Climate change threatens to increase cost and decrease sales for Hyundai
Growing public concern around climate change is generating increased risk for the automotive industry. Specifically business executives must plan for changing customer preference to products that have smaller footprints  and increased likelihood of tariffs for pollution that will increase the cost to manufacture automobiles . While some studies have found businesses to be sluggish to acknowledge the risks of disruption caused by climate change, with one study showing 96% exposure versus an action rate of 20% , Hyundai is acting to mitigate the risk. Although South Korean organizations have on the whole shown less strategy implementation than their North American counterparts to mitigate the risks , Hyundai, headquarted in South Korea, has put into action concrete plans to reduce its supply chain’s environmental impact. The corporation is attempting to reduce the footprint of its supply chain to mitigate risk that its suppliers’ prices may be greatly affected by increased tariffs and consequently raise the price of the end product .
Actions that Hyundai is taking to decrease its sensitivity to increased costs from climate change related regulation
Hyundai has set out with the mantra “no measurement, no improvement, no innovation,” with it sights sent on quantifying and reducing its supply chain carbon footprint. The initial challenge in helping it’s suppliers to quantify their carbon footprint has been to help them find the appropriate data to collect and encourage them to invest in the high upfront cost of monitoring those metrics . The corporation has developed a four metric framework for which to evaluate its suppliers. These dimensions include a lifecycle analysis of the materials, regulatory compliance, gross emissions, and the efficiency of the operation. See tables below for sample of ten example suppliers and their carbon footprints.
Through this carbon footprint quantification process, Hyundai has been able to aid its suppliers in improving their practices . Hyundai’s efforts in helping these small firms to improve  will likely be best in the long-run for not only the individual suppliers, but certainly for Hyundai which aggregates all of the risk of these suppliers having to raise their prices. By realizing that the corporation is vulnerable to its suppliers having to raise prices to account for pollution, Hyundai has positioned itself to gain market share in the auto industry should the likely regulation and specific charges be induced on auto manufacturers’ supply chains.
Other recommended steps for Hyundai to take to reduce its climate change related risk exposure
While Hyundai is doing an excellent job of reducing the risks from possible tariffs, there were no articles found to support that Hyundai is doing much in the way of reducing the risk in its supply chain due to the natural disasters that are accompanying the advent of climate change. In order to better protect itself from risks, Hyundai should look into keeping emergency stocks of supplies, analyzing the risk of natural disasters to its suppliers, diversifying its suppliers, and considering its suppliers proximity to the manufacturing facilities .
Another possibility for Hyundai to further mitigate its exposure to climate change related regulation would be to enter a best practice-sharing program with other top auto manufacturers. Before engaging in such an exchange it would be wise for Hyundai to identify the industry leader in sustainable practices. It is possible that Hyundai would receive more benefit than lost in competitive advantage since it can not only apply these best practices to its base manufacturing, but with having established working relationships with its suppliers also reduce their costs and sensitivity to future climate change related risks.
Lastly, to fully capitalize on all of the good work it has been doing in reducing the carbon footprint of its vehicles, it would be advisable that Hyundai advertise all of their efforts. In a marketplace where consumers are increasingly carbon footprint conscious, Hyundai could see a significant uptick in sales in exchange for their labor .
Open questions related to Hyundai’s supply chain innovation
- With the US having recently withdrawn from the Paris Climate Agreement, is there a possibility that all of the work Hyundai did to mitigate its exposure to future regulation be for naught should other countries follow suit in leaving the agreement?
- How can governments incentivize and/or educate companies within their countries to mitigate the risk of their supply chains becoming prohibitively expensive should future tariffs on emissions be implemented?
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