Is the technological capability gap between Hyundai and Mitsubishi converging or diverging? Findings from patent data analysis

Abstract

With few capabilities in automobile production or development, Hyundai Motors began its automobile business in 1967. Hyundai had to surrender a 10% equity stake to receive technology transfer from Mitsubishi Motors in 1982. Surprisingly, this situation reversed 20 years later, in 2004, when Mitsubishi came to license Hyundai's engine technology. As of 2013, Hyundai is the 5th largest automobile manufacturer in the world, while Mitsubishi is the 14th. To explain this reversal, this study investigates the technological capability gap between Hyundai and Mitsubishi by analysing patents data (and related citations) for Hyundai and Mitsubishi to assess their technological capabilities. The study finds that Hyundai not only narrowed the technological capability gap with Mitsubishi, but also recently overtook Mitsubishi. The results suggest that Hyundai's success in the market would not be possible without its ceaseless accumulation of technological capabilities.

Keywords:

• technological capability
• Hyundai Motors
• Mitsubishi Motors
• patent analysis
• automobile industry

Funding

The second author acknowledges financial support received from Chonnam National University, 2011–0683 and 2012–1575.

Notes

1 Korean Automobile Manufacturers Association (www.kama.or.kr). The figure only includes passenger cars.

2 U.S. Department of Transportation (2014), National Transportation Statistics 2014.

3 Hyundai applied for its first US patent in 1989.

4 It is highly challenging to correctly identify a firm's patent because a firm may use company names different from its legal name when they apply for patents. To overcome this difficulty, this study used the ‘representative firm name’ from the WINTELIPS system (www.wintelips.com), which is carefully constructed by patent information experts to mitigate the problem.

5 Mitsubishi was motivated to make a favourable offer to Hyundai by its alliance with Chrysler to enable it to enter the US market. Mitsubishi granted Chrysler exclusive rights to sell Mitsubishi cars in the USA in 1971. Because of the agreement with Chrysler, Mitsubishi lost its chance to independently sell in North America, and sought opportunities in the Asian markets of Korea, Taiwan, China, and ASEAN countries.

6 A low IQS score means better quality because IQS scores count defects.

7 Because of the truncation problem, the time lag between patent applications and grants, the results after 2008 must be interpreted more carefully.

8 An overall decreasing trend in average citations received shows that citation-based quality measures reflect not only the quality of the patents but also the opportunity for patent citations. Older patents have more such opportunities than newer patents. In addition, received citations data have a more severe truncation problem than patent counts because it takes more time for a patent to be cited than granted. The absolute number of received citations tends to decrease significantly for recent patents. In spite of this limitation, considering that both firms’ patents had the same opportunities to be cited, the truncation problem can be partly mitigated by analysing the ratio (Joo and Lee 2009). Nevertheless, the results after 2005 must be interpreted more carefully.

9 As with received citations, forward self-citation has a truncation problem. The increasing trend in recent years can be partly explained by the time lag in knowledge diffusion.

10 In contrast to the forward self-citation ratio, backward self-citation does not have a truncation problem.

11 Backward citation lags do not have a truncation problem.

12 Mitsubishi's average NPL citations index is more sensitive and less reliable than that of Hyundai, especially for recent years, considering Mitsubishi's small number of patents.

13 Annual revenue data were collected from each firm's financial statements. The original annual revenues in KRW (Hyundai) and JPY (Mitsubishi) were converted to USD using the exchange rate on the audit date of each firm. To control the revenues from subsidiaries of Hyundai and Mitsubishi, non-consolidated annual revenues were used. Consolidated annual revenue also showed a similar pattern.

14 The authors would like to express their deepest gratitude to Professor Moosup Jung for providing the total factor productivity data in Jung (2008).

15 The backward citation lags were measured by days and converted into years.