Hyundai Bets Big On India and China

The Korean automaker plans to boost production in both fast-growing markets with new plants, and fresh models for local and export consumption

by Moon Ihlwan

Hyundai hopes its new Chinese car, codenamed the HDC, will boost sales by over 60% and reverse a market-share slide in China.

With the U.S. facing a credit crunch and worries of a recession, it seems like a bad time for South Korea's Hyundai Motor to be pursuing a policy of global expansion. After all, winning over car buyers in the world's biggest market is crucial to the company's hopes of building a globally recognized brand.

But the U.S. isn't all that counts, Hyundai executives say. In fact, their strategy for breaking into the industry's top five by 2011 (counting subsidiary Kia Motors' sales) relies on a rapid buildup in two of the world's fast-growing markets: China and India.

"The company's resources will be focused on expanding our presence in emerging markets this year," says Hyundai Motor Vice-Chairman Kim Dong Jin.

China and India made up just over a fifth of Hyundai's global sales last year. Hyundai execs want to boost that figure and raise their market share in both countries. The company expects to raise production there by more than 60% this year, and by 2010 it hopes to make 600,000 cars in each country, compared with 327,000 units in India and 232,000 in China last year.

But the linchpin of Hyundai's strategy will be the transformation of its modest presence in both countries into a key design, manufacturing, and export hub for the entire global operation.

Bucking a Drop in Sales

It will be a huge challenge for the Korean company. Hyundai's share of the Indian market fell to 17% last year from 18.2% in 2006, and in China it had just 4.6%, down from 6.9%.

Try telling that to Hyundai's gung-ho executives. They have spent some $2 billion on two new plants, in Chennai and Beijing. The plants could determine whether Hyundai meets its own market share targets of 20% of India and 6.1% of China this year. Analysts think Hyundai's success in those markets could set the tone for its push into other markets, such as Russia, the Middle East, and Africa, which are forecast to be just under a quarter of Hyundai's global sales this year. "The litmus test will be if Hyundai will secure a market share exceeding 5% in China this year," says Yoo Young Kwon, corporate analyst at Prudential Investment & Securities.

In India Hyundai is already the second-biggest car brand. It's also the country's largest exporter of passenger cars. In 2007 the company shipped 127,000 cars from India, accounting for about two-thirds of the country's annual car exports tally.

That doesn't mean Hyundai has done everything right. Until the new Chennai plant went online Hyundai's production capacity in India was just 300,000 cars. While Hyundai was ramping up its capacity, Maruti Suzuki India, a subsidiary of Japan's Suzuki Motor, added two more percentage points to grab 52.4% of the market last year.

India: Hub for Small Car Exports

Hyundai execs stress the Chennai plant's importance in their global plans. The company expects to export half the 530,000 cars it will build in India this year. With the plant's rollout in November of a new small car, called the i10, Hyundai became the first foreign carmaker to develop and produce a model in India for sale around the world. "The new plant cements India as our export hub for small cars," says H.S. Lheem, managing director of Hyundai Motor India.

Unlike the $2,500 Nano (BusinessWeek.com, 1/10/08) unveiled earlier this month by Tata Motor (TTM), Hyundai's i10 meets stringent safety and environmental requirements in Europe and other developed markets.