Toyota - New Market Entries and Expansion - Case Study Example

Section A Why Toyota was chosen 1.0 Competitive advantage Toyota has many competitive advantages which it uses to gain a huge advantage in the automobile market 1.1 Differentiation Toyota uses a strong differentiation strategy to reach almost every segment of the market in the automobile industry. They have cars for almost everyone; four wheel trucks and SUVs for the outdoor rough terrain, standard, everyday use cars and such specialized brands as the Prius for the eco-friendly. In addition to that, they also produce vehicles across all price ranges, from low cost models like the corolla line to the high cost, high end market cars like the Lexus, with numerous models in between. 1.2 Design strategy Toyota has a production system called TPS or the Toyota Production System that has constantly facilitated high quality designs. The Toyota Production system is based on the lean manufacturing strategy. This concept also includes such manufacturing concepts as the Just-in-time strategy and six sigma. Toyota’s TPS works on the principles of elimination of waste, determination of profit margins and a maintenance of worker mindset (Ohno, 1978). 2.0 New trade theory Developed in the seventies, the new trade theory is based on the principle of improving returns on economies of scale. In fact, according to some experts, economies of scale have been more influential to companies than their competitive advantage. Toyota’s use of the new trade theory is in the scale of its production. Outside Japan, Toyota has more than 50 production companies in over 27 regions across the world. To put a clearer perspective on the matter, in the financial year 2012, the company produced 7453781 vehicles across the world, with 3940000 in Japan and the rest spread across various production centers across the world. In addition, it has an extensive production network that ensures an even wider reach. 3.0 Eclectic paradigm Major world companies are increasingly looking for new markets to invest. The eclectic paradigm posits that companies must meet three conditions; location advantages, ownership advantages and internationalization advantages (Gray, 2003). 3.1 Location advantages Toyota has an extensive production and distribution network (Nkomo, 2013). Its production sites are spread all over the world, divide roughly into three. A third of its production assets are in Japan, a third in Europe and the rest in North America. The company still intends to grow and expand into more markets. The objective of its location strategy is to reduce the cost of export for finished vehicles, prevent friction arising from regional trade situations and contribute to local economic ecosystems (Hino, 2002). 3.2 Ownership advantage Toyota has a strong culture of focus on research and development to improve aspects of quality, functionality, safety and environmental record its focus on research and development is focused on the improvement of both old and new products. Its production and business strategy is guided by the Toyota philosophy, borne from years of tradition, toyotaism and the Toyota Production Strategy. 3.3 Internationalization advantages Toyota’s globalization strategy is based on three driving forces (Hino, 2002). As production trends continue to focus on environmental strategies, Toyota has entered into various production partnerships across the world with such companies as GM and Ford. Environmental technologies require large investment capital for research and development, and are increasingly moving from elements of competitive advantage to necessities in vehicles. It has also internationalized its production, with centers of production and distribution set up across the world; Europe, Japan and North America. Additionally, they have standardized all their production technology across centers of the world. The third strategy is to give its managers a feel of the world. It set up a management board that helps it harness knowledge and management related advice from experts all around the world. The board meets several times a year to deliberate on various managerial issues and get a worldview on production matters. 4.0 New market entries and expansion Demand for automobiles worldwide depends on the prices of the vehicles, disposable income per capita, fuel prices and innovation. Innovation of products seems inevitable considering the need for effective and environmentally sound technologies. As many economies continue to recover, the demand for vehicles is likely to increase. Toyota’s expansion is pushed by three important factors. They have tremendously improved their ability to produce more in the past six years. Toyota has improved its production capacity by up to 3 million vehicles over the past six years, being perhaps the only company that has improved production as fast. The company has also tremendously up-scaled its ambitions. The company plans to expand Lexus as a luxury car brand in Europe, attacking the biggest of the world’s luxury car maker profit sources. It also plans to attack American carmakers at home, planning to expand its full size truck brand the Tundra. It also plans to develop a new breed of vehicles for the emerging markets of China and India. It also has an extremely ambitious technological plan for the future, including its plan to make a dream car (Stewart & Raman, 2007). Toyota sees growth in the next few years coming from the emerging markets of South East Asia and some parts of South America. In the long term, the rising disposable incomes of the middle class, coupled with low car ownership rates bodes well for these regions. For instance, in 2013 it opened up a manufacturing plant in Indonesia, seen as a step towards making the country an export hub and targeting the huge market potential of the country. From 2011, the company had always planned to have 50 per cent of its vehicle sales coming from emerging markets (Team , 2013). Toyota seems to be following the same trend in most emerging markets. It opened up new plants in India, Brazil and Thailand in the last few years, as well as introducing new vehicle brands like the Innova and Etio Valco models targeted at the emerging markets. Toyota’s inherent strategy enables it to launch different products in different countries. 5.0 Economic systems Toyota is perhaps the most iconic company from Japan, and one of the most enduring manufacturers since the war period. Toyota’s recent success has been a result of the country’s monetary policies. In what economists called Abenomics, the Japanese Prime minister Shinzo Abe leveraged a weaker Japanese Yen for a stronger positioning of the major manufacturing and export companies in the country, chief among the beneficiaries being Toyota. It is no surprise, then, that it has emerged one of the beneficiaries of the policy, coming into the year with up to 18 billion in profits. However, the local mood about Japan’s profits is one of general disappointment. The focus on emerging markets looks like Toyota is undermining the efforts of the helpful policy by investing in plants in Mexico and China (Pesk, 2015). Toyota has reported further profits that can be attributed to the weak yen. The company reported a ten per cent rise in net profits when it reported its quarterly profits, even though slowing demand in some emerging markets, the native japan and South East Asia slowed demand somewhat. The decline in vehicle sales especially in China was tough, but Toyota’s ramping up of car production has seen it survive. The profit trend has seen a systematic rise among Japan’s major automakers, with Nissan posting a 36 per cent rise and Honda posting a 20 per cent rise (Kubota, 2015). 6.0 Culture Japan is one of the countries with a strong sense of cultural identity. Culture forms a string part of life and business in countries like Japan and China (Meng, 2011). Culture has always been at the center of Toyota’s success, and one of the reasons it has remained the envy of many companies both in and outside the industry. Toyota has a great employee engagement culture, based on the idea that with everyone pulling in the right direction in terms of fulfillment of duty, a company can create a ring of power. The ring of power idea or dream of Toyota’s founder Kiichiro Toyoda is evident in the amount of power that the company now wields. While there are important and effective ways to ensure employee engagement and improve the quality and efficiency of production like the lean and six sigma programs, Toyota realized these were not enough. They therefore instilled into their employees the value of the process itself and not the statistical trends or theoretical designs (Liker & Hoseus, 2008). Section B Library Catalogues Books Hino, S., 2002. Inside the Mind of Toyota. 1 ed. New York: Productivity Press. Hino (2002) describes the working and rationale behind Toyota’s famous and hugely successful global business strategy. Toyota is one of the world leaders in almost all geographical and product specialization markets. It has achieved this by adopting a unique business strategy that has seen it expand its production and distribution around the world. This book describes such aspects of Toyota’s strategies, like how its globalization strategy has seen it build partnerships with major industry players and collaborate with major universities (p 274). Liker, J. & Hoseus, M., 2008. Toyota Culture: The Heart and Soul of the Toyota Way. 1st ed. New York: McGraw Hill. This book presents Toyota’s successful culture in a different dimension. It presents Toyota as a company that focuses as much on people, perhaps more, than it does on such traditional management programs as the sigma six and the lean management programs. The book presents the company as inherently Japanese, with a culture of respecting the people involved in the production process (p xxii). Meng, F. (2011). Phenomenon of Chinese Culture at the Turn of the 21st century. Singapore, Silkroad Press. Meng (2011) describes Chinese culture and how it has evolved into the 21st century. The book is a description of Chinese traditional cultural influence on the business practices of companies based or associated with China. Journals Gray, H. P. (2003). Extending the Eclectic Paradigm in International Business: Essays in Honor of John Dunning. Edward Elgar Publishing. Gray (2003) is a description of the eclectic paradigm and how it affects internationalization. He breaks down the three conditions or advantages that companies must achieve in order to compete worldwide. Jayaraman, K. (2009). Doing business in China: A risk analysis. Journal of Emerging Knowledge on Emerging Markets, 1, 55-62. Jayaraman describes the challenges faced by western companies which do business in China. The article describes the challenges involved in companies that outsource their production to China and companies that sell their products to the Chinese markets. Ohno, T., 1978. Toyota Production System: Beyond Large-Scale Production Ohno describes the famous Toyota Production System, the combination of factors and mechanisms through which Toyota achieves its comparative and competitive advantage in production, distribution and management. Ohno is credited with being the pioneer of the Just-in-time production system, and bases the Toyota Production System on shortening the time line. Internet sites Kubota, Y., 2015. Toyota Posts Record Profit, Fueled by Weak Yen. [Online] Available at: http://www.wsj.com/articles/toyota-posts-record-profit-1438668640 [Accessed 17 September 2015]. This news article describes how Toyota has benefitted from a weak Yen to post large profits in the last quarter. Even as vehicle sales decline domestically and in the region, the major auto manufacturers have posted large profits (Kubota, 2015). Nkomo, T., 2013. Analysis of Toyota Motor Corpoation. [Online] Available at: http://scholar.harvard.edu/files/tnkomo/files/analysis_of_toyota.pdf [Accessed 17 September 2015]. This is an analysis of the Toyota Company and its performance in the market in the financial year 2012. It covers SWOT, VRIO framework analysis, BCG matrix, case study in Indonesia, and an analysis of the company strategic performance. The paper starts with an industry overview, life cycle of the industry, Porter’s five forces analysis of the position of Toyota and an analysis of the key success factors in the industry. Pesk, W., 2015. Toyota Leaves Japan in the Dust. [Online] Available at: http://www.bloombergview.com/articles/2015-04-16/toyota-leaves-japan-in-the-dust [Accessed 17 September 2015]. Pesk (2015) writes about how Japanese Prime Minister Shinzo Abe engineered a monetary policy that was targeted at the bottom line of the major manufacturing and export companies of Japan. This saw Toyota end year profits of 18 billion. However, despite the fact that it benefitted from local policy, many are seeing its foreign investment in emerging markets as unfair. Stewart, T. A. & Raman, A. P., 2007. Lessons from Tyota's Long Drive. [Online] Available at: https://hbr.org/2007/07/lessons-from-toyotas-long-drive [Accessed 17 September 2015]. This Harvard Business Review article describes the driving forces behind the traditional policies of Toyota, and how changes in the global business environment are triggering change and ambitious growth patterns. It features a transcript of an interview with Katsuaki Watanabe, Toyota’s CEO. Team , T., 2013. Forbes. [Online] Available at: http://www.forbes.com/sites/greatspeculations/2013/04/04/toyota-eyes-big-growth-ahead-in-emerging-markets/ [Accessed 17 September 2015]. This article outlines Toyota’s foreign investment policy in emerging markets. Toyota has always seen its growth sources to be the emerging markets, and this article describe how Toyota has expanded in the major markets of the world, setting up shop in Brazil, Indonesia and China. Read More