Introduction

Over the years, many companies have reduced their business cost and expanded their product lines through an aggressive supply chain strategy. Low cost-cost country sourcing, multi-tiered supplier networks and business process outsourcing are among supply chain initiatives that companies have employed. The benefits of these initiatives are apparent, companies are able to reduce cost of goods, develop new markets, and free up resources to focus on core value adding processes (PWC, 2010). However, these benefits are often accompanied by greater supply chain complexity and exposure to new risk. All supply chain are vulnerable to one type of risk or another (Snyder et al 2006).

Hyundai motor company (HMC)was established in 1967 to design ,assemble and manufacture cars for local consumption and export (Wright et al 2009). The company is South-Korea’s largest auto-maker contributing about 50% of their total automobile manufacturing output. It operates the world’s largest integrated automobile manufacturing facility in Ulsan, which has an annual production capacity of 1.6m units (Chung-Koo, 2010). It is the world’s sixth largest automaker by output and world largest automaker by profit (Hankooki, 2010). In 2009, Hyundai motor sold a total of 1.61m units world-wide (Hyundai.com,2010).

Hyundai Motor company has manufacturing and assembly plants in Europe, North America, Africa and Asia but mainly produces and supplies its main components from the Manufacturing plants in Ulsan, south-Korea.

The Hyundai manufacturing plants in South-Korea, made up of plants in Ulsan, Asan and Jenju, had a total work-force of 39,000 as at 2003 (Asia Pulse, 2003). Labor relation is always a confrontational issue between the top management and the union in Hyundai with workers constantly demanding for better working conditions, increased wages and union’s involvement in management decisions. The workers set up a labor union after the government’s declaration of June 29, 1987 that called for a relative relaxation of its tight, long-term suppression of labor activities. After a trade union was formed at the company in 1987,there has always been one trade dispute or the other in every year, leading to a partial or full strike except for 1994. Aggregate loss in output totaled 900,000 units, according to company statistics (Korea Herald, 2003).

This essay gives an insight on the supply chain disruption at HMC in 2003 caused by a 47-day labour strike in their South-Korean plants, which led to a US$1.1 billion in lost sales (Globalinsight, 2003), with emphasis on the disruption caused by the strike on their European operations.

Literature Review

Supply Chain Risk and Vulnerability

Risk can be defined as a chance of danger, damage, loss, injury or any other undesired consequence (Harland et al,2006). The royal society (1992) defined risk as the probability that a particular adverse event occurs during a stated period of time or result from a particular challenge.

There are two broad categories of risk affecting supply chain Network. The first risk arising from the problems of coordinating supply and demand, also risk arising from disruptions to normal activities. Generally, disruptions need not to be physical in nature to severely interrupt the flow of goods, information or funds throughout the supply chain. For example, work stoppages, slow-downs e.t.c can be disastrous to the business that rely on those services to manufacture and distribute their products. Disruptions in supply chains can be caused by conscious acts by a person or a group. Depending on the intention, these acts can be classified as terrorist or non-terrorist. Terrorist attacks are often intended to destroy while non-terrorist acts are not. Wilson (2007) defined disruption as an event that interrupts the material flows in the supply chain, resulting from an abrupt cessation of the movement of goods. It can be caused a natural disaster, labour disputes, dependence on a single supplier, supplier bankruptcy, terrorism, war and political instability. However, organisations can mitigate all these risks by becoming more resilient, a resilient enterprise is better able to endure the vagaries of global trading. In supply chain, resilience measures the ability to, and speed at which they can, return to their normal performance level (production, services, fill rate and so on) (Sheffi et al, 2005).

KOREAN AUTO INDUSTRY

The Korean automobile industry is currently the fourth largest in the world in terms of production volume and the sixth largest in terms of export volume. While its initial operations were merely the assembling of parts imported from Japan and the United States, Korea is today among the most advanced automobile-producing countries in the world. Annual domestic output exceeded one million units in 1988. In the 1990s, the industry manufactured numerous in-house models, demonstrating not only its capabilities in terms of design, performance, and technology, but also signaling its coming of age(KAMA, 2005).

Globalization

Korean auto manufacturers have been aggressive in recent years in expanding their overseas operations. Kia entered the Indonesian car market in a joint venture for a national car project, Hyundai advanced into the Indian market, and Daewoo’s local production plants in Poland, Uzbekistan, and Romania started full-scale operations. Korean automakers, with full intentions of becoming among the global top ten by early next century, are now entering a new phase where all efforts are based on global management. Each manufacturer is pursuing different strategies to advance overseas to build local production operations. Hyundai, among others, formulated its own comprehensive globalization strategy, and this plan is quite a departure from its past strategies which focused on KD kit assembly. Hyundai is planning to establish a comprehensive local production system parts and components manufacturing in countries with big markets and great potential. Hyundai intends to pursue this plan independently on its own (Lee, 1997).Hyundai Motor company (HMC) which is the sole survivor of three former major auto companies in Korea after the Asian financial crises caused by the over saturation of the domestic market which forced other auto makers into receivership, seeks to become a global manufacturer with assembly plants all over the world (KAMA,2005)

HYUNDAI GLOBAL OPERATIONS STRATEGIC ANALYSIS

The Hyundai Motor Company (HMC) began in 1968 as a complete knock down(CKD) assembler under an agreement with the Ford Motor Company. In 1972,HMC produced its first originally-designed model, the Pony, using a low cost strategy with more than 90 per cent of its parts being sourced locally (Wright et al 2009). HMC’s subsequent growth was largely due to exports, because of the then small size of the domestic market. The complete knock down (CKD) assembly of the Cortina was followed by the development of HMC’s own model in 1976 (Lansbury et al. 2006). Other new models followed and HMC entered the US market in 1986 with the competitively low-priced Excel.

During the late 1980s, however, the international auto industry experienced considerable restructuring due to oversupply, excessive production capacity and intense global competition (Womack et al, 1990). This gave rise to a number of strategic alliances between various auto companies via mergers and business partnerships. These were initiated to achieve economies of scale and to enhance the enlarged companies’ competitive positions in the international auto market.

In 1998, after a shake-up in the Korean auto industry caused by overambitious expansion and the Asian financial crisis, Hyundai acquired rival Kia Motors. Hyundai has invested in manufacturing plants in the North America, Europe, Asia, Africa as well as research and development centers in Europe, Asia, North America, and the Pacific Rim. In 2009,HMC had a total financial sales returns of $57.2billion in South Korea making it the country’s second largest corporation, or chaebol (Chung-Koo, 2010). An examination of the globalization of HMC reveals three themes: 1) its growth depends on the expansion of international sales; 2) it began to globalize its productions before it had developed significant competitive advantage; and 3) it built its competitive advantage on its experiences in international markets (Wright et al, 2009).

EUROPEAN OPERATIONS

European market is HMC’s biggest export market (Hyundai.com,2010). As at 2003,it had assembly plants in Turkey and Russia, the strategic objective was to profit from HMC’s success in Europe in the early 1980’s with the pony, when HMC became the largest auto importer into the continent. Sales to countries in Europe accounted for 30% of the company’s total production those years. By establishing manufacturing and assembly plants in Europe, HMC sought to boost its sales and avoid imposition of sales quotas which were basically involved in assembly of modules and distribution of Vehicles to various countries and distribution centres in Europe. The newly established manufacturing bases are expected to be enforcing its price competitiveness and enhance awareness of the company brand, thus enabling Hyundai to compete