Hyeonsan, who is facing the third crisis since its foundation, will ‘Jung Mong-gyu’s resignation’ be a breakthrough?

HDC Hyundai Industrial Development (hereinafter referred to as ‘HDC Hyeonsan’) Chairman Mong-gyu Chung announced his resignation as chairman on the 17th (yesterday) and started to evolve, but the aftermath of the collapse of the exterior wall of a new apartment building in Gwangju does not sleep. Analysts are pouring in that Hyunsan is facing the biggest crisis since its inception.

In fact, the government is raising the level of pressure, even mentioning the possibility of the registration cancellation of HDC Hyunsan, saying, “I think the strongest penalty (punishment) stipulated by the law should be given,” even when Chairman Chung resigned. The company’s stock price has also been declining every day since the accident on the 11th. It fell for the last six consecutive trading days, breaking a 52-week record low. During this period, the rate of decline is over 30%.

Accordingly, interest is focused on whether Chairman Jung will take additional measures. So far, Chairman Chung has faced about three major crises while leading HDC Hyeonsan, including this one, because he has overcome the previous crisis through customized countermeasures.

● The 1999 crisis… Overcoming through organizational innovation

The first crisis that Chairman Chung experienced at HDC Hyeonsan was in 1999. Previously, Chairman Chung and his father, the late Honorary Chairman Jeong Se-young, led Hyundai Motor Company. However, at the request of the late Honorary Chairman Chung Ju-young, who was the founder of Hyundai Group, in March of that year, he handed over Hyundai Motor and took over HDC Hyeonsan instead. The late Chairman Jeong Se-young, nicknamed ‘Pony Jung’ and dedicated to the growth of Hyundai Motor Company for over 30 years, did not hide his love for Hyundai Motor to the point that tears were shed at the ceremony.

After moving to HDC Hyeonsan, the late Honorary Chairman Jeong Se-young and Chairman Chung Mong-gyu lead a major organizational culture change. The management was largely replaced by those from Hyundai Motor Company, and the company emphasized transparent procedures applied to the manufacturing industry. At that time, about a month after coming to HDC Prefecture, he was instructed to “create a computer program that automatically calculates the apartment price within three months” is a typical example.

In the process, there was a conflict with the Hyundai Group over the use of the brand ‘Hyundai Apartment’. Up to that time, Hyundai Apartment was the absolute leader in domestic apartment brands, and was evaluated to be worth 3 to 4 trillion won. In addition, the Hyundai apartment was considered to be a guarantee of the success of the sale.

Naturally, HDC Hyeonsan wanted to continue using Hyundai Apartments. At that time, the legal owner of trademarks registered with the Korean Intellectual Property Office was also from HDC Prefecture. However, the Hyundai Group demanded that ‘Hyundai’ not be used for the separate affiliated prefectures. Eventually, in 2000, the following year, HDC Hyunsan created a new brand ‘iPark’ and said goodbye to the ‘Hyundai’ brand.

● Business slump in the early 2010s… Solved by unpaid management

Since then, HDC Hyeonsan has grown steadily thanks to the booming real estate market. An indicator of this is the construction capability evaluation ranking. HDC Hyeonsan, which was out of the top 5 until 1999, moved to 5th in 2000 and climbed to 4th in 2004. Since then, it has consistently hovered around the top 5.

The second crisis came from the slump in the construction industry that continued after the 2008 financial crisis. A business portfolio focused on the domestic market, centered on the housing business, has been hindered. While most of the top 10 construction companies have turned their eyes to overseas, HDC Prefecture has not had much overseas performance, so it has not been able to make a breakthrough in overcoming the sluggish performance caused by the domestic market stagnation.

As a result, the construction capability evaluation ranking began to drop, falling to 8th in 2010-2012, 9th in 2013, and 13th in 2014, dropping out of the top 10 altogether. In 2013, it was a direct hit when it recorded a loss of 140 billion won for the first time since its foundation by large-scale shaving.

In response, Chairman Mong-gyu Chung started to operate an emergency system, such as declaring unpaid management. As a result, in 2014, the following year, it succeeded in winning an overseas project again after 23 years. The pre-sale market also started to show a favorable trend, and it succeeded in turning to the black in one year. After that, it climbed back to the top 10 in 2015, and has been consistently within the top 10 until now.

● What about the crisis of insolvent construction in 2022?

Since the inauguration of Chairman Mong-gyu Chung, he has continued to diversify his business by entering industries other than construction. Representative examples include the acquisition of Real Estate 114, a real estate information company, and Hansol Development (Hansol Oak Valley), joint promotion of the Tongyeong natural gas power generation business with Hanwha Energy, and entry into the duty-free shop business. As a result, there are now about 20 affiliates alone.

In the process, he jumped in before the merger with Asiana Airlines at the end of 2019 and shocked the business world. Negotiations finally broke down due to the rapid deterioration of the aviation industry due to the outbreak of the novel coronavirus infection (COVID-19), but it was a case that once again showed Chairman Chung’s aspiration for business diversification.

However, some also point out that this behavior of Chairman Mong-gyu Chung was one of the causes of a series of insolvent construction accidents at HDC Hyeonsan. “(Chairman Jung) thinks of the construction industry as a ‘cash cow’ to make money, and is only interested in other industries under the pretext of business diversification.”

The third crisis facing HDC Hyeonsan this time could be fatal for the company’s survival. This is because the government’s strong punishment policy is foretold, and among them, the cancellation of registration in the construction industry is mentioned.

It is also worrisome that, as concerns about poor construction have been raised, requests for the removal of ‘i-Park’, an apartment brand from HDC Prefecture, are pouring in through online channels, centered on residents and prospective residents of apartments that have already been built or are under construction. This is because the domestic housing business accounts for 80% of HDC’s annual sales.

Can the card of resigning as chairman be a breakthrough in the third crisis? Or will it quell the growing public dissatisfaction through additional customized measures? Attention is paid to the next move of Chairman Mong-gyu Chung.

Reporter Hwang Jae-seong jsonhng@donga.com