[Viewpoint]Toyota offers a lesson for Hyundai

The latest strike at Hyundai Motor Co. ended again without any progress in the relations between management and labor.
People criticized the two sides for “habitually resorting to strikes” and for “colluding with union leaders” respectively. Some people even worried that Korea’s top automaker might collapse due to the chronic labor disputes. It was also frustrating for me to watch, from abroad, the progress of the labor disputes at Hyundai. I really hoped I could see Hyundai Motor Co. take over the marketplace position of the Japanese company, Toyota. I don’t feel that way just out of patriotism. It is because we can only pride ourselves in being an advanced country when Hyundai Motor Co. catches up to Toyota. What on earth is holding Hyundai Motor Co. back?
The problem seems to be with the labor union, which stages strikes over any excuse it can find. However, the constitution guarantees the right to stage labor action and, in practice, the union members usually make up the losses by taking on overtime work or extra duties. The question is whether the union members are trying to improve their labor skills and arm themselves with a high standard of workmanship that matches their high wages.
According to a recent company report, the average annual salary of Hyundai workers is 55 million won ($58,900). The average salary of the workers at a primary subsidiary of Hyundai, which supplies auto parts, is 48 million won. In a big contrast to them, the average annual salary of a secondary auto parts supplier is 23 million won. Even worse, that average salary includes the administrative staff of the company.
The company relies entirely on irregular workers for the production of parts. If we consider the fact that the wage level of irregular workers is lower than that of regular workers, the average wage of that company goes down even more. Can Hyundai’s union assure people that the quality of its labor is two times higher than that of the irregular workers at its secondary parts suppliers?
Perhaps, some say, such wide wage gaps only reflect Hyundai’s business productivity. But how can they explain the fact that irregular workers on the same assembly line of Hyundai Motor Co. for the same period of time receive only 70 percent of what regular workers get? If part of the money squeezed out from the irregular workers or workers at parts suppliers is included in the high wages paid to regular workers, Hyundai’s union members should naturally take it as shameful.
The problem is that it is not the only the union’s fault. The management of Hyundai Motor Co. has neglected to enhance the productivity of its employees on the production line.
Instead, management gives the impression it has been busy making up for the number of cars that weren’t produced during the strikes.
As we see, the more management clings to achieving production targets, the stronger labor’s demands for wage increases will get. When things go that way, management, as well as the union, is tempted to find a solution from a completely wrong place. Instead of boosting labor productivity, management is likely to make up for the wage increases by exercise its monopoly in the market and by pressing parts suppliers to lower their supply costs.
What about Toyota? First of all, Toyota pays attention to the improvement of the mechanical skills of employees on its production line. For example, of the approximately 20,000 workers Toyota sends to overseas factories to train local employees, a large number are employees on production lines. The jobs that Hyundai uses engineers for will be done by production line employees. Engineers can then concentrate their efforts on other jobs requiring higher skills and technology.
Secondly, Toyota works to establish a cooperation with its parts suppliers. Toyota actively induces its secondary parts suppliers and the ones that supply parts directly to them to present plans for improvement by using their own know-how when Toyota needs a new design for a part. And when an improvement plan that is presented gets adopted and productivity is improved, Toyota shares evenly with its subsidiaries. They have a structure in which the wages of workers at parts suppliers increase if Toyota’s business improves.
If we study the “kaizen effect,” or improvement effect, that Toyota has achieved since the beginning of the 1990s, we can imagine how important it is to establish such relations with parts suppliers. The benefits from the improvements in logistics, which facilitate the moving of products, are about 30 billion yen ($249 million) a year.
In comparison, the benefits from the kaizen effect from a parts design perspective, which is possible through the establishment of cooperation with parts suppliers, is 110 billion yen annually.
Increasing the value of human resources and establishing relations of cooperation with parts suppliers are equally applicable to Japan and South Korea.
Hyundai Motor Co. must focus on improving the skills of its employees on the production line and sharing the profits with its parts suppliers. The establishment of cooperation between a big business and small and medium businesses can’t be achieved by meeting people and shaking hands at the Blue House.
Perhaps the clue to Hyundai’s future success in overtaking Toyota can be found in the establishment of cooperation with its parts suppliers.

*The writer is a professor of economics at Saitama University, Japan. Translation by the JoongAng Daily staff.

by Woo Jong-won