What are the roles of comparative and competitive advantages in Hyundai’s success?
Illustrate your answers by providing specific examples of natural and acquired advantages that Hyundai employs to succeed in the global car industry.
The success of Hyundai Motor Company, a South Korean carmaker, can be attributed to both its comparative and competitive advantages. In terms of comparative advantage, the Korean market has abundant, cost-effective knowledge workers who drive innovations in design, features, production and product quality. The country has a high savings rate and substantial inflow of foreign direct investments. These factors guarantee car makers the supply of capital to fund innovative activities by their respective research and development departments as well as other ventures.
Korea’s abundance of production factors such as cost-effective labor; knowledge workers, high technology and capital characterize the country’s key location-specific advantages. The Korean government has played a great role in the formulation of strategy and regulation of control in the car industry. The government has been closely cooperating with the business sector especially in terms of protecting industries, ensuring funds and supporting other sectors. Due to efforts conducted by the Korean government, the country is now home to a significant industrial cluster for the production of cars and car parts.
The competitive advantage of Hyundai originated in its strategies, structures, domestic rivals, position in production factors, consumers’ demands and related and/ or supporting industries. The abundance of resources in Korea enables carmakers to fund R&D and other ventures thus rivalry occurs at the domestic level which pressures firms to constantly innovate and improve their products and services. In the late 1990s, Hyundai imposed key strategies which include quality improvement programs and power-train warranty programs.
These strategies were implemented to improve the company’s brand equity. Korean consumers’ high standards in the quality of products demand car makers take great pains in producing superior products that suit the demands of the market. In terms of foreign exchange rates, Hyundai benefited from the weak Korean won thus the prices of its exports are relatively cheaper in countries such as Australia, Europe, and the United States.
In terms of factor proportions theory, what abundant factors does Hyundai leverage in its worldwide operations? Provide examples and explain how Hyundai exemplifies the theory. In what ways does Hyundai’s success contradict the theory?
The premises of the factor proportions theory are products that differ in the types and quantities of factors. These factors include labor, natural resources, and capital. These factors are required for the production of goods. Another premise is the notion that countries differ in the types and quality of production factors they possess. The factor proportions theory suggests that each country should export products that intensively use relatively abundant factors of production and import goods that intensively use relatively scarce factors of production.
In the case of Hyundai, the company leverages on foreign direct investments to developing operations around the world. To capture international markets the company’s strategic pattern shows it building factories in countries where it can maximize the natural resources and location of the said country as what it had done in the cases of Turkey, for the country’s convenience to the Middle East and Europe, and India and China, for their low-cost but high-quality labor and abundant natural resources.
Hyundai also partners with local car companies to access such resources. Hyundai’s success contradicts the theory of factor proportions because instead of firms exporting their goods and services to create an exchange, Hyundai invests in partnerships where it accesses foreign partners’ information, capital, distribution channels, assets and ability to overcome government-imposed challenges thus it becomes a local firm through collaborations.