Global Expansion Strategies of Two Korean Carmakers- Case Analysis
B6110: Supply Chain Optimization and Outsourcing
January 27, 2012

Two Korean Carmakers- Strategic Situations Daewoo and Hyundai are two Korean carmakers who enjoy many structural similarities. Yet the two are direct competitors in the Korean automobile industry, where they are jostling for position, pushing for economies of scale, and hoping to sure up a competitive advantage. Both Daewoo and Hyundai look to international expansion as their recipe for success. Each has formulated a specific expansion strategy in the past based on its particular market situation. Both Daewoo and Hyundai now look to international global expansion for future success.
Expansion & Supply Chain The direct competition with each other in the Korean car market had an enormous influence on each firm’s past globalization strategies. The Korean automobile industry has been dominated by Hyundai since the 1970’s. By 1993, Hyundai had established a 50% market share in the Korean market, whereas Daewoo only held 20% (Bowon, 2005, p. 148). In 1993, Hyundai also enjoyed 58% of the market share of automobile exports by Korean companies, whereas Daewoo’s exporting efforts had failed (Bowon, 2005, p. 148). Moving forward from 1993, Daewoo and Hyundai took into account their competitive position against each other when deciding how to conduct their global expansion strategy. “Daewoo focused on expeditiously achieving economies of scale by targeting the East European markets for its overseas capacity expansion, in a way to overcome its manufacturing cost disadvantage in the domestic market vis-à-vis Hyundai's. . . Hyundai's globalization strategy, exporting supported by technological advancement, was driven by an implicit assumption of its competitive advantage vis-à-vis Daewoo's” (Kim, Bowon. Supply Chain Management in the Mastering Business in Asia series. John Wiley & Sons (P&T), 10/21/05. p. 147). Therefore it appears that Daewoo pushed for rapid expansion due to some kind of inferiority/little brother complex, and Hyundai chose the conservative approach as it already enjoyed the competitive advantage.
Improving SCM via Forecasting Hyundai faced adversity when its subsidiary in Canada closed in 1993. Hyundai therefore pulled back and stayed with its conservative strategy by focusing on R&D and thereby gaining technological advances and market positioning. This allowed the company to stay viable and enjoy continuing success. On the other hand, Daewoo pushed forward for economy of scale by continuing to expand rapidly in Eastern Europe where it faced little opposition, in a so called “expansion spree” (Kim, Bowon. Supply Chain Management in the Mastering Business in Asia series. John Wiley & Sons (P&T), 10/21/05. p. 160). Nevertheless, in 1999, Daewoo went bankrupt. Why did it fail? Daewoo’s failure was due to the fact that its globalization velocity was far beyond its organizational capacity to obtain the necessary resources for such expansion (Bowon, 2005, p. 161). It failed to realize as an organization that it could not afford to expand as fast as it did (Bowon, 2005, p. 158). Looking back, Daewoo could have greatly benefitted from supply chain simulation. Supply chain simulation would have allowed Daewoo to study out whether it could logistically move the parts and resources necessary for success in its plan for rapid global expansion. Through supply chain simulation, the organization would have been able to discover that its globalization velocity was indeed far beyond its organizational capacity, and that it simply could not afford to expand at that rate. Simulation could have saved the company from bankruptcy.
Final Decision Proposal An improperly managed supply chain brings great instability and unpredictability to a business- especially an international business. The bullwhip effect (which is the term for large swings in the supply chain inventory due to changes in customer demand that go unchecked) runs rampant in an improperly managed supply chain. Based on this discussion, Hyundai seems to be managing itself conservatively and properly, however there is always room for improvement by use of forecasting. Daewoo has improperly managed its supply chain in the past, and can benefit most from forecasting. It is proposed that both Hyundai and Daewoo implement ERP and MRP in order to improve their supply chain management. Implementing ERP and MRP will allow both carmakers to expand globally in a proper fashion, and thereby avoid the bullwhip effect. Using an ERP will allow both carmakers to speed up the distribution of information within the business function of the organization, whereby communication regarding the supply chain will be drastically improved. External and internal management information will be shared in a quicker fashion, and all units will have access to finance data, manufacturing data, sales and service data, and customer data. By using an MRP, both carmakers will be able to better plan inventory control and manage the manufacturing process. Through the MRP, both carmakers will be able to ensure resources are available for production, and ensure that there is not excess or lacking inventory in the supply chain. The only real weakness of this proposal is that both ERP and MRP systems will require a significant capital investment, both in terms of money, and in terms of training and man-hours throughout both organizations. There will also be a bit of a learning curve within the organization that will have to be accounted for. However by and large, there are many strengths that this proposal to implement these systems will bring to both Hyundai and Daewoo. The probability of success for this proposal is therefore extremely high. Implementation of these systems will allow Hyundai to perhaps take more risks and thereby gain even more success than it has enjoyed. This proposal should especially help Daewoo to avoid overextending itself in the future, and allow it to progress steadily in the international market.

Reference:
Kim, Bowon. Supply Chain Management in the Mastering Business in Asia series. “Global Capacity Expansion Strategies of Two Korean Carmakers.” John Wiley & Sons (P&T), 10/21/05.