Hyundai Motor Company is the fourth largest company globally dealing with the manufacture of vehicles. Companies that is larger than it includes General Motors, Volkswagen Group, and Toyota. The company’s headquarters are located at Seoul in South Korea. It was formed in the year 1998 after fifty-one percent shares of Kia Motors were bought. The company decided to internationalize so that it can benefit from economies of scale and reach unto many consumers in different parts of the world. This has got the potential of increasing the profit of the company thereby assuring it of survival in the market that is very competitive. By internationalizing, the company would reduce its risk because it would benefit from a diversified market. Diversification that is possible through internationalization cushions the company against risks and this is why it opted for internationalization.
The Dunning theory is very relevant to Hyundai in its quest to internationalize. The company has applied the theory to reduce its labor costs and improve its efficiency. Moreover, it is able to eliminate the existing barriers to trade and attain its motives like seeking the market, seeking resources, seeking assets and seeking efficiency. The performance of the company improves with ownership advantages. On internationalization advantages, it is possible for the company to market its products with ease without having to utilize a lot of resources. This is because the company finds it easy to use the existing distribution channels to export its goods (Gubbins, 2003). Advantages that are related to locations include availability of raw materials and cheap labor. The theory emphasizes the need to educate the locals with an aim of maximizing on the advantages associated with location. Despite dunning theory having several advantages, there are so many disadvantages that have been associated with it. For example, critics have seen it as not targeting the spreading of distribution and production. Others also internationalize so that they out do their local competitors, improve electronic communication and advance transport networks. Pressure for reduction costs by suppliers and trade embargoes are also valid reasons for internationalization (Long, 2003).
The process of internationalization begins by doing thorough macro analysis that puts into consideration economic status, market size, government policy, psychic distance and labor market amongst other factors. Hyundai that has a lot of interest in internationalizing does a lot of macro analysis to understand the market. It has in most cases used the Uppsala model to try and predict internationalization process. According to the model, there are several steps that a company is supposed to go through if internationalization is to succeed. Hyundai followed the steps to the end. The fists step is knowing how the local market operates after which it began exporting products using autonomous agents. It then proceeded to joint ventures and opening subsidiaries. Whenever a company sees that there is a market in a foreign land, it begins by exporting its products to that market so that its presence in the market can be felt (Rimmer, 2014). The strategy is however short term in nature because local firms that understand the market use different strategies to drive away rival firms like Hyundai so that they can continue dominating the market. In bid to reduce such risks, firms like Hyundai start up product plant and establish headquarters so that they are not seen as foreign firms.
According to Uppsala model, companies are known to go for locations that are not far from them as they seek to internationalize. This is applicable to Hyundai which is a motor company that is reputable at the global level. In its internationalization quest, it puts into consideration business environment and culture. Initially the Uppsala model was regarded as a way of getting into the market and the initial stage of internationalization. The model has since been transformed and is keen to build trust in the market (Gaspar, 2017). The exportation of Hyundai motor vehicles came after exploring the market and understanding it fully. It then starts up partnership with firms that are very popular in the market after which it sets up its own production sites and headquarters. The Uppsala model when applied to Hyundai avers that the company should have the capacity of embracing internationalization. Consequently, Hyundai has got that capacity and so it proceeds to doing a macro environmental analysis whereby it examines cultural similarity, favorability of government policy and market opportunity. It then starts exporting its vehicles and starts joint ventures with other companies (Ng & Liu, 2014). More analysis on locational advantages reveal that Hyundai has often been benefiting from available raw materials and cheap labor that has seen it move to external markets and operate full scale. In a snapshot, the Uppsala model has simplified the internationalization process that Hyundai is keen to follow without any problem. Once the desire is there, it conducts rigorous analysis of the market in order to understand the underlying issues like cultural similarities, market competition, government policy and market potential. Upon satisfaction with the market, Hyundai then takes its business desire to the next level (Liker, 2004). This entails choosing the best way to enter the market. The available options to choose from include exporting, franchising and Greenfield.
Once Hyundai has started operating in a foreign market, it goes a notch higher and analyzes the existing advantages that include the availability of cheap labor that will see it spending little resources to pay its workers. It also looks at the possibility of the market expanding so that it keeps on making more profits for survival and expansion. It is not prudent to start up a business in a market that has got limited chances of growing. The establishment of business ventures calls for the availability of raw materials that would make the cost of doing business very cheap for Hyundai.
Network Theories of Internationalization
The network model that was developed by Mattson and Johansson in the 80s holds that the survival of organizations in the market is based on their abilities to have wide networks or relationships with many firms. Networks play an important role in choosing the foreign markets to operate as well as how to enter such markets which are very important to ignore. The way in which suppliers relate with buyers and potential buyers has got an impact on the possibility of a firm to expand. Hyundai is well connected locally and internationally. At the local level, it has got a wider network that improves its bargaining power at the national and international level. Some of the companies that it has got good relationships with at the local level have got international connects or networks that indirectly favor it as they sell the business interests of Hyundai and promote as one of the best. The links that Hyundai has with other companies act as a bridge to enter foreign markets apart from strengthening its operations at the local level (Plunkett, 2007). The good position that Hyundai has got in the market has worked in its favor because it finds it easy to internationalize as compared to other companies that are not able to have a presence in foreign markets because of limited resources. Hyundai is not in the first three phases of internationalization namely the early starter, the lonely International, and the late starter. Instead, it is at the stage of International among others.
Hyundai and its market environment are highly internationalized, and any efforts to internationalize it are meant to marginally penetrate other markets. It uses its position to further establish networks in the market and attain its goal of internationalizing. It uses the ability to produce good products so that in the long run it can sell goods in other markets. In a bid to coordinate its business and sales, the company is known for establishing subsidiaries very fast. The various establishments that Hyundai has come up with discourage stiff competition from other companies and protect Hyundai from its rivals. It is not disadvantaged by predatory pricing that has got several disadvantages to big firms like Hyundai. International integration enjoyed by Hyundai has helped it in utilizing its surplus production in the market so that its sales expand. The developments in the information technology sector have helped Hyundai to internationalize (Rushton& Walker, 2007). With a stable communication network, Hyundai finds it very easy to study the foreign markets regarding existing opportunities, potential buyers, cultural practices and the potential for market growth (Khanna et al, 2010). Links on social media and the internet have proven very important to the company, and it just ensures that it comes up with ways that can help it succeed in the market by exploring all ways. Interfering with the networks has got negative impacts on a firm like Hyundai. This may only be relevant if it realizes that some of the networks are not beneficial to it and so it is necessary for it to come up with other networks. This is upon realizing that some of the companies that it works closely with do not have weight in the market and are either down scaling or completely moving out of the market.
The reality is that Hyundai is doing very well in the market. Its local and international networks have proven very effective to the company, and that is why it has been able to reach where it is. The Uppsala model has worked in favor of the company as it has enabled it to understand the market very well regarding culture and the potential for growth. It should continue applying the theories that have enabled it to attain high levels of success. The theories have been succinctly discussed in the previous sections of the essay. This, however, does not mean that the company should remain stuck with the theories especially in instances where it feels that there are some sections of the theories that do not work in its favor and have been rendered ineffective in the market (Elms et al, 2013). Viable options should be explored, and this is only possible if Hyundai is flexible. It is good for the company to continue internationalizing its business operations so that it keeps on enjoying economies of scale, maximize its profitability, and reduce production and distribution costs. It would also be possible for it to operate by paying its workers cheaply and maximizing its profitability by reducing operating costs. Global operations are very advantageous to companies as they can cushion themselves against possible risks presented by sections of markets. Continuing with internationalization is not an option for Hyundai but a necessity for it if wants to get the very best out of the market.
The entry models into the market should not be rigid but based on the nature of the market. This will ensure that Hyundai can survive in any market by doing what the market dictates. Some of the options that are available for exploitation include foreign direct investments, exporting which is either direct or indirect and licensing. Given the availability of different options in entering the market, it is possible for Hyundai to maximize the gains of internationalization and continue playing a central role in the manufacture of motor vehicles and serving the interests of its highly valued consumers. There is no limit regarding international expansion possibilities (Ijioui, 2010). Hyundai should fully understand this and continue with its quest to internationalize. To continue dominating the market, it is supposed to open up bases in major towns all over the world provided there is a market for its products. This does not mean that it skips regions where it is already established. Products should be brought closer to the people, and this implies expanding operations in major towns. An appropriate strategy of expanding business operations in the market could be opening up branches in regions where it has not started doing business. This should be done in major towns, and then later it can go to small towns so as to move closer to the diverse customers spread in different locations.
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