Toyota - The Rise of a Global Corporation - Essay Example

Toyota: The Rise of a Global Corporation Introduction The automobile industry began to develop in the early 20th century in the United States. General Motors, Ford, and Chrysler became the Big 3. Later in the century Japanese companies entered the industry including Toyota. Toyota found a niche to penetrate the market. It emphasized in an unattended market by the American companies which was the small compact auto. When prices of oil took off in the 1970’s the company was able to increase it global sales particularly in the United States. Globalization was a key strategy utilized by Toyota to become one of the automakers in the world. In this paper provides the answers to five questions of the case study Toyota: The Rise of a Global Corporation. 1. Toyota after the 1950’s when its production began to increase that it could not afford to follow the American model of manufacturing most parts in-house. The firm did not like the American model because it created numerous inefficiencies. Toyota decided that to follow a model of outsourcing work and keeping close relationships with its suppliers. Among the inefficiencies that Toyota identified from the American model that the company could avoid by outsourcing are: 1) high capital expenditures need to increase the manufacturing capacity to create components and parts, 2) reduce the risk by maintaining low manufacturing capacity in case of a slump in auto sales, 3) Ability to take advantage of lower labor costs of small firms (Hill, 2007). The company created tight relationship with its suppliers. The company when a step further by investing between 20% to 40% stake in the operations of many of its suppliers. This allowed to company to work in alliance with the suppliers and implement its kaban system with the suppliers to share information and minimize inventory stocks. The company practically eliminated the need for a buffer inventory count. Outsourcing in the 21st century has become a vital strategy in order to take full advantage of the globalization movement (Kotler, 2002) Some of the drawbacks of the system were the need to invest money in other companies. Another drawback of the system is that buying auto parts ends up raising the cost of vehicle, since the parts themselves is a cheaper alternative. 2. In 1981 the United States government put a strain in the capacity of Japanese auto manufacturers to import autos by establishing a voluntary import quota. The quota place a limit on the amount of auto import that could enter the US market. The agreement the Japanese government entered into limited the amount of Japanese auto imports to 1,680,000 units per year (Copper, 2009) Based on this restriction and the fact that Toyota wanted to learn if it could reproduced its operating and production efficiencies in a foreign located the company into a 50 / 50 joint venture agreements with General Motors Corporation called NUMMI. One of the incentives for Toyota was learning more about the American laborer. The company had zero experience dealing with worker unions since in Japan worker unions are rare. In the joint venture agreement GM was responsible for marketing and distribution, while Toyota was responsible of production. Toyota gained valuable experience thought this venture in terms of dealing with workers, worker unions, and American suppliers. 3. Motivated by its desired to beat the import quotes imposed to Japanese auto manufactures Toyota continued its massive expansion in the United States, other parts of North America, and later in Europe. In the North America the company established plants in Kentucky, California, Indiana and in Ontario, Canada. The cumulative efforts of these plants allowed the company to produce and sell over 1.2 million vehicles per year. The company also realized that there was an imminent movement in Europe to convert the region into single economic market. In 1989 the company set up a manufacturing operation in the United Kingdom with the capacity to produce 200,000 units per year (Hill, 2007). The company continued its European expansion by setting up a manufacturing shop in France. The consumers in both Europe and the American like the features of the small autos produced by Toyota which provided great benefits such as superior quality and gas savings. The fact that the company was employing local people helped further enhance the reputation of the company in these regions. In the United States the people or car buyers have historically included patriotism as one of their criteria when buying a car. Since the Japanese auto of Toyota were now being manufactured in America these buyers were no longer rejecting Toyota products based on patriotism criteria. 4. As Toyota became a bigger and bigger company with a great global presence it realized it needed change its practice to become a truly global company. One of the early challenges in its globalization process was recreating the reliability and relationship it had with its Japanese suppliers abroad. American suppliers did not follow the quality standards that the Toyota was accustomed too. The first inclination of the company was to increase its usage of Japanese supplier in its American operations, but due to political pressures the company looks for alternative solution to fix the problem. The company created a company center in order to educate suppliers in its lean manufacturing process. Lean production calls for continuous learning, creativity, and teamwork (Heizer & Render, 1996).The education center was very successful, it helped the suppliers increase their productivity and minimize its inventory holding costs. Also in an effort a more well balance global company the firm moved away from solely manufacturing economic cars and successful enter the luxury market place with its release of the Lexus brand models. The quality of its vehicles is one of trademarks that made Toyota cars so popular among the global consumers. 5. A truly global company is one that not only has operation outside its national country, but that incorporates ideas and concepts to its operation from all parts of the world. An example of one of the initiatives that came from abroad which helped the company tremendously was the GBL concept created in Toyota’s Taiwanese subsidiary. The GBL system was very valuable and revolutionary because it essence it double the production capacity by running two assembly lines in the space previously needed for one assembly line. Other contribution form outsiders that helped the company was the American engineers contribution which allowed the company to launch its most successful v8 pick up truck, the Tundra, and their efforts towards redesigning its Prius hybrid model to make it look more futurist in order to showcase the technology. A clear sign that Toyota has become a completely global corporation is the fact that 70-80% of its global income comes from North American sales, which means does not rely on its domestic sales in order to compete with other companies. Conclusion As companies move forward in its business life cycle to reach the maturity stage globalization becomes a key strategy to achieve expansion. Toyota is a company that started small and was able to grow a lot due because it utilized a superior production methodology than American companies. After 1984 the company started an aggressive growth targeting which allowed the company to become a global icon. Toyota was able to establish business units in North America and Europe which helped the firm create a better production and distribution network. Creating long lasting relationships with its supplier allowed the firm to lower operations by eliminating the need for buffer inventory. The company gathered excellent from its customers which allowed the firm to apply the feedback in its design and production cycles. As the company moves forward into the second decade of the 21st century it must continue to penetrate emerging economies to create higher volumes of sales and achieve its business goal of becoming the global leader in the auto industry by 2010. References Copper, J. (2009). The GM-Toyota Joint Venture. Retrieved August 7, 2009 from http://www.heritage.org/Research/EnergyandEnvironment/bg288.cfm Heizer, J. Render, B. (1996). Production & Operation Management (4th ed.). New Jersey: Prentice Hall. Hill, C.W.L. (2007). International Business. New York: McGraw Hills. Kotler, P. (2002). Marketing Management (11th ed.). New Jersey: Prentice Hall. Read More