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"Over the years, we've had numerous interactions with Beijing Hyundai. Many people, including our deputy general and German officials, have visited their facilities. Even Beijing Hyundai has come to our factory, but they haven't chosen us yet," said a representative from Nanjing Huade Spark Plug Co., Ltd.'s marketing department. "Companies like ours with a German background find it hard to compete with Korean-funded enterprises. Parts companies that want to reduce costs are struggling to enter this system. The supporting network of Korean-owned companies is clearly difficult to access."
For a long time, many domestic parts manufacturers have voiced their frustration about the challenges of entering the Korean investment supply chain.
Currently, the Korean automotive industry is dominated by one national entity—the Hyundai-Kia Group. To achieve better growth, Hyundai-Kia must expand externally, and China has become a key strategic focus due to its massive market potential.
The main cooperation projects of Hyundai-Kia in China include Beijing Hyundai and Dongfeng Yueda Kia. Since the start of the Beijing Hyundai project, Hyundai has encouraged joint development in China. Mando, South Korea's largest parts supplier, has always supported Hyundai, and Beijing Hyundai is no exception. The main components of the Beijing Hyundai Engine Factory are supplied by wholly foreign-owned Korean factories such as Mobis. It is reported that more than 60 Tier 1 suppliers support Beijing Hyundai, with about 90% having foreign capital backgrounds, mostly Korean or Sino-Korean joint ventures. Dongfeng Yueda Kia is slightly better, with around 100 first-tier suppliers, of which nearly 20 are local, but foreign-invested companies still make up about 80%, most of them Korean-owned.
Why is it so challenging for local parts companies to get into the Korean supply system? Experts believe it has a lot to do with the structure of Korean auto parts and OEM relationships. In South Korea, the model used by original equipment manufacturers (OEMs) and parts companies is called the “tower model,†where business relationships are based on subcontracting at the operational level. The relationship between OEMs and parts suppliers is close, forming a tightly integrated system. General automobile manufacturers typically work with only a small number of first-tier suppliers, establishing clear and stable relationships. Each part is usually matched with just one or two companies.
Is this tower structure really making it hard for non-Korean companies to join? An industry insider who worked at Daewoo for seven years and is familiar with Korean-owned companies told reporters that unlike in China, Korean automakers in Europe and the U.S. tend to purchase a significant amount of local parts. For example, Hyundai’s U.S. factory purchases many components from Delphi. In overseas markets, the original Daewoo was even bigger than Hyundai, and Daewoo vehicles in Europe and the U.S. extensively used products from local non-Korean suppliers.
When asked why the strategy in China differs from other markets, the insider explained, "In European and American markets, the confidence of auto parts manufacturers isn’t very strong, so they follow the vehicle manufacturers closely. There aren’t many spare parts companies operating independently from the factory to the local factory, and cost pressures force Korean companies to rely on local suppliers. However, in China, Hyundai-Kia has high confidence in the market and its supply chain, so many parts companies follow the construction of the Chinese market."
According to Chen Guangzu, an automotive expert, "It’s difficult for local parts companies to enter Korean-funded enterprises. On one hand, there's a big gap in lean production capabilities compared to foreign companies. On the other hand, the trust behavior of Korean companies is also different."
After years of development, some Chinese parts companies have significantly improved their manufacturing processes and R&D capabilities, giving them a price advantage. Yet, they still struggle to gain entry into Beijing Hyundai and Dongfeng Yueda Kia.
Teng Bole, former deputy secretary-general of the China Automotive Industry Association, noted, "This has something to do with the decision-making power of the joint venture company. After the joint venture was established, both parties share interests and should discuss matters together. But in the process, you can't forget your own position. You have to fight for it wisely."
It is understood that in the management structure of Beijing Hyundai, the chairman is a Chinese person, while the general manager is a South Korean. The general manager’s team includes five headquarters, with three key areas—procurement, sales, and development planning—controlled by the Korean side. The Chinese side holds management and production roles, which don’t directly impact the core operations. Similarly, Hyundai Motor Co. controls the same three critical departments in Dongfeng Yueda Kia, leaving the Chinese side with only management and production responsibilities. This means procurement power is not in Chinese hands, making it difficult for local parts companies to enter the supply chain.
"Some analysts believe that although Korean cars are still highly profitable and not under extreme cost pressure now, as competition increases, the pressure will grow, and their willingness to use local parts will rise."
Currently, parts and components account for 60–70% of total vehicle manufacturing costs. While Beijing Hyundai’s profits remain good, high procurement costs have always been a source of dissatisfaction for China. According to an insider from Beijing Hyundai, the company has been preparing to expand its procurement from local parts companies.
However, Teng Bole believes that "the key to entering the joint venture supply system depends on our technical level, brand awareness, and service quality." He adds, "Focusing on building large-scale and powerful parts companies is a good solution to this problem."
Tao Jun, Vice Minister of the Purchasing Department at Dongfeng Yueda Kia, told reporters: "The state must vigorously develop self-owned brand vehicle companies to drive the development of parts companies. When the comprehensive strength of component companies improves, and their products are of good quality with price advantages, these companies will naturally come to you."