Business Essay

International business in focus: The Case of Kia Motors

Contents

Introduction. 2

Challenges in Kia Motors’ business environment that are of current strategic importance. 3

Pestle analysis. 3

Political factors. 3

Economic factors. 4

Social factors. 5

Technological factors. 5

Legal factors. 6

Environmental factors. 6

Porter’s Five Forces Analysis. 7

Degree of rivalry. 7

Supplier and buyer power 7

Threat of new market entrants. 8

Threat of substitutes. 9

SWOT analysis. 9

Strengths. 9

Weaknesses. 10

Opportunities. 10

Threats. 10

How should Kia Motors should Kia Motors respond to those challenges?. 11

Recommendations. 12

Conclusion. 13

References. 14

Introduction

Kia Motors Corporation is an automobile manufacturer based in South Korean. It was founded on 1944. Kia was the first company in South Korea to export automobiles. Today, Kia continues to record tremendous growth. The company has established corporate headquarters, design centers, and production facilities in different parts of the world, including Slovakia, Georgia, China, and the United States. In the U.S., Kia sells automobiles of different categories, including sedans, hybrid models minivans, and sport utility vehicles. Through Kia Motors America, the company has established hundreds of dealerships across the U.S. Thirty five percent stake at Kia Motors is owned by Hyundai Motors, another South Korean automobile manufacturer (Southerton, 2012).

In today’s tough economic times, one of the main competitive advantages of Kia Motors is its ability to provide generous warranties and prices that are lower than those offered for Japanese and American cars. This competitive advantage has greatly contributed to a rapid increase in the company’s sales. It has also contributed to the company’s rise to the second position in the South Korean automobile market (after Hyundai). The aim of this paper is to identify the challenges in Kia Motors’ business environment that are of strategic importance. The paper also contains an opinion on how this company should respond to those challenges in its operations in today’s international business environment. On this basis, recommendations are made for the company’s future.

Challenges in Kia Motors’ business environment that are of current strategic importance

Pestle analysis

Political factors

One of the political challenges in the international environment arises from the fact Kia Motors operates in a high-stakes automobile industry (Lautier, 2001). For example, in the U.S., the federal government has a tendency to come to the aid of established companies through bailouts whenever they are encounter serious financial problems. In late 2008, General Motors and Chrysler were bailed out after informing the American government that they were facing the danger of bankruptcy (Shaver, 2009). Such financial assistance is never accorded to foreign companies such as Kia Motors.

Moreover, like other companies operating in the international business environment, Kia Motors is prone to economic recessions. For example, in 1997-1998, the company was deeply affected by the Asian financial crisis. This financial crisis marked the end of a successful era in the company’s international operations (Lansbury, 2001). The financial problems that the company faced triggered a corporate crisis. However, Kia Motors was fortunate to be given a “second chance” through Hyundai Motor, the parent company.

In general, the period between the early 1960s and the early 2000s were characterized by far-reaching political forces that had an impact on the operations of carmakers from South Korea, including Kia Motors and Hyundai. For example, as Kia Motors made far-reaching attempts to venture into the international market, government intervention led to the imposition of new mandates, whereby Kia Motors was stopped from producing cars and instead to redirect its energies on the production of commercial vehicles. It was not until the mid-1980s that Kia Motors was allowed to resume the production of cars. Moreover, In the U.S. market and elsewhere, Kia Motors has been facing the challenge of political interference through the introduction of stricter fuel-efficiency standards, regulations on carbon dioxide emissions, and safety.

Economic factors

One of the economic factors that pose a major challenge to the operations of Kia Motors in the international business environment derives from the capital intensive nature of the industry. Moreover, most of the countries that export automobiles are highly dependent on exports. In this industry, high brand loyalty is another major challenge for Kia Motors, which is relatively new in the international business environment (Shaver, 2009). This poses a major challenge given that the international global industry is dominated by several multinational companies. Some of the industry leaders include Toyota, Volkswagen, and Ford. In terms of global percentage market share, Toyota held the leadership position in 2009 with 10.9 percent (Tomlinson, 2010).

Surging prices of raw materials constitute another major economic factor for Kia Motors. This challenge is best understood in the context of value chain analysis. In the recent past, the company has had to lodge a complaint about unfair practices to the Fair Trade Commission. Since 2005, import penetration has increased dramatically, such that Kia Motors is compelled to rely of imports on crucial auto parts from European countries (Ebert, 2007). This trend continues to become established despite the fact that majority of the company’s auto parts continue to be sourced from lower-cost Asian countries.

Social factors

            The main social problem at Kia Motors is human resource management (Shaver, 2009). This problem arose as the company embarked on a process of transitioning from the mass production system that is supply-oriented to a demand-driven, flexible, lean production approach (Jurgen, 2007). The company finds it difficult to exploit employee skills optimally with the aim of achieving harmonious employment relations. This challenge has prevented the company from introducing lean production in some of its plants such as the Sohari Plant (Lansbury, 2002). The failure to make this crucial transition was one of the contributing factors for its failure during the Asian financial crisis of 1997-1998.

Technological factors

As a latecomer firm in the industry, Kia Motors remain behind the established market in the area of technology. One of the main areas is that of hybrid concepts (Jurgen, 2007). The company started stepping up research activities in this area during the late 1980s and early 1990s. By this time, VW Group, an established international automaker, had already succeeded in launching its first hybrid car (Ritter, 2010). Although Kia Motors has quickly caught up with VW Group, a minor technological gap still exists because of VW Group’s head start in this field. Moreover, in efforts to develop electric cars, Kia Motors has not launched adequate external research partnerships (Southerton, 2012). The company is also confronted with the problem of ensuring that aggressive adoption of technology does not lead to long-term increase in prices of automobiles.

Legal factors

The greatest challenge for the company with regard to legal factors is the strict laws and government regulations implemented in many countries especially in Europe and America (Jurgen, 2007). Automakers are required to adhere to strict standards, in areas of quality, fuel economy, reduction of emissions, and environmental protection (Ebert, 2007). Failure to comply with these laws attracts stiff penalties. For example, in 2012, Kia and Hyndai were compelled to spend millions of dollars in compensation to owners of some 900,000 vehicles the companies had sold under mileage claims that were inaccurate (Southerton, 2012). The companies admitted to have exaggerated estimates on fuel economy on most of their models.

Environmental factors

Today, we live in a world of climate change. Environmental concerns constitute a major challenge for automakers companies that want to be seen to be taking proactive measures in efforts to reduce greenhouse gas emissions in their production facilities (Ebert, 2007). Kia intends to be a global leader in green technology but is unable to achieve this dream because of the numerous challenges existing in today’s international business context. Although Kia Motors has earned the title of being one of the top 50 green brands, the company faces the challenge of maintaining a balance between promoting eco-management principles and maximizing short-term gains in profitability (Tomlinson, 2010).  Moreover, the long-term goal of zero-emission automobiles is yet to be achieved (Southerton, 2012).

Porter’s Five Forces Analysis

Degree of rivalry

The concentration ratio in the international automobile industry is relatively high. This indicates that the level of competition is somewhat low. However, a high degree of rivalry continues to prevail in the industry. In the U.S., where Kia Motors is keen to cut out a niche, the three leading automotive companies, Ford, General Motors, and Daimler Chrysler, are no longer the most dominant industry players (Ritter, 2010). Global companies, including Kia Motors, have turned the U.S. market into a platform for evaluating their ability to globalize themselves.

The main factors intensifying this rivalry include diversity in terms of cultures and market philosophy. Kia Motors faces greater challenges in Europe, where market growth is slower than in the U.S. market. Switching costs for consumers are relatively low, yet the costs associated with the manufacturing process are fixed. This significantly contributes to growing rivalry as competing manufacturers put in place concerted efforts not to lose out on their existing market shares. Moreover, as a newcomer in the industry, Kia Motors faces the challenge of promoting brand power as a way of increasing its competitive advantage.

Supplier and buyer power

      Just like the trend in the industry, the power axis at Kia Motors seems to be slightly in favor of the company at the expense of its suppliers. As the company continues to achieve growth, it is increasingly becoming aligned with powerful buyers who easily dictate terms to suppliers. This advantage arises because companies in the automotive industry do not proliferate as quickly as in other industries. Moreover, automotive parts are in most cases standardized and can only be used in the production of automobiles. One of the main challenges for Kia Motors is that the possibility of backward integration cannot be ruled out. Kia Motors is yet to attain the level of success and growth required to be able to roll out a bid for backward integration.

      The greatest challenge arises with regard to the relationship between the company and its consumers, simply because it favors the consumer. This is because the automotive commodity is fairly standardized. For an emerging brand like Kia, the fear of losing customers because of the low cost of switching in the industry is very real. Moreover, consumers can easily manage to choose from a wide range of competing brands, all of them presenting fairly standardized products (in this case automobiles). Moreover, the pace of evolution in the industry is too rapid for Kia Motors. Competition from established companies is intense largely because of their ability to adapt and evolve in response to consumers’ demands.

Threat of new market entrants

Numerous barriers to entry exist in the industry. This is largely because of startup capital requirements. Although this is a positive attribute as far as the operations of Kia Motors in the international environment is concerned, it also comes with some disadvantages. The main disadvantage is that in case of failure in operational processes, it becomes extremely difficult for retooling to be done.

 Although barriers exist, established automobile companies continue to enter new markets through mergers and acquisitions. This trend drastically reduces barriers to entry. For instance, major U.S. companies have since the 1980s demonstrated a preference for mergers, partnerships, and acquisitions with Japanese companies. This move poses a major threat to South Korean firms (such as Kia Motors) with an interest in achieving growth and success in the U.S. market.

In the developing world, particularly in Africa, South America, and Asia, barriers to entry also exist. Nevertheless, domestic startups in these countries pose a major challenge, particularly when developed through local expertise. Such startups can potentially compete within their home market against established international automobile companies such as Kia Motors. Such an undertaking, if successful, may end up being taken over by an established global manufacturer through a merger or acquisition. Today, one of Kia Motors’ greatest challenges is to achieve the level of growth that makes it possible for the company to participate in such mergers and acquisitions.

Threat of substitutes

The twentieth century has been dominated by emergence of the automobile as the main mode of transport. This phenomenon will continue to be experienced in the foreseeable future. Therefore, for Kia Motors, the threat of substitutes will continue to be mild. Although many alternative forms of transport exist, none offers the independence and convenience provided by automobiles. Moreover, costs incurred during the switching time can be rather high considering factors such as independence and the luggage capacity of the individual. However, in monetary terms, the costs are low.

Kia Motors relies predominantly on a low-cost strategy to encourage consumers in the developed world to switch to the company’s models. However, in Europe and the US, where Kia Motors has embarked on a massive growth strategy, the main challenge is that concerns about environmental sustainability and fears about fuel efficiency have started discouraging many people, particularly in the developed world, from buying automobiles. This has driven automobile companies into making huge investments in the field of hybrid concepts. Kia motors must participate in research on alternative sources of fuel in order to ensure that it will be among the pioneering beneficiaries once a viable alternative source of fuel is discovered.

SWOT analysis

Strengths

            One of the main strengths is that Kia Motors is a dominant automobile producer in South Korea. Secondly, it has continued to maintain a strong presence in major events such as the FIFA World Cup through sponsorships. The company has a workforce of over 40,000 employees. The company’s brand presence also stands out in the automobile industry. Another major strength is the ability by Kia Motors to sell more than one million automobiles annually.

Weaknesses

Past recalls pose a major weakness for Kia Motors. Many recalls have had to be ordered because of technical problems affecting the braking system. Another weakness is the inability to leverage its presence in all regions of the world. The geographical spread of the Kia brand remains a crucial issue that Kia Motors is yet to address.

Opportunities

Kia Motors has an excellent opportunity to venture into the huge markets created by countries that have recently become industrialized. The company can also venture with ease into countries where Hyundai has already set up operations. For example, Kia can venture into India, where Hyundai is unable to capture the Sport Utility Vehicle (SUV) market. Additionally, Kia is in a unique position to exploit the opportunity to use its experience in the defense sector to seek business in the Arab countries that were recently adopted new economic ideologies following the Jasmine Revolution. Finally, the company has developed electric models that can be used to open up new frontiers for the Kia business model.

Threats

The biggest threat for Kia Motors today seems to come from the Japanese automobile industry. This industry has established a foothold in most parts of the world. Kia Motors will have a rough ride in the near future as it attempts to curve out a market share in an international business environment dominated by giant Japanese corporations such as Toyota and Nissan. These competitors have succeeded in the path of differentiation while Kia Motors has not.

How should Kia Motors should Kia Motors respond to those challenges?

Kia Motors has numerous options in efforts to respond to the challenges that it faces as it continues to venture into the international market. The main response should involve improvement in technology. By improving technology, the company will succeed in achieving levels of fuel efficiency that are higher than those of established competitors. The company will also succeed in building more efficient “green” cars on a mass-production basis. To succeed in the technological aspect, the company must launch adequate external research partnerships.

The social problem of human resource management also needs to be addressed. Optimal use exploitation of the skills of employees is critical in enabling the company achieve harmonious employment relations. However, the company must at the same time ensure that the aggressive adoption of technology does not culminate in an increase in prices of automobiles in the long run.

The Ansoff Matrix provides four strategic options for companies that seek to deal with challenges being encountered in the international business environment (Griffiths and Wall, 2000). Firstly, a company may choose to target the existing customers by selling the existing goods and services to them. The second option entails the introduction of new products to the company’s customers. The third option involves seeking new markets to sell the existing products. Fourthly, a company may engage in diversification by looking for new markets to sell new products.

By choosing to improve technology, Kia Motors must prioritize on product development and diversification. Of the four choices, diversification is the riskiest undertaking. For instance, it will be very risky for Kia Motors to build cars that run on alternative types of fuel. A case in point is the issue of bio-fuels. Although bio-fuels are friendly to the environment , many sustainability issues have been raised. Concerns continue to arise regarding the new risks posed to the environment as industry players endeavor to engage in large-scale mobilization of resources to meet the ever-rising demand for the fuel. To reduce this risk, product development seems like a better option, whereby new products are created for sale to the existing customers of the company. This strategy can go hand-in-hand with efforts to improve the human resources management strategy in order to enhance organizational efficiency on global scale.

On the basis of the Boston Matrix, Kia Motors no doubt is in a dangerous position because of the absence of an aggressive process of diversification (Griffiths and Wall, 2000). The company’s product range needs to be widened. Currently, the company has focused too much on sedans and SUVs. The company needs to diversify into the category of commercial vehicles. In terms of the immediate course of action, the company must address the challenge of low market-share in high-growth regions in the emerging economies (Griffiths and Wall, 2000). In the Boston Matrix, products sold in this business environment are known as “problem children” (Griffiths and Wall, 2000). To deal with problem children, Kia Motors must engage in product development and diversification.

Recommendations

      On the basis of the challenges that Kio Motors continues to face in the international business environment and the responses suggested, this paper makes the following recommendations:

  1. Kia Motors needs to prioritize on product development and diversification in areas that will bring about competitive advantage such as fuel efficiency and “green” technology.
  2. Since diversification is a risky undertaking in the automobile industry, Kia Motors should seek  external research partnerships.
  3. The company needs to establish a strategy for ensuring that the aggressive adoption of technology does not culminate in long-term increases in prices of automobiles.
  4. The debate on alternative sources of fuel has in recent times turned into a bandwagon in the global automotive industry. Research in this area should be a priority for Kia Motors. However, the company should embrace this trend in such a way that the existing customers are not alienated.
  5. To deal with the threat posed by Japanese automobile companies, Kia Motors should prioritize on widening their market share in emerging economies, particularly in Asia, Africa, and South America. Moreover, rapid economic changes continue to occur in the Arab world following recent popular uprising. Kia Motors is in a strategic position of venturing into these markets through partnerships, particularly in the defense sector where the company’s experience rivals that of most Japanese automobile corporations.

Conclusion

In conclusion, this paper has made several claims regarding Kia Motors and the challenges it faces in the quest to venture into the international market. The main claim is that in this high-stakes industry, technology will continue to play a critical role in enabling Kia Motors gain a bigger share of the global automotive market. As a latecomer firm, Kia Motors continues to find it extremely difficult to compete with established multinational firms. Nevertheless, the company has succeeded in establishing a strong brand presence in major markets such as the United States.

References

Ebert, R. (2007). Performance of the South Korean Automobile Industry in the Domestic and United States Markets. Journal of Research and Creative Studies, Vol. 1, No. 1, pp. 12-24.

Griffiths, A. & Wall, S. (2000). Intermediate microeconomics: Theory and applications. Pearson Education, Los Angeles.

Jurgen, R. (2007). Survival strategy: Go global: International alliances, quality, and efficiency mark the winners in the high-stakes automobile-manufacturing game. Cambridge University Press, Cambridge.

Lansbury, R. (2001). Production systems, human resources and employment relations in Korea: The case of Kia Motors. Asia Pacific Journal of Human Resources, Vol. 39, No. 2, pp. 54-65.

Lansbury, R. (2002). Technology, Human Resources and International competitiveness in the Korean Auto Industry. Harvard University Press, Boston.

Lautier, M. (2001). The international development of the Korean automobile industry. Penguin Books, Toronto.

Ritter, L. (2010). The rise and competitiveness of South Korean automobile manufacturers: A comparative study with German auto producers. University of California Press, Berkeley.

Shaver, M. (2009). Kia Motors’ Branding Strategy and the U.S. Market. Jönköping International Business School Press, Seoul.

Southerton, D. (2012). Hyundai and Kia Motors: the Early Years and Product Development. Princeton University Press, Princeton.

Tomlinson, G. (2010). Building a culture of high employee engagement. Strategic HR Review, Vol. 9, No. 3, pp. 25 – 31.

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