Reverberations in the supply chain

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Reverberations in the supply chain

Back a rat into a corner, and it’s going to bite the cat. The nation’s small manufacturers are biting back, frustrated by the uncompromising labor union of Hyundai Motor, the country’s largest automaker. The union has been staging sporadic walkouts since the summer in protest of this year’s wage terms.

The Korea Federation of SMEs has threatened to carry out a campaign to boycott Hyundai Motor cars unless it stops the strikes that have been disrupting industrial output and have cost the livelihoods of smaller suppliers. The federation claims the “elite” unions are aggravating social conflict and income inequality.

The Hyundai Motor union voted down this year’s wage deal that its executives struck with the management, which cannot be easily understood by the general public and other factory workers. Unionized Hyundai Motor workers earn an average of 96 million won ($87,000) a year. They were unhappy about the offer of a bonus payout of 15.35 million won. The strikes throughout the summer have delayed the shipment of 117,000 vehicles, and losses are predicted at 2.6 trillion won.

The fallout has taken its toll on small suppliers. A car is made of over 20,000 parts provided by contractors in the supply chain. The suppliers must kowtow to the finished-product maker. The manufacturer at the top of the pecking order always demands lower prices for parts. Suppliers inevitably have to comply to maintain work orders.

They must somehow manage through meager pay. Salaried workers at small and midsize companies get 60 percent of what employees at big companies receive. Contract workers must settle for just 30 percent.

The smaller manufacturers have threatened to boycott Hyundai Motor cars out of fear of a spillover in strike costs to suppliers. The increased fixed costs from the lengthy strike at Hyundai Motor could translate into cost-saving demands from the auto giant for even lower parts prices.

The suppliers must either forego work or comply with the demands of its primary customer. Their act of vengeance will earn more sympathy from the public because the ongoing protests by the Hyundai Motor union look like mere greedy whining.

Korea’s auto output capacity has slipped to sixth place in global rankings because of the militant unions. Hyundai Motor is also losing its position in the domestic market.

The union must face the music.

JoongAng Ilbo, Sept. 30, Page 34

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