Read the case study below and answer ALL 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, KIA's 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.

It marked the fourth shakeup in three years for KIA's American operation. The US unit of Hyundai

meanwhile has churned through four top executives in five years. Many of the departures have come

at awkward times. Hunt and Beavis got the news at the airport as they were about to fly from Irvin to

an annual dealer meeting in San Francisco. According to several sources, Hunt's predecessor, Peter

Butterfield, was dismissed during a dinner meeting with dealers at the Bellagio Hotel in Las Vegas.

What an embarrassing incident! The company declined to comment on any of these executive

departures.

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, KIA's 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. "It's 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. It's very militaristic."

"Pushing all the time"

While Chung's 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 Detroit's 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."

Both Hyundai and KIA, speaking through representatives at their American units, said that all the

American managers who have left the companies in recent years were treated fairly. Even some of

the executives who departed praise the companies' management culture. "Being aggressive doesn't

make them bad," says Robert Cosmai, who was CEO of Hyundai's American unit for two years before

getting fired in January, 2006.

Boldness is part of Hyundai Motor's DNA. Like many of Korea's early corporate patriarchs, founder

Chung Ju Yung had a simple strategy; build factories first, worry about sales later. Starting with a small

construction of company in 1947, he moved into autos, shipbuilding and other industries. Hyundai

became one of the most successful Korean chaebols, family-controlled conglomerates with close ties

to the government. But it was broken up into small pieces in the late 1990s in the wake of the Asian

financial crisis. Chung Ju Yung's heirs continue to run Hyundai Motor, and his business philosophy still

prevails. Hyundai has 32,000 sonata sedans parked in lots around Montgomery plant with no orders

from dealers. "The production oriented style of pushing all the time won't work anymore," says Kim

KI Chan, professor of auto-economics at Catholic University of Korea.

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 Yung's 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 company's 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 Francisco's Moscone Centre. Since then, Ahn has

taken over Hunt's 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 Americans 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."

At the moment, the stretch goal that is stressing out American executives at Hyundai Motor is the

company's 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 company's 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 didn't 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 hasn't 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 Chung's tough approach, the surviving few American executives are planning to stage a fierce

revolt against further dismissals and the unilateral decisions from the CEO's 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.

Source: Welch D. (2008) my way or the highway at Hyundai. Business Week McGraw - Hill Companies.

Question One (40 Marks)

Although Chung was successful in creating and maintaining a disciplined company culture, OD

consultants argue that, it could have been much better if Chung had appointed an outsider to

spearhead the changes. Argue for or against the use of using an outsider in spearheading change at

the headquarters of Kia Motors America.

Question Two (35 Marks)

The President of KIA, Motors could face fierce resistance from the American executives. Analyse the

sources of such resistance at KIA Motors and utilise relevant theory to examine how Ahn could manage

the resistance that has a huge potential of ripping KIA Motors apart.