Academic MBA Question:
Case Study: The slump in the South Korean economy in the late 1990s was
bound to affect Hyundai also. The automobile segment was among the first to be
hit by the downside in the economy. The domestic automobile sector had a
negative growth of almost 55% in 1998 compared to the previous year. Hyundai
was responsible for almost 50% of total automobile production in South Korea
and was therefore badly hit. The domestic sales of the company fell by 55% in
the year 1998 and its exports crashed by 74% to only 15,056 units. Hyundai
recorded a 200-billion-won loss in 1998. According to company officials,
Hyundai’s six assembly plants with a yearly production capacity of 1.65 million
vehicles, were operating at only 40 percent of their capacity. In May 1998,
Hyundai reacted to this grim situation by announcing plans to lay off 27 percent
of its 46,000 workforces in South Korea and to cut pay bonuses and benefits in
a bid to save 230 billion won. Unfortunately for the management of the company,
Hyundai had one of the most powerful and militant unions. The decision of the
company to lay off workers sparked off agitations not only in Hyundai but in
other companies too. The unions were particularly offended at the government’s
approval of Hyundai’s decision.
In a demonstration in Ulsan, where Hyundai has its biggest
automobile plant, 32,000 employees participated in rallies. All across South
Korea, almost 1,20,000 employees from about 125 companies participated in
demonstrations against Hyundai and the government’s decision. The government
had to deploy nearly 20,000 riot police to control the demonstrators
Labour Problems in the Early 2000s
On September 1, 2000, Hyundai officially cut ties with the
Hyundai Group and had relocated its head office to Yangjae-dong, Seoul, Korea –
a move that was seen as symbolic of its rebirth as an independent automotive
business group. In December 2001, Hyundai forecasted its highest profits ever –
$900 million for the year. In the same year, it posted 23.4 % in unit sales and
a 74.5% improvement in net income. Most importantly, Hyundai vehicles were being
accepted as a technologically advanced, stylish and reliable in overseas
markets like the US and Europe. In the United States, the world’s largest auto
market, Hyundai recorded a 42% sales increase in 2001. This was an era of
growth, reorganization, and new market exploration. But the success story was
marred by another strike threat in Hyundai.
Workers at the Ulsan plant went on a two-day strike in
December 2001, demanding higher wages and higher bonuses. They also demanded a
30% share in the profits that year as a performance bonus. The management
clarified, that though the company had done well that year, it could not afford
performance bonuses to the tune of 30% of the profit. The reasons given were:
firstly, the increased influx of imported cars into South Korea was bound to
hurt Hyundai’s market share and margins in South Korea. Secondly, General
Motors’ purchase of Daewoo was a threat that could not be ignored or taken
lightly, and the company had to gear itself up to be able to compete with General
Motors, and lastly, the most important reason stated was that due to the
appreciation of the Korean won, Hyundai cars were becoming less competitive in
international markets and profitability consequently would be hurt.
a. Industries need to adopt proactive policies about
Industrial Relations which help to prevent any risk of conflict rather than
waiting for such situations to occur and then planning a strategy. To what
extent this approach was visible in the Hyundai’s Industrial relations
policies.
b. “Since
the very beginning, employee participation, and employee involvement (together
known as participative management) define the essence of Industrial Relations”.
Kindly justify this statement in terms of this case study.
Academic Assignment Answer:
