Daily Management Review

Supplier Problems Cause Clash Between Hyundai And China Partner, Under Political Pressure: Reuters


Supplier Problems Cause Clash Between Hyundai And China Partner, Under Political Pressure: Reuters
As they grapple with cut-throat competition and the impact of a stand-off between Beijing and Seoul, Hyundai Motor Co is at loggerheads with its Chinese partner over efforts to cut supplier costs, reported Reuters.
row over a missile defense system deployed in South Korea, but opposed by China is at the center of a political row between Hyundai, along with affiliate Kia Motors. And ever tougher competition from local Chinese automakers is being faced by the companies.
By sales, Hyundai and Kia ranked third in China until last year. But Hyundai was facing the biggest crisis since it entered the Chinese market in 2002 and the relations with local partner BAIC Motor Corp Ltd were frayed by as Hyundai’s sales alone have slumped 41 percent from January to July.
After a French supplier refused to provide fuel tanks when its bills went unpaid, Hyundai suspended production at its four China plants for a week last month. After a German firm went unpaid, Hyundai suspended production at one of its plants in China on Tuesday.
How to solve the issue of suppliers and tougher competition is the issue that has divided Hyundai and BAIC - whose Beijing Hyundai joint venture is a 50:50 partnership. Sources said that while BAIC favors shifting to cheaper Chinese suppliers to cut costs, Hyundai wants to protect its South Korean supply chain.
“BAIC wants to solve this aggressively and is ... asking Hyundai to change its sourcing strategy significantly and immediately,” said the head of a Hyundai supplier based in Seoul, adding the idea was to source more locally from cheaper suppliers in China.
Reuters reported quoting sources that Hyundai wants to solve this more gradually “over perhaps 5-10 years and do so in phases.”
There was no comment made by BAIC.
A Hyundai Motor spokesperson told Reuters: “Hyundai Motor and Kia Motors have been continuously trying to source competitive parts in China.”
Heavily reliant on sales to Hyundai Motor and Kia Motors, the stand-off underscores the depth of a crisis facing Hyundai and its suppliers in China.
“China has started to become a grave for South Korean automakers and suppliers,” said Lee Hang-koo, a senior research fellow at Korea Institute for Industrial Economics & Trade, adding suppliers were being hit the hardest.
He said that South Korean firms find it challenging to diversify their customers beyond Hyundai Motor because they are squeezed between cheaper Chinese suppliers and European rivals which are technologically more advanced.
Industry sources said that compared to those from Chinese suppliers, parts from South Korean suppliers are around 30-40 percent more expensive.
By replacing its head of its China operations last week, Hyundai has sought to turn its fortunes around. It wants to accelerate the launch of a sport-utility vehicle (SUV) for China and assemble its premium Genesis cars locally and also has plans for a local “brand” store.
But as Chinese carmakers such as Geely Automobile gain strength, and local suppliers improve their quality, sales have kept falling, aggravating an underlying rift at Beijing Hyundai over supplier costs.

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