The Acquisition and Restructuring of Kia Motors by Hyundai Motors

1. Since the mid-1990s, the global automobile industry was characterized by oversupply and a production capacity well in excess of demand. There were, and still are, many competitors in the industry. Advances in technology have allowed for rapid growth within the industry. Research and development costs increased due to consumer environmental and safety concerns. With this social consciousness, automobile producers were forced to develop new types of automobiles to meet demand. This allowed bargaining power in the buyer’s hands. This caused automobile companies to increase their production efficiency, restructure, and enter strategic alliances (mergers and acquisitions) to realize the economies of scale and scope.
The Korean automobile industry was characterized by weak domestic demand, which resulted in continuous oversupply. The market was also completely dependent on Japanese technology to produce automobiles. Korean automobiles were cheap but subpar in quality. Many manufacturers did not run their facilities to full capacity, increasing unit costs.
Through the acquisition of Kia, Hyundai hoped to influence the economies of scale, influence the economies of scope, and develop a superior global network. The merger with Kia could potentially improve competitiveness by allowing the use of common parts, integrated quality control and shared functional improvements, as well as reduce costs through the purchase of large quantities. Parts could be integrated and their cost of parts production could be lowered (economies of scale). Acquiring Kia would have also increased their product range to meet diverse consumer preferences, as Kia made models Hyundai did not and vice versa. Also, if Hyundai absorbed Kia’s R&D capabilities, business divisions and human resources, integrated or restructured