Toyota Company in China - Case Study Example

Table of Contents Table of Contents 1. Introduction 2 2. Strategies 3 2 Market Entry Strategy 3 2 1Joint Alliance and Collaboration 5 2 2Innovation 10 2.1.3 Outsourcing 13 2.1.4 Principles of Toyota 15 2.1.2.1 Long-Term Philosophy 15 2.1.2.2 The Right Process Will Produce the Right Results 16 2.1.2.3 Add Value to the Organization by Developing Your People and Partners 16 2.1.2.4Continuous Solving Root Problems 17 2.1.2.5Use “pull” system to avoid overproduction 18 3. Conclusion 18 References 21 1. Introduction Many firms enter foreign markets in order to diversify geographically, to obtain raw materials for their industries, to follow overseas customers, to bypass protectionist regulations, to protect their local market as well as to attack the competitor’s market thus forcing the competitor to utilize more resources at home(Mehta, 2010). The mode in which countries enter global markets include selected exporting (also referred to as experimental), systematic approach, broad business activities just to mention but a few. These firms normally employ different strategies to strengthen the presence in foreign market. Jonson, Whittington and Scholes (2011) assert that strategy usually begins with an assessment of the firm. The options of the strategic planning manager can be narrowed down into just two integral elements. These elements include predicatbity (which entails how far into the future can the strategic manager forecast and how accurately can he or she predict the market expectation, competitive dynamics, corporate performance as well as demand). Another important element is malleability that can be explained as to what degree the firm’s competitors can affect those factors. In classical style of strategic planning, firm position can be via employing quantitative predictive techniques that make it easier for the firm to project the future as well as via successful rounds of planning. Immediately after the setting of the plans, they have the tendency to stay in place for a prolonged period. Classical strategic planning has the capacity to function well in the form of a stand-alone activity since it demands exceptional quantitative and analytic abilities. As argued out by Griffin (2011), Strategic planning can be viewed as an integral action of management. Predictions are part of the fundamentals of strategic planning and are perceived as a scientifically premeditated speculation that possesses both uncontrollable as well as controllable elements. Controllable factors are easily predicted as opposed to uncontrollable factors that demands suitable provisions (Patnaik 2012, p. 27). Simerson (2011) contends that strategic planning offers the highly needed direction as well as focus. It permits an industry to establish what is significant and to apprehend what every firm factor ought to add to the individual team as well as to the success of the firm. Besides, Henry (2008) points out that strategic planning enables new firms to make critical decisions regarding the market in which it functions, value addition to customers or clients, exceptional abilities, skills as well as knowledge its workers must possess. This paper will attempt to explore the corporate strategies employed by Toyota Company to strengthen its presence in Chinese market. 2. Strategies 2.1 Market Entry Strategy This paper will use the Porters five forces model as well as SWOT analysis in assessing the market entry strategy employed by Toyota Company to enter the Chinese market. Hill and Jones (2007) affirm that once the boundary of an organisation has been established, strategic planning managers are faced with the task of analysing competitive forces with the organisational climate to establish threats and opportunities. The Porter’s five forces model sheds more light on the five integral forces that shapes competition within an organisation. It also examines the degree of rivalry among firms, the bargaining strength of suppliers, as well as the proximity of the alternatives to the firm’s product as well as the bargaining strength of customers or buyers (Kotler, Berger & Bickhoff 2010). This model stipulates that the higher the degree of strength of each of the five forces, the less the capacity of the identified firms to hike prices and rip maximum returns. In this model, a strong competitive force can be perceived as threat. This is attributed to the fact that stronger competitive forces suppress returns. On the other hand, weak competitive forces can be perceived as opportunity. This is because weak forces enable a firm to make bigger profits (Patnaik 2012). According to Dyck and Neubert (2008), the strength of the five forces can undergo histrionic transformation via time as the firm situations are altered. The core task of strategic planning managers is to acknowledge how the critical five forces results to fresh threats and opportunities as well as to devise suitable strategic reactions. Moreover, it is easier for a firm, via its selected strategy to transform the strength of the five forces to create benefits to the firm (Kotler et al. 2010). Henry (2008) observes that the second phase within the strategic planning process is to carry out a SWOT (Strengths- Weaknesses-Opportunities-Threats) analysis. This analysis explores the internal weaknesses and strengths with respect to the firm’s external threats and opportunities. As defined by Kotler et al. (2012), strength is the unique or valuable assets that a firm possesses or any effort done well by the firm. Strength is a constructive internal attributes that can assist strategic planning managers to attain the goals of the firm. On the other hand, weakness is the absence of certain assets or capacities that are needed by a firm in order to perform better. It entails the attributes that inhibit the attainment of the strategic goals of a firm. Opportunities, as noted by Griffin (2012), are circumstances within the external climate of a firm that possesses the capacity to assist strategic planning managers to attain or surpass the goals of the firm. Simerson (2011), opportunities can sometime prompt strategic planning managers to revised the objectives of the firm’s strategy. Lastly, threats are circumstance within the external climate of a firm that possesses the capacity to hinder strategic planning managers from attaining the goals of the firm. 2.1.1Joint Alliance and Collaboration Before Toyota entered the China market, the Chinese market was a competitive market with various automakers such as Isuzu, Ford motors, Honda Motors, General Motors as well as Kia Motors. When the Toyota Company was entering the Chinese market, the auto industry was experiencing high growth such as 1 million vehicles annually. The Chinese market apart from being expensive had customers with certain preferences and demands on the vehicle models they desired. As pointed out by Katie (2013, p. 13), the Toyota Company, which was the second world largest automaker at the time of its entry to the Chinese market, formed an alliance with FAW group as its market entry strategy. Although the Toyota Company had attained international recognition via its past automobile exports to local markets within China, its entry to Chinese market did not make the company a leader but rather a follower. This was attributed to its corporate structure as well as its conservative organization that mainly placed more focus on the utilization of its management model. The implementation of the effective TPS in the company’s entry to Chinese market was perceived as an integral factor that made it possible for the passing of GM (General Motors) by the Toyota Company as the leading and greatest automobile company globally in 2007 with respect to its sales. Despite the fact that majority of the scholars does not place more focus on the difficulties the Company during its entry to Chinese market which was very competitive at that time, the Company experienced considerable challenges during the first seven months after entering the competitive Chinese market. For example, the sale of one of the Company models referred to as Vios plummeted to more than 30 % hence making Toyota lag behind other models of General Motors, Kia Motors as well as Honda Motors. In spite of the fact that the Toyota Company was paying a huge price for entering late into the competitive Chinese market, the Company utilized TPS model to strategically position itself in the Chinese market. This model helped the Company attain sales target of about 1 million cars in the Chinese market by the end of 2010. However, this target was surpassed when the Toyota Company recorded significant record sales of 1.3 million cars. This success was attributed to the fact that the Toyota Company fought hard to address the political risks that came because of anti-Japanese feeling in Chinese market. As pointed out by Segal-Horn and Faulkner (2010), the Toyota Company had for a long time identified China as one of the potential foreign market for its products. According to opinions of the Company officials, Chinese market had a great-untapped market as opposed to other developed countries across the world. To this effect, the Company entered the Chinese market by entering into alliance agreement as well as various joint ventures with different companies. For instance, in collaboration with Sichuan Luxing Chechang, the Toyota Company manufactured the Toyota Coaster bus (p. 349). A new plant in Tianjin was constructed by the Company at the beginning of 2000. In 2002, the plant started operating its activities by manufacturing compact cars that were grounded on the Yaris platform. The Toyota Company reinforced its presence in Chinese market by launching new models as well as strengthening its manufacturing abilities to address the demands of the local Chinese market. One of its objectives was to catch up with competitors such as General Motors as well as Volkswagen who were taking leading positions in the passenger car market. To counter this stiff competition, the company launched its passenger car referred to as “Vios”. The company also planned to launch Crown as well as Corolla brands in order to strengthen its presence in Chinese market. Irena (2009) reveals that, the cooperation between medium and diminutive technology-intensive organizations in addition to association between them and other institutions are understood as the medium for exceedingly successful and meaningful competition on the worldwide, regional and local level. Currently, a good number of scientists put more emphasize on the significance of creativity, learning and technology, which is often branded as knowledge-oriented economy. The mounting intricacy of the innovation process demands relaxed association and greater face-to-face connection between organizations. Besides, thriving innovation require entrance to professional labor markets and professional regional research centers, research institutes and universities, existing cooperation between technology-intensive organizations and technology competencies. Shay and Rothaermel (1999) indicate that organizations situated near learning institutions and other organizations are guaranteed the chance to gain and share implicit information with other technology–intensive organizations via inter-organization associations in addition to creating codes of combined education and joint skills production. Irena (2009) argue that low scale technology-intensive organizations must establish the capacity of joint education and cooperation with governments, financial institutions, learning institutions so as to gain lacking resources and increases innovativeness. William, Morgan and Butzen (2001) assert that, utilizing skills accessed from external sources and using other technology-intensive organizations to gain missing resources have been emphasized in the creativity literature as critical to innovation progression. Exchange of skills and resources and implementation of fresh technologies from other technology-intensive organizations permits diminutive organizations to establish certain efficiencies and enhance their techniques. If the diminutive technology-intensive organizations are linked with each other in the mesh of networks in addition to being near each other and learning institutions, they will have the capacity to produce goods and services effectively and competently. Therefore, cooperation is perceived to provide exceptional occasion to connect in broader range of local connections among technology-intensive organizations that arouse technological innovation and learning (Irena, 2009). William et al. (2001) points out that the process of skills dissemination and development which results to the vibrant process of inter-firms joint learning is encouraged by the mobility of critical workforce carrying managerial and technological skills and exemplified knowledge between industries and other firms. Shay and Rothaermel (1999) contend that fresh spin-offs are perceived as critical method of mobility not only for the sake of skills development and transfer but also for creation and continuing cooperation between learning institutions and technology-intensive organizations. Initiators of these spin-offs habitually retain close rapport with their parent firms thus generating chances for cooperation, enhancement of additional untraded interdependencies and networking. Irena (2009) suggests that techno-packs can be utilized to promote collaboration and inter-organization cooperation. Techno-parks are network atmosphere based on allotment of both physical and human resources among similar organizations and cooperation. Techno-parks provide a good chance for technology-intensive organizations to set their firms near related and unrelated organizations and in doing this, techno-parks offer a critical resource network. Chesbrough, Vanhaverbeke and West (2008) assert that networks are mainly appropriate to technology intensive organizations where collective problem settling is vital. It is important to recognize that networks promote learning apparatus and problem-settling. The advantages derived from open innovation can be easily attained in regional clusters, because the impacts are well described as regional focus of institutional linkages and organizations in a certain field. However, the achievement of cooperation is not without challenges. Martinez-Fierro, Garrido and Navarro (2006) indicate that these challenges are especially associated with the presence of information breakdown and discrepancy in information transfer that can have the potential to institute opportunism and uncertainty. In additional critical disparity, occur in connection to organization’s language and culture that can have the capacity to deter knowledge transfer and communication breakdown. Cooperation is defined as a fabric of association planned to enhance the achievement of a definite objective via joint working. Prasada (n.d.) argue that, in few years ago, technological cooperation has been progressively utilized as strategy by various technology-intensive organizations to minimize the existence of worldwide competition, and to improve their technological creativity and competence. This type of cooperation occurs largely among organizations in the industrial domain. However, it progressively also occur between organizations from the third world countries and developed countries and between technology-intensive organizations in third world countries. Some of the key surges in inter-organization cooperation include global market entry strategies, scarcity of knowledge resources, intricacy of technological systems, high risks and costs linked with fresh technologies and mounting worldwide competition. Bordia et al.(2005) points out that cooperation among various technology intensive organizations takes distinct forms varying from uncomplicated one-way contract (e.g., licensing), via exceedingly intricate contracts(e.g., joint developing and sharing technology) to impartial or equality-oriented joint adventure created distinctly by the partner organizations. The operations vary from technological cooperation via basic research to aggressive Research and Development (R&D) (Prasada, n.d.) 2.1.2Innovation The Toyota Company announced it corporate strategy in 2002 to enhance it globalization efforts, particular its presence in China. It termed it 2010 global vision that its main objective was attaining a 15% market share at the beginning of 2010 hence surpassing the market share held by its greatest rival the General Motors that was estimated at 14. 2%. The central theme of the 2010 global vision was “future innovation” which placed more focus on 4 integral aspects namely diverse society, development of MGS( Motorization of a Global Scale), age of IT(Information technology) as well as recycling-based society. Bordia, Kronenberg and Neely (2005) defines innovation as the capacity to identify and develop new services and products and make them available in the market. Innovation is the basic fountain of value in an organization and a vital facilitator of competitive advantage. Besides, innovation is intrinsically an exceedingly cross-functional operation that, when it functions well, produces a useful tension between competing objectives of quality, time to market, performance, productive value and development cost. Shay and Rothaermel (2008) reveals that, technological innovation is in majority of organizations the highly critical driver of competitive advantage. The rationale for the mounting significance of innovation in many companies include swift technological progress such as nanotechnology, biotechnology and advance in IT, hastening diffusion rates for technology-oriented products, globalization and deregulation. These elements combine to amplify the competitive strength of nearly all technology-intensive organizations. Shay and Rothaermel (2008) points out that, even in industries that are considered as humdrum (e.g., the steel industry), technology has turned out to be one of the cardinal distinguishing factors in defining enterprise performance. Traditional industries that were once recognized as low tech are progressively developing into technology-intensive industries. Rothaermel further indicate that, since the sole invariable in technology-intensive industries is transformation, unremitting competitive advantage can only be achieved via sustained innovation. Shay and Rothaermel (1999) contend that, this in return demands the continued introduction of fresh products or services. The percentage of sales derived from fresh products established in the last 5 years has gone beyond forty percent for 3M, while Proctor & Gamble still struggle for fifty percent. Bordia et al. (2005) reveal that, innovation is one of the critical aspects that dictate whether an industry, an economy or an enterprise will flourish and develop. The progressively worldwide nature of business has exacerbated competition in almost all industries, compelling organizations to look for fresh techniques to compete for market share. While organizations used to compete by expanding volume, reducing labor costs and building up fixed assets, they currently seek to create technology that permits them to constantly advance what they offer via innovation. Bordia et al. (2005) points out that those organizations that embrace innovation produce fresh goods and services, utilize resources more productively, and acquire market share. While experts in economics continue to ponder on the exact economic effect of innovation, even the highly conservative approximation reveals that technological innovation accounts for more than half of total growth of the economy. It is arguably said that, innovation is beyond invention. William et al.(2001) further contend that organizations should not only create fresh products but they should also look for the goods and services new goods and services, they must also find the most appropriate technique to improve and use these fresh inventions. If firms are not creative enough, rival firms will make use of the invention’s capability. A thriving organization must not only go after goods and services innovation (by presenting fresh products before other firms) but also process innovation (creating it excellently than other firms). William et al. (2011) affirms that regional innovation is facilitated by skills swap among a varied set of associations and organizations. The finest open innovation approach can take advantage of numerous types of linkages to various categories of organizations because each category linkage and organization encourages the diffusion of various sets of skills. An organization position in a network offers network assets that are not easy to duplicate and as a result, offers continuous competitive edge. Chesbrough et al. (2008) reveals that if an organization is to acquire innovation edge via its linkage standpoint, then that standpoint must not only be exceptional, but it must as well draw critical assets for innovation. Uniqueness can be created via entrenches in a vital market or technology. An organization can as well acquire uniqueness by positioning itself in heavily populated linkages, by reinforcing the ties in its linkages and by creating its own linkages. Continuous cooperation creates trust in linkages. Shay and Rothaermel (2008) reveals that introducing fresh goods and services assists firms generate additional value for customers. At the same time, innovation in business processes such as re-engineering and manufacturing permit technology-intensive organization to bring down their cost structure. Innovation functions concurrently to move up the total value produced and to bring down the cost needed to produce the service or product; hence, organization profitability augments and profits margins expand. Bordia et al. (2005) stipulate that sustained innovation produce a series of the alleged Schumpeterian rents derived from impermanent monopolies. The degree of how lengthy these competitive advantages can be relished relies on the rate of duplication by competitors, which is habitually decided by engineering and technological complexity of the fundamental innovation, the IP fortification of the innovation and the premeditated decisions about how to allocate returns from innovations. 2.1.3 Outsourcing In addition, the Toyota Company planned to overhaul its supply as well as production approaches. In order to minimize operational cost, the Company opted to source some components from countries that sold them cheaply. This plan to manufacture parts of the vehicles from foreign countries was attributed to the fact that these countries provided cheap labor. These countries include Vietnam, Indonesia, Philippines, Thailand, Malaysia as well as India. Hill (2010) reveals that outsourcing assist industries to utilize technological competencies derived from different parts of the world. Majority of the companies that lacks advanced technology depends on other countries to produce their products. The Toyota Company outsourced its activities out to foreign suppliers in order to develop excellent and high quality products. Hill indicates that outsourcing assists industries to produce quality goods and services. Besides, companies or industries are able to utilize human resource and advanced technologies available in foreign countries. The Company outsourced the components of car models with an aim of taking advantage of diverse technologies and human resources available in different countries across the globe. The company also wanted to utilize or fully exploit the suppliers’ innovation and specialist potentials. McIvor (2010) argue that outsourcing assist companies to make use of foreign knowledge and skills to complement their ability to innovate fresh products. Besides, the Boeing wanted to minimize time to market. Through outsourcing, the company could develop car models within the shortest time possible and avail it to the market. As mention by Hill (2010), assembling the vehicle is an intricate process that consumes time and resources. By having different suppliers to develop different sections of the vehicle models, the Toyota Company hoped to develop the plane quickly within the stipulated period. Besides, the Company opted to outsource its activities out to foreign suppliers because of the shrinking employment pool. Outsourcing enables countries with shrinking employment pool to obtain services from other countries that does not experience shrinking employment pool. Despite the fact that there are various benefits associated with outsourcing, there are also potential risks. First, outsourcing influence the length of time an industry or an organization take to avail its products to the market. If the supplier fails to avail critical sections needed to develop a product, then the company will not be able to assemble the parts within the required time. To avoid these risks, the Toyota Company could have adopted a model to facilitate the outsourcing process. One such model is the 24 Hour Knowledge Factory model. This model stipulates that a company can outsource it activities out to various countries, but each country should be in a different time zone-approximately 8 hours apart. This imply that when one country has just finished developing particular section of the vehicle, the other country is waking up and ready to continue working on another section of the plane. This model could have had numerous benefits for the company. For instance, by working 24 hours a day, the company could saved time and hence facilitate faster development car models. Besides, the company could have saved billions of dollars that it incurred through penalties. This model can also be utilized in another way. Instead of each company developing and completing a particular part of the plane, one company can develop a certain part vehicle; send it to another country to for testing. When the first country wake up the following morning, the results of the testing are already in from the second country and it can immediately start modifying the part of the plane according to recommendations of the results. 2.1.4 Principles of Toyota Other strategy the Toyota company relied on when the entering the competitive Chinese market is its 14 principles. Liker (2004) contends that the 14 principles of Toyota Company (the Toyota way) have enabled the company to make a major milestone in world technology. These principles drive the modus operandi and tools of the Toyota production structure and the overall management of Toyota Company. Some of the core managerial principles identified by Liker (referred to as 4P model) are discussed in detail below. 2.1.2.1 Long-Term Philosophy Liker (2004) asserts that Toyota Company embraces long-lived thinking. The main objective of this philosophy is to add value to Company’s customers and the society in general. It also geared toward building a learning organization that is capable of adapting to alterations in the environment and to endure as a fruitful organization. In the absence of this foundation, none of the investments made by Toyota Company in sustained enhancement and learning would be achievable. Chen et al. (2008) posit that one of the principles practiced by technology-intensive organizations is long-term thinking. The core aim of this philosophy is to add value to company’s customers as well as the society in general. This philosophy plays a critical role in creating an organization that embraces continuous learning and the one that has the capacity to adapt to ever-changing and volatile environment. If this philosophy is absent in technology-intensive organizations, all those investments made by these firms will not be realized. Technology-intensive organizations like McDonald and Toyota Company have been in the forefront in embracing this philosophy and as a result, these companies have achieved a lot from their investments. Toyota Company, for instance, continues to hold competitive advantage in the ever-changing and volatile business climate by concentrating in long-term investments in areas such as Research and Development (R&D), as well as innovation. 2.1.2.2 The Right Process Will Produce the Right Results Toyota Company is a process-based Company. It has embraced the principle of the right process will produce the right results which has made the company rip more profits and attain competitive edge in the global market. Liker (2004) asserts that flow is critical in attaining high quality goods at the lowest production cost. This principle acts like the DNA of Toyota Company and its managers believes that following the right process will automatically yields desirable results. 2.1.2.3 Add Value to the Organization by Developing Your People and Partners Chen et al. (2008) contends that the Toyota Way (14 principles of Toyota Company) consist of a set of tools that are devised to maintain sustained development and improvement of people. For instance, the “one-piece flow” as stipulated in the principle of the right process will produce the right results is an extremely intricate process that swiftly surfaces issues that requires urgent answers. If the problems are not adequately and quickly addressed, production will halt (Liker, 2004). This principle enables the Toyota Company to meet its employee development goals. It gives people the sense of urgency needed to confront business problems. The Company’s management puts more emphasis on building people apart from manufacturing cars. 2.1.2.4Continuous Solving Root Problems Organization learning is the ultimate level of the principles of Toyota Company. The Company focuses on establishing the root cause it problems and preventing from occurring (Austenfeld, 2006). It is in fact the primary focus of the Toyota’s sustained learning system. The highest level of the Toyota Way is organizational learning. Reflection, excellent and strong analysis as well as communication of lessons learned are critical in enhancing the general welfare of the Toyota Company. Figure 1. The 4P model used by Toyota Company Source: Austenfeld (2006). 2.1.2.5Use “pull” system to avoid overproduction Liker (2004) affirms that this managerial principle is critical because it offers the Company’s downline consumers with what they desire, at what time as well as the amount. Material refilling instigated by utilization, is the fundamental code of just in time. Wren and Bedeian further points out that this principle reduces warehousing catalog and work process via reserving petite quantity of each product and repeatedly replenishing according to the consumers needs. It also assists managers in responding quickly to every day shift demand instead of depending on systems and computer programs to trace improvident inventory (Chen et al., 2008). 3. Conclusion It is apparent in the paper that strategies as well as management principles are critical, fundamental elements that create the basis of efficient management. The 14 principles provided by Liker (2004) serves as a good example of how some managerial principles adopted by Toyota Company can play an integral role in increasing the profitability of the firm in addition to maintaining its viability in the volatile global market. Some of these principles include long-term philosophy, continuous solving root problems; add value to the organization by developing people and partners, use “pull” system to avoid overproduction as well as the right process will produce the right results. It is also evident from the paper that strategic planning offers the highly needed direction as well as focus. It permits an industry to establish what is significant and to apprehend what every firm factor ought to add to the individual team as well as to the success of the firm. Besides, Strategic planning enables new firms to make critical decisions regarding the market in which it functions, value addition to customers or clients, exceptional abilities, skills as well as knowledge its workers must possess. Some of the models that employed in this paper in supporting various arguments concerning the selection of a strategy include SWOT analysis as well as Porter’s five forces model. Strengthening the firm position can be via employing quantitative predictive techniques that make it easier for the firm to project the future as well as via successful rounds of planning. This paper recommends that Toyota should employ ‘lenses’ model. The ‘lenses’ model of strategic analysis stipulates that the optimal strategy as well as precise direction can be established via careful assessment of the existing resources or assets of the firm, environment as well as the firm itself. This model follows the following sequence: Analysis, selection and implementation respectfully. The basis to this perception is that accountability of the strategy determined by the top management and that the top management official have the capacity to selecting an excellent strategy for the firm. Strategic analysis is concerned with apprehending the strategic position of the firm such as the firm present position and the forecasted future strategic position. 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