Theoretical Basis of Hyundai Strategies Essay
There are four main concepts of approaches to strategy recognized. These are: Classic, Environmental, Processual, and Systemic. The four approaches differ widely. The Classic theory suggests that the main goal of business is profitability, and to achieve it requires rational planning. The key main features of the Classical approach are; attachment to rational analysis, conception is separated from execution, commitment to profit maximization.
In Classic approach the fundamental strategic problem is defined as positioning of the firm in the markets with the maximum profit earning (Sloan, 1963).Evolutionary approaches to strategy also consider that high profitability is essential for survival, however, they consider markets to be the main force to secure profit maximization, and not the ability of the top management to plan and act rationally. According to Williamson (Williamson, 1991) the only real comparative advantage is relative efficiency.
Processual approaches consider that neither the ability of top management to strategize rationally, nor markets, is ensuring profit maximizing outcomes. Processual approach inclines towards incremental adjustment (Quinn, 1980) and cultivation of core competences.In Systemic approach, the styles of strategy are embedded in particular social system, and while to the outsider the strategy might seem irregular, their processes and goals are considered rational according to the local criteria. To Systemic theory, the differences between countries’ social systems and changes within countries political systems are important. For the South-East Asia, prevailing forms of business vary according to the local interplay of state, familial and market structures (Whitley, 1999).
In my opinion, the Hyundai Motors Company strategies are based on the Systemic concept/theory. The factors supporting this point of view are as following: Ownership structures have implications on the strategy. In the Anglo-Saxon economies the detached relationship between the shareholders and their companies is observed. In Germanic economies – banks and financial institutions play a central interventionist role. In the South East Asia, and in particularly in Korea, the social structure is somewhat patriarchal.Initially, Hyundai ownership and management style reflected in some way a social structure of the society. Like other Korean business conglomerates (chaebols), HMC was established by authoritarian founding chairman Ju-Young Chung with a unified and centralized management structure. The initial ownership was totally controlled by Ju-Young Chung and his heirs.
Its strategy and decision-making processes were dominated by the Chung family. However, such a patriarchal ownership structure had its advantages and allowed HMC to follow more autonomy over its external relationships.Political democratization movements in South Korea affected HMC also, and HMC’s Labor Union was established, which presented HMC with many difficulties in implementing its strategic decisions. State and governmental policies have significant influence on the strategy of business. In the South Korea the state imposes great deal of power over the chaebols, amongst which the Hyundai Company is probably the most prominent. In 70-s nationalized banks provided low interest loans to the companies that invested in state-targeted, heavy manufacturing companies.
Such centralization of resources imposed the certain structure of business, and therefore had a significant effect on the strategy the businesses adopted. The chaebols developed vertically integrated and diversified conglomerates that could better withstand changes in state policies and to become self-sufficient in capital and technology (Kim). In response to the IMF requests and requests of the foreign companies in late 90-s, the Korean government has pushed for improvement of chaebols’ managerial transparency and professionalism, and to spin off unrelated businesses.
The Hyundai group was also pressed into an unprecedented restructuring of its businesses. Almost 70 affiliates of the Hyundai group were spun off in 1999 and 2000. Also in response to the changes in state policies, Hyundai has developed the horizontal organizational structure with the delegation of authorities and became a divisional organization with the main strategic goal to improve the production efficiency. Political movements in the country affect the strategy of operating the business. In South Korea, the trade unions were legalized in late 80-s, and the Hyundai labor union was the first to be established.
The establishment of the trade union had created the war-like relationship between the management and the workers. Due to several strikes held by the union, which impacted the image of the company, the strategic decisions were made taking into the consideration the demands of the trade unions in regards to wages, employment termination and social benefits. Those factors will inevitably contribute to the cost of production; therefore, the strategy on the efficiency of production should consider the cost reduction of the production through other resources.