Toyota as a Template of Japans Global Dominance of Industry - Coursework Example

Executive Summary This document examines Toyota as an example of the post World War II 20th century and ongoing phenomenon of Japanese industrial domination on a global scale. Many other Japanese organizations with matching or even better technology, have failed to match Toyota performance standards, especially outside the home turf. Environmental concerns have driven Toyota’s core strategy strongly, and have resulted in tangible productivity gains, apart from the ethical benefits. Toyota has built its business around durable concepts of Services Marketing, and has succeeded in finding an optimal blend between global branding and local values in individual countries. However, the future of Toyota is not assured on the strengths of its past and current successes alone. The company will have to strike out in new directions in order to maintain its momentum of profitable growth during the coming decades. Redefining the very nature of its business may have to drive the Toyota of tomorrow. Issue Hard technology alone is not enough for sustained global success in the business world (Hammond, 1994). This management truism has special applicability in the business of making and marketing automobiles. Most major players in this segment live off common technologies for engines, designs, materials, and other components. Specialized companies, such as of luxury sports models, have either had to merge with larger competitors, or have faced extinction altogether. Key world markets have not yielded any sustainable spaces to manufacturers to specialize on any technology parameter: the most successful brands are actually mere assemblies of outsourced parts, offered through standard distribution models. Unlike other forms of transportation such as commercial and military aircraft, rail roads, and ocean liners, the automobile sector does not have such insurmountable barriers as to prevent new entries. Indeed, countries such as South Korea and even Malaysia have been eminently successful in entering the business. Competition amongst cars and commercial vehicles is most intense at the advertising and retailing levels; these are areas of expertise which automobile companies outsource! How does one explain core competence in this segment of industry? Toyota has been a stunning success in this scenario. It not only has substantial market shares in countries where it operates on regular bases, but is also a highly sought after brands in nations which place tariff barriers on imports of foreign automobiles. The company has shown amazing versatility in dealing successfully with such sophisticated markets as the United States, and with parts of the emerging world at the same time. It has been agile in seizing on new opportunities in China and India, but resolute in defending existing revenue streams from the matured markets of Europe and its own home country. Toyota operates in every price point available in the business of automobiles, from compact economy models for first time buyers, to the most luxurious sedans. It caters to specialist interests with everything from sports cars to small vans. Customer satisfaction levels are amongst the highest for any product or service category, and the company is highly sensitive to changes in consumer trends and preferences. Toyota is known for innovative purchase and manufacturing strategies, and is a gold standard in quality assurance at the same time. It has an unbroken record of profitable growth through some of the most difficult phases of economic development in modern times. Toyota has not only withstood adversity, but thrived in hard times, as though isolated from the general travails of the markets in which it does business. It has never suffered any major breakdown of its operations due to labor unrest, even in countries notorious for militancy on this account. It has transformed the problems of the energy crisis by offering superior mileage performance in its main product lines. The infrastructure crunch in emerging markets has not dented its eminent sales progress. Toyota has responded to every major consumer trend with new products to reflect changing values. It has never been considered for consolidation in an age when acquisition of ailing automobile companies and brands has become the industry norm. Normally, the success of any international corporation would be a matter for study only in the world of business. However, Toyota stands apart because of its pervasive Japanese nature. The success of the company has come at a time when the Japanese economy as a whole has stagnated. Japan’s indigenous management methods, such as that of promoting consensus and loyalty amongst employees, have been the subjects of ridicule and opprobrium. Toyota, though it operates in all latitudes and longitudes, is a highly centralized Japanese company. It has strong linkages with the home country and with the domestic economy. It is an entirely independent corporation with no crippling dependencies on any extraneous centers of power. It is a splendid example of Japanese domination of a very competitive business in trying circumstances. Toyota is an intriguing blend of rigid in-house systems, and nimble flexibility to respond to environmental opportunities and threats. This makes it worthy of deep study as a significant Japanese phenomenon of our times. Discussion of Strategies How can independent observers deduce the core strategies of a firm? The problems are especially acute for conservative and even secretive Japanese companies such as Toyota. Senior managers of this company tend to be reticent, preferring to speak more about the many consumer benefits of their products than about internal procedures and systems. The true elements of strategy have to be discerned by people outside the closed inner circle, by piecing together public announcements by company managers, and analyses of known actions. Some information can also be gleaned from ancillary suppliers and members of the logistics chain. Fortunately, Toyota is as visible in the public domain as a brand, that though it is listed on Exchanges outside Japan only as Advance Depository Receipts, there is much that can be learnt about the fulcrum strategies deployed by the company. It is also useful to study Toyota on comparative bases, with automobile companies from other countries, and with lesser Japanese rivals as well, in order to understand and to appreciate how it differentiates itself in a sustainable way. All automobile companies and all Japanese industrial entities follow certain generic strategies. Though there are overt signs of fierce competition, no single player can afford to deviate from industry conventions. Toyota is diligent in observing such norms. It new models follow design and performance trends which are standards for the industry. The conservative style of its Japanese management follows the best traditions of industrialized Japan. The products and sellers are not easily distinguished from similar offerings from customers. Investments in the corporate brand have been high and sustained, but this is normal for a company without the pre World War II presence of competing American and European manufacturers. The generic business approach which Toyota shares with its domestic and international peers does not explain why this company is able to do so much better than other automobile companies, and in comparison to many other Japanese corporations as well. We have to look further to find the defining difference between Toyota and others. One significant difference between Toyota and other companies is that it has sought ISO 14001 series certification. The International Standards Organization has followed its path breaking system for quality, by a new series designed to improve management accountability, protection of consumer rights, and environmental conservation, at the same time. Toyota has been a pioneer with the ISO 14001 series (About Toyota, 2006). This may be a matter of ethics for the outside world, but Toyota has used it to give a fillip to its productivity. The cost leadership and sensitivity to global social trends, which set Toyota apart, would not have been possible without the ISO 14001 series registration. It is significant that Toyota has used the ISO 14001 system even in the highly competitive United States market, where it has forged share from the domestic giants of yesteryear, such as General Motors and Ford. The ISO 14001 series is a deceptively simple system of documentation, which perhaps makes companies with lesser performance skeptical about its powers. It takes major slices of top management time, which could be another reason for some powerful executives staying away from the ISO system. However, the biggest change the system affects is in terms of transparency. Company appraisals of business situations and of risks are put to paper. Management teams have to commit themselves to specified improvement areas and contingent action plans. The entire process is audited independently by certified experts. The ISO 14001 fosters a whole new approach to business excellence. Product liabilities and environmental concerns dominate the ISO 14001 process, but Toyota succeeded in turning this seeming burden in to opportunities for improved profitability. The company has significantly reduced the amount of land used in new manufacturing plants, as a result of ISO 14001 processes. This has given it a competitive edge in terms of establishing fresh manufacturing capacities. Similarly, it has cut back on toxic materials used in paint shops, not just improving safety standards, but gaining enormous cost savings as well. Toyota’s legendary aggression in pricing has been strengthened considerably as a result of ISO 14001 certification. Other automobile manufacturers may follow tomorrow, but Toyota will always be a step ahead in the ISO process learning curve. This is perhaps the most crucial element of the company’s sustained competitive edge. Evaluation Globalization is not only an opportunity, but a challenge as well. Small domestic automobile companies may envy the world wide reach of Toyota, but catering to widely divergent needs is a complex task, which only top companies can execute. The skills related to competing in widely different cultural environments do not come automatically-they have to be cultured (Ohmae, 1991). There is a fine balance to be struck between excessive centralization, which can make business policies irrelevant in an exotic environment, and utter chaos resulting from excessive delegation. A major challenge is to create a uniform mind set about globalization throughout the organization. People who work at the periphery have to be sensitive to the core values of the group organization, and those in power at the center must have access and sensitivity to the ground realities in each territory where the company does business. The automobile market of the United States has been a role model for Japan itself, so Toyota could have used its first forays abroad as part of its very evolutionary process. However, the lucrative markets of Western Europe are more conservative, nationalistic, and different from the other side of the Atlantic. Yet, Toyota has not only established strong fortresses of shares in these sophisticated markets, but out performed entrenched domestic competitors by handsome margins. The Chinese and Indian markets have posed challenges of their own, but Toyota has responded adroitly, and recorded resounding successes in these territories of giant potentials. All this has happened without any dilution of domination of its traditional strongholds in the West, and in countries such as Australia. How could Toyota achieve such uniformly high standards of business excellence in markets which are actually wide apart from each other? Research, systems development, and financial control are the three functional areas which Toyota has chosen for tight and exclusive control in Japan. All models are built on platforms developed in Japan, though they reflect international design trends, and conform to emission norms of individual regions. The approaches to market launch and business development follow uniform templates given by the headquarters. There are no offers of equity participation outside Japan. These policies are so rigid that theoreticians could cite them for failure to thrive in a global business environment. Yet, the reverse is true for Toyota. The net effects of the functional areas which Toyota has chosen never to delegate, is that the company is financially stable and that it has retained the integrity of management control and independence. It is also self-sufficient in areas of relevant technologies. It has been tremendously successful in building brands without any patent protection. Many of its internal business processes are low key and not known widely, but they constitute real know-how and proprietary knowledge for superior and sustained financial performance. The exact reverse is true when it comes to Marketing. Each country has its own models, and even brand names adjust to local preferences. Advertising caters to every ethnic whim. Retailers and all local associates are renowned entities of high standing. Ancillary development and service facilities favor local influencers without any dilution of quality standards. Pricing is closely tagged to affordability. There is excellence in all aspects of Services Marketing (Payne, 2002). A review of communication campaigns in various languages and cultural backgrounds makes it difficult to keep in mind that they are all from the same group, were it not for the futuristic and endearing Toyota logo! Customers of all demographic and economic clusters identify strongly with the values of the corporate brand. Autonomy in this respect gives Toyota amazing flexibility to relate closely to every type of market situation. Personal Opinions Though Toyota deserves unreserved admiration for its superb record of professional competence up to this point, there are significant pointers that it is time for sea changes. Extensions of past experiences and successes may not work in the new world environment for automobiles which has begun to unfold. Toyota’s ability to rise above its past, and prepare for the major changes which can be expected for the future, is likely to determine its future growth and profitability. Healthy economies have supported Toyota, even as the Yen value remained as a drag on competing with competitors from other nations. Even today, much of Toyota’s remarkable business results are due to geometric demand expansion in emerging countries (TOYOTA SPEEDS UP PUSH TO EXPAND IN CHINA, INDIA, 2006). However, this avenue for growth has natural limitations. Markets in Africa may not follow on immediately after maturation in China and India. The rapid growth of the Services sector in most economies is an indirect threat to Toyota. Engineers are now substantially employed in Information Technology, Electronic Hardware, and Construction streams. Similarly, young people with qualifications in commercial fields are increasingly drawn to financial services sectors. Toyota will face a challenge in future to staff middle levels of its organization, and must take new initiatives to meet its future personnel needs (Adair, 1986). A related concept is of how Toyota uses its human resources. Keeping non-Japanese out of the higher echelons of management is an anachronism in modern times. Talented executives in affiliate and associate operations will naturally move away to the competition if the company fails to appreciate their collective worth correctly. Toyota has got away until now with human resource development policies which are almost racist in nature, but this cannot continue indefinitely. The company will have to view its global wok force as a strategic resource (Barger, N. J. & Kirby, L. K. 1995). Toyota’s biggest future hurdles will arise from the very nature of the enterprise and new directions of technology. The company needs to frame a response to how private transportation will unfold in future. Modern urban design, and professionalism in planning public transportation, may detract from the very value of an automobile. New consumer concerns may cause people to stay with existing models for longer. Toyota can no longer assume that global demand for automobiles will continue to expand, as it has in the past. Therefore, a new business definition, moving from automobiles to transportation, may be in order (Hamel, and Prahalad, 1994). New materials and energy sources have already caused upheavals in automobile technology. Toyota has not been wanting in this respect, but the gap between its assets and those of rivals such as Honda, has narrowed if not disappeared altogether, as a result. Toyota. The company needs new momentum to continue innovation and to avoid complacency (Nonaka and Takeuchi, 1995). Conclusion Toyota is entirely Japanese as a sign of the post World War II era, though it has become a global corporation. It has thrived even during down turns of its home economy, and has dominated its chosen domain of enterprise like a colossus. It displays a rare blend of central control and local autonomy in each of the countries where it operates. It is also one of the best known global brands, with an unbroken record of profitability. It is therefore worthy of study and emulation as a template of the success of modern Japan. However, the company now faces a very different future, and will probably require major structural changes to ensure its continued business health. References Adair, J. (1986). “Effective Teambuilding”, London and Sydney, Pan Books Barger, N. J. & Kirby, L. K. 1995 The Challenge of Change in Organizations, Davies-Black Publishing, Palo Alto, California. Hamel, G and Prahalad, CK, Competing for the Future, 1994, Harvard Business School Press Hammond, TH, ‘Structure, Strategy and Agenda of the Firm’, Fundamental Issues in Strategy, edited by Rumelt, RP, Schendel, DE and Teece, DJ, 1994, Harvard Business School Press Nonaka I and Takeuchi, The Knowledge Creating Company, 1995, Oxford University Press Ohmae, K, ‘Getting Back to Strategy’, Seeking and Securing Competitive Advantage, edited by Montgomery, CA and Porter, ME, 1991, Harvard Business School Press Payne, A, The Essence of Services Marketing, 2002, Prentice-Hall About Toyota, 2006, Company Website accessed December 2006 from: http://www.toyota.com/about/shareholder/ TOYOTA SPEEDS UP PUSH TO EXPAND IN CHINA, INDIA, 2006, Wall Street Journal (US Edition), November 13, 2006 Monday Read More