Every company has a purpose, and part of that purpose is to create wealth and value. However, there are other responsibilities that have been entrusted with companies. The environmental and social responsibilities of a company have an important role in its ability to maintain a social license to operate, ensure a consistent pool of resources that are required for the business to perform its functions, and to generate profits.

The Acquisition of Kia Motors by Hyundai Motors
Fikre Y. Wondimu
CalUniversity

Author Note
Fikre Y. Wondimu is a student at California Intercontinental University.
Special thanks to Dr. Troy Roland and Dr. Fathiah Inserto for providing suggestions to improve this document format and content.
Correspondence concerning this thesis should be addressed to Fikre Y. Wondimu, CalUniversity, 1470 Valley Vista Drive #150, Diamond Bar, CA 91765.
Contact: fikre_y@yahoo.com
Abstract
The last decade demonstrated decreased revenue and higher value of development costs, which led the automobile industry to engage in domestic and international mergers and acquisition (M&A). This case analyis examines one of the largest M&As in the Korean automobile industry in recent years, the acquisition of Kia Motors (Kia) by Hyundai Motors (Hyundai). The case study briefly analyses the conditions of the acquisition, the integration and stabilization processes undertaken by both companies. By acquiring Kia, Hyundai enhanced its competitive position in both domestic and global markets, achieving economies of scale, scope and strengthened its local and global market. The M&A process of Hyundai/Kia did not come easy. The Post-acquisition and restructuring process faced several challenges of synergy effects prompting for strategy change in order to align with market trends in the domestic and global automobile market space. Furthermore, the reorganization process has taken place to enhance governance structure pursuant towards the management of the synergy effect affecting various business operation.
Keywords: merger and acquisition, restructuring, synergy

The Acquisition of Kia Motors by Hyundai Motors
A Review of the Literature Korea’s automobile industry, which had grown remarkably over the last decade, had entered a period of transition. In addition to weak domestic demand since the mid 90s, the industry suffered from continuous oversupply of automobiles resulted from the introduction of new companies and the expansion facility by existing ones, (Seungwha Chung and Sunju Park, 2009). Kia Motor was the number two automaker in Korea between 1990 and 1997. Fueled by Kia’s ambition to be a global top ten player, substantial amount of investment were made to build overseas plants to expand its production capacity. While many industry analysts viewed the expansion plan as significant progress, Kia’s financial vulnerability triggered a crisis point, causing capital deficiency and forced the company to bankruptcy in 1997. The Kia Motor’s collapse can be explained in several aspects. Firstly, it should be pointed out that the company’s profitability worsened with the excessive domestic market competition triggered by Daewoo’s interest-free sales campaigns from the early 90s. Secondly, the company’s mismanagement was one of the critical factors for the cause of the crisis, (Byoung-Hoon Lee, Sung-Jae Cho, 2000).
Hyundai’s Acquisition of Kia and its Effects Hyundai acquisition of Kia can be viewed from three broader perspectives: economies of scale, economies of scope and construction of a global network.
Econmies of scale Even though Hyundai was a leading manufacturer of automobiles in Korea, acquiring Kia was an opportunity to move to the next tier by expanding its production capacity to 2.6 million cars annually. Hyundai would then displace Honda (at 2.4 million cars per year) as the world’s 10th largest automobile producer (Seungwha Chung and Sunju Park, 2009). In doing so, through economy of scale, product development costs would be reduced, improving international competitiveness as a result of the acquisition of Kia.
Economies of Scope As the domestic overproduction was considered a drawback of oversupply, exporting excess automobiles to global market was conceived to offset the imbalance. Furthermore, significant focus was given to maximize the synergy effects by identifying overlapping area of operations in the area of research and development (R&D) capabilities, parts and utilization of human resources to improve performance and international competitiveness.
Construction of a global network Hyundai was able to build on Kia’s strength in its approach towards international competitiveness through which, the delivery of quality product, reduced cost and attractive price was fundamental and then, developing marketing strategy to impact global system for each country and region were critical for sustainable growth.
Restructuring Kia Motors Operational restructuring may entail changes in the composition of a firm’s asset structure by acquiring new businesses or by the outright or partial sale or spin-off of companies or product lines, (DePamphilis, 2011). In this case, following the acquisition of Kia by Hyundai the structuring process starts. Hyundai’s restructuring approach was founded upon its effort to maximize the synergy effects of the acquisition by integrating Kia’s automobile division, thereby strengthening the international competitive power of the integrated firm’s automobile business. Eventually, Hyundai maintained the existing brands, Hyundai and Kia separately, in order to maximize the sales effect. The two companies would then be reorganized as two separate automobile companies, Hyundai Motors and Kia Motors, which is separated from the existing Hyundai Group.
Conclusion
Hyundai and Kia merger has undoubtedly created a notable synergy effect to enhance the overall business performance resulting from cost savings from integrated operation of various business functions. The consolidation of R&D and integrative management of shared use of auto parts helped Hyndai and Kia to save significant operational costs to achieve outstanding performance. In order to sustain outstanding business performance Hyndai and Kia need to improve the brand image of its car models and continue to offer low-priced cars to overseas market in order to overcome the intensified competition of the global auto market. Hyundai and Kia have so far made good success under the relatively protected condition of domestic market and with the export of their low-priced cars to overseas market.

References
Ronald M. DePamphilis (2011). Mergers, acquisitions, and other restructuring activities.
Advance Praise, Sixth Edition.
Seungwha Chung and Sunju Park, (2009). The acquisition and restructuring of Kia motors by
Hyundai motors.
Byoung-Hoon Lee, Sung-Jae Cho (2000). Merger and reconfiguring of Hyundai-Kia.