Toyotas Decision to Undertake FDI in Australia - Case Study Example

Toyota’s Decision to Undertake FDI in Australia I think the chief factors that were involved in Toyota’s decision to undertake FDI in Australia rather than build hybrids in Japan include the changes that are expected in the economy of Japan in the future. The fact that Japan is growing old means that it is likely to face demographic pressures that can easily lead to constraints in its future growth. Therefore, Toyota foresaw that building hybrids in Japan might be faced with many challenges in the future and therefore, decided to undertake FDI in Australia (Ghemawat, 2012). Even though Australia will also face challenges in the future, they will not affect the FDI that Toyota Company made since it is able to deal with competitiveness and financial crises that may arise. Japan’s economy is the second largest in the world but this would still not favor the hybrid of Toyota since its growth rate is slow. On the other hand, Australian’s economy is smaller compared to that of Japan but it experiences rapid growth. In addition, Japan’s purchasing power is high and thus building hybrids in Japan would have cost more than undertaking FDI in Australia. Australia has a framework that supports foreign direct investment and thus it will be possible for Toyota to monitor and analyze how the investment grows (Ghemawat, 2012). The FDI in Australia has several liabilities that ensure reinvestment. Carrying out a hybrid in Japan would have been a poor decision since Japan is facing a critical issue because of its allocative efficiency. There is very high competition among manufacturers who are well distributed and highly productive. 2. Why do you think Toyota decided to adapt the existing plant in Melbourne rather than build one from the ground up elsewhere in Australia? I think Toyota decided to adapt the existing plant in Melbourne instead of building a new one from the ground for several reasons. One of the reasons is because using the already existing plant was going to cut down on the cost of establishing themselves in Australia. Whenever a company is entering a new market, it is easier to use an existing plant than when it starts from the ground. Starting from the ground will mean that time for building has to be allocated whereas in an already existing plant the sales start immediately (Dadzie, 2012). By using an already existing plant, the production is higher than starting from the ground. In taking the already existing plant the Toyota Company is bale to be in an area where the economy is already diversified opposed to setting up a new plant in an area where the economy is not yet diversified. Diversification of the economy will help in promoting competitiveness within the chain. In Melbourne, the market was wider with laborers that are more skilled and the project managers were more experienced so it was going to be an easier task compared to starting a new plant where the laborers have little or no experience. By shifting to the already put up plant it made the local market to skyrocket. The expansion to Melbourne was an indication of their confidence in manufacturing and becoming the largest carmaker in Melbourne. In addition, by using the already existing plant getting employees was going to be an easy task. 3. What do you think the decision to manufacture in Australia rather than in its domestic factories will do to the company’s reputation at home? How much attention do international customers pay to the location where their automotives are assembled? I think Toyota’s reputation will be affected because of the decision to manufacture in Australia instead of in the domestic factories. When people think that Toyota Company has gone to offer jobs to foreign people rather than the domestic population then it gets negative reputation (Ghemawat, 2012). The resentment of the company can grow from this reputation and become a huge problem to the company. There will probably be several issues raised to add up to the bad reputation of Toyota Company failing to assist in boosting the growth of its own domestic economy. Most individuals would prefer it remained domestic to enhance its shareholder value. International customers pay much attention to the location where their automotives are assembled. Most customers make choices of the cars they want to purchase depending on where they are manufactured and assembled (Dadzie, 2012). It depends on the belief of every customer on which location, the best cars are assembled or the best location where they are manufactured. Some customers will prefer not to buy the same Toyota car that is assembled in a different location from the one he or she believes is the best. Customer satisfaction is the key issue in such a case. The customers will only feel satisfied if the car is assembled in a certain location. 4. What do you see as the pros and cons of Toyota’s approach to managing FDI? There are several pros and cons of Toyota’s approach to managing FDI. The pros include the capability of Toyota Company to make economic development. Since Australia is an economically developing country, this will be managed easily (Kozenkow, 2014). With FDI Toyota will be able to maneuver through economic hardships. In addition, as Toyota manages FDI it will be able to permit the transfer of technology. With the rise of competition, the exchange of technology will be on the rise as well. Toyota Company will help Australian developing the human capital resources as they train the new employees on how to operate the business. The profits that are generated from the FDI are useful towards contributing towards the revenues and taxes within the country (Kozenkow, 2014). Toyota will create Jobs through its management of FDI. By creating jobs for individuals, there is hope for a better lifestyle in lives of these individuals. FDI management by the Toyota Company also may bring technology that is advanced in the country. Through FDI, the income is increased thus raising the productivity of the country. Through Toyota managing FDI, it opens and creates an opportunity for export within the country. The cons of how Toyota manages FDI include poor distribution of the profits that are realized. Australia might face an economic backwardness in some sections because of poor distribution of profits. The FDI management entails high travel expenses and communication expenses (Kozenkow, 2014). The difference in language exists and it is a major disadvantage for the Toyota Company. In addition, there is a chance that the Toyota Company could lose out ownership to another company in the process of managing FDI. The company also faces the disadvantage of instability within some geographical sectors. The host country also faces challenges, as it is difficult to have full control. References Dadzie, S. (2012). Foreign direct investment strategies and performance of foreign subsidiaries in Ghana. Retrieved from: http://www.uva.fi/materiaali/pdf/isbn_978-952-476-393-6.pdf Ghemawat, P. (2012). Regional strategies for global leadership. Retrieved from: https://hbr.org/2005/12/regional-strategies-for-global-leadership Kozenkow, J. (2014). The pros and cons of foreign direct investment international businesses. Retrieved from: http://smallbusiness.chron.com/pros-cons-foreign-direct-investment-international-businesses-56164.html Read More