Hyundai will go on a luxury drive

Won Shin Chang says Egypt is the biggest market for the car manufacturer. (RAMI ELJUNDI)

Japanese, American and German cars have dominated the Middle Eastern market for decades. But as global competition increases and sales decline, emerging markets start to position themselves to take over a bigger share of the market.

Hyundai is a good example, as few would have predicted that it would become a top-five car manufacturer when it introduced its first model, the Pony, in the 1970s. Won Shin Chang, director of the export division for Europe, the Commonwealth of Independent States, Africa and the Middle East, sat down with Emirates Business in South Korea to discuss the company's business strategy. He called the entry-level car manufacturers innovators not imitators, and said the path to success is through the luxury car segment.


What has been the impact of the falling US dollar on sales and exports?

The Korean won has been volatile against the US dollar for the past couple of years. The foreign exchanges are beyond our and the control of the central government, but this has put us under greater pressure. When the Korean won is strong, we see cost advantages against Japanese car brands. However, in some countries our products have become more expensive than Toyota's. We have seen this not in the GCC but in North America, where our Accent was costing more than the Toyota product.

The Korea Times reported on May 19 that the government may intervene in the foreign currency market to keep the won's value low to boost exports. How would this help Hyundai and the export of other South Korean car products?

Some economists have raised this issue, but we cannot rely on the currency as a competitive advantage. It is a fatal mistake to rely on the currency. We have to position ourselves to be globally competitive by building more factories overseas where we sell our cars. Our primary defence against currency swings is to invest in plants in America, Europe, China, India and Turkey. Such plants are ways to manage foreign exchange risks to build solid trading relationships where we do business. We are fighting currency swings by cost innovation and increasing efficiency.

How do Korean cars compare with their international competitors?

We have been facing problems since our brand acceptance is not yet on par with Toyota. Although the price gap between Japanese and Korean car products was big it has been narrowing over the past few years. We are feeling the same pinch in the GCC because the economies are dollar-dominated.

Did the rise in oil prices have any impact on your decision to produce fuel-efficient vehicles?

We are well-known worldwide for producing fuel-efficient and affordable cars. But for the past few years, we have been trying to escape the entry-level car image and have been pushing to sell larger cars such as Sonata and Santa Fe. For a long time, the Accent was our biggest selling car in the world, then it was Elantra.

What was the reaction of your dealers to your push for larger models?

Our dealers said we would lose touch with our sub-compact business due to our push for bigger cars. But with the rise of crude oil prices, we realised customers needed small – but better – cars and a variety of models in the segment. So we have acknowledged this in parallel with our ambitions to expand into other segments. We sustain our roots and have put a renewed emphasis on sub-compact cars as this is what the world currently needs. Economy is at the forefront of the new competitive car models.

Do you feel your response to the complaints was late?

No. However, we could not stay at the bottom segment because margins are small on small cars. With compact cars, you hope the owners will come back to you and buy a bigger car and this is how we have been building consumer loyalty. It is much more difficult to win a customer from a different car manufacturer such as Ford, Toyota or Honda.

Which country in the Middle East and Africa has the largest market share in terms of sales? Which country has the lowest?

Egypt comes first, and Hyundai achieved 28 per cent of the total sales of cars in the country for 2007. We expect a 25 per cent rise in 2008. Meanwhile, Kuwait is the lowest. In Kuwait, we achieved 4.7 per cent from the total car sales in 2007. Egypt is a big market and our products combine quality and affordability there. Besides our plant there, our network of dealers have been performing well in terms of advertising, product awareness and post-sale service. In Kuwait, our product has been the same, but the problem has been in the sales network, which is weaker compared to dealers elsewhere. Our average market shares stand at 8.5 per cent, so Kuwait is low.

Does Hyundai has plans to build a plant in the GCC?

We have no plans in the GCC. The region is considered a lower-entry barrier and it is better to import to each country from the outside. We only think of such plants in high-duty countries. If duties are very high for a finished car, one way to bypass it is to ship the parts at a low duty and assemble the car in the country. This is a common solution to get around high duties in countries such as Egypt, but since GCC countries are low duty it does not make good business sense.

Auto industry observers believe Hyundai and other emerging brands are trying to take over the share of other car brands. And critics have said Hyundai Accent is an attempt to replace Honda Civic or Toyota Corolla. Is it true that there is a strategy of imitation rather than innovation?

Today's market is totally different compared to 20 years ago. We felt there was a gap in the car market and we took the opportunity to fill it. When other manufacturers leave their position, it is not difficult to take it and fill it with more competitive products. What we do differently at Hyundai is to preserve these models and improve them.

What has been the purchasing trend in the Middle East over the past 10 years?

A long time ago the market was occupied by German, American and Japanese car brands. Now, people are starting to think of smaller, more economic cars with quality, rather than the long established brands – especially in emerging markets. Our sales performance shows more customers are turning away from American and Japanese brands to Hyundai and other Korean car brands.

Hyundai is in the middle of a launch of a new luxury model, Genesis. What does it take for an emerging car brand to break into the luxury market? What will be the production capacity?

We believe our continuous success with product quality, credibility and cost are logical reasons to make us think about getting into the luxury segment. We started the Genesis project five years ago. We are launching it under the theme 'new beginning for a new era' for luxury by Hyundai. The Genesis has already been introduced in Korea. In America, it will be launched in June and in October in the Middle East. We will be producing 80,000 units – 4,000 units for the Middle East, 30,000 for North America, 35,000 for Korea and the rest will be for China and Russia.

How big of a risk is it for Hyundai to try to move into the luxury market?

I hope people become believers because there are a lot of sceptics. Some would say it is another car and there is nothing special. But those who have visited our plant and taken the car for a test drive understand the depth of our engineering and how good our products are. They become more confident in the future of the brand. They will have the conviction that emerging car brands can position themselves in the luxury segment as well. In the end, everyone starts from somewhere.

 

PROFILE: Won Shin Chang, Hyundai

Won Shin Chang, 50, has been Hyundai Motor Company's director of the export division for Europe, the Commonwealth of Independent States, Africa and the Middle East since January. He was previously the general manager for Hyundai India, where he co-ordinated sales. He first joined the Hyundai administration team in Seoul in 1984. He holds a BA in economics from Korea University and is married with two daughters.

 

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