The economic transformation of many industrialising countries has been made possible by the development of industries requiring effective application of both technologies and management. Success in the international market place usually depends on exploitation of competitive advantages. In mature industrialised economies, this often involves technological advances or innovations. In newly industrialising economies, by contrast, the competitive advantages often comprise cheaper labour or material costs. However, in order to develop significantly, countries must adopt innovative technology and human resource utilisation.
The Korean automobile industry provides an interesting opportunity to examine the interrelationship between globalisation of auto manufacturing, application of new technologies and management of human resources. In the past two decades, the Korean auto industry has become one of the world’s leading producers of lower priced vehicles, through a combination of efficient production, low labour costs, government support for and capital investment by major conglomerates (knows as ‘chaebol’) and effective export strategies.
The financial crisis in November 1997 was blamed on various factors, including the impact of globalisation. Key contributing causes included excessive debt incurred by both the government and the private sector to international lenders, mismanagement and financial irregularities among the chaebols and banks and corrupt practices by business executives and politicians. In order to settle the crisis, the government entered a ‘bailout’ agreement with the IMF, which provided emergency loans of $US 19.5 billion.
The government agreed to reform corporate governance, restructure the financial market, increase labour market flexibility and introduce an expanded social security ‘safety net’ system. Subsequently, the Korean government abolished most of the existing regulations on foreign investment, which resulted in a massive influx of foreign capital, abandoned import regulations, forced many insolvent financial corporations (including banks) into liquidation and introduced labour reforms to permit employers to make workers redundant. Not surprisingly, the government faced strong resistance from both the chaebols and the unions, but it largely succeeded in overcoming the crisis, at least temporarily.
Since the financial crisis of 1997, the Korean auto industry has faced major obstacles to its continued success, including increased labour disputes, rising costs, bankruptcies among leading companies and banks, and the need to be more innovative with technology and production systems. The failure of some Korean auto producers, such as Daewoo and Kia, to solve these problems has meant that they have been taken over by other companies. Hyundai Motor Company (HMC) has managed to survive the crisis and emerge as one of the world’s top ten auto manufacturers. This paper examines the recent experiences of Kia (now absorbed by HMC) in order to explain these contrasting experiences.
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