International Business Strategy - Toyota Motor Corporation - Case Study Example

International Business Strategy Contents Contents 2 Assessment of the company’s internationalisation 3 Geographical characteristics of internationalisation 5 Main foreign market entry modes 8 Enterprise structures and controls 10 Critical evaluation of the strategies 12 References 14 Assessment of the company’s internationalisation Foreign market orientation eventually leads a company to adopt either of the two strategies such as reducing cost by product standardization or increasing cost through offering customized products to local markets. There are mainly four international business strategy such as localization strategy, global standardization strategy, international strategy and transnational strategy. All these four business strategies which are adopted by companies are dependent on two factors like local responsiveness and cost reduction pressure. Toyota Motor Corporation is an automobile manufacturer of Japan. It is a multinational corporation and is considered to be 12th biggest company on basis of revenue. This company is highly internationalized since it has its operations spread across wide geographical areas. Toyota Motor Corporation has its factories located across the globe. The company assembles and manufactures vehicles for many regions such as Japan, Sri Lanka, India, Indonesia, Australia, Canada, Turkey, Poland, Columbia, South Africa, United States, Portugal, United Kingdom, Brazil and France. Toyota in current scenario have shifted its operations to other geographical regions like Malaysia, Argentina, Mexico, Pakistan, Czech Republic, Venezuela, Russia, Philippines, Egypt, Vietnam and China. The firm has entered into foreign markets and tried to adapt local customer demand. This kind of internationalization has enabled the company to become largest automobile manufacturer across the globe. Toyota Motor Corporation was incorporated in 1933 as a part of Toyoda Automatic Loom Works. The company in initial few years was not indulged into global expansion. First Toyota car called as G1 truck was exported in 1930. 1957 was a year of global expansion for Toyota Motor Corporation. In 1957, Toyota cars were exported across United States. Toyota Motor sales were established in United States in 1957. This was the year when passenger car of Toyota known as Crown was exported to United States. In 1958, international operations of this organization were expanded further to Brazil. 1962 was the year of establishment of Toyota Motor Corporation in Thailand (Keller, 2008). Toyota Motor Corporation entered into a joint venture with General Motors in 1984 so as to strengthen its base of manufacturing plants in United States. During 1990 the company incorporated its manufacturing and marketing activities in Europe. Toyota Motor Manufacturing division had started off its operations in United Kingdom in 1992. From 2000 to 2009 the company had established its business operations across China, Russia, Czech Republic, Canada, Australia, France, Poland, etc. The trend of Toyota’s international expansion clearly denotes its rapid expansion strategies worldwide. This firm is not newly internationalized since it encompasses a long history of international business strategies. The major objective of this company has always been to acquire more market share and set its position as leading automobile manufacturer around the world. Toyota Motor Corporation over the years has followed a certain pattern of internationalization. Transnational strategy had been selected by this multinational enterprise in order to facilitate global presence. Toyota had to compete with big players like Ford and General Motors. This eventually resulted into need towards greater cost economies. Government regulations and customer taste also tends to vary across different geographical regions. The reason behind adopting this strategy was to become responsive towards local demands. In all its international expansion the company has focused on developing new models based on some components of parts (Henry, 2011). Fewer vehicle platforms enable the company to design models as per local taste or preferences. Transnational strategy allows the firm to align local needs with finished products. Global manufacturing activities have supported the firm to manage effectively local responsiveness pressure and production differentiation activities. Transnational strategy is followed by the company during internationalization so as to compete in global markets. Geographical characteristics of internationalisation Toyota Motor Corporation has entered into emerging markets on the basis of its Kaizen philosophy which indicates continuous improvement. The company’s history in various emerging markets has been well represented in figure 1. Figure 1: Toyotas History in Emerging Markets (Source: Toyota Motor Corporation, 2015) Toyota has its factories located across the globe. The company actively indulges into assembling and manufacturing vehicles mainly for local markets. Its assembly plants are located across Poland, United Kingdom, USA, Japan, Indonesia, Canada, Mexico, Argentina, China, etc. However their main international markets are European market, US market, Australian market, and other emerging markets such as India, Russia and China. The automobile manufacturer possesses eight factories located in the old continent of European market. These geographical regions are France, Czech Republic, United Kingdom, Turkey and Poland. The company has also set up a research and development centre in Belgium. On basis of U.S. sales the firm has surpassed one of the strong players in automobile industry, Ford. North American market is that region where Toyota Motor Corporation initiates maximum sales volume. Toyota Camry Hybrid car was launched in Australian market in 2010. Increasing demand towards low cost cars has facilitated growth of the firm in Chinese and Indian markets. A firm basically enters into foreign markets so as to gain high profit margins. Economies of scale are achieved by an organization either through product or service standardization or by incorporating local features into product line. These were certainly too main objectives of Toyota Motor Corporation. Its global expansion strategy clearly denotes that the firm was inclined towards acquiring sufficient market share. The brand image of global leader in auto manufacturing industry is retained only through international business expansion (Porter, 2008). There are some markets which are particularly important for the company since it offers immense opportunities for future growth and development. The sales percentage in respective geographical regions helps to evaluate importance of these foreign markets. Figure 2: Sales Percentage (Source: Rugman and Verbeke, 2004) On basis of figure2, it can be stated that North America is an important market for Toyota Motor Corporation since it accounts for 32% of total sales volume. In US market there is a high demand towards fuel efficient vehicles. This in turn influences Toyota Motor Corporation to invest more in this particular segment. On the other hand, European region is a steady market for the company. The unique industrial base of this region is able to support growth of many multinational enterprises. Russia is also beneficial for most of the Japanese firms due to its evolving domestic demand. Toyota Motor Corporation over the years has opted only for those geographical markets that are competitive and stable. The lower wage costs influenced the firm to spread its business operations across European markets. EU members also possessed a flexible market structure and this proved to be attractive for Japanese companies. Toyota Motor Corporation has always believed in establishing position in secured, growing but competitive market. Top management of this company was not inclined towards only designing innovative models but they focused on distributing these models to regions where demand was high. These particular regions are selected by the company as they ensure high demand in future years (Hoskisson, Hitt, Duane and Harrison, 2007). The company attempts to establish their market position mainly in those areas where other auto manufacturers have secured high profit margins. Main foreign market entry modes Toyota Motor Corporation utilizes different foreign market entry modes for various geographical regions. Foreign market entry modes have been completely different in China, Thailand and Russia in comparison to EU member states or United States. In the initial years, Toyota Motor Corporation started exporting vehicles so as to avoid intense competition. It was considered to be fastest market entry mode and encompassed lower risk level. The company mainly exported auto parts which were later assembled in specific geographical regions. Foreign market entry modes are chosen by Toyota in such fashion that it helps to seek competitive advantage over competitors. Toyota started to enter into international markets on the basis of exporting auto parts or vehicles. This enabled the firm to strengthen brand recognition and access wider market segment. Entry strategies implemented by the company was subsequently regulated in terms of wholly owned subsidiaries, joint venture and foreign direct investment. Toyota even through its effective entry mode strategies is challenged by political risks and cultural differences. Strategic alliance is a common foreign market entry mode which has been incorporated by Toyota Motor Corporation. Toyota in current scenario has entered into a strategic alliance with BMW. This kind of alliance enhanced four major areas such as fuel cell system development, architecture, collaborative working and joint research and development activities. Expansion into global markets is greatly supported by this form of strategic alliance (Lasserre, 2012). To be more precise alliance benefits both companies in global market place. For instance, strategic alliance of Toyota and BMW is heading towards better capacity utilization and high battery performance so as to reduce overall environmental impact. This market entry mode supported the firm to gain competitive advantage in new operating region on the basis of offering affordable vehicles to customers. Wholly owned subsidiaries have also been established by the company in European markets, United States and other international markets. This wide range of market entry modes clearly indicates that the firm was focused towards international business expansion. Market entry modes were altered by the company as per local demand and risk involved. Strategic alliance was chosen by the company as an entry mode when it had to gain competitive advantage over other players in foreign markets. This kind of alliance ensures sharing of knowledge and expertise so as to capture maximum market share. Exporting was another market entry mode adopted by the firm because of its lower risk level and faster pace of expansion. Investment level was low in exporting and it even comprised of lower working capital. Toyota has encouraged exporting entry mode to gain economies of scale. On the other hand, joint venture strategy is utilized by the firm so as to achieve higher degree of local responsiveness. This kind of venture is established by Toyota Motor Corporation with local suppliers or dealers (Liker, 2004). It provides wider accessibility of consumer market to the company. Wholly owned subsidiary is yet an efficient entry mode adopted by the firm. The reason behind selecting this strategy is more brand name visibility and physical evidence of company’s operations. Enterprise structures and controls Controlling and structuring of organizational operations guarantee effective coordination between local and foreign markets. Globalization has influenced the company to expand into international markets. Local and global forces are inevitably an area of concern for the company. The centralized decision making approach of the company has restricted this firm in terms of responding to local issues. Local control and authoritative initiatives are lacking in Toyota Motor Corporation. Toyota Motor Corporation outlines all possible guidelines necessary for widespread global operations. Decision-making structure of the firm encompasses communication, vehicle design, marketing, development and design, and recalls. The company’s global operations are represented as “silos”. Each of these functional silos is responsible for reporting individually to headquarters of Toyota Motor Corporation. There is no such chief executive present in global market divisions of the company. However the firm encompasses individual heads of specific divisions like sales and marketing, manufacturing, engineering, etc. These individual heads are witnessed to report directly to company headquarters. There have been tight controls exercised by the company so as to keep global operations aligned with core corporate values. Centralized organizational structure is implemented by Toyota Motor Corporation since many years. This structure has supported the company to coordinate global business operations with that of home market operations. Centralized decision making has been adopted by Toyota Motor Corporation from its initial stage of global expansion. Bureaucratic control exhibits decision making mechanism where higher authority actively involves with employees to design strategies. The code of conduct and Toyota Way are common control techniques exercised by the company on employees and international business units (Batey, 2012). These control rules not only ensure appropriate employee behaviour but even increases effectiveness of global business operations. There are reasons behind incorporating these specific controls and structures within business operations. Centralized organizational structure was initially adopted by the firm in order to facilitate strong communication amongst different business units. This kind of centralized structure has not proved to be beneficial for Toyota Motor Corporation in many geographical regions. There are adverse effects observed on information transmission amongst different parties. Miscommunication basically results due to inappropriate information sharing. Safety and quality issues are always closely knitted with excessive control on organizational operations. The silo concept was started off by the company so as to ensure proper coordination between global business units. These units are observed to perform different set of operations and address specific local demand or preferences. Tight control strategy was introduced by the firm after taking into consideration quality issues. This kind of control emphasizes on communication channels across global regions. Toyota Way is inclined towards continuous improvement across business operations. Tight control is a measure through which performance level of employees is increased and their overall productivity initiates business growth. The company is structuring their international business operations in a particular way in order to ensure high quality products to customers. Centralized business operations restrict the firm in context of shifting from corporate strategies. Local responsiveness pressure often influences a firm to greatly adapt to local conditions by compromising on business values. However tight control and centralized structuring is a tool through which this kind of adaptability can be restricted. Intensive competitive markets and growing demand of customers have facilitated the company to incorporate such strategies. These strategies basically reflect long term growth and survival of the firm in automobile industry. Critical evaluation of the strategies Toyota Motor Corporation has always focused on innovative strategies during its years of global expansion. The company is successful in home market as well as in global markets due to its efforts in producing high quality vehicles. Japanese firms believe that there is room for improvement in any activity. This is the reason behind Japanese firms trying to improve upon their business operations. They struggle towards improving quality level of products being manufactured. Kaizen or continuous improvement is the key term used by Japanese firms for continuous improvement. Toyota Motor Corporation has always targeted stable and flexible markets. European and American markets provided opportunity to the company to grow and acquire desirable market share. On the other hand, establishing factories in emerging markets enabled the firm to have first mover advantage. These international strategies have proved to be successful for the company and it is now considered to be largest automobile manufacturer across the globe. Their centralized approach and transnational business strategy has supported the company to retain their market position. Toyota Motor Corporation has implemented an innovative business strategy of incorporating changes in product features as per local demand. Product modification on the basis of local market demand has proved to be beneficial for the company (Peng, 2013). This type of high local responsiveness strategy enabled the company to enter into various global markets. For instance, the firm focused on fuel efficient vehicles while entering into North American market. Toyota Motor Corporation has invested lump sum amount on research and development activities, and has even set up factories in different locations. This strategic route has been successful for the company in past years. The company is shifting its focus towards local markets more in comparison to home market. Toyota Motor Corporation is observed to address local demand efficiently in any of its global markets. This strategy proves to be a liability for the company because it increases dependability of business operations on foreign markets. Growth in foreign market drives operations of the company. On the contrary, being local responsive is another liability since the firm has to adapt to local conditions as and when required. Corporate strategy is at the core of business operations but this form of strategic direction shifts the company from such values. Toyota Motor Corporation forms strategic alliances or joint ventures while entering into new markets but this involves higher level of risk. Joint venture enhances level of dependency on other organization which proves to be a liability when competing in foreign markets. It even encompasses sharing of knowledge and skills which is indeed not a suitable option on global platform. Centralized decision making strategy is also a liability because it eradicates flexibility from the system. Regional operations are not executed well if there is tight control imposed upon by centralized authority. The company needs to align technology and local market demand with core values or strategy. Customization or modification can be done on the models confirmed by top management. This in turn shall ensure meeting local demand along with maintaining corporate values. It is also recommended that the firm should prevent route of joint venture or strategic alliance and emphasize more on exporting auto parts. This shall initiate cost reduction, which could be utilized in technological advancements and engineering activities. Decentralized approach will be most appropriate for the company. References Batey, M., 2012. Brand meaning. USA: Psychology Press. Henry, A., 2011. Understanding strategic management. New York: Oxford University Press. Hoskisson, R., Hitt, M., Duane, R., and Harrison, J., 2007. Competing for advantage. USA: Cengage Learning. Keller, P., 2008. Strategic brand management. New Delhi: Pearson Education India. Lasserre, P., 2012. Global strategic management. Singapore: Palgrave Macmillan. Liker, J.K., 2004. The Toyota way: 14 management principles from the worlds greatest manufacturer. UK: McGraw-Hill. Peng, M., 2013. Global strategy. USA: Cengage Learning. Porter, M. E., 2008. Competitive advantage: creating and sustaining superior performance. New York: Simon and Schuster. Rugman, A.M. and Verbeke, A., 2004. A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), 3-18. Toyota Motor Corporation., 2015. Annual Report 2012. [Online] Available at: http://www.toyota-global.com/investors/ir_library/annual/pdf/2012/feature/ [Accessed 22nd April 2015]. Read More