Michael Porter’s Diamond Model is a powerful framework for determining the likelihood of international success for enterprises established in a particular country.
Hyundai has carved a niche for itself in the international automotive industry with its excellence and quality. The Korean company ranks 10th in the global list of carmakers and is known to have survived the thick and thin economic conditions, emerging as a leader. This has been possible for the company as it identified the right opportunities, acted pre-emptively and kept its strategy simple yet aggressive.
The company’s primary focus has always been to keep costs low while achieving maximum market share. Its home nation has provided a competitive edge, analysed here using Porter’s Diamond of National Competitive Advantage.
Porter’s Diamond Analysis
According to the Diamond Model, the worldwide competitiveness of enterprises originating from a specific nation (e.g., South Korean automakers or Italian shoemakers) is influenced by four factors:
- Their own nation’s demand circumstances
- Their own country’s conditional variables
- Related and auxiliary industries in their native nation
- Strategy, organisation, and competition among their domestic rivals
There are both internal and external factors that are very important to the success of a multinational business like Hyundai. They are mutually interdependent. Such factors either impede growth or favour the same, leading to the development of business patterns and systems. To evaluate the contribution of each of these factors, Michael Porter has devised four pillars that will help in analysing the elements of Hyundai’s international success:
1. Factor Endowments
Korea is replete with low-cost labour, and technologically inclined human resources that fulfil the innovation requirements and funds. In the case of Hyundai, most of the capital investments are in the form of FDI. Therefore, as mentioned in the case study, an abundance of cost-effective labour, high technology, knowledge workers and capital in the form of inward FDI are the important factors that support the growth of carmakers’ capital-intensive and highly competitive automobile industry.
Besides, while expanding worldwide, Hyundai has ensured to tap similar locations that provide similar factor conditions and access to new markets.
2. Demand Conditions
Demand conditions pertain to the characteristics of domestic consumers. It is tempting to imagine that corporations profit when their local consumers are prepared to purchase substandard items. This is an incorrect belief! Instead, corporations benefit from domestic clients’ high expectations.
The lifestyle change and an increase in the standard of living are the driving forces of demand conditions prevalent worldwide for Hyundai. Besides, the company has something to fit every demand class – economy cars, sedans, SUVs, heavy vehicles, etc. Hyundai keenly shifted from the ‘making and selling’ principle of ‘listening and customizing’ when the demand for the brand lowered in the 1990s.
This led Hyundai to develop exclusive and unprecedented packages like ten years warranty, assurance, quality check, customizations, etc., to sustain the demand and the market share. The company has a growing demand globally – with the US, Asian subcontinent, Gulf countries and Europe leading the demand.
3. Strategy, Structure and Rivalry
Within the diamond model, the concepts of firm strategy, structure, and rivalry refer to the difficulty of surviving the domestic competition. When home rivalry is intense, those that survive are well-prepared for international competition. Companies that have endured fierce competition on their domestic markets are likely to have evolved strategies and organisational structures that help their success on international markets.
Hyundai’s strategy is driven by growth and expansion internationally. The company’s strategy ensures an optimal mix of the factor and demand conditions. To gain access to new markets, the carmaker has entered into joint ventures with local carmakers like China. It has tied up with the giant Daimler and Chrysler to expand its R&D base and advance technological advancement.
The company’s strategy is to have a diversified market presence so that a single or dominant market, national fiscal policies, or government intervention does not affect sales. Due to this, the company had significant profit margins even when the other carmakers experienced short sales and other threats of economic crisis post-2008. Many major players merged or acquired to address the crisis caused by low demand and excess capacity. Hyundai also laid off employees, but its primary focus was to diversify geographically and capitalize on the developing economies even during the crisis.
The industry is characterised by extreme competition across all sectors – luxury cars, economy cars or heavy-duty vehicles. Still, Hyundai cars have kept their market share by putting quality and innovation at the centre of what they do. The unique design of cars has also bagged many awards for the company over its rivals. To beat its competitors, Hyundai sought the marketing pitch by replacing the big brands through aggressive promoting ideas and market entry strategies.
4. Related and Supported Industries
Hyundai’s origin country has been home to conglomerates that have extensively relied on building supply chains that ensure efficiency in and out. The company has strong affiliates worldwide that ensure an in-time supply of inputs like engines, tires and other parts. Besides, the company has established spare parts distribution centres through distributors and network channels.
The carmaker is vertically integrated into the industry. It also has horizontal tie-ups to support R&D and remain competitive internationally.