This is the fourth installment of the ``Doing Business in China: Learning from Mistakes’’ series. China is South Korea’s largest trading partner. Many Korean businesses are presently in China. In this series we ask successful CEOs to share a business mistake they made in China and how they improved on it. — ED.
By Sunny Lee
BEIJING — China has become the battlefield for global auto competition. Each company’s CEO is a warrior whose mission is to beat his enemies and competitors and survive. Some of them do better. They thrive. Noh Jae-man, president of Beijing Hyundai Motor, is one of them.
As the person in charge of South Korean motor giant Hyundai’s joint venture with Beijing Automotive Co., he has been one of the longest surviving generals on the battlefield. He has been the top marshal of the company for almost a decade in China; since 2002.
“Oh, I am not a dictator, you know. I’ve just been ‘ruling’ a bit longer than other CEOs,” said Noh, with a big, easy smile on his face.
Hyundai Motor is the unchallenged champion in South Korea’s auto market but that is due to “home-field advantage.” China is different. All kinds of car companies and all kinds of auto brands try to win in this market, which has been the world’s largest since 2009 after leapfrogging the United States.
So, how good is Noh’s mastery in this jungle of fierce, open and free competition?
“Let’s see. We’re ahead of our Japanese rivals, including Toyota, Honda, Nissan and Mazda,” said Noh.
It is quite a real-life struggle to beat those global big names. Hyundai is trailing behind only a couple of other global auto giants.
He didn’t get this far easily. “We had some setbacks in 2006. We saw a big loss in that year with the Accent model,” said Noh, referring to Hyundai’s small, compact car, which was a domestic hit in South Korea.
“We had great sales with the Elantra and EF Sonata. So, we thought the Accent would sell well too, without doing a thorough market analysis. It turned out that there was a mismatch between the product price and the sales price in China.”
Noh licked his wounds for a long time. “Since then, before we launch any new car, we do very thorough market research. We don’t rely on hunches, however good you think they may be.”
Just like a good doctor who quickly and accurately diagnoses where the illness originates, a good CEO should promptly know where the problem is. But in the auto business, that’s often a formidable challenge because there is the time lapse between the onset of the problem and its manifestation.
“In the auto industry, when you see a problem, it is already one or two years old,” said Noh. That’s why it’s difficult to establish oneself as a good, let alone long-surviving, CEO in the sector.
So is brand recognition. In the U.S. market, for example, there was a time when Hyundai used to be known primarily as an economically, affordable car. Once that impression was ingrained in consumers’ mind, it didn’t easily go away.
“It was as early as 2004 when auto experts began to tout the improved quality of Hyundai. But it took a few more years for Hyundai cars’ brand perception to improve. And it took another a few years for us to see that reflected in revenue,” noted Noh, reviewing the challenges it has had to overcome along the way.
Now, Hyundai has the number five spot in the U.S. auto market. And that reputation has also boosted Hyundai’s sales in China as well. Hyundai’s global first-quarter profit rose 46 percent, as sales climbed in China, while performance in Europe and the U.S. also excelled. Hyundai vehicles in China are currently produced in two plants, while a third will be launched next year.
Just like a martial arts master who senses the movement of his enemies by feeling it in the air, Noh over the years has mastered a few ground rules to fight in the jungle. One of them is that Chinese consumers prefer a big car. “When you enter a Chinese building compound, you see a big entrance gate. It’s the same logic,” said Noh. So, when Hyundai releases a new model in the Chinese market, some of them have a longer frontal and rear body than their original Korean models.
Deciding when to release a new model is also important. “Consumers always look forward to seeing a new car. That’s market psychology. So, when you roll out a new model, you should already have in mind how long its market life will be,” said Noh.
Normally, the life cycle of an automobile is four to five years. But depending on the market response, the company can prolong it by modifying the design a bit, Noh said.
As Chinese consumers become more and more affluent, Noh believes that luxury cars will soon set a new market trend. Hyundai is also carefully gauging the timing for releasing a new luxury model too.
But Noh also recalls that these tricks only gets you so far. Competitors know them too. “At the end of the day, your ultimate battle is with consumers. They are the people who open their purses. They consider very carefully before they make a decision. So, you should be able to read their thoughts and meet their needs.”