QUESTION TWO (65 MARKS)

Read the following case study and answer the questions that follow: THE PRESENT AND FUTURE OF KIA MOTORS

On the morning of Monday, February 4, 2008, about 20 of the top executives at the Irvin (Calif.) headquarters of KIA Motors America left their warm offices to stand outside in freezing cold. They were awaiting the arrival of Byung Mo Ahn, the president of KIA Motors. The group organised itself into a receiving line and stayed in formation for more than 15 minutes until Ahn arrived in a chauffeur driven Kia Amanti sedan. Although some of the executives were shivering, it would have been bad form to return inside: standing to greet top brass is customary at Hyundai Motor, KIAs Korean parent. After spending a full week in Irvin, Ahn performed another ritual that has become common at the company: sacking off the American leadership team. On February 8 he axed Len Hunt, president and CEO of KIA Motors America, and Ian Beavis, the marketing vice president, sending waves of fear across the company management structures.

The management shakeups at the American divisions of Hyundai and KIA two once separate manufactures that are now essentially run as a one company come at a critical period. Both brands which were originally marketed to American consumers as utilitarian econoboxes, are trying to move upscale to sell sedans that can compete with Cadillac and BMW. They are also banking on rapid growth in the U.S. Next year for example, KIA is opening a plant in Georgia that was built on the optimistic assumption that the company could sell at least 370,000 cars in the U.S annually. But sales momentum has been slowing. Kia sold 305,000 cars in America in 2007, 13% shy of its target of 350,000. The problem is that the companies keep booting out American talent. And many of the American executives who do stay find parent Hyundai Motors corporate culture to be suffocating. According to current and former managers, Hyundai chairman Chung Mong Koo, KIAs Ahn, and other top executives run the companies in far more authoritarian style than do most American CEOs. The critics say his team micromanages details, rarely listen to advice from local managers, and displays little tolerance for disengagement. Its a very feudal approach to management, says Bob Martin, a former sales executive who left Hyundai in 2005 to become a consultant at CarLab, a Santa Ana (Calif.) consulting firm. There is a king, he rules, and everyone carries his favour. Its very militaristic. Pushing all the time While Chungs top down management style might rub some Americans the wrong way, his long-term track record in the U.S is impressive. Under his leadership, Hyundai has nearly doubled its sales in the country since 2000, to 467,000 cars last year. Kia has posted almost identical growth. Chung who was convicted of embezzlement in Korea last year but had his prison sentence suspended, has won praise for creating and maintaining a highly disciplined company culture. When quality complains started in to plague Hyundai during the 1990s, he ordered engineers to attack the problem. By 2004, Hyundai had soared up rankings in quality surveys. Unlike Detroits big Three, Hyundai and Kia have fewer management layers to hold up decisions. I can see where American would feel uncomfortable, says Alice Amsden, a professor of political economy at Massachusetts Institute of Technology who has written books about Korea and other developing Asian economies. American management is used to a different style. But Hyundai deserves a lot of credit.

One consequence of this philosophy is that both Hyundai and KIA have been forced to sell more carsto rental fleets, a practice that tends to make brands lose cachet with buyers. Many of the products made by Chung Ju Yungs original conglomerate, such as locomotive engines and tanks, were sold to business. Hyundai Motors leadership team lacks marketing savvy, says Yoo Young Kwon, a Seoul based auto analyst. What they need in the U.S. is to let American executives implement the marketing strategy in a sustainable way. But handing over the reins to the American marketers is not something that seems to come naturally to Hyundai Motor. After walking through the receiving line on Monday morning in February, KIA CEO Ahn spent the day criticizing the companys advertising.

Heavy Handlers Four days later, KIA America CEO, Hunt and marketing vice-president Beavis lost their jobs. The firings came as a surprise to the KIA dealers gathered in San Franciscos Moscone Centre. Since then, Ahn has taken over Hunts old office and expanded it. He has tried to mollify dealers with offers of increased corporate support. KIA and Hyundai are making a greater effort to improve the morale of disgruntled American executives. KIA spokesperson Alex Fedorack says many of them get training from a Korean culture coach. Cross cultural outreach is long overdue. Several A

mericans expressed resentment at the so-called coordinators, the Korean overseers whose job is to keep an eye on American managers. KIA spokesperson Fedorak says the coordinators serve a valuable purpose: bringing the corporate vision from Seoul to America, then relaying the needs of the local market back to headquarters. While acknowledging that Kia has a Confucian-influenced corporate culture in which father knows best, he said this was not the main tension to Korean managers greater comfort with stretch goals.

Now, the stretch goal that is stressing out American executives at Hyundai Motor is the companys insistence on trying to move into the low end of the luxury business. For years executives in the U.S. have been telling their counterparts in Seoul that the two brands are not strong enough to sell for much above the price range of $12,000 to $25.000. But their warnings have been ignored. Chung believes that going upscale is essential for Hyundai and KIA. The weak dollar has hurt the profits, and concessions made to the Korean unions are eroding the companys cost advantage. So, both Hyundai and KIA have launched a slate of vehicles priced near or above $30.000. In 2005, for example, Kia released the Amanti with a mandate to sell 20.000 a year. The company didnt come close to hitting that number, selling just 5, 500 of the sedans, priced between $2, 000 and $30, 000, last year. Still, nobody expects Chung to heed the advice of some American managers and pull back. The top-down management style hasnt changed at Hyundai, says Lee Hang Koo, auto industry analyst at the Korean institute for industrial Economics & Trade. This is bound to lead to cultural clashes with Americans. We have seen management churn in the past, and there is reason to believe it will stop.

Despite Chungs tough approach, the surviving few American executives are planning to stage a fierce revolt against further dismissals and the unilateral decisions from the CEOs desk. Rumours have already filtered across the company divide that should the CEO consider firing more American executives, he will face stiff resistance. The managers have already begun to consult with some labour law experts, who indicated that they will reduce the Korean corporate chief to size.

Questions: 2.1 Argue for or against the use of using an outsider in spearheading change at the headquarters of Kia Motors America. (30)

2.2 Critically examine the reasons of such resistance to change at KIA Motors and examine how Ahn could manage the resistance that has a huge potential of ripping KIA Motors apart. (35)