- Introduction
Hyundai Motor Company is the Korea’s largest automotive manufacturer that established its direct investment in United States on April 2, 2002. The company invested $1 billion to establish an automotive assembly and manufacturing plant in Montgomery, Alabama. Hyundai Motor Manufacturing Alabama (HMMA) was later incorporated on April 12, the same year. However, the grand opening of the HMMA was initiated by the Hyundai KIA Automotive Group’s chairman and chief executive, Chung Mong-koo, and Alabama governor, Bob Riley on May 20, 2005.
The HMMA plant consumed $1.7 billion to be established making it the first company’s plant in the United States manufacturing facility. The facility has a capacity of more than 3000 employees who benefits from high paying jobs and as well as full benefits (Girma, et al, 99). In addition to the direct workers that are employed by the company in its operations, many more people are demanded to supply the goods and services that are indirectly or directly related to the motor vehicle company operations. For the support of this manufacturing company, around 72 suppliers have established their businesses across North America. In addition, these Hyundai affiliate companies have created additional employment of 5,500 employees with a collective capital investment of $500 million.
The HMMA facility occupies a premise of two million square foot plant that is located on 1,744 acres of land that involves, paint shop, stamping facility, vehicle assembly shop, two engine shops and test track. The manufacturing plant marked the official commencement of operation in May 2005 with its very first profitable 2006 Sonata. At full capacity, the facility is expected to produce 350,000 vehicles every year. The vehicles are then distributed all over the United States by the sister company, Hyundai Motor America and also exported to other countries such as Puerto Rico and Canada.
- Pros and cons of the HMMA
Hyundai Motor Manufacturing Alabama has gone global though its foreign direct investment in the United States operating independently from Hyundai Motor Company in Korea. This involves investing capital and other resources into the developed country for the shared benefit of the country and the company (Stewart, Paul, & Elsie, 57). Although this procedure has a lot of benefits to the local community, it also comes with few drawbacks.
- Pros
- Creation of employment
HMMA has effectively created employment opportunities to the majority of the local citizen in the United States. The company has created direct and indirect employment to the provision of services and products required in the production in the automobile company. The company has been able to create over 3,000 employment opportunity which is a major pro to the local community (Hill & Charles, 64). The establishment of the affiliate company around the area has also boosted the employment opportunity adding an addition of over 5,500 job opportunity. Consequently, these job opportunities have resulted into improvement of the standard of living to the host community. Across the state of Alabama, the company and its affiliates are responsible of creating more than 34,000 jobs opportunities.
- Environmental policy
The HMMA has also not left behind in enhancing environmental condition to the local communities by developing a HMMA Environmental Policy. For the harmony of the humankind, community and the environment, the company has implemented an Environmental Management System which develops their commitment in preserving the environment. This Environmental Management System is considered as the integral part of the the company’s daily business practice together with the quality, cost and safety (Stewart, Paul, & Elsie, 44). In order to prevent environment damage, the company usually builds vehicles by application of process material and technology with regard to their impact to the environment. HMMA is also determined to continue looking for measures to optimize their internal systems, considering the concerns of the community with the ultimate goal of enhanced environmental performance.
- Economic development
Hyundai Motor Manufacturing Alabama has significantly assisted in the economic development of the United States. This is because the company has set up standard infrastructure in the host country, which in turn decreases the cost of business operation in the country while enhancing effectiveness. In the long term the improved infrastructures that have been as a result of FDI assist in uplifting the economy of the host country. For instance, at the end of year 2008, the U.S. automotive output constituted 2.2 percent of the Gross Domestic Product, while overall manufacturing contributed about 11.5 percent. According to the research conducted in the Auburn University, HMMA contributed $3.8 billion to the economy of Alabama. This accounts for about 2 percent of the Alabama’s Real Gross Domestic Product. With the improved economy, the host community is able to enjoy more improved standard of living since other affiliate businesses are able to pop up and grow in the neighboring areas. New vehicles from the HMMA have also enhanced competition hence facilitating the existing company to lower the price of their products which improves the welfare of the local community.
- Technology diffusion and knowledge transfer
Foreign Direct Investment superficially promotes the outsourcing of knowledge to the host country. For instance, Hyundai Motor Manufacturing Alabama has outsourced automobile knowledge from Korea to the United States. This has helped in promoting know-how to the local community in terms of enhancing the technological progression in the United States. For instance, the Hyundai Company introduced a Blue Drive, a technology-based strategy for the company’s product line. This technology is aimed to attain a fleet average of 35 miles per gallon by 2015.
- Linkages and spillover to domestic firms
As a result of this foreign company occupying position in the United States Market though foreign direct investment, linkage and spillover to the domestic firms has been experienced. This is because of the fact that the maximum profit and benefits of this foreign firm is spent on the host market therefore enjoyed by the local community. This in turn helps in uplifting the living standard of the host community (Stewart, Paul, & Elsie, 67).
Other advantages of the HMMA to the local community involve support of social amenities that enhances the building of hospitals and schools in the local area. The company has also enhanced and strengthened the diplomatic relationship between Korea and the United States.
- Cons
- Exploitation of resources
Exploitation of the local natural resources by the foreign company in the host country is a common phenomenon in the case of Foreign Direct Investment. The multinational companies are well known for the extensively exploit the resources of the host country in favor for the short run profits and gains. They go beyond ignoring the sustainability factors that are connected to the local community and local habitat.
- Threaten of small scale industry
Multi-national companies have large price and economic power due to their large size and economies of scale. HMMA, for instance, do not experience much challenges concerning financial capital and can as result have the capability to use the advertising which is costly affair. Moreover, this company is a global player to the extent that it has operations spread across the United States hence effective supply chains (Hill & Charles, 54). This enables them to have n economies of scales which the small local companies in the industry cannot achieve as competitive advantage. Consequently, the foreign company is able to sell cheaper products and more visibility due to advertisement hence knocking out the small players in the market. This in the long run deteriorates the standard living of the local communities since job opportunities are minimized.
- Technology
Although the foreign countries are able to access the new and cutting edge technology, they have a tendency of maintaining the new technology to their home country. This is because they fear that if they transfer the new technology to the host, the host might take up their competitive advantage (Hill & Charles, 55). This indicates that the local communities are subjected to the limited know-how and thus cannot effectively grow technologically. In addition, the optimum prospective of the host economy is not attained due to the application of the old technology.
- Conclusion
Foreign Direct investment is a significant corporate measure for the companies that desire to operate globally. This is a strategy that is more effective in the host countries that implies different trade barriers on the imports. Since the pros of the FDI outweigh the cons, it seems that this strategy is effective and beneficial to the host country. HMMA is therefore in a good position to do business in the United States without much negative effects on the local communities.
Works cited
Girma, Sourafel, Holger Görg, and Mauro Pisu. Exporting, Linkages and Productivity Spillovers from Foreing Direct Investment. London: Centre for Economic Policy Research, 2007. Print.
Hill, Charles W. L. International Business: Competing in the Global Marketplace. Princeton, N.J: Recording for the Blind & Dyslexic, 2007. Print.
Stewart, Paul, and Elsie Charron. Work and Employment Relations in the Automobile Industry. New York: Palgrave Macmillan in association with GERPISA, 2004. Print.
