South Korean companies’ business in China wanes

By Li Xuanmin Source:Global Times Published: 2017/8/30 21:18:39

Changing tastes, tougher environment take toll: analysts


Staff members are seen working on a production line in Beijing Hyundai's plant in Cangzhou, North China's Hebei Province in February 2017. Photo: CFP



The businesses of South Korea-based companies such as vehicle maker Hyundai Motor and retailer Lotte Group have been waning in the Chinese mainland market in recent months, mostly because they failed to react to changing consumer tastes and could not compete in a tougher environment, industry insiders said on Wednesday.

They said that the deployment of the US Terminal High Altitude Area Defense (THAAD) system in South Korea had played a role, but it wasn't the main cause.

Hyundai Motor's affiliate Beijing Hyundai halted production at all four Chinese factories, three in Beijing and one plant in Cangzhou, North China's Hebei Province, the Financial Times (FT) reported on Wednesday.

The suspension came after some local suppliers "refused to provide necessary parts" when they did not receive payment, said the FT report.

A spokesman of Beijing Hyundai on Wednesday denied the report.

"The operation at the four Chinese plants of Beijing Hyundai remains as usual and we have not been informed of any plan to halt production," he told the Global Times. He said that the automaker's fifth factory in China, located in Southwest China's Chongqing and was completed on July 19, will start production "soon as scheduled."

Over the weekend, images of an internal document of Beijing-based fuel tank component manufacturer Inergy, a supplier of Beijing Hyundai, went viral online. The document showed that Beijing Hyundai owed Inergy 111 million yuan ($16.85 million), which prompted the supplier to cease deliveries as of August 22.

In response to the reported default, the spokesman said, "We have about 200 suppliers so I am not clear about all the business transactions."

But an employee of Beijing Hyundai, who spoke on condition of anonymity, confirmed to the Global Times on Wednesday that the automaker did owe unspecified amounts of money to some suppliers.

The employee also said that production at Hyundai's plants resumed on Wednesday, but "night shifts in several factories were canceled as supply of some parts such as oil tubes has not been resolved."

Feng Shiming, a car analyst with Menutor Consulting, told the Global Times on Wednesday that the payment issues were due to the vehicle producer's financial struggles in China amid the rise of domestic auto brands. "For Hyundai, the glory days in the domestic market have gone," he noted.

The South Korean group reported a 65 percent drop in sales in China - its largest market - to 105,000 vehicles in the second quarter, according to the company's financial statement released in July.

In the first seven months, Beijing Hyundai sold 415,000 vehicles, down 29.1 percent year-on-year, according to data from the China Passenger Car Association. The number only represented 33.2 percent of the carmaker's annual sales target.

China once accounted for about one-quarter of the automaker's sales, FT reported.

"In the past, vehicles delivered by Hyundai were of a better quality than those of domestic automakers and they were price-competitive relative to joint ventures' products," Feng explained.

"But with the rapid development of domestic brands such as Geely, which appeal to consumers in terms of models, specifications and price, Hyundai is losing market share to domestic rivals," he said.

Feng also urged the South Korean brand to adjust its strategy quickly.

"The calls for a boycott following the deployment of THAAD may also result in slumping sales, but what matters more is the company's quick response to market demand and premium product structure," he noted.

A similar scenario applies to Lotte, which has closed 87 Lotte Mart stores in China so far, media reports said.

A spokesperson from Lotte declined to give a reason for the closures, only noting that operations at those stores have been "temporarily suspended". The company said in an earlier interview with the Global Times that China has always been Lotte's "most important" overseas market and the company has "never wavered" on this point.

Commenting on the closures, Li Xingmin, a marketing expert at consulting firm Topmarketing, told the Global Times on Wednesday that the closures were part of Lotte's drive to cut its losses, and consumer boycotts related to THAAD may have been a less crucial factor.

"The retail giant's localization strategy hasn't won favor with Chinese consumers and sales via e-commerce are squeezing its market share," he said.



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