International Business: Toyota Motor Company - Essay Example

?Running Head: International Business International Business [Institute’s International Business Background It was on February 14, 1867 when in a small village of Kosai, Shizuoka, a poor carpenter, Toyoda, had a son and he named him Sakichi but at that time nobody had a knew that this Sakichi Toyoda, will go on to be referred as the “king of Japanese inventors”. They had no clue whatsoever, that the company, which Sakichi will lay the foundation of, would go on to become one of the biggest multinationals in the world (Osono, Shimizu & Takeuchi, pp.75-76, 2008). It will not only change the dynamics of the Japanese and its neighbors but it will also emerge as a serious contender for leadership in US, European and in fact, the global markets as well. With revenues of more than 235 billion US dollars, Toyota Motor Corporation is now the biggest automobile manufacturer in terms of production, something which GM use to take great pride during the 1990s and early and mid 2000s after which Toyota took over this position. More importantly, even as of today, Toyota’s headquarters are located in Tokyo, Japan but its operations and manufacturing plants are spread all over the globe. In fact, Toyota earns more in North American market than what it earns from its home market of Japan (Hitt, Ireland & Hoskisson, pp. 512-516, 2009). This paper is an attempt to explore the impact of globalization on Toyota Motor Company and it outlook in this globalized automotive industry. Furthermore, the paper will also aim at providing possible solutions and recommendations for facing the challenges that have came on the scene due to globalization. Theoretical Framework There are no doubts in the fact that globalization is the inevitable reality which has changed the entire automotive industry. The industry dynamics are no longer the same as they were five or six decades ago. The concept of a purely local company no longer exists and more and more automotive companies are now trying to become truly multinational companies. Globalization has proved to be a blessing for various producers but for some, it has created various problems (Blanpain & Lansbury, pp. 114-115, 2008). Consider the example of the US automotive market. In 1955, the US automotive industry was dominated the “Big Three” companies, which were GM, Ford, and Chrysler. By the end of 1965, the Japanese companies entered the US market and started growing steadily. By the end of 1985, they had acquired 20 percent share of the US automotive market. After the ten years, this percentage rose up to 30 percent and according to the statistics of 2010, this percentage stands at well over 48 percent. One might say that the Japanese players are now dominating almost half of the US automotive market and a few decades back, no one would have imagined that Japanese companies would be able to penetrate the US market. A similar situation is present in Europe where the local car producers are facing serious problems not only from the Japanese manufacturers but also from the South Korean company Hyundai who has been penetrating in the European markets aggressively (Osono, Shimizu & Takeuchi, pp.75-76, 2008). Gone are the days when consumers within a country or even all over the globe used to accept standardized products, styles, and designs. Over the years, the bargaining power of customers has increased significantly, and now they demand more information, styles, designs, and features. Automotive companies in the past had the option of keeping some markets backwards (Blanpain & Lansbury, pp. 114-115, 2008). This means that carmakers, at times, deliberately hold back car designs and models in certain markets to ensure that they could take complete advantage out of the previous models. However, the same is not applicable in the globalized markets of today. Consumers now have access to all the information about the activities, models, and product variations. Furthermore, consumers are now in stronger position to demand product variations. This explains the reason why automotive companies are desperate to come up fuel efficient, sustainable, environment friendly and technologically upgraded cars (Shimokawa, pp. 23-24, 2010). Furthermore, research from 1980s indicates that average product life cycle during the 1970s and 1980s was seven years. However, over the years this product life cycle has shortened and it has now become as less as of 2-3 years. This explains why companies alter car models after every year or couple of years. Furthermore, customers of today now need more and more information about cars, which has increased their bargaining power (Hitt, Ireland & Hoskisson, pp. 512-516, 2009). Globalization also forced the automotive producers to engage in more marketing and promotional efforts, which also mean that now customers, do not only characterize their cars according to its actual performance but based on the marketing and promotion, they have also associated a certain level of perceived performance. For example, BMW, Mercedes Benz, and Porsche now represent luxury cars and despite of the actual costs that the car producers incur in manufacturing these cars, they can sell it for premium price anywhere in the world. On the other hand, based on the advertising efforts, people in various parts of the world, associate affordability and comparatively lesser durability from Suzuki vehicles (Maxwell & Drummond, pp. 106-108, 2010). Analysis and Application of Theory to Evidence The success of Toyota Motor Company in Japan and its local market was rather simple and straightforward. It knew the dynamics of the local market, it knew how to deal with its employees, and a growing economy, along with the support of the government ensured that Toyota could create a win-win situation for itself and the Japanese company. However, as of today, Japan has its plants in more than 29 different countries. It now employs workers, which speak Turkish, Russian, Hindi, Urdu and various other languages. The challenge that the Japanese executives face is to replicate the company’s success in Japan and United States to other parts of the world, even in those parts of the world, where the employees how would build cars of Toyota may have never driven a Toyota car before. In order to cope up with these problems, Toyota has established training centers in various countries and especially in Japan where employees from all over the world are told about the tricks and tips of manufacturing at Toyota (Herod, pp. 49-53, 2009). Employees from different parts of world perform various exercises such as revolving two balls in both hands but in different directions, which requires surprisingly, great deal of concentration and then that concentration is used to teach the secrets of performing other tasks (Monden, pp. 257, 2011; Osono, Shimizu & Takeuchi, pp.75-76, 2008). Toyota recently announced in their global vision that in the next decade, they focus would remain on the growing Chinese and Indian markets. Furthermore, efforts would be made to streamline the management structure of the company to meet international demands the number of members in the board would be reduced from 27 to 11 in the next five years. There are no doubts in the fact that the company has shown serious commitment towards its plans to respond to globalization by expanding into newer markets. As Fujio Cho, President of Toyota Motor Company said in a conference in March 2002, “If people started living at the South Pole, we would want to open a dealership there. (Hitt, Ireland & Hoskisson, pp. 512-516, 2009)" Important here to note is that Toyota, in the wake of this globalized automotive market, needs viable and clear strategies to guide it through the future. Toyota, along with many other Japanese companies has long competed in the market based on their operational efficiency. Furthermore, they have mistakenly believed that operational efficiency in itself is a strategy but various researchers and experts differ from this view. Operational efficiency may be beneficial in the short term but in the long term, it backfires (Maxwell & Drummond, pp. 106-108, 2010). By cutting costing or streamlining the operations, the company may be able to reap benefits by lower costs for a while but this raises the bar for the entire industry. Other manufacturers will also feel the pressure for either decreasing their prices or decreasing their costs in order to compete, thus creating wave of rivalry amongst the competitors. This process will go on until and unless the manufactures reach the point of optimization relative to the current technology. However, towards the end of the day, they will end up transferring all the benefits to the customers and they would be left with smaller profit margins. In fact, the entire industry structure would become unfavourable. On the other hand, clear and well-defined strategies enable companies to dictate their own terms and retain the upper hand over their customers (Blanpain & Lansbury, pp. 114-115, 2008). Toyota would need more of strategies and less of operational efficiency in the coming years. As Toyota expands into more and more global markets, it will be exposed to diverse global cultures, some of which are extremely different from that of their home culture of Japan. Important here to note is that this sword of cultural difference is a two-edged sword since this has implications on dealing with customers as well as employees (Borowski, pp. 34-35, 2010). In case of employees, the Japanese managers of Toyota are now placed in plants and factories in some regions of the world where employee attitudes, personalities and perceptions are driven by cultures that are entirely different from that of Japanese culture. Consider the example of Middle Eastern culture where employees do not place great emphasis on time and see deadlines and strict schedules as their insult. The Middle Eastern culture believes that human dignity and integrity is above all, and confining people to deadlines and schedules is against the human supremacy (Hino, pp. 169-171, 2006; Segal-Horn & Faulkner, pp. 41-45, 2010). In countries such as France and Germany, workers do assume that their companies will take the responsibility of their betterment and upliftment like Japanese workers but unlike the Japanese cultures, they require more control over the decision making that takes place in these companies. Employees in Japan respect their bosses to such an extent that they would go on to surrender to most of the decisions of their bosses assuming that the boss, who is the experienced and knowledgeable person, knows the best for all (Tallman, pp. 85-89, 2010). However, in most European countries, employees demand great empowerment and control over the terms of employment and conditions of employment. This explains why workers of Toyota in France went on a huge strike in April 2011 demanding that the company is not paying attention to their demands of working conditions and pay increments. The threat of competitive rivalry is on rise in the global market because players like Ford, GM, Chrysler, Suzuki, Honda, Hyundai, Nissan, Mitsubishi, Daimler AG, Fiat, Volkswagen, and others are taking this global market towards saturation and overcrowding. Furthermore, the exit barriers are high and all these groups and companies depend greatly on the automotive business for their revenues, which mean they will not back even if the situation turns worse. The slow market growth and high fixed costs further tempt these companies to engage in competition, which means that in the future, Toyota will find its profits under great pressure. Consider this statement of April 2006 from Maryann Keller who is a consultant to Toyota that, “Toyota is a car company that challenges itself in a way that makes the world shudder. Toyota announces it is shooting for 15% of the global market and 50% cost cuts, and everyone go 'Ooof!' It is like getting hit in the solar plexus. (Wit & Meyer, pp. 352-354, 2010)" Another competitive pressure from the Porter Five Model, which Toyota is facing due to globalization, is of increasing supplier power. The bargaining power of supplier power, if remains unchecked, can be detrimental to any industry because by commanding their terms, suppliers can eat away significant portion of any industry’s profits. The suppliers of Toyota know that the company has maintained a high standard of raw materials and their supplies are important to overall production (Segal-Horn & Faulkner, pp. 41-45, 2010). Furthermore, they know that Toyota and other companies face significant switching costs while changing the vendors, labours and other suppliers. Toyota has created its name in streamlining in its supply chain and creating an almost ideal supply chain management approaches, however, as it continues to expand in markets, it will face significant challenges in this regard (Maxwell & Drummond, pp. 106-108, 2010). Conclusions and Recommendations Toyota has been one of those companies on the international scene that has been able to face the challenges of globalization and in fact, it has used them to its advantage. Over the years, the company has grown significantly and as mentioned earlier, it now stands as the biggest automotive company of the world in terms of production. The company has reached to this level because during these years, it did not only remain loyal and true to its basic principles but at the same time, it has focused on the golden principles of quality with efficiency, which allowed it reach at this level (Hitt, Ireland & Hoskisson, pp. 512-516, 2009). Despite the fact that there are viable opportunities for the company in the future but capitalizing on these opportunities would be as simple and straightforward, as it was in the past. The following are a few recommendations to Toyota for coping up with the impact globalization in the coming years. Over the past decades, regardless of the market in which Toyota has entered, it has remained true and loyal to its basic production principles and philosophies. In fact, these production philosophies have for long, remained a competency, and some might say competitive advantage for the company. However, it appears that the company is pushing its new employees too hard to assimilate into the Japanese way of manufacturing (Tallman, pp. 85-89, 2010). As it goes on to open its production plants, manufacturing sites or assembly centers in areas such as Belgium, Argentina, Czech Republic, Pakistan, Venezuela, Malaysia, Thailand, Philippines, Egypt, China, Indonesia and others, it entering into regions which have different cultural values and principles than that of Japan (Borowski, pp. 34-35, 2010). More importantly, these cultural values are strong enough to influence their work place attitudes and performance. Therefore, rather than imposing the Japanese style of work, company can come up with something else. In addition, rather than giving summoning these employees and their supervisors to Japan for training or sending Japanese training instructors to those countries to dictate them regarding the training process, it would make sense if the company would allow a certain degree of innovation, creativity and freedom when it comes to manufacturing style, process, activities and techniques. There are reasons to believe that in the short term, this may increase the waste, production time, and efficiency of employees but in the long run, it will have a positive impact for all the stakeholders and Toyota would emerge as a true “multinational” company (Shimokawa, pp. 23-24, 2010). Despite the fact that Toyota has acknowledged the fact that it will be focusing greatly on the Asian markets but it should also try to increase its sales in these growing markets with but at the same time, production should be mainly focused in these countries. As of today, the entire Europe and United States is in turmoil considering its shacking financial and economic situation and fear of default of Greece and other countries, failure of euro, collapse of European banking system and fears of double dip recession are making it even worse. On the other hand, the Asian markets have remained safe from these issues. More importantly, they also have low labour costs and highly skilled and abundant labour that exactly what Toyota’s production facilities would be looking for. Therefore, it should outsource many of its production jobs to these countries (Monden, pp. 257, 2011). The success that Toyota gained in the past was primarily because of the fact that it was able to remain efficient while other competitors, for example Ford and GM, were facing costs issues that were out of their control. Outsourcing much of the production jobs to countries like China, India, and Pakistan would be exactly the boost that the company needs in the current competitive market (Blanpain & Lansbury, pp. 114-115, 2008). It is clear that in the coming years, Toyota will aim at entering many other markets in which it does not have its formal presence. There are various ways to enter into different markets, which include, exporting, franchising, strategic alliances, mergers, acquisitions, and direct entry (Steger, pp. 13, 2010). Considering the uncertainty and need of entering into new markets, the balanced formula is to go with mergers, partnerships and strategic alliances rather than merely franchising, which is low risk but low returns option or direct entry, which is a high return but high-risk option. Strategic alliances and partnerships will not only provide Toyota with a quick entry into these markets, but the partner (which would be a local and experienced player) would provide with valuable insights, established marketing, production, distribution channels, economies of scale and other benefits to Toyota (Osono, Shimizu & Takeuchi, pp.75-76, 2008). References Blanpain, Roger, & Lansbury, Russell D. 2008. Globalization and employment relations in the auto assembly industry: a study of seven countries. Kluwer Law International. Borowski, Arkadi 2010. Report on the Toyota Company. GRIN Verlag. Herod, Andrew. 2009. Geographies of globalization: a critical introduction. Wiley-Blackwell. Hino, Satoshi. 2006. Inside the mind of Toyota: management principles for enduring growth. Productivity Press. Hitt, Michael A., Ireland, R. Duane., & Hoskisson, Robert E 2009. Strategic management: competitiveness and globalization: cases. Cengage Learning. Maxwell, Gordan A., & Drummond, Stuart K. 2010. Automotive Industry: Technical Challenges, Design Issues, and Global Economic Crisis. Nova Science Publishers. Monden, Yasuhiro. 2011. Toyota Production System: An Integrated Approach to Just-in-time. Taylor and Francis. Osono, Emi, Shimizu, Norihiko, & Takeuchi, Hirotaka. 2008. Extreme Toyota: radical contradictions that drive success at the world's best manufacturer. John Wiley & Sons. Segal-Horn, Susan, & Faulkner, David. 2010. Understanding global strategy. John Wiley and Sons. Shimokawa, Koichi. 2010. Japan and the Global Automotive Industry. Cambridge University Press. Steger, Manfred. 2010. Globalization. Sterling Publishing Company, Inc. Tallman, Stephen. 2010. Global Strategy. John Wiley and Sons. Wit, Bob De., & Meyer, Ron. 2010. Strategy: Process, Content, Context, An International Perspective. Cengage Learning EMEA. Read More