[[CASE]] Heavy Metal at Hyundai Shipping is a major mode of transportation in the physical distribution of many products, including oil, cars, electronics, and bathroom tiles. Shipping is a complex industry with few players willing to take on the risks associated with building expensive new ships, handling potential environmental disasters, and negotiating through a complicated array of international regulations. Despite these risks, shipbuilding itself is enjoying a recent boom. The upturn is due to the phase out of single-hull ships (replaced by new, double-hull vessels), the upswing of Chinas economy that fuels more trade between Asia and the United States, and the increasing demand for oil from developing countries. The largest player in the global shipbuilding industry is Koreas Hyundai Heavy Industries, followed by Daewoo and Samsung. Not surprisingly, the worlds largest shipyard also belongs to Hyundai. Built more than three decades ago, the yard now runs so efficiently that it can turn out a new $80 million vessel every four days of operation. Despite the firms current prowess, Hyundai engineers continue to develop plans for even larger, more complex ships. On the drawing board is a super vessel that could carry as many as 10,000 steel containersor 30 million pairs of sneakers. Why doesnt the firm feel comfortable with its first-place position? China has been outspoken about its intent to become the leading shipbuilder in the world by 2015. China already puts pressure on leaders in other industries, including U.S. manufacturers of numerous products. With its large workforce and lower wages, China is poised to take on just about any industry it wants. So Hyundai executives continually develop new strategies for improving or enhancing their products as they develop new ones. As the old ore carriers and oil tankers are phased out of the shipping market in general, Hyundai looks for ways to build the enormous container ships. Butjust like an auto manufacturermarketers also seek ways to load them with expensive features. We obviously want the more value-added-type vessel[liquid natural gas] carriers, more complicated container vessels, ice-glass carriers, explains Han Dae Yoon, chief marketing officer of Hyundais shipbuilding division. Shipbuilders have to be selective. By focusing on the higher end of the marketletting Chinese shipbuilders take contracts for simple tankers and bulk carriersHyundai keeps itself out front. Now the South Koreans are moving more toward the Lexus end in order to have an edge over the Chinese, notes Peter E. Bartholomew of Industrial Research and Consulting. Chinas exploding economy has also created another potential challenge for Hyundaia shortage of some building materials such as steel, which can make up 20 percent of the material on one ship. This shortage caused the price of steel plate to jump 70 percent in one year, contributing to a $30 million loss by the firm in one quarter. But Hyundai is still ahead of its competition, perhaps because its leaders take nothing for granted. Even with Hyundais nine dry docks booked until 2009, with contracts for 102 ships worth a total of more than $8 billion, no one at Hyundai rests. When you are being chased, you have to do something that the chaser cannot do, says Han Dae Yoon. That means building bigger, better shipsfaster. Questions for Critical Thinking 1. With what types of intermediaries do you think Hyundai must maintain relationships? 2. Describe ways in which Hyundai can manage its supply chain effectively. 3. What role does Hyundai play in the global marketplace?
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