Hyundai Motor`s Global Strategies in Trouble

There are mounting concerns that the settlement on the wage and collective agreement between Hyundai Motor Co.`s labor and management can be a stumbling block to the carmaker`s export strategies in the future. The agreement can undermine the efforts to build overseas plants to produce 2 million cars by 2010, experts warned.

The problematic articles of the agreement were to maintain the amount of local production at the level of 2003, notify the labor union of plant relocations 90 days in advance, not layoff workers for a reason of constructing overseas plants, and ask for the union`s approval for coordinating the production line.

“In the past, a company could make a decision on advancing abroad only though the board of directors. Now that it has to ask for an approval from labor unions, decisions to go abroad are likely to lose the speed and efficiency,” said Cho Yong-joon, a financial analyst at Daewoo Securities.

In other words, such a move can dampen the international competitiveness of the carmaker in the cutthroat global market.

“Although it depends on the automobile market and the popularity of new models, the carmaker will have difficulties in its global strategies if it has to abide by the agreement even after the construction of overseas plants is completed,” said Yong Dae-in, an analyst at Sejong Securities.

Hyundai Motor Co. can manufacture 140,000 cars while the overseas production capacity accounts for only 10 percent of the figure or 250,000 cars. On the contrary, the world`s leading carmakers have overseas production systems. In fact, only the domestic company stays at a fledgling state of globalization.

Hyundai Motor Co. set a goal of producing 3 million cars in local plants and 2 million cars abroad by 2010 to become the world`s top 5. To that end, the carmaker is building a plant capable of producing yearly 300,000 cars in Alabama, U.S., and looking for a site in Europe, too. It plans to enlarge the production facilities in China, which started operating from this year.

“To become a global company, production as well as sales should be diversified. A local plant can make a huge difference in marketing and after-sale services,” said Kim Hak-joo, an analyst at Samsung Securities.

In addition, a large-scale local plant is a requirement in order to overcome the difficulties of trade barriers and import tariffs in America, Europe, and China.

Jong sik Kong Na-Yeon Lee kong@donga.com lfrosa@donga.com