Hyundai and Kia Case
DISCLAIMER:
– Questions (1 – 4) are from International Business: Competing in the Global Marketplace (Eight Edition) by Hill, C. W. L.
– All answers written are from my own personal opinion.
1. Explain how the rise in the value of the Korean currency, the won, agains the dollar impacts upon the competitiveness of Hyundai and Kias exports to the United States?
Answer: Because the Korean currency, won, had risen in value against the U.S. dollar, this meant that Hyundai and Kias vehicles are worth less when sold in dollars. Because of this, vehicle sales took a hit and Hyundai and Kia had to sell more vehicles just to maintain the usual amount of profits they had, prior to the irse in won value.
2. Hyundai and Kia are both expanding their presence in the United States. How does this hedge against adverse currency movements? What other reasons might these companies have for investing in the United States? What are the drawback of such a strategy?
Answer: By choosing to manufacture their vehicles in the United States, they are able to receive and pay for costs in dollar. Though Hyundai and Kia will eventually have to convert the U.S. dollar back to Korean won (whose worth is not much because of the rise in won value), their costs will be cheaper as they will immediately be paid in U.S. dollars.
They may have also chosen to open plants in the United States as Americans are their main customer base. Local knowledge of the U.S. market, better technology and reduced vehicle transportation costs are an advantage.
One disadvantage may be the cost of setting up a manufacturing plant in the U.S.
3. If Hyundai expects the value of the won to strengthen appreciably against the U.S. dollar over the next decade, should it still expand its presence in the United States?