Hyundai and Kia Case Study Analysis
Hyundai and Kia are the largest automobile manufacturing group in South Korea. Due to their large volume of exports, Hyundai and Kia are the fourth largest auto manufacturer globally. In 2006, the host currency of the company experienced high appreciation. Since both companies rely on price competiveness as a main strategy the stronger currency meant lower profits. Hyundai and Kia decided to expand production to the United States as a hedge against the volatility of exchange rates.
Is expansion in the United States a good idea?
For Hyundai and Kia to continue expansion in the United States, they must consider how currency exchange rates affect their competitive strategy. Hyundai and Kia’s low-price strategy has put them in a position where fluctuating currency exchange rates affect profits significantly. When the value of the won is low compared to the U.S. dollar, the companies’ sales in the United States translate to a high value of won. Conversely, when the value of the won is low compared to the U.S. dollar, sales in the United States do not translate to large profits in won. Hyundai and Kia’s expansion strategy in North America seeks to reduce exchange rate risk and support their larger goal of selling 10 million cars in the United States per year.
Hyundai experienced the adverse effects of an appreciated currency in 2006 when the won rose significantly in value. Although Hyundai experienced higher unit sales, their profits took a 35% hit ("Hyundai’s Net Profit Falls 35% during 2006", 2007). As the won becomes stronger, the U.S. dollar can be considered weaker in comparison. This fluctuation in currency exchange would affect consumers in the United States negatively, as it would likely become more expensive to purchase a Hyundai causing a decrease in sales. Therefore, if the won is expected to continue appreciating, it would be beneficial for the company to continue expanding its presence the United...