Korean automaker Hyundai was China’s third largest auto manufacturer and took a more than 10% of the market share. The latecomer managed to increase its China sales to 1 million annually in only a decade—a goal that took Volkswagen over 20 years to realize. Yet its sales plummeted 30% in 2017 and kept felling since. In 2021, Hyundai’s sales dropped to about 380,000 units. Here are some of the key explanatory factors.
A complex governance structure made it hard to reach agreements and make fast decisions
Hyundai formed a 50-50 joint venture with a local Chinese company. Its governance structure is inevitably more complex and unwieldy than other foreign companies’ China setups. Both parent firms contributed key managers, yet the disagreements between them never stopped.
Hyundai faced strong competition from both Chinese local brands and other foreign automakers
Chinese automakers matched Hyundai’s design capabilities, and did so while retaining a cost advantage. Other foreign automakers kept updating their models and cutting prices, further squeezing Hyundai’s space.
Korean supply chain became an impediment to lower costs and a source of friction
Hyundai replicated its sturdy Korean supply chain and brought Korean suppliers such as Mobis and Kyungshin to China, which ensured quality and speed. Yet it later became an impediment to lower costs and a source of friction between the joint venture partners – the Chinese partner was unhappy with the fact that few Chinese firms were included in the supplier network.