Stakeholder in Automotive Industry in Korea
The automotive industry is one of the most powerful spheres of manufacturing in the world. Korea plays significant role in the automotive market segmentation as the products it produces are extremely important for the world markets. Thus, the production of vehicles was a total of 3,512,926 in 2009 in South Korea. The production in 2010 is expected to be 6% higher. The export rates of the automotive products in Korea are high (Business Monitor 2010). The reasons for the increase in the Korean vehicles production can be explained via different facts. Still, the tax politics is one of the most crucial factors for the country’s industrial development. Moreover, being the flourishing and developing industry, Korean automotive field remains in great demand and some stakeholders are related to the sphere of carmakers. They are not only interested in the sphere but also play essential part in its progress. The main purpose of the paper is to cast light on the main stakeholders in the Korean automotive industry and have a general idea of their number, then point out the main types of the Korean automotive industry stakeholders and highlight the influence they have on the industry; furthermore, the level of power of the stakeholders should be considered in automotive industry in Korea as the closure of one company may lead to the collapse of the whole industry.
Background for the research
Manufacturers, government, customers, and logistics service providers are considered to be the main stakeholders in the Korean automotive industry. Pursuing personal and absolutely different aims, these types of stakeholders make it possible for successful development of the industry. It is crucial to notice that being rather successful industry in Korea, it feels pressure from different sides. On the one side, Japan follows Korea’s steps in automotive industry as it is considered to be the high-tech and developing. Nevertheless, Japanese products are expensive and of high quality, so they can be interesting only to specific market segments. On the other side, China tries to compete with Korea in automotive industry (Ihlwan 2005). Its low-cost products are in great demand all over the world. Still, the Korean manufacturing is developing and according to the South Korea Autos Report the rate of produced and imported vehicles in Korea will only increase in the nearest several years (Business Monitor 2010).
The Korean competitors from two sides (Japan and China) suggested an idea for discussion, the stakeholders of the automotive industry should be considered to understand the real estate of things in the country’s vehicle business. Having considered the main manufactures and the market segment they possess in the country and the world, we will get a general idea of their competitive possibilities. Furthermore, after the consideration of the governmental policies directed to the automotive market in Korea, we will be able to understand the advantages of leading this business in Korea. Logistics service providers that operate in this kind of business are also interested in the successful development of the business. These stakeholders influence the automotive industry in Korea greatly. Thus, these members of the vehicle industry relations in Korea may lead to industry collapse in general if one of these stakeholders will disappear from the sphere.
To consider the most powerful players in the industry and understand how they influence the automotive sphere in Korea, a deep research of the market and its members should be conducted. The easiest and one of the most effective ways to reach the desired aim is to accomplish a literature review on the desired topic. Nevertheless, the literature review should be purposeful and selective. First, the major manufacturers in the Korean automotive industry should be considered. The next step is the consideration of their influence on the country industry and identifying the most powerful, if possible. Furthermore, the Korean government’s attitude to automotive industry should be researched and the techniques it uses to encourage and support this business. Moreover, the logistics service providers as the other significant stakeholders should be lighted on while the research conduction. The analysis of the information collected will be one of the main reasons for results creation and identifying whether the closure of one of the stakeholders in the Korean automotive industry can lead to the collapse of the whole sphere.
Getting down to literature review, it is significant to notice that manufacturers of the vehicles in Korea are the main stakeholders and formers of the industry in general. There are mainly five largest and the most powerful manufacturers in the field, HYUNDAI, KIA, GM-DAE-WOO, SSANG-YOUNG, and RENAU-SAMSUNG.
Ssangyong Motor is a company that was owned by China’s SAIC, but when it appeared in the danger of bankruptcy, it was shifted to the Korean protection. Being in the worse position, the company held a 1.73% share of the Korean market in 2008. This was equal to 92,665 units for sale. The decline accounted for 30% year-on-year (Business Monitor 2010). Wenjie (n.d.) discusses the problems that exist in the Ssangyong Motor Company. Having appeared in the “black hole” (Wenjie n.d.) the company suffered greatly because of the sales reduction (almost to zero). The reduction of sales led to the debts and the company could not come out of that cycle. The company managed to sustain and with the help of Seoul investments is again on the market and is ready to compete. The investment helped the company to rebound the stock by 15% immediately. Still, the incentives did not solve all the problems but still managed to solve the greatest problem of the company. Wenjie (n.d.) summarizes the research with the rhetorical question, “There is no doubt that the entire enterprise around the Ssangyong Motor’s decision is wrong and the main reason for its defeat came, the next one will be such an error which a motor vehicle manufacturer?”. The author of the article wants to underline that Ssangyong Motor is not the powerful player in the automotive Korean field anymore and the constant injections accomplished by Seoul investments are just the temporary measures.
Hyundai Motor is considered to be the largest Korean carmaker. The company has occupied the markets of China and India and the strong positions there. The company stands firmly and feels perfect in the global arena. The world crisis did not prevent the company from reaching 5% global market share. The USA and China markets are also occupied by the company, still, the nearest plan of the company is to increase the USA market share of Hyundai Motor from 4.2% in 2009 to 4.6% in 2010 (Business Monitor 2010). Conducting a research on the Hyundai Motors, Lewis and Wright (2004) concluded that “Hyundai Motors Group is the fastest globalizing and probably the fastest growing international auto group on a three- or four-year perspective” (par. 11). The authors tried to stress the widespread of the company and presented the information on the place of Hyundai Motor in the North American market, it has already won the business there in spite of the cat that it does not have any operational manufacturing there. Being in the top 25 global automakers, Hyundai Motor aims to enter the 10 leading world’s cars supplies in 2010.
Kia Motors is the second carmaker in Korea after Hyundai Motor in terms of volume. Kia Motors is considered to be weaker than Hyundai relating to the fact that Kia is dependent on Hyundai decisions. Still, the company managed to generate 20.1% year-on-year increase in sales in the global arena. The total share of the USA market was about 2.9% in 2009. This rate is going to be increased by the end of 2010. Being dependent on Hyundai, Kia still tries to implement its own strategy on the market and lead affairs personally (Business Monitor 2010).
GM Daewoo Auto is the other Korean company that deserves people’s attention. Its market share in the country was 16.46% in 2008. The global crisis and inner problems declined the sales of the company and reduced its profit by about 50%. The company still remains in the problematic position as no financial assistance will be provided to the company before it creates a long-term subsidiary plan. Thus, being reduced from the world arena for some time, the company still stood firmly on the country’s market. The company expects to enter the world market with the new product in 2011 and gain its previous positions in the world segmentation (Business Monitor 2010). Renault Samsung Motor is the youngest company in Korea. It was established in 2000 and enumerates 5,000 employees. Still, this company managed to occupy 3.68% of the market share in 2008 and appear in the 4th place according to the total sales (Business Monitor 2010).
Except for the manufacturers of the automotive industry, the government policies and different laws influence the industry greatly. First of all, it should be mentioned that one of the main government documents that control the automotive industry in Korea is Corporate Tax Act that regulates all business relations in the country. It regulates all financial relations, both inside the country and export and import relations of the countries’ companies with the other countries in the world. It is impossible to ignore the rules established by Corporate Tax Act document (National Tax Service 2001).
It may appear from the first side that stakeholders in the automotive industry and logistics service providers have absolutely nothing in common and the functioning of one institution should not touch the affairs of the other. Co and Barro (2009) in their research tried to analyze stakeholders’ strategies in supply chain collaboration. The authors managed to prove that there are two ways of relations development, aggressive and cooperative. The main importance of these strategies is that the suppliers and the company, like any other chain in the logistics, should cooperate and try to achieve the highest profit.
Furthermore, Lee, Know & Severance (2007) researched the sphere of relations within logistics service provides and concluded that internal integration is extremely important in the sphere. The nature of the logistics service providers is various, some companies deal with inland transportation, the others with shipping companies. Furthermore, the logistic providers offer the following services, warehouse, depot, insurance, custom and IT technologies. Coming out of the previous information, it is important to collaborate with each other.
Results and discussion
The information gathered while literature review can be easily analyzed and the following results will be achieved. First of all, the rates of the companies and their place on the country’s and world’s markets cannot influence greatly the whole automotive industry in Korea. Even the closure of one of the manufactures will not lead to the collapse of the whole industry in the country. A situation was considered on the example of Ssangyong Motor and its close situation to bankruptcy. Even though, no country felt great to change in the market share.
The power government possesses is huge. Different taxation policies directed to the reduction of the taxes, incentives that facilitate the sales of cars and the protecting actions from foreigners on the market are accomplished by the government. The actions of the government influence the automotive industry in Korea greatly and can collapse the whole industry in case of the implementation of wrong actions. The proper relations between the companies and logistics services providers are of great importance. The collaboration should be positive and successful. In case of huge logistic services providers failing to cope with their duties, the Korean care manufacturing industry can suffer much. This is connected to the fact that logistics providers follow and control the whole manufacturing process and in case of one of the providers’ closures, the costs will be huge. The successful work of the logistics service providers is the great opportunity to attract more customers to the company. The problem within one Logistics Company will lead to the collapse of the whole company or companies, depending on the relations of these logistics services.
Government and commercial customers will suffer most of all as they order either buy big batches or exclusive models. So, it may be concluded that there are two levels of power that can influence the automotive industry in Korea, total and partial. The total influence is accomplished by the government that can both collapse and even eliminate the whole car manufacturing industry in the country. The logistics service providers are also influential as all informational and delivery processes are concentrated in their hands.
In conclusion, having considered the main car manufacturers on the Korean market and conducted research on other stakeholders of the automotive industry in the country, such as customers, government and logistics service providers, it can be stated that the most powerful stakeholders in the country that may collapse the whole car making industry remain government and logistics providers. The closure of one manufacture will not change the situation greatly. But, in case of severe politics of government towards the automotive industry, the whole companies may fail to endure. The same happens with the logistics providers who are responsible for products and information delivery. In case of problems appearance, the manufacturing process may stop for a long time. There are several ways not to tolerate the situation, one of which is the friendly and successive collaboration without aggressive communication.
Business Monitor International 2010, South Korea Autos Report Q2 2010: Including 5-year industry forecasts by BMI.
Co, HC & Barro, F 2009, ‘Stakeholder theory and dynamics in supply chain collaboration’, International Journal of Operations & Production Management, vol. 29, no.6, pp.591-611.
Ihlwan, M 2005, ‘South Korea: Auto Parts Mecca’, BusinessWeek.
Lee, CW, Know, IG & Severance, D 2007, ‘Relationship between supply chain performance and degree of linkage among supplier, internal integration, and customer’, Supply Chain Management: An International Journal, vol. 12, no. 6, pp. 444-452.
Lewis, A & Wright, C 2004, ‘Tier 0.5 manufacturers, where are you?’, Just – Auto.
National Tax Service 2001, Corporate Tax Act, Republic of Korea, Web.
Wenjie, Z n.d., ‘South Korea’s Ssangyong Motor operation mistake’. Jiakr. 2010.