Present and Future: Can Hankook Tire Become South Korea's Next Great Automotive Success Story?
In 1986, when Hyundai first brought its cheap and startlingly unreliable Excel hatchback to American showrooms, many assumed the company was doomed to fail. Yet the South Korean conglomerate persevered, and after a 22-year transformation into a full-line, mainstream player competing against the likes of Honda, Toyota, and GM, it recently took over as the fifth largest automaker in the world. Hyundai's automotive success story has been truly remarkable -- but it more than likely won't be the last one to come from the Hermit Kingdom. In business since 1941, Seoul-based Hankook Tire has been experiencing exponential growth in recent years, and now through careful expansion and prudent investment, this once-unknown tiremaker is catapulting itself onto the world stage, taking the likes of Goodyear and Bridgestone head on.
It's possible you've heard of Hankook Tire before, but chances are you don't know much about its products. After all, tires are tires, right? Beyond the major labels, most other tire companies blend into the wheelwells, as drivers tend to fit their cars with whatever's familiar, available, or cheap. Despite this relative anonymity, however, Hankook has seen no shortage of success -- it's currently the world's seventh-largest tiremaker and the fastest-growing -- yet the company isn't content being lumped in with also-ran labels, especially in the U.S. Like Hyundai did before it, Hankook wants to become one of the global leaders in its field, and to do so the company is taking aim straight at the heart of the mainstream tire market.
"We want to be the Toyota of tiremakers, not Ferrari" says Hyun Bum Cho, Hankook CSFO, and to achieve this the company has adopted a market-driven strategy, offering a full line of mainstream and performance products. Unlike, say, Japan's Yokohama, which supplies glamorous supercars like the Aston Martin DB7, Bentley Continental GT, and much of Mercedes' AMG lineup, Hankook has sought to gain notoriety by working in somewhat less-rarified territory -- in 1999 it became the first Asian OE tire supplier to Ford, and today fits millions of tires a year on high-volume vehicles like the Pontiac G6, Saturn Aura, and Lincoln MKX, as well the Chinese-market cars for brands such as Volkswagen. The company is making inroads in Europe, too, and is currently under consideration to supply the Euro-market Audi A3 and A6.
Discussing their recent success, Hankook executives credit much of the company's rise to its hefty investment in research and development. The tiremaker rolls 5% of revenue into R&D each year and runs research centers in Korea, Japan, China, Germany, and the U.S., so it can tailor products specifically for each market. And while 5% of revenue may not sound like much, consider this statistic: There are currently more Hankook employees doing research than working in the company's entire corporate division. Part of this investment is a set of proprietary innovations called "Kontrol Technology," which Hankook claims are designed to ensure uniform quality and performance consistency across markets and product lines. Of course when it comes to achieving such a lofty goal, implementation is key. So the question, is, how exactly is all this R&D cash being spent?
Hankook's main R&D Center in Daejon, South Korea, is an unassuming building nestled amid a community of office parks and industrial centers about three hours south of Seoul. But don't be fooled by the plain appearance -- the mass of intricate equipment inside is just a hint of the amount of work that goes into developing each and every tire that so many drivers take for granted.
Long before a particular model is cleared for sale, Hankook fits samples to a Flat Trac machine, which spins at up to 155 mph, changing angles and surface materials to measure performance and tread wear. Tests are done using aluminum wheels coated in ice to see how rubber compounds hold up during winter, and in special isolation chambers that calculate a lifetime wear prediction in just two or three days. Prototype tires are fit to cars in a soundproof anechoic chamber equipped with radio microphones to measure how much road noise penetrates the cabin, and a bevy of virtual modeling simulates handling, hydroplaning, and NVH performance of Hankook tires on thousands of vehicles sold today. There's even an environmental analysis division trying to improve the smell of rubber, to make the area around company factories a more pleasant place to be.
Beyond product testing, naturally the lion's share of tire development lies in the chemistry lab, and these days Hankook is grappling with one issue in particular -- fuel economy. Automakers around the globe may be touting advancements in engine efficiency, but a car's tires can have a noticeable impact on saving gas, too. With this in mind, and as fuel prices become increasingly unpredictable, Hankook is introducing a new line of low rolling-resistance tires called Enfren, designed to help save fuel and lower CO2 emissions through reduced resistance and weight. Like many low rolling-resistance tires, however, the challenge that engineers at Daejon face is how to maintain acceptable performance. Low rolling-resistance tires typically aren't as good at high speeds and wet braking, and while the new Enfren line offers a 2% improvement in fuel economy, Hankook is currently experimenting with new compounds in order to make them even more efficient.
Presently Enfren tires are available only in Korea, but the company plans to add them to its American lineup of Optimo touring, Dynapro light truck, and Ventus ultra high-performance offerings soon. That said, R&D investment and eco-friendliness alone won't put Hankook on top -- its executives know that if they're going to make headway in the cutthroat American market, the company also has to compete on price. Yet despite only becoming fully industrialized over the last half of the 20th Century, Korea's living standards are relatively high, and Hankook factory workers make an average of $50,000 per year. How does the tiremaker offer a high-quality product at a lower-price than its French, American, and Japanese competitors, while still turning a profit? Through automation.
Walking into Hankook's Keumsan manufacturing plant, one of the first things that strikes the visitor is just how empty it is (that and the deafening noise from the mass of machinery, of course). Stations are rarely manned by more than one or two workers, and such is the level of automation that, apart from monitoring the equipment, many employees need to perform only a few physical tasks. After raw rubber is mixed into sheets, base, or "green," tires are formed by joining together an inside layer, outer overlay, and metal reinforcements from uniform strips of each material -- a process that requires just one employee to splice the sections together. Sending green tires to be "cured," which adds the tread pattern and hardens the rubber until it's production-ready, is done through a ceiling-mounted conveyor system, and even Hankook's forklifts are robotic, traversing the factory floor solely by computer control. In fact, the area of Keumsan with the most staff is its inspection and shaping station, where workers trim off excess rubber by hand before sending tires out for shipment.
Not all of Hankook's factories are quite as automated as Keumsan, but company executives believe that, besides cost savings, this setup actually improves tire quality, since it eliminates room for human error. Of course, given the rising cost of raw materials around the globe, having a factory that can operate 24 hours a day, 351 days a year, without the requirement for a massive workforce is especially useful when you're selling a product priced below your competition. And speaking of price, despite shrinking profit margins, Hankook says it is trying to hold the line in the U.S. market and will continue to position itself as a cheaper alternative. The company's new Ventus V12 evo, for example, is an ultra-high-performance tire that's won several comparison tests and awards, yet represents a significant bargain when compared to similar shoes from Pirelli, or even Bridgestone.
That said, research budgets and high-tech factories are all well and good, but the question on most buyers' minds when comparing Hankook with the competition is simple: How do its tires perform when the rubber meets the road? As part of the company's rigorous testing regimen, Hankook owns the only wet track in Korea, a compact, snaking route of hairpin turns and all-too-brief straightaways kept continuously coated in a thick layer of water. Hyundai and Kia routinely use the track as part of their development cycle, and easing a Ventus V12-shod BMW up to the starting line, it's easy to see why. To successfully navigate the track at speed without sliding onto the gravel (or worse, plowing through a chain-link fence that's very close to the narrow course) requires a well-sorted suspension -- and a good set of tires.
Building up a healthy speed and yanking the wheel for turn one (a nice, sharp right), your first impression is you're going too slow. The Bimmer's chassis, along with the impressive grip of the Ventus V12s, encourage you to bury the pedal further the next time around. In fact, Hankook's performance tires display impressive grip throughout the course, and making them scream takes considerable speed -- more than most people would be comfortable trying on such a compact track. More scientific examination yields similar results, too, as the Ventus line has racked up platitudes and comparison test wins in German car magazines such as AutoBild and Auto, Motor und Sport.
A case full of trophies and awards still can't guarantee sales success, however, and ultimately this is Hankook's greatest challenge -- differentiating itself in an increasingly crowded marketplace. As CEO Seung Hwa Suh notes, considering that all tires are basically "round, black, and rubber," standing out from the crowd isn't exactly easy. To help build brand recognition, the tiremaker has a presence at SEMA, advertises in baseball stadiums, participates in motorsport events and off-road rallies around the world, and sponsors a team in the Formula Drift series. Hankook has even gone so far as to debut the world's first drifting Porsche, a modified, 600-hp 993 GT2 Turbo driven by Tyler McQuarrie, in competition in 2007. In addition the company has also created a new, global advertising strategy, headed by the slogan "Tame the Road."
Yet despite this, Hankook still lacks a marketing counterpunch to cultural icons like the Goodyear Blimp and Michelin Man, or even the cachet Pirelli enjoys by being the official supplier to Ferrari. That said, don't count the Korean tiremaker out, as its promotional efforts have already paid off by making Ventus Ultra High Performance tires the company's fastest-selling line. Now, thanks to a focus on high quality and low prices, Hankook's aftermarket sales for all-season tires are improving, too, and the company is strengthening relationships with popular dealers such as The Tire Rack in order to keep that momentum going. Whether or not this will help push the tiremaker into the mainstream alongside companies like Goodyear and Continental, however, remains to be seen.
Back in 1986, many competitors scoffed at Hyundai's low-priced offerings, especially since the automaker had started out building Korean-market Ford Cortinas just 19 years earlier, when names like Oldsmobile, Plymouth, Peugeot, and Alfa Romeo ruled the world's roads. Today, however, all those brands have either been banished from the American market or killed off entirely, while upstart Hyundai continues to grow by leaps and bounds. Similar to that time, Hankook Tire's total 2007 sales of $3.5 billion still pales in comparison to the more than $21 billion in revenue Bridgestone and Michelin each took in during the same year. Given this disparity, chances are rival executives in Japan and France probably aren't exactly watching Hankook with concern. But considering that the Korean tiremaker has gone from making just 670,000 tires annually in 1973, the year CEO Seung Hwa Suh first joined the company as a lowly materials buyer, to being on track to produce approximately 75-80 million worldwide in 2010, they might be wise to start.