Tuesday, April 21, 2009

What GE Capital Learned in Korea

Not long ago, Korea was a slog for GE Capital (GE). The financing arm of the U.S. conglomerate spent six years offering personal and auto loans and leasing office equipment at its wholly owned subsidiary in Korea but never managed to capture much market share. So the company dropped its traditional avoidance of minority stakes in joint ventures and folded its operations into two financing subsidiaries of Hyundai Motor. The result? The pair are among GE's most profitable businesses. "GE has really seen this [Korean success] as a bit of an eye-opener," says Bernard van Bunnik, GE's top executive in Korea.

Today the Korean operations are models for GE's marketing and branding strategies worldwide. Seoul has become a destination for management-training groups from the company's Crotonville leadership development center in Ossining, N.Y. In February, for instance, four GE executives spent two days there meeting with the venture's managers to try to determine a formula for successful partnerships.

Just as important, GE's experience in Korea has spurred a rethink of a key company strategy. Before the Hyundai deals, GE strongly preferred management control in joint ventures. But since 2004, GE has invested a total of $3 billion in the two companies and now holds 43% of each: Hyundai Capital, the carmaker's auto-financing arm, and its credit-card affiliate, HyundaiCard. Today the Korean operations represent GE's biggest minority investment on the planet, and they have inspired similar arrangements such as the 2007 purchase of 25.4% of Bank of Ayudhya in Thailand.

GE was willing to take a chance on Hyundai because its 75% share of the Korean car market offered huge potential for auto loans. It was a good bet. The Korean operation contributed 5.1% of GE's worldwide consumer-finance profits in 2008. The return on assets for the two companies in 2008 was 2.66%, among the best of any GE business.

GE wasn't expecting such smooth sailing in its voyage with Hyundai, which has a spotty record of corporate governance. So the Americans stationed dozens of managers in key positions in the joint ventures, and both parties had veto power on all critical decisions. But neither side has had to veto anything. "We haven't encountered any real clash in management," says Ted Chung, president of both ventures, which operate virtually as one company. "In fact, we've been asking GE to dispatch more people because we want to learn more from them."

That learning has gone both ways. Chung says Hyundai originally sought an investor to make up for losses in its credit-card business. But he now calls the capital injection "the smallest contribution of all the benefits we've enjoyed." More important, Chung says, was GE's risk-management and financial knowhow, as well as its "uncompromising implementation of ethics, its interest in talent, and its management philosophy."

And GE has learned from Hyundai's marketing chops. To give the brand cachet, Chung hired noted designers Karim Rashid and Léon Stolk to develop a distinctive look for the company's cards, worked with design consultant IDEO to revamp and simplify its bills and Web site, and asked Dutch design firm Concrete Architectural Associates to create a more welcoming atmosphere at customer service centers. To nurture exclusivity, Chung set up "Super Matches" in sports ranging from figure skating and gymnastics to cycling and tennis, where mega-stars such as Rafael Nadal and Roger Federer face off in nationally broadcast competitions.

Hyundai also woos clients with discounts on its vehicles. HyundaiCard lops as much as $380 off the price of a car, which consumers then pay back by accumulating points that equal 2% of purchases with the card. That encourages holders of multiple cards to use HyundaiCard as their primary plastic. It seems to work: Average monthly spending by those customers is 37% higher than that of ordinary card users. HyundaiCard "has used design and branding to differentiate itself in a very crowded market," says GE's van Bunnik. That, he says, helps to make the Korean ventures "a benchmark for GE Money."



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