities to improve the company’s technical expertise (HMC, 2003). This was necessary for HMC to acquire American’s technology to become a global automaker. Accordingly, unlike adopting only market-seeking strategy in China, India, and Turkey, the HMMA’s strategy was employed as a combination of marketing-seeking and asset-seeking (Wang et al., pp. 17). For example, in China, India, and Turkey, the HMC subsidiaries introduced labor-intensive production technology and used less automated manufacturing process than its plants in Korea. There were no R&D facilities and all unassembled products were developed in Korea and transferred to China and Turkey. Thus the strategy of Hyundai transferring to the United States was innovative and aggressive methodology to seek the bottom line profit for the globalization.
During 1970 - 1990, the HMC’s production management had suffered in its original Ulsan production plant in South Korea due to violent labor union activities. When South Korean economy was depressed in the late 1990s, Hyundai tried to lay-off 27 percent of workforce in South Korea and cut pay and benefits to decrease expenses. However, its militant labor union resisted the management’s decision. All across South Korea, 1,200,000 employees from 125 companies participated in protests against the Hyundai and the Government.
In December 2001, the Hyundai made a 74.5 percent in net income and made a 42 percent sales increase compared to the previous year (Jo and You, 2011, p. 57). Hence, workers at the Ulsan plant went on a two day strike demanding higher wages, higher bonuses, and 30 percent share in the profits of the year as a performance bonus. However, the company opposed clearly that even though the company had done well that year, it could not accept workers’ demands because the increasing imported cars into South Korea were bound to Hyundai market share in South Korea. In addition, General Motor’s purchase of Dawoo was a threat to the company and the appreciation of the Korean currency which was becoming less competitive in international markets. The unions refused to compromise and the management also did not take a step back. The demand was high, and the negotiation was unsuccessful. Thus, the HMC decided to relocate the manufacturing plant to Montgomery which was relatively free from the influence of strong labor unions. The average percentages of unionized workers in the southern states were under 10 percent including Alabama, while those in the Midwestern States were about 20 percent (Hirsh, Macpherson, and Vroman, 2001, 52). According to Alabama’s labor laws, labor union membership is not mandatory even when a labor union is organized within a company (Jo and You, 2011, p. 53).
Another reason for the HMC’s relocating its plant in Alabama was the state government’s incentive package. The Alabama State Government offered the HMC an attractive incentive package that included tax abatement, a site preparing grant, and access road and bridge. The state government also promised to provide job applicants with education and training programs which were worth approximately $253 million (Jo and You, 2011, p. 57) (Yang H., p.2). Furthermore, Montgomery City also tremendously supported the HMMA to build, with not only financial support but also friendship bondage between Korean culture and American culture.
The Impact of Globalization on Cross-Cultural management
Due to today’s globalization, there are not only at HMMA, but today many companies still set plans for offshoring with many reasons such as competitive labor cost, setting forward bases for expanding sales markets, and advanced technology acquisition. However, most of the companies faced difficult time when initially expending their manufacturing plant to other countries due to many heterogeneous dependent and independent variables such as leadership style, organizational structure, organizational communication, governmental unknown regulatory, and tax and compliance issues (Self at el, 2011). Offshoring is defined that the transferring to overseas seeking for any bottom line profit is called offshoring, in the shift of productions, employment, and locations (Offshoring, 2004).
To be successful in offshoring, an organization requires not only adequate transportation and telecommunication infrastructure but also advanced intercultural management system. In the early part of 1980s, Japanese forerunner Subaru-Isuzu Automotive (SIA) brought the concept of Japanese Lean Production System to the United States (Jo and You, pp.45). However, in the beginning, without modifying their system to be adapted in the foreign environment, they utilized the Lean Production System so that SIA had hard time in managing because local workers’ resistance in emerged in the form of sabotage, protest, and confrontation against the management (Jo and You, pp.45). Without the research and development of the new system, it could be huge damage to host country’s human resource management even if the project or program is beneficial to both the originated and the host countries. This SIA’s case displays that both home and host countries must be sensitive to how national cultural issues impact organizational behavior and human resource practices in becoming an intercultural organization.
Due to historical and geographical reasons, South Korean and Japanese management systems as well as language structures are very similar because both countries were under Chinese culture for several centuries. Both management systems advocate the idea of strict obedience to superiors and emphasize the harmony necessary among people in the same ranking (Chan, 2011). In addition, Korean and Japanese management styles are quite different from American employment relations and management style because of Asian
culture’s seniority-oriented, collectivism, and power distance which may have an strongly effect on organizational behaviors and managerial operation styles. Instead of Western individualism and competition, it is critical to the business success to create and maintain a harmonic environment between employees as well as between superior and subordinates (Chan, 2011). Such cultural heritage has penetrated into Korean management practices and processes for long time. Accordingly, their managements expect naturally obedience and loyalty without any questions from employees, particularly between superior-subordinate relationships. However, the expectation of obedience and loyalty has created high power distance between a superior and a subordinate because it is inappropriate for subordinates to directly confront their superior under Korean cultural management. It had caused many human errors occurred under imminent circumstances. For an example, Korean Air Lines had more plane crashes than almost any other airlines in the world for a period at the end of the 1990s. Finally, the incumbent Korean president ordered to investigate problems. As a result, investigators found that plane crashes could be attributed to captains’ mistakes and his subordinates were not directly confronting the captains to correct their boss mistakes. It leads to the crashes because there were high power distances between Korean captains and subordinates. In addition, high power distance creates many passive subordinates in leading to very few suggestions coming from the subordinates, and it creates the management to be centralized unlike American decision-making style which input from the bottom, not from the top. Thus the power distance between intercultural employees in HMMA may influence communication in its organization.
The Impact of Globalization on Cross-Cultural Communication
Communication plays a vital role in domestic and global business to effectively communicate for effective operation and management as well as necessary for the individuals to express themselves and to fulfill basic needs. Even though people speak the same language, there can still be misunderstandings due to ethic and cultural backgrounds. Moreover, many misunderstanding have occurred, not only because of mistakes in the usage of words or expressions, but also because of the lack of goodwill and cultural knowledge (Najafbagy, 2008). Under different cultural knowledge, people see, feel, and process decision-making differently because of individual different perspectives on the same phenomenon. Thus it is highly possibility that miscommunications occur in an international or intercultural company if there is not cultural awareness trainings for employees. Companies that are successfully able to communicate cross-culturally have a competitive advantage because they can devote more time and resources to conducting business and less time on internal and external communication issues (Matthews & Thakkar, 2012). Thus Hyundai put maximum effort to overcome the communication disadvantage of the heterogeneous cultural management. To encourage employees to expand their cultural awareness, Hyundai encourages three-month assignment to overseas duties. For example, when the company was building a site in Alabama it allowed employees to visit and study
the regional culture and the company promoted backpack travel program around the world where teams of three design their cultural experience (Matthews & Thakkar, 2012). More than 47 teams have traveled over 70 countries, including Peru, Turkey, and Greece (Matthews & Thakkar, 2012). Hyundai learned an importance that participants bring experience and knowledge to share with their co-workers and friends. Accordingly, sharing experience and knowledge spread to all other employees so that the organization grows the strength of offshoring in intercultural environments. Cross-cultural communication can affect how we interpret the action of other so that we misunderstand other’s action in leading to percept wrongful conclusion. For example, while a young girl alone was watching on the television, she was crushed to death when a heavy television set fell over her at a Korean immigrant family home. When the police arrived at the home, her mother cried and expressed herself saying that “I killed her. She was dead because of me.” But American police accused the mother of murdering because the police interpreted what the mother said literally without considering cultural background. Actually, she meant that she was ethically responsible for the young girl’s dead because she did not take well care of her. This story presents usual happenings not only at an immigrant family home but also at many intercultural workplaces. Therefore global leaders need to aware intercultural training at workplaces to help employees gain knowledge of the host country, enhance cultural sensitivity, and develop cross-cultural communication skills (Chein, 2012). Actually, intercultural training can help people understand culture differences, provide information and knowledge of a specific culture, and help reduce emotional challenges (Chein, 2012). Effective intercultural training can be extremely beneficial to people’s adaptation to the culture of the host country, and vice versa.
Hyundai Motor Company was established in 1967 and has developed itself as company that focuses on quality improvement and innovation for long time. Today Hyundai still expands its global sales marketing to counties which have potential to glow its bottom line profit. For the expansion to take place, the company requires effective communication that is able to overcome cultural barriers and accomplish global management initiatives. In the auto industry, effective communication is applied not only human resource management practices but also valuing the needs of its customers. After Hyundai lost market share in Canada and Turkey in the early 1990s, Hyundai learned the importance of researching the culture of a country before making profound business decisions (Matthews & Thakkar, 2012). In addition, Hyundai realized that cross-culture communication involves adapting organizational polices to fit the context of where business transactions will occur so that the management changed its strategy to more proactive on the need of customers with careful communicating. Thus the key of Hyundai’s success is its corporate philosophy that places the need of customers as to priority in all business areas (Matthews & Thakkar, 2012).
In 1980s, the Japanese transplants were joint ventures with US automakers such as NUMMI (joint venture of Toyota and GM), located in California, and Diamond Star Motor (joint venture of Mitsubishi and Chrysler), located in Illinois (Jo and You, 2011, p. 45). It had difficult time in overcoming the old practices of mass production of the United States due to the unmodified lean production system under the joint venture management. The Japanese employees well acquainted in the Lean Production System but it was not acquainted on the American Mass Production System. In 1988, in cooperation with Mitsubishi, the Hyundai Motor Company’s first venture was offshoring its production plant in Canada, but the production plant was not successful because of poor quality products and ineffective human resource policy. In effect, HMC was not able to produce competitive vehicles against competitors such as Toyota and Honda and HMC mismanaged Canadian workforce without adopting an appropriate human resource management approach. The subsidiary plant had to be closed after five years of operation from 1989 (Rhee M. p.3). This implies that the relationship between globalization and employment relations plays a critical role in an interaction approach of offshoring as well as system barriers. According to research by Matthews and Thakkar, connectivity is defined as the ability to orchestrate organizational networks to move in the same direction in order to accomplish the company’s mission. Employees must feel contacted to the organization and understand how their individual effort contributes to the bottom line. Global leaders must look for opportunities to connect everyone within the organization to overall goals and objectives. When employees understand the big picture and the direction the organization is taking innovation and change are supported. However, although the first venture was failed, HMC was able to come back for another opportunity due to learning a lesson from the failure. HMMA also put efforts drastically to change intercultural barrier on its human resource management and operational system. Thus keys to the success of HMMA were Hyundai’s relatively low dependence on skill formation and high reliance on numerical flexibility of its production system relative to its Japanese counterparts (Jo and You, pp.41).
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