Crisis time at Hyundai Heavy

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Crisis time at Hyundai Heavy

The labor union of Hyundai Heavy Industries is voting this week on whether to call a strike. If a majority of union members agree to walkouts, the company’s proud tradition of no labor disputes over the past two decades will end. The union says that despite its concessions to management - as seen in its agreement to freezing employees’ pay - the company’s treatment of its labor force has not improved enough.

The world’s leader in shipbuilding is facing its worst financial crisis. It recorded a loss of 1.29 trillion ($1.24 billion) in the second quarter alone, its biggest loss since 1972, when it was founded. That mostly stemmed from its underperformance in the offshore plant sector. The company suffered nearly1 trillion won in losses from the so-called Goliath Project involving the construction of the world’s largest floating facility for petroleum storage and shipping. Another contributor to the loss is the company’s winning of orders for shipbuilding at rock-bottom prices.

The union attributes the losses to misjudgments on the part of management. Management maintains it had to find a breakthrough in the offshore plant area after the world’s shipbuilding boom fizzled out following the 2008 global financial meltdown.

The shipbuilding industry normally needs to obtain orders for the next three years. However, as shipbuilding costs dramatically fell due to China’s bargain basement prices, Hyundai has seen its order book shrink to about a year’s worth. The company concentrated on getting orders for offshore plants.

Shipbuilding and offshore plants have been a driving force for our export-led economy. Hyundai Heavy’s lackluster performance is a warning to Korea’s entire manufacturing industry.

Even though Hyundai replaced its CEO and entered into a contingency management mode, market jitters have not subsided. If its union chooses to strike, the company will face its worst-ever financial crisis along with a critical loss of credibility in the market.

Management and labor must share the burdens. Despite the union’s image as a militant group, it has a proud history of no labor disputes since 1995. The company successfully pulled through the 1997 Asian financial crisis and the 2008 world financial meltdown through dialogue and compromise. Hyundai has never fired employees. They all retire at the age of 60. If the company wants to continue the glorious legacy of founder Chung Ju-yung, both management and labor must maintain a broad-minded approach.

JoongAng Ilbo, Sept. 24, Page 34
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