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Hyundai Motor Company SWOT & PESTLE Analysis

Last Updated : 23 Jul, 2017

OVERVIEW

Name of the Company: Hyundai Motor Company

Business Sector: Automotive

Operating Geography: Asia, South Korea, Global

About the Company: Hyundai Motor Company is the 7th largest automotive company in the world. HMC was founded by Chung Ju-Yung in 1967 as a construction company initially. After several rounds of restructuring of business operations HMC has entered the automobile sector through designing and manufacturing of cars and buses. HMC employs 1.1 lakhs of employees all over the world while 58% of them are employed in Korea. HMC operates in India with its well positioned subsidiary – Hyundai Motor India Limited.

Revenue: ₩ 93,649,024 (+1.8%) – December 2016

SWOT & PESTLE Analysis

The SWOT analysis for Hyundai Motors is presented below:
Strengths
Weaknesses
1. Huge global presence in over 200 countries
2. High conformance to safety standards and bagging 5+ rating for safety standards
3. Strong Research & Development wing with 7-step process for designing
1. Weak brand portfolio with only two major brands- Hyundai & Kia
2. Declining profitability by 12% in 2016 over 2015
3. Quality defects leading to huge vehicle recall in last 3-4 years
Opportunities
Threats
1. Improving global economy with expected growth of 3.5% in 2017
2. Technological advancements in manufacturing process as well as creation of new consumer demands
1. US economic developments due to new policies formulated by US president
2. Asian economic turbulences reducing market security
3. British economic downslide by 1.5% over last year
4. Growing criticism towards environmental pollution created by vehicles.
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Strengths

1. Strong Research & Development wing with 7-step process for designing: Hyundai commits to innovation by focussing sincerely on R&D. Hyundai employs a 7-step process for design: Design Planning; Sketching and Rendering; 1/4th scale modelling; digital modelling; virtual reality presentation; 1:1 clay modelling and emotional & colour design. Hyundai Motor Company has ideated following design philosophies to incorporate cutting edge technologies in its design. Fluidic sculpture which aims to break the barrier between art and automobiles to create advanced designs by incorporating energy and dynamism. Human-machine interface which aims to boost emotional satisfaction of the consumers by making the interiors more interactive, ergonomic and simple to use. Imagine is a collaborative design philosophy adopted by Hyundai to integrate design philosophies of designers across countries like Korea, Japan, US, China, Germany and India and transforms designer’s creativity to blossoming designs

2. High conformance to safety standards and bagging 5+ rating for safety standards: Hyundai Motor Company has conformed to improved safety standards to drive road safety. Autonomous Emergency Braking, Vehicle stability management, Tyre pressure monitoring system, Smart high beam assistant, Dynamic bending lights, Blind spot detection, Advanced smart cruise control, Lane keeping assistance, Lane departure warning system, Hill start assistance control, Electronic stability control. Hyundai motor company has also won several awards in conforming to safety standards to the highest level. Some of its models – Santa Fe; Sonata; Tucson & Genesis has been awarded “Top safety Pick+” in 2016. Hyundai has also won 5 Star ratings for- “National Highway Traffic Safety Administration” in U.S. by Sonata and “The European New Car Assessment Programme” in EU by Tucson.

3. Huge global presence in over 200 countries: Hyundai Motor Company has huge global presence in automobile markets in 200 countries with a strong network of more than 6000 dealers worldwide. In January 2017, HMC has a market share of 4.1% in United States registering a sales figure of 46,507 units. HMC has clocked sales of 35000+ vehicles in European region during the same period.

Weaknesses

1. Weak brand portfolio with only two major brands- Hyundai & Kia: Hyundai has strong global presence in more than 200 countries but has only 2 brands in its portfolio – Hyundai and Kia. It is much lesser than its competitors like 12 brands with Volkswagen; 9 brands of General Motors and 4 brands of Toyota. Fewer brands limit the capability of having brand recall across the various consumer segments as it is difficult to position a single brand with a unique perception but across various consumer segments.

2. Declining profitability by 12% in 2016 over 2015: Hyundai Motor Company has experienced decrease in profit to ₩ 5,719,653 in December,2016 from earlier ₩ 6,509,165 in December,2015 – a decrease of 12%. The decrease in profit is mainly due to 5% increase in selling and administrative expenses as well as 3% increase in cost of sales. This has led to decrease in Basic earnings per share (common stock) by 15.68% to ₩ 20,118.

3. Quality defects leading to huge vehicle recall in last 3-4 years: Hyundai Motor Company’s brand image has suffered quite a lot due to huge brand recall in last 3-4 years. Hyundai Motor Company had recalled nearly 4.7 lakhs cars- Sonata Sedan equipped with 2.0 and 2.4 litres gasoline engines in month of September 2015. In August,2014 Hyundai Motor Company had recalled around 4.19 lakhs cars owing to performance issues of majorly 3 areas – brakes; electricals and suspensions. In 2016, Hyundai and Kia motors recalled more than 4 lakhs of cars in US over safety issues because of corrosion.

Opportunities

1. Improving global economy with expected growth of 3.5% in 2017: Global growth is expected to be 3.5% in 2017. Mostly driven by US economy which is expected to grow by 2.25% in 2017. US economic policies coupled with various tax reform policies, federal easing and designing of protectionist measures by US president Mr. Donald Trump, domestic employment opportunities is expected to rise that will lead to higher consumer spending favourable for automobile OEMs. Europe is expected to grow by 1.5% in 2017 which is consistent with labour market improvement for the last few years. Emerging countries although have mixed response, but barring few local markets, there is gradual recovery in the commodity market as well as industrial commodities and crude oil due to strengthening demand, coupled with growing productivity and efficient business processes are likely to boost economic growth. This will lead to higher employment and stimulate consumer spending. China is likely to see growth in macro-economic development coupled with higher infrastructure spending while arresting credit growth. China expects to hit growth target of 6.5% in 2017. This is likely to enhance consumer spending and automobile market has a good fortune in the same. Europe is expected to grow by 1.5 % in 2017. It is mainly due to rising disinflationary pressures, reduced employment, easing fiscal policies. Thus, Hyundai can expect an improved demand for its products in Europe.

2. Technological advancements in manufacturing process as well as creation of new consumer demands: Rapid advancements in science and technology has opened new opportunities for automobile OEMs. There is growing demand for developing vehicles which use alternative energy sources like electric battery; solar energy etc. Consumers are also preferring more interactive interior controls coupled with autonomous driving. Thus, Hyundai can leverage this growing demand and the players in this market segments are not yet established, Hyundai can leverage the opportunities and have early mover advantages. Technological advances have also revolutionised manufacturing processes. High precision controlled robots can be employed; integrated manufacturing and supply chain systems pose to be a great advantage for efficient manufacturing, raw material sourcing and finished goods distribution systems.

Threats

1. US economic developments due to new policies formulated by US president: United States under its new president Mr. Donald Trump is set to impose higher tariff on imports. Thus, the export opportunities of Hyundai are likely to face decline in United States US is also likely to experience interest rate hikes in the current year which reduces the consumer purchase power and thus will negatively impact the sales of cars. Also, US is expected to see inflationary pressures which will lead to costlier manufacturing and supply chain processes and systems in the country and thus poses unfavourable situation to domestic manufacturing of vehicles.

Also, protectionist measures by US and strengthening Dollar reduce the capital flow and economic growth in emerging countries thus negatively affects the growth of automobile market in developing countries.

2. Asian economic turbulences reducing market security: Asian economy has been facing economic disturbances which reduces the security of the market and dents the growth outlook of the markets. Nuclear proliferation by Iran and North Korea has led to a hidden competition among other countries to divert funds towards nuclear spending. It affects the government spending for public development which reduces economic growth followed by demand for automobiles. Japanese economy is also expected to rise by a modest 1%. Owing to increasing average of the population and less advantageous demographics, it poses challenges to Hyundai to register higher amount of sales in the country.

3. British economic down slide by 1.5% over last year: United Kingdom is expected to see slowdown in growth of the economy to 1.5%. it is mainly due to higher inflation and Brexit referendum which is expected to erode household real incomes and thus doesn’t pose a favourable situation for automobile companies.

4. Growing criticism towards environmental pollution created by vehicles: Criticism is continuously growing to the environmental pollution created by vehicle exhaust. BS4 and Euro6 standards are likely to get more implemented in India and abroad. This has posed challenge to OEMs to improve combustion and exhaust units which is likely to increase the investment and in turn the cost of the vehicles. Also, safety concerns and regulations are getting stricter in the developing nations which poses a challenge to the automobile manufacturer to provide improved features at an affordable low price. ABS is set to be mandatory for the cars in India post 2019 which poses a challenge for the car makers to revamp supply chain of raw materials as well as well as manufacturing processes.

Hyundai Motors SWOT analysis has been conducted by Anindhya Sadhu and reviewed by senior analysts from Barakaat Consulting.

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The PESTLE analysis for Hyundai Motors is presented below:
Political
Economical
1) US protectionism measures for business opportunities1) Surge in global economy due to increased affordability of people coupled with favourable factors of production
Social
Technological
1) Enhanced customer requirements and perceived social value
2) Shared mobility
Involvement of software and semiconductors in automotive industry
2) Green technologies
Legal
Environmental
1) Greater attention and more initiatives to reduce environmental impact due to automobiles
2) More legal compliance measures to increase passenger safety
1) Growing criticism towards environmental pollution created by vehicles
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Political

1) US protectionism measures for business opportunities: Hyundai Motors is expected to face huge challenge in keeping its products price competitive in US market due to new presidential measures have clamped down on the cheaper outsourcing facilities. Thus, Hyundai motors should ramp up investment in the Alabama plant in US for production of vehicles for the US market. The price increase due to expensive manufacturing in US is likely to reduce passenger vehicles sales in the country.

Economic

1) Surge in global economy due to increased affordability of people coupled with favourable factors of production: Global economy is expected to grow by 3.5% in 2017, mostly driven by US economy which is expected to grow by 2.25% in 2017 due to various protectionist and domestic employment friendly measures taken by President Donald Trump. Europe is expected to grow by 1.5% in 2017 which is consistent with labour market improvement for the last few years. Among the BRICS countries, vehicles fleet in Brazil is expected to grow by 4.6% CAGR till 2020. China expects to hit growth target of 6.5% in 2017. It is mainly due to rising disinflationary pressures, reduced employment, easing fiscal policies. In India, automobile sales including both domestic as well as exports are registering a growth of 9.23% (domestic) and 16.2% (exports). Thus, good fortune is expected for the automobile companies and thus, Hyundai can expect an improved demand for its products in Europe.

Social

1) Enhanced customer requirements and perceived social value: With rapid advancement in technology, consumers are demanding for more safer features in the vehicles along with performance. Customers of today are putting a lot of stress on embedded features coupled with newer technologies. Newer technologies promise enhanced performance of the products, more dynamic and youth appearance, perceived social status based on amount of ergonomics and sophistication, better safety and improved driving experience due to enhanced features and specifications. Assisted driving is gaining popularity due to less human involvement and safer driving. Electronic components with software intelligence has led to integration of radar, thermal, camera technologies with steering and braking activities owing to electrification of power-train is vying to eliminate the role of a human driver thus ramping up safety and assisted driving functions.

2) Shared mobility: There has been emergence of online aggregators of passenger vehicles which has given birth to shared mobility. Vehicle ownership pattern is changing with consumers preferring shared mobility more than owning personal vehicle. The option has become favourable due to lesser costs incurred while getting shared, lesser congestion & less parking lots required due to reducing number of vehicles thus leading to reduced level of emissions also.

Technological

1) Involvement of software and semiconductors in automotive industry: With growing consumer electronics in automobiles, improving telematics and on-board infotainment systems, automobiles have become a hub of digital ecosystem. Developing artificial intelligence in the cars, connectivity among the vehicles as well as autonomous driving and added safety has become top priority for the automobile companies. The technological development has been augmented by reduction in electronic components cost, enhanced safety regulations pertaining to electronic components and consumer expectations related to driving ambience. Recently, electronic costs set to rise to 40% of the total cost of vehicle sold from 20% in 2004.

2) Green technologies: Technological development has been trying to reduce on the greenhouse gas emissions. Along with improved filtering of exhaust gases, simultaneously, there has been shift from diesel fired engines to gasoline powered to hybrid gasoline- electric powered engines to save fuel, bring down fuel emissions and saving on weight of engines. Towards development of fully electric engines there has been discussions on battery weight and safety, charging speed, safety due to interruption by electronic waves caused by various electronic components in the vehicle to achieve zero emission capabilities.

Legal

1) Greater attention and more initiatives to reduce environmental impact due to automobiles Various national governments are focussing on reducing environmental impact owing to the vehicle emissions. Europe is set to follow stage 6 emission standards to reduce CO2 emissions and implement on road emission tests. Emerging countries are even trying to match the most recent advancements in regulations prevalent in US and Europe. BS 3 vehicles sale has been banned in India with effect from April 1,2017 which has led to mandatory switch to BS4 technologies for the automobile OEMs in India. China is to follow European stage 6 emission standards and US standards pertaining to evaporative emissions and on-board diagnostic requirements. California air research board has adopted LEV III rules taking effect from 2015 which led to regulating tailpipe & emission standards in the country.

2) More legal compliance measures to increase passenger safety: Safety features like ABS, lane departure warning systems, electronic stability control and automatic brake assistance. Additionally, in Latin America and Caribbean countries, there are additional safety requirements laid down by NEW CAR ASSESSMENT PROGRAMME calling more sophisticated safety features, information to consumers and improved crash tests of the vehicles.

Environmental

1) Growing criticism towards environmental pollution created by vehicles: Due to growing adverse impact on environment due to various reasons, there has been a drive by almost all countries to reduce carbon footprint of the products and processes. Improved combustion technologies to reduce unburnt fuel amount being emitted, better exhaust treatment processes – implementation of BS4 and Euro6 standards worldwide are most likely to gain ground in recent days. Also, powertrain technology has also to advance which is getting shifted from gas/oil fired to electric power driven drawn from batteries or solar cells. It has added to the woes of the automobile companies in the perspective of modifications in manufacturing processes as well as raw material sourcing and vendor development capabilities.

Hyundai Motors PESTLE analysis has been conducted by Anindhya Sadhu and reviewed by senior analysts from Barakaat Consulting.

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