Hyundai cars are a product of the Hyundai motor company, which is the largest motor company in Korea. The company has had significant improvements in the quality ratings of its cars since its establishment in 1967. These improvements are made with the motive of meeting the needs of their customers. The company has its top competitors as Toyota Motor Corporation, Ssangyong Motor Company and GM Korea Company. As such, the company has to develop strategies to survive in the industry since there are other car manufacturers.
Hyundai Motor Company has subsidiaries in approximately one hundred and eighty five countries worldwide. Its sister company is Kia Motor, and both have achieved a high level of sales of over five million cars worldwide over the recent past.
The research and development departments of both Hyundai Motor Company and Kia have had focus on creation of new products that include design changes and development of more powerful engines. They also try to come up with systems that increase safety and comfort of the passengers. These developments are meant to improve the quality of Hyundai cars and hence the perception of consumers on the cars is left positive (Morgantini, 1992). In addition, these improvements are evolving from day to day based on the consumers’ needs, tastes and preferences.
Consumer perception refers to the force and beliefs that drive a consumer’s buying behavior. These beliefs are mainly based on quality, price, manufacturer image, positioning of the product as well as the perceived risks. These beliefs impact heavily on the performance of the company since they determine the customers’ buying behavior. For example, a positive belief about the Hyundai cars may increase sales while a negative belief might cause a reduction in the sales of the brand.
Consumers’ expectations are high in that they expect to get high quality of products (Abo, 2010). Many consumers look for characteristics such as low cost, comfort, design and mileage when purchasing cars. Consumers have different experiences and ratings of cars. However, a major determinant of consumers’ perception on a product is their annual income, external factors, as well as actual and expected performance of the product.
To improve on the consumer perception about the company, the latter has participated in social responsibility (Morgantini, 1992). The company is committed to providing developments and has also participated in initiatives that are meant to preserve the environment. The company also has participated in campaigns that are meant to create awareness of safe driving practices as well as in-car safety. It has also worked in educating the society on poor road practices such as drunk and reckless driving.
The company has also adopted some villages which are located in its vicinity and has participated in economic and social developments of those villages. These developments are seen in the services provided to those villages, and they include provision of primary healthcare, basic amenities, employment opportunities and education. All these projects are meant to create the company’s image and give a satisfactory perception of its products.
Michael Porter’s diamond model explains why some industries tend to be competitive in certain locations. It is an economic model and is composed of six factors namely; demand conditions, factor conditions, firm strategy, supporting industries, chance and government. These factors are put into a diagram which has the shape of diamond, and hence the name diamond model (Porter, 1990).
The model believes that the six factors promote development of competitive advantages for firms, nations and clusters. These factors are equally necessary for a company or an industry to achieve global power. Managers use the model in their efforts to determine whether local firms can create and maintain a successful internationalism. This helps them in decision making regarding the question of where to invest. The government can also use the model to help in determining how best to build a strong policy framework for a particular industry.
The diamond model believes in the law of comparative advantage, and as such, a country should specialize in production of those products that it can produce with ease and efficiently (Jeong, 2004). This is to mean that other countries cannot produce that product with efficiency as that country can do. The country will therefore produce that product and import it. At the same time, the country will import what it does not have comparative advantage in its production.
Thus, the diamond model believes that a country should import what it cannot produce efficiently and at the same time export what it produces efficiently. This makes the economy operate smoothly as it will get all that it needs whether it produces or not.
Comparative advantage also implies that a country will specialize in production of what it has absolute advantage in production. It will then export those products to countries which have absolute disadvantage and at the same time import goods and services with the least absolute advantages. Input costs are different in different countries, and this gives rise to comparative advantage.
Comparative advantage is based on certain assumptions. It assumes that there exists a perfect competition market. This means that there are many buyers and sellers and that prices are set by forces of demand and supply, also known as, market forces.
When prices are high, demand is low, and supply is high. On the other hand, when prices are low, consumers demand more of the product, and suppliers will not be willing to supply much given the low price. This happens because both sellers and buyers are rational. Buyers need to maximize utility given their limited incomes while sellers need to maximize their profits.
Additionally, comparative advantage assumes that producers get constant returns to scale (Cho & Moon,2000). This is to mean that whenever producers increase the inputs by a certain margin, then production increases with the same margin. This is to mean that at no point will the returns decrease with an increase in units of input.
This research is purposed to relate consumers’ perception on Hyundai cars to Michael Porter’s diamond model. This will help explain why Hyundai cars may tend to be more competitive in some areas based on the consumers’ perception on quality of the cars. According to the model, the following factors are for comparative advantage for countries or regions; location, natural resources, population size, labor and land.
Based on the factor conditions, Korea creates its own significant factors which include a wide technological base as well as, skilled resources (Porter, 1990). This helps Hyundai company to be more efficient in production as resources are well utilized. The improved productivity of the company helps to reduce the cost of production and hence lower the prices of its products. Since the prices are reasonable, and the quality is excellent, the company is able to survive in the industry despite the stiff competition as consumers are driven by quality and value.
Porter differentiated the factor conditions using the following categories; knowledge resources, physical resources, infrastructure, capital resources and human resources. He later subdivided the factor conditions into advanced and basic factors.
Basic factors are factors which are inherited and require petite or no investments in order to be used in the production process. These basic factors include raw materials, unskilled labor, water resources and climatic conditions. On the other hand, advanced factors form the ground for competitive advantage of a company. Advanced factors need innovations and investments in order for a firm to utilize them in the production process.
Innovations are as a result of local disadvantages. These local disadvantages are mainly in the factors of production whereby there might not be sufficient inputs in order to produce the required output. For example, when there is a shortage of labor in Korea, Hyundai is forced to adopt new technologies in order to produce the required output. In addition, when Hyundai is faced with shortages of raw materials, it is forced to develop new methods of production. These innovations lead to national comparative advantage of Hyundai.
At times, the stocks of the factors of production are not significant than the extent to which they are utilized. In some cases, a country might have sufficient stocks of factors of production, but there might be inefficient allocation of the same and this leads to low productivity of the country. Korea makes excellent use of its resources and hence the companies in the country, including Hyundai Motor Company, are able to be productive due to proper allocation of resources. Due to its productivity, the company becomes popular for its quality products, and this leads to positive consumer perception. As a result, the company gains national comparative advantage.
Demand conditions are also significant in the diamond model. Demand conditions form a basis of competitive advantage for a given country. The market for Hyundai cars is generally large in Korea than in other foreign countries. This means that Korean local firms give more attention to Hyundai cars than the foreign firms do. As a result, competitive advantage arises when the local firms start exporting Hyundai cars.
Local demand requires that the quality and quantity of demand be considered. For example, Korea’s urbane and knowledgeable buyers of the Hyundai cars have stimulated the industry to launch new models of Hyundai cars as well as to improve the quality of the cars.
When demand conditions are compared, analogous demand structures are formed, and this helps to improve intra-industry trade. This in turn leads to proper relations between firms in different industries which. This is necessary for firms to operate smoothly and efficiently. Hyundai Motor Company relates well with other industries, and this makes the company run smoothly and efficiently.
According to Porter, there exist similarities and differences that illustrate international competitiveness of different countries. He believes that the composition of home demand shapes the way firms respond to buyers’ needs. In addition, the composition of home demand determines how firms interpret and perceive buyers’ needs. This pressures the home firms to innovate and continually upgrade their products to ensure that they meet the high quality standards required for maintaining competition (Maneschi, 1998). Therefore, according to Porter, local demand determines the structure of international demand.
Demand conditions influence the existing resource differences in different countries (Porter, 1990). These differences are experienced in productivity, factor endowments or even the scale of production. Hyundai Motor Company has sources that are highly productive. These factors include high technology and wide knowledge base that is necessary for efficient production. These factors ensure superior quality of Hyundai cars which gives consumers a positive perception of Hyundai cars.
Hyundai cars have a high demand both nationally and internationally. The more demanding global and local market has given Korea both international and national advantage. Due to this popularity of the Hyundai cars, customers perceive that they are of high quality and hence the company is able to compete with the rivals.
In addition, whenever the local market has a strong setting, there are high chances that the firm has strong a strong setting in the global market. In this case, Hyundai has a strong market setting in Korea, and this anticipates the strength of the global market setting. As such, this influences customers’ buying behavior as the customers consider the strength of the market to be based on superior quality of the Hyundai cars.
A firm’s strategy, structure and rivalry also determine the competitive advantage of a country (Porter, 1990). When a firm is run together with other firms, it has the capability of competing with other stronger firms. This is because it is backed up by the other firms and can also utilize ideas from those other firms. As such, Hyundai Motor Company works hand in hand with other small firms in Korea and as such, the company is able to borrow ideas that might be extremely useful in running the company in a highly competitive field. This strategy helps to establish the type of industries that are likely to survive in a country.
Porter emphasized that structures and strategies of a firm vary from one firm to the other since they are determined by the national environment setting. He also believes that there exists systematic differences in each country, and this determines the way firms in each country compete and consequently their competitive advantage. Rivalry is identified as the most significant driving force towards competitive advantage of firms in a given country (Cho & Moon, 2000). Other than driving innovation and improved quality, domestic rivalry persuades firms to be cost competitive. This is to mean that firms explore for alternative ways of production that are cost saving and efficient at the same time.
The strategy of the firm is affected by domestic capital markets (Papp, 2001). Some countries have capital markets that have a long run outlook while others have short run outlooks. Variances exist among different industries in a country due to the length of the long run. Countries with a short run outlook are more competitive in industries where investments are short term. On the other hand, countries with a long run outlook are more competitive in industries where investments are long term.
Based on the structure, Porter believes that there exists best management styles, but they vary from one industry to the other. Different companies adopt different management styles, and as such, countries will be more competitive in industries where the management style suits the country.
Porter also assumes that firms are the ultimate competitors internationally, but a firm’s international competitive advantage is determined by the country’s international competitive advantage. This assumption led to the belief that countries compete internationally and therefore there was a need to form international trade engagements between countries. However, these trade engagements are a negative sum game just like it would be in firms that do not compete.
Rivalry affects the way a firm operates. Little competition attracts more firms into the industry. This is because no firm would wish to operate in a highly competitive field if there were alternative industries with less competition. However, there are times when the firm prefers some level of competition especially in the long run. This happens because some competition is significant in the operation of the firm as it helps the firm look for alternative and better ways of conducting business.
However, international competition gives no motivation but room for innovation. Due to innovation, international competition causes differences to exist between the settings of different countries.
To be precise, when a firm faces local rivalry, it is pressured to improve its quality of goods as well as to invent alternative and better ways of performing business. Due to high local competition, the firm finds itself producing high quality products using the best means of production so as to remain competitive locally. As a result of this high local competition, the company experiences less global competition since the products are already of high quality.
Additionally, local competition pressures the firm to look for other advantages other than the basic advantages. These basic advantages refer to the benefits that a country might enjoy, and they might include low labor costs (Papp, 2001). As such, a firm may look for other benefits elsewhere. For example, some inputs might be too expensive in the local country but relatively cheaper in another country. The firm will be forced to import the cheaper factors so as to produce at the lowest possible costs.
If Hyundai Motor Company finds out that there are cheaper factors of production in a certain country, it might choose to import the cheaper factors. Alternatively, Hyundai Company might set up branches in other countries where the cost of production is lower than in Korea. This is seen as Hyundai Motor Company has set up many branches worldwide where it is able to operate. Such branches are in India, America as well as some African countries where production is cheaper.
Therefore, the diamond model demonstrates that the effect of a certain event is dependent on certain aspects. This is to mean that when the firm has a certain disadvantage, it will be pressured by competition to innovate unless there is insufficient competition.
The diamond model is also seen to be self-reinforcing. This is especially noted when there is high competition in the industry since innovation will lead to highly specialized factors. These factors lead to the uniqueness of products of different firms. For example, due to high competition Hyundai Company has developed unique car models which are totally different to Toyota cars in terms of shape, consumption and power.
Related and supporting industries are a significant factor in the diamond model. The aspect of related and support industry clusters is viewed as the most significant contribution of Michael Porter’s Diamond model. When a firm receives support from other local firms, it is able to take advantage of cost effective inputs as well as borrow ideas that are essential in running the business. As such, such support also promotes innovativeness in the inputs used. Such innovation leads to production of unique and high quality products which have a substantial effect on the consumers’ perception of the Hyundai cars.
Formation of cluster firms forms a conducive environment for innovation, learning and productivity (Jeong, 2004). These clusters also form the characteristics of an advanced country and therefore they might not be present in less developed countries. Korea is a highly developed country hence the aspect of cluster firms is present. Hyundai Motor Company is therefore able to take advantage of the clusters and develop innovation, learning, as well as, productivity techniques.
Apart from providing learning, supporting firms also provide sources for the scarcest resources of certain firms. As a result, from a firm’s perspective, supporting industries become a justifiable international competitive issue. However, the main dispute of economic development is to set up clusters in order to achieve external economies.
The aspect of related and supporting industries becomes strong when the suppliers of cars are powerful global competitors. This is to mean that the suppliers will be pressured to innovate their ways of operating in order to survive in the global market. Hyundai Motor Company learns from its competitors and innovates its ways of operating, and as a result, the consumers’ needs are met. Once the needs are met, it is deemed that consumers have a positive perception on the product.
Government plays some critical roles in diamond model. The way the government selects policies can influence the competitive advantage of a country. Government pushes companies towards raising their performance through production of high quality goods and services. As such, the Korean government checks strict standards of Hyundai cars to ensure that certain standards are met. As the government does this, the company is forced to ensure high quality of the cars. If certain standards are not met, then the company is not allowed to supply the cars.
Such standards protect the needs of consumers as sub-standard goods cannot be supplied to the consumers. Once the government certifies that the Hyundai cars meet the set standards, then the company can supply them. Since the company is aware that the government must certify its products, companies tend to produce high quality goods and services to ensure that they avoid disappointments. The high quality products of Hyundai Motor Company will give consumers a positive perception of the Hyundai cars.
However, government cannot create advantages on its own but can raise the probabilities of achieving competitive advantage. The government also kindles demand for a company’s advanced products. The Korean government works hand in hand towards creating demand for the Hyundai cars. The government does this by exempting the advertisements costs from taxation, and this becomes an added advantage to the company. The company becomes popular which in turn changes the perception of consumers towards Hyundai cars. It is perceived that popular products are of high quality.
The government also focuses on creation of specialized factors. These factors include importation of high technologies that assist in production of high quality products at lower costs (Gray, 2008). This helps in running the firm in a more efficient and productive way. High technology ensures high quality of goods and services and hence a positive consumers’ perception on Hyundai cars.
The government also encourages local rivalry through limited direct cooperation between firms in the same industry. The government also enforces antitrust regulations, and this ensures that healthy competition exists among industries. Due to competition, innovation arises as the firms tend to find new ways of performing their tasks. Innovation leads to production of unique, differentiated and high quality goods which have a positive consumer perception.
Additionally, the government also plays a protecting role where it protects local firms from foreign competition. Korean government protects local firms by discouraging imports of goods that have their substitutes being produced in Korea. The government does this through imposition of high taxes on imports that have their substitutes being produced in Korea. Since Hyundai cars are a product of Korea, people who import cars pay high taxes for those cars.
Due to high tax rates on such imports, prices of imported cars in car tend to be higher than the prices of Hyundai cars. When consumers compare the prices, value and quality, they go for the Hyundai cars since they are cheaper and of high quality. The government will thus have accomplished its role in that it will have protected Hyundai Motor Company from foreign competition, which might be extremely stiff.
Chance in diamond model is defined as the events that are not directly connected to the circumstances of a nation and which the firm has no control. This is to mean that the firm has no control over the occurrence of these events (Cho & Moon, 2000). In most cases, these events are unforeseen, and they include wars and critical decisions which might be made by foreign governments. For example, if a foreign government bans the import of Hyundai cars, this will affect productivity of the company.
Chance is also composed of events that allow new players to enter into the industry after the industry’s structure has been reshaped. Changes in the structure of industries come about due to occurrence of disruptive events that are beyond the control of the firm (Jeong, 2004).
Michael Porter’s Diamond model has received support from the management school for the thesis that countries compete with one another just like the firms do. However, the model has experienced critics from certain persons. Waverman believes that Diamond model ends up explaining nothing after a general explanation on aspects of competition and trade. He thinks that the model does not separate theorems, hypotheses, facts and conjectures and as such cannot prove causality (Waverman, Comanor & Goto, 1997.
In addition, there are some limitations associated with the Diamond model. Michael Porter developed this model using a set of case studies and this might not be applicable to countries which are at different levels of economic development. For example, Korea cannot be compared with some less developed countries since it is highly developed in terms of technology and knowledge base.
The diamond model also does not appreciate the role of multinational companies (Abo, 2010). In this study, Hyundai Motor Company is a multinational company and hence Diamond model does not provide all the relevant knowledge on the company. This happens since there seems to be inadequate evidence on whether the model is influenced by factors outside the local country.
In conclusion, consumer perceptions are the beliefs that drive a consumer’s buying behavior. Hyundai Motor Company has had significant improvements in its cars and such improvements are meant to cater for the consumers’ needs, tastes and preferences. As such, these improvements on quality of Hyundai cars give consumers a positive perception on the quality of the cars. Hyundai Motor Company has participated in various projects many of which are directed towards social responsibility. These activities and projects help in building reputation of the company’s products and as such, consumers get a positive perception towards the Hyundai cars.
Michael Porter’s diamond model is used in this assignment to study the perception of consumers on Hyundai cars. It explains why some industries tend to be more competitive in certain regions. The model is composed of six factors; demand conditions, firm strategy, rivalry and structure, factor conditions, supporting industries, chance and government. These factors are used to study how competitive advantage is gained using the model. The model is seen to work together with the law of comparative advantage. However, the model has some limitations and hence it cannot best study multinational companies.
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