The Changes in Corporate Governance of Japanese Companies - Essay Example

Lecturer The changes in corporate governance of Japanese companies Introduction Toyota was initiated in the year 1933 as a branch of Toyoda Automatic Loom Works with the main purpose of vehicle production under the direction and control of Kiichiro Toyoda, the son of the founder. It initial automobiles were the G1 and the A1 passenger car produced in the year 1935. In the year 1937, the Toyota Motor Company was initiated as a separate and independent company. In the year 2008, the Toyota Motor Company became numbers one globally in terms of sales; it surpassed the sales of General Motors. In the year 1924, Sakichi Toyoda came up with (invented) the Automatic Loom of the Toyota Model G. this invention ensured that the automobile stops itself automatically when a problem occurs (Zalubowski, 2012). This automatic loom thereafter became part and process of the Toyota car production process. In the year 1929, Sakichi Toyoda sold the automatic loom patent to a British company; and hence automotive development startup capital was found. In August 1937; the name of the company was changed and trademarked as Toyota Motor Company. As from September 1947; Toyota Motor Company sold small vehicle under Toyopet name; for example Toyopet SA, Toyopet SB truck and Toyopet Crown. However, in 1957 the Crown name was not well received in United States of America because of connotations to toys or pets. In early 1960s the USA government charged a 25% tax on imported light trucks; this development forced the Toyota Motor Company to start building manufacturing plants as from the early 1980s. In the year 1980, Toyota receive its initial Quality Control Award in Japan; and hence it started participating in motor shows and motor sports (Pedr, 2009). In the 1990, Toyota started producing larger and luxurious vehicles; for example the T100 pick up and later the Tundra. In 1997 Toyota produced the global hybrid bestselling car called the Prius. The Toyota Motor Company participated in setting up the Toyota Team Europe due to it popularity in the continent; and in the year 1999 the organization became enlisted in the London Stock Exchange, and the New York Stock Exchange (TOYOTA, 2013). In 2002 Toyota succeeded in entering the Formula One team and established joint ventures with motoring companies in France.; for example Peugeot and Citroen. Toyota was placed at number 8 in the Forties 2000 rank of leading global companies in the year 2005. The company also topped global car sales in the year 2008. 2011 was challenging for Toyota because it lost approximately 150,000 production units during the Tsunami crisis in Japan; and 240,000 production units during the Thailand monsoon season. In 2012 October, Japan recalled 7.43 million vehicles globally to repair malfunctioning window switches. During March 2014; Toyota agreed to settle a fine of $1.2 billion because of misleading the public on safety issues of unintended acceleration (Pantong, 2013). Global Market Share The main intention of Toyota is to control more than 15% of the global car market; more than what other competitors like General Motors control. The increase in market share for Japan is verb possible due to increased attention on increasing car demands in China, Russia, Brazil and India. In 2005, Toyota controlled 11% of car market; hence the need for further increasing market shares. The company is also targeting other developing nations where rate of car ownership is increasing but family budgets are still less. In the car industry; there is a lot of potential; in China, India, Russia and Brazil, due to the high rates of motorization and population growth. Toyota is capable of reaching its market control target due to high demand for fuel efficient and reliable cars. Toyota has production plants in all the targeted countries (Dawson, 2004). Competitors Some of the major competitors of Toyota in the automobile industry are Volkswagen, General Motors, Honda and Ford Motor. In the year 2003; Toyota surpassed Ford Motor in annual car sales. Honda has the intention of doubling its sells level to 6 million annually by the year 2017; the president of the company recently told reporters that they will implements methods of effeciv4ely meeting the aggressive sales target. The company is targeting developed markets in Japan, Europe, and North America and also emerging markets like China and India; with a focus on its proven Fit brand (Joe, 2004). The German Automaker Volkswagen intends to be a global leader by 2018 by reaching an annual target of 10 million sales. The strategy that the company intends to employ is reducing prices of tested brands like the Passat and the Jetta. Global Networks and Partnerships Toyota announced strategic partnership with multiple companies in order to support new production systems. A major partnet in the telematics efforts of Toyota is ATX; which is a leading company offering telematics services to major global car producers like Toyota. Steve Millstein, the president of the ATX group explained that the partnership with Toyota will increase their competitive advantage in their respective industries. This is because the foundation of their partnership involves providing the best possible quality to their customers. Lexus Enform calls and Safety Connect calls will be directed to the Toyota’s ATX call center. The calls provide information on emergency assistance, direction requests, and stolen vehicle location and collision notification. Telematics address specific business needs and meets the high standards of Toyota’s customer care. Toyota has also made a partnership arrangement with Voice Box Technologies Inc; to ensure effective provision of Conversational Voice Search System Applications. Toyota is leading the car industry in developing advanced voice systems to customers. Vehicles with Lexus Enform features will have a command system that controls functions of the Bluetooth calls, navigation system and audio system. The main purpose of the partnership between Toyota and Voice Box technologies is to ensure drives communicate safely and reliably on the road; with minimal distraction (Oliver and Wilkinson, 2000). TMS has also partnered with Zagat to improve Toyota Lexus experience; by utilizing Zagat’s content in the navigation system. Zagat’s products effectively meet the high standards of quality Lexus vehicles owners are used to. With Lexus Enform navigation system, drivers can access restaurants rated by Zagat. Tim Zagat, the Zagat Survey CEO explains that the partnership and collaboration with Toyota offers a perfect customer fit through giving Lexus owners Zagat content which enables them to make better dining decisions on the road. Financial Performance of Toyota In the year 2011 the Toyota Group, which includes the Daihatsu, the Hino and also the Chinese joint ventures, managed position three globally in terms of production units, at 8,050,181. However, Toyota achieved its top position the fiscal year 2012 by producing 9,909,440 units. Toyota announced, on 8th May 2013, plans to manufacture 10.1 million car units, during the 2013 fiscal year. If this target is achieved; the Toyota will became the first auto company to produce more than 10 million auto units. On 8th May 2009, the management of Toyota announced an annual net loss amounting to $4.2 billion; this was a result of the effects of the global financial crisis in the auto sector which started in the year 2007. This loss saw the department in charge of finance asking for emergency loan from Japan Bank for International Cooperation; through the support of the state. The loan was formally applied for on 16th March 2009 and it is reported that it amounted to over $3billion. This marked the first time a state backed bank received a request to lend a Japanese auto manufacturer (Womack, 2005). On 8th May 2013, the Toyota Motor Corporation released its financial statements for the financial year ending 31st March 2013. The net revenues amounted to 22 trillion yen ($216.7 billion). The operating income amounted to 1.32 trillion yen ($13 billion) and the net income totaled 962.1 billion yen ($9.47 billion). The Toyota business areas include but not limited to financial services and automotive operations. An automotive operation is the most important business area because it makes more than 90% of revenues. Toyota’s market based on sales unit are as follows; 26% in Japan, 28% in North America, 9% in Europe, and 19% in Asia. During the 2013 and 2012 fiscal year Toyota total unit sales in Japan increased by a large margin due to increased efforts of dealers and introduction of new and superior products. In Japan, the Toyota and Lexus makes market share was 48.4 %; excluding the minivans for the 2013 financial year, this showed a record high in the Japanese market share (Pollack, 1995). Overseas total unit sales decreased during the 2012 fiscal year; while they increased tremendously during the 2013 fiscal year. In the 2012 fiscal year, the unit sales reduced especially in North America, due to the effects of earthquake in Japan and floods in Thailand. There was a slight increase in Asia demand despite the natural calamities in the continent. In 2013, vehicle units sold increased in all the regions; due to favorable business environment (Sherry, 2006). Toyota sales unit in each market is influenced by performance, utility, economy, quality, reliability, safety, price and design of the vehicles; in comparison with the offers of competitors. Effective innovations in vehicles are another factor which improves customer needs. Profitability of Toyota’s products is affected by so many factors; volume of sales, effective cost control measures, efficient production process, value of raw materials, costs of research, innovation and development, level of service sales, and level of price discounts received (Vlasic & Fackler, 2008). Changes in government laws and regulations also affect the profitability of Toyota; for example the European Union has issued a directive requiring manufacturers to financially accountable in recycling their used vehicles; and to put in place adequate vehicle disposal plants. Many governments also impose trade barriers and tariffs that make the operations of auto manufacturers challenging; this leads to uncertainties in profit predictions. Toyota also recalls vehicles incase of safety concerns in order to minimize claims and lawsuits; the recalling process is so expensive that it affects financial plans of Toyota. The competition in the worldwide automotive sector continuously increases; this leads to decrease in market share and financing sources. The global management of Toyota has also developed three main financial strategies. The first strategy entails sustainable growth through the aspect of continuous investments; the company intends to increase investments in emerging markets with fuel efficient cars. The second strategy entails improving the capital efficiency; Toyota ensures efficiency by manufacturing cars with standardized components and parts in grouped development (Magee, 2007). The company also aims at improving revenue amounts through investing in efficient areas of emerging markets hybrids, and eco-cars. The third strategy involves ensuring stability through solid financial capital; this is achieved through ensuring sufficient liquidity and a stable shareholders’ equity. Good liquidity ensures sufficient working capital. Strategic Focus of the Company The president of the Toyota Motor Corporation, Akio Toyoda, is currently implementing a new strategy that will further increase company performance. The strategy is meant to increase the global sales to more than 10 million production units every year. Toyoda explained, during the 19th April 2013 launch of the Lexus global campaign that they were working towards exceeding the targeted sales unit (Dore, 2007). To realize this objective; he stated the achievement tool which is TNGA. TNGA is abbreviation for the Toyota New Global Architecture; which focuses on development of multiple models and also extensive use of the common modular components. The change of approach towards product development shows the major operating change in Toyoda’s tenure; and the change process has been hindered by the global financial crisis, recall crisis, natural calamities and the yen’s increasing exchange rate. Toyota officially released the strategy of product development in 2013; management however stresses that the first batch of cars produced using this strategy will be officially released into the market in the year 2015. This approach will be used in the first up to the third front wheel drive cars that makes almost half the company’s global production volume. The Prius model is likely to be further improved using this approach. The goal of this strategy involves cost efficiency and streamlined engineering. Toyota also intends to components designed to global standards; this is a move from Toyota specifications. This will increase efficiency due to economies of scale got from big global suppliers. Institutional Changes of Japanese Companies One of the major institutional changes of Japanese companies involves internalization of operations. Toyota is a very good example of a company which has gone global hence, internationalized. A major factor in the success of Toyota is its effective capability of transferring production process overseas. This was made possible through the joint venture with the General Motors to establish the New United Motor Manufacturing Inc (NUMMI); this resulted into effective utilization of the California car manufacturing plant in the 1980s (Abo, 2006). Toyota uses the NUMMI platform to produce and see car units globally. In any overseas production process; Toyota transferred efficiency, teamwork, quality and lean production process. Internalization has enabled Toyota to grow; despite the shrinking Japan market. Corporate Growth and Development Analysis The activities of Toyota has continuously expanded and increased. The company has also diversified operation into related sectors of the economy. The first case of diversification activities at Toyota involve; Aerospace. Toyota invested $67.2 million in Mitsubishi Aircraft Corporation; hence it is a minority shareholder. The arrangement is that the partnership will produce Mitsubishi Regional Jet which will offer air transport services. Toyota has effectively entered the higher education sector; in 2003, it started the Toyota Technological Institute, based in Chicago. This college aims at equipping students with adequate technological knowhow in a practical environment. The college also runs research and innovation programs which assist in improving development of automotive products. The third example of product diversification involves robotics (Maynard, 2010). Toyota participated in the production of kirobo the first robot astronaut in the world. In the year 2004, Toyota unveiled a trumpet playing robot. Toyota has also been involved in producing robots for healthcare; the Brain Machine Interface is used with wheelchairs; and it enables a person to control the wheel chair accurately with their mind and in real time. Conclusion Toyota Company needs to incorporate more foreign investors in the next fiscal year, 2015. The company needs more development capital which the domestic market cannot satisfactorily provide. Tokyo should attract local investors in the countries they do business in; this will create local ownership of the company operations. For example; the company is listed in the New York Stock exchange; this makes it possible for USA citizens to buy shares in the company and hence own it. The company is also listed in the London Stock Exchange hence, citizens from the European Union countries can own it through investing in it. 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