Seung Hwa Suh was the man in charge of the construction of Hankook Tire Co. Ltd.´s first European tire plant, a $650 million project. In March he took on an even bigger role as global CEO of the fast-growing, seventh-largest tire maker in the world.
He has spent 11 years with the South Korean company in many posts, including a stint with the firm´s U.S. operation.
As president and chief operating officer for Hankook in Europe, Suh led a reorganization that paid off with a 15-percent increase in sales last year.
In the following edited article, Suh answered questions from Ed Noga, editor of Rubber & Plastics News, about the firm´s past achievements, plans for the future and his role in both.
You spent much time in the company´s export business and as vice president of Hankook Tire America Co. Ltd. Does that experience give you a special perspective of the U.S. tire market?
Certainly. We view America as a top priority market we must break into.
While Hankook is very successful in Korea and other parts of the world, America is very brand loyal, and it takes a longer time to establish a brand name there that represents quality and trust. That is what we are in the process of doing.
What opportunities do you see for the company in North America?
In North America we hope to increase the brand presence of Hankook Tires. One out of every two cars in Korea has a Hankook tire, one out of four in China, but our brand is less known in other markets.
I think there is a huge opportunity for us to show the American public that we produce excellent, quality tires that are as technologically advanced as our competitors and still reasonably priced. We have an exciting proposition for the American public.
The company expects U.S. sales to reach $672 million this year. Do you expect that rapid growth to continue?
Most definitely. In 2001, Hankook Tire was the 11th-largest tire manufacturer in the world. Now, just five years later, we´ve climbed to the No. 7 position and posted a 20-percent growth rate.
Considering Hankook´s strong sales growth in the U.S. and ties to automotive OE companies, what is the possibility of the company opening a tire plant in North America?
By the second half of 2007, Hankook Tire will manage five production facilities in China, Hungary and Korea. We might consider building a new plant some place in or near North America to target and satisfy consumers in this region. Although we don´t have any specific plan yet, it might be put into consideration after the construction for the Hungary plant is finally over around 2010.
Must a certain level of business be met before a plant is needed, or will Hankook be content to import tires into the U.S. and Canada?
Generally, two sides of needs have to meet when we finally decide to build a new plant. One side is high demand of consumers in a certain market and the other side is obviously our expected business profit.
A good example is our Hungary plant. We continuously received reports that the demands of European consumers were increasing gradually in years, and through many years of research, we came to the conclusion that building a new plant in Europe would definitely give us higher profit because fundamentally, we can satisfy our dealers and consumers by providing them faster delivery time through local production sites which ultimately result in increase of our sales.
Similarly, we keep our eyes on North American market, but at the moment, we would have to hold on our decision and put efforts on satisfying our consumers by importing our products from other plants until our ongoing construction is over.
Is the Dunaujvaros (Hungary) plant project still on schedule to start operating in the second half of this year, and reach full capacity of 10 million units by 2010?
Yes, the Dunaujvaros plant project is still on schedule. We invested 500 million euros to build a state-of-the-art production site with a starting quantity of 1.2 million units, growing to 5 million units by 2008, reaching the full capacity of 10 million units of car and light truck tires by 2010. We are actually conducting the testing phase, and we will start the operation this summer.
Are the passenger and light truck tires that will be produced there destined for customers in Eastern and/or Western Europe, or is the site a base for exporting to other regions, such as North America?
These tires will primarily be destined for European customers. The European market is currently very important for Hankook, making up 35 percent of our total export. Generally production volumes are distributed according to local market needs.
What kind of challenges did you face in starting up the Dunaujvaros plant? Considering the size of the project, the importance of it, it must have been quite an endeavor for you, personally. How different was it to be involved in such a project there as compared with one in South Korea?
Because we have had increasing sales in Europe for years and 35 percent of our worldwide exports are to Europe, it was inevitable that we would have a European plant.
When I went to Europe as Hankook´s European chief operating officer, we intensified this plan. Hungary has a strong infrastructure and is close to central European markets and to our western European OE customers. In the meantime we regard Europe as our second home market.
Were you able to find enough qualified people locally to work at the Dunaujvaros plant?
Hankook will create 1,500 manufacturing jobs in Dunaujvaros and approximately the same number of peripheral jobs. So far we have not had any problems finding educated and talented people for our factory. However, during start-up we will have some experienced managers from Korea educating the new Hungarian employees.
In an operation such as this, how much oversight does the parent company have-I imagine a lot in start-up, but down the road will there be more local people involved in management?
During start-up we will have some experienced managers from Korea educating the new Hungarian employees, but eventually, yes, the majority of the management responsibility will be turned over to local employees.
It is my understanding Hankook is the strongest foreign brand in China´s replacement passenger tire market, and that its tires are priced somewhere between Michelin and the better Chinese-brand tires, and are considered good quality and a reasonable price. Would you say that´s a true statement?
Definitely. Our investments in Chinese production facilities in Jiangsu and Jiaxing as well as in our Chinese research and development center have helped us to deliver products more in tune with the demands of the Chinese marketplace-reasonable price for a superior quality product.
We have a long relationship with China, dating back to 1996 and this has also helped us establish the largest logistics network (we have 16 logistics centers, more than any other tire manufacturer) which helps us ensure and provide quality service for our Chinese customers.
Does the company design tires much differently for the market in China, as compared to that in South Korea, Europe or North America, because of the different driving conditions? What particular differences do you find in these regional markets, in regards to consumer preference, road conditions, etc.?
We established the China Technical Center at Jiaxing, Zhejiang Province, China, in 1998 and it recently was upgraded in May 2006. The China Technical Center is part of our global strategy to produce tires that meet the demands of consumers in different regions.
We have established five international R&D centers to meet varying local demands. The China Technical Center ensures China receives superior quality and high performance tires adopted for the particular weather and road conditions in China. Likewise, the Akron Technical Center helps us produce tires for the U.S. weather and road conditions.
With the expansions last year at the plants in Jianxing and Jiangsu, is Hankook in good shape in China now, with enough production capacity?
As you point out, due to the global demand for Hankook tires, both plants are undergoing ongoing expansion, which is still in progress. The current capacity is 25 million units annually, and this will increase to 28 million by the end of 2007.
Is Hankook the No. 1 supplier to original equipment customers in China? What OE customers does Hankook supply there?
Hankook is No. 1 in terms of OE supply in China. Hankook has been in the Chinese market since 1996, and we have forged strong relationships with the industry there.
We consistently receive awards from OE suppliers due to the strength of our relationship and the quality of service we provide. Recently, Hankook was selected as the only tire manufacturer to receive FAW-Volkswagen "10 Best Suppliers Award" for 2006.
We supply tires to over 30 major automotive makers-Fiat, Ford, GM, Hyundai, Mazda, Volkswagen-and we are constantly growing this business. Beginning in June 2007, Hankook will supply tires to Audi A6L and A4 manufactured in China. This marks the company´s entry to the high-end automobile market.
Hankook certainly has grown under Choong Hwan Cho´s leadership, and you have some big shoes to fill. What are your ambitions for the company now that you are CEO? Do you hope or expect Hankook to advance even higher among the world´s largest tire companies?
I certainly do have some big shoes to fill, and Mr. Cho has done an amazing job of leading this company over the past several years to become a significant player in the international consumer and performance tire market.
My goals are to continue to lead and mature Hankook as a world leading tire manufacturing company with a reputation for producing superior quality and high performance tires. I also hope to help the company realize some of the great opportunities on its horizon, such as our growth in the North American market.
All tire makers, and rubber companies in general, have been hit hard by raw materials cost increases in recent years, including 2006. Do you expect that problem to stabilize?
Luckily enough, we have been able to remain profitable in spite of the rising cost of raw materials. I think that, like any market, you will see upturns and downswings, but yes, it will eventually level out.
A lot of the natural rubber price increases were due to supply demands that coincided with the seven- to eight-year cultivation cycle of the rubber plant. Other raw materials such as carbon black and synthetic rubber went up 27 percent and 6 percent respectively last year and are expected to experience steady increases pegged to changing oil prices.
Although it is early to say, it is my opinion that the market is already showing signs of recovery to some degree.
How about the domestic market? Is Hankook in good shape in South Korea as far as production capacity and serving the market is concerned? Is there an expansion ongoing at the Geumsan facility?
As you know, domestically, one out of every two tires on the road is a Hankook. However, this position of strength does not make us complacent.
We are constantly improving our systems and distribution. For example, in 2005 we undertook a six-month project to redesign our Korean logistics network in a more efficient manner. We also recently announced an investment in our fully automated Geumsan facility of almost $250 million to expand production capacity for our ultra high performance tires to meet increasing global demand and maintain consistently high levels of quality.