Case Study of Toyota

Toyota Motor Co. Ltd. (TMC) was first established in 1937 as a separated company from Toyota Automobile Loom works, the leading manufacturing of weaving machinery. The Toyota Automobile Loom works was then headed by Saki chi Toyoda, the king of investors. TMC was then founded by Kiichiro Toyoda, Saki chi’s son. It has since blossomed into the leader it is today. The giant automaker faced its one and only strike in 1950. This event, however, supplied Toyota an important philosophy, giving it the labor and management system which helped Toyota to gain mutual growth and success in both domestic and overseas markets.
Today, this philosophy is very important to the structure of Toyota. Toyota’s production system improved in the late 1950s, establishing the ‘Toyota Production System. ‘ This system became the major factor in the reduction of inventories and defect in the plants of Toyota and its suppliers. It also underpinned all of Toyota’s operations across the world. It launched its first small cars in 1947. The operation outside Japan started in 1959 in Brazil and continued with growing network of foreign plants. Toyota celebrated its 60th anniversary in August 1997.
It believes that its local production can provide customers with the productions they need, giving it the stable and long-term growth. It also has a global network of design and research and development facilities, consisting Japan, North America, and Europe markets. It is now the world’s third largest manufacturer of automobiles in unit sales, but the first in its home. It plays an important role in the world’s automobile market even it stays behind General Motor and Ford, respectively. It earns and gains profits in international and domestic markets.

Toyota and world automobile industry The world automobile’s market is very competitive in these days. There are various numbers of automakers from many parts of the world. There are about 39 automakers in which comprising of Acura, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Daewoo Dodge, Fiat, Ford, GMC Truck, Honda, Hyundai, Infiniti, Isuzu, Jaguar, Jeep, Kia, Land Rover, Lexus, Lincoln, Mazda, Mercedes-Benz, Mercury, Mitsubishi, Nissan, Oldsmobile, Plymouth, Pontiac, Porsche, Renault, Saab, Saturn, Subaru, Suzuki, Toyota, Volkswagen, Volvo. 3 However, the key automakers are obvious. Toyota is one of those cars that are tied as the well-known vehicles worldwide.
This is because Toyota operates business in foreign countries, making its brand recognizable. Toyota gains a large share in global automobile’s market. This is because Toyota has various types of cars available for all classes of drivers. It has small cars to luxury sedans, full-sized pickup trucks, and crossover vehicles. For example, Corolla vehicles are for middle class people while Camry sedans suit high-class drivers. The main competitors of Toyota are General Motor and Ford who tie in the ranking of number one and two in the term of net sale and unit sale.
However, this ranking is in the world automobile’s market, but not in some regional automobile markets where Toyota stands at a higher ranking. For instance, Toyota vehicles are more popular in Asian countries as they are in the same region with Japan, making the Toyota’s cars more affordable than that of American and European cars. This is because Toyota does not have to spend much money for transportation cost as the distances between Asian nations are shorter for cars from Japan to be sent to other Asian nations.
Toyota’s positioning With many competitors, Toyota’s positioning in the automobile’s market is different from some of its competitors as they have different target segmentation. Conversely, Ford and General Motor are still its important competitors because they produce cars to serve same target group. Toyota also produces luxury vehicles to complete the automobiles of Volvo, Mercedes, Benz, Audi, and Porsche, for instance. Toyota’s ranking in the term of unit and net sales in other region such as North America and Europe, where the automobile markets are very competitive, is still behind that of General Motor and Ford.
Consequently, Toyota wants to expand its sales in these regions. Toyota’s performance in domestic and overseas in the recent years Japan: Toyota generates most of its profits domestically. Nevertheless, it lost some of its shares to foreign competitors who enter Japanese automobile market. According to the annual report of 2002, the market of Toyota in Japan is not as good as overseas market. Domestic vehicle sales, including Daihatsu and Hino vehicles, turned down 4. 6 %, from 2. 32 million units in the previous fiscal year to 2. 22 million units in fiscal 2002.
In spite of edging down less than one percentage point, to 42. 2 %, the Toyota brand’s market share, not include mini vehicles, and stay above the 40 % mark for the fourth consecutive year. Factoring in the mini vehicle market, and including the Daihatsu and Hino brands, Toyota’s share of the market was 38. 2 % models such as Corolla, Vitz, Estima, and Crown continued to be the strong sales. However, during fiscal 2002, impacted by the prolonged economic slump in the domestic market, vehicle sales in Japan’s automobile sector were down on the previous year.
On the other hand, Toyota successfully protected its market share of more than 40 % by proactively bringing new and fully remodeled vehicles to the market. 4 This is an important reason why Toyota seeks market overseas as it need money for investing in its home in order to complete its competitors in Japan. North America: Recently the automobile market in North America is optimistic.
In fiscal 2002, Toyota’s strengthen vehicle sales in North America, including Toyota and Lexus vehicles, rose 2. 7 % compared to the previous fiscal year’s 1. 73 million units, to reach a record high of 1. 8 million units. This was attributable to the effects of a brisk market, together with Toyota’s introduction of new models and the full remodeling of popular vehicles. Toyota’s relentless technological innovations aimed at improving fuel efficiency in all of its models are steadily growing. In 2001, with respect to fuel economy, Toyota models were highly ranked by the U. S. Environmental Protection Agency in a broad range of size categories, ranking as the fourth automaker that concerning about environment in which Honda is the first in this field.
While the Prius hybrid sedan and the RAV4 the small SUV brought their respective classes, the ECHO compact sedan and the Avalon large sedan also received high evaluations. Also, the Prius hybrid car, which was launched in the U. S. market in July 2000, is gaining increasing recognition in North America. It sold 18,000 vehicles in fiscal 2002. Toyota plans to continue bolstering its manufacturing base in North America with a view to achieving production capacity of 1. 45 million vehicles during 2003.
As part of these efforts, it s currently constructing a plant in Alabama to supply V8 engines for the Tundra, which is built at its Indiana plant, Toyota Motor Manufacturing, Indiana, Inc. (TMMI). Production in Alabama will get under way in 2003 and plans call for an annual output of 120,000 engines. Europe: During the year of 2002, Toyota’s vehicle sales in Europe continued to fare well, having sales rising from 690,000 units in the previous year to 730,000 units. The Company’s market share expanded to 3. 8 % on a calendar-year basis due to robust sales of the Yaris, which surpassed 210,000 units.
Toyota also continued to extend its local production – it built 260,000 vehicles locally in fiscal 2002, compared to 180,000 in the previous year. At Toyota’s plant in the United Kingdom, Toyota Motor Manufacturing (UK) Ltd. (TMUK), where the Corolla and Avensis are built, it manufactured 200,000 gasoline engines in the year under review. With TMUK slated to become its European engine production centre, Toyota also plans to bring together diesel engines there from 2003. In addition, progress was made in Toyota’s joint venture with PSA Peugeot Citro (PSA).
In March 2002, Toyota Peugeot Citro Automobile Czech s. . o. (TPCA) was established in Kolin, in the Czech Republic, and plant construction under way, joining production of small cars will start from 2005 to target annual output of 300,000 vehicles. 6 Toyota’s goal is to achieve 800,000 unit sales and win a five % market share by 2005 accelerating its pace of localization in the European region. Mindful of this target, it founded Toyota Motor Europe (TME) in April 2002 as a holding company in Europe, in order to increase the efficiency of its European operations and augment the speed of business management decisions.
It also incorporated Diesel Clean Advanced Technology (D-CAT) which is cantered on its Diesel Particulate NOx Reduction system (DPNR), in 60 Avensis models as part of its environmental activities in Europe. The DPNR system is capable of simultaneously and continuously extracting particulate matter (PM) and nitrogen oxide (NOx) emissions from diesel exhaust fumes. Over a scheduled 18-month period, which started in March 2002, Toyota will monitor the performance of the vehicles in seven countries, including the United Kingdom and Germany.
Toyota tries to expend its business in Europe since the automobile market in this region is quite competitive. From the plan and strategies that it has been adopting so far, it invests a lot of money in this market, hoping to gain share in Europe. However, its share in this market is lower than those of other European automakers. Asia: Toyota gains fans in Asian countries as Toyota’s vehicles are more affordable than that of other European cars. The sales of Toyota The ASEAN automotive market expanded one % in calendar 2001.
Thailand and Malaysia recorded sales increases of more than 10 % while Taiwan and the Philippines contracted 17 % and 8 %, respectively. The ASEAN market recovered to 88 % of its 1996 peak as a whole. Toyota can display the largest share of sales in Indonesia, Thailand, the Philippines, Brunei, and Vietnam. It also extended its share of the markets in Thailand, Singapore, and Taiwan. Toyota’s steadfast position in the area resulted in sales of 210,000 vehicles in the Asian market in fiscal 2002. Sichuan Toyota Motor Co. , Ltd. SCTM) launched sales of the Coaster mid-size bus as the first vehicle produced locally in China to bear the Toyota badge in April 2001. 8 It is easy for Toyota to expand its business in this region as the culture is similar to the culture of Japanese. It also does not have to face the distance problem. Moreover, the trade integration between Asian nations also makes the business of Toyota move smoothly. Reasons for Toyota to engage international business activities Toyota is now operating business in more than 160 countries and going to expand more businesses in other countries.
What reasons encourage it to engage in international business activities? There are several main reasons that push Toyota to take on international business activities. Expand sales: First of all, Toyota wants to expand sales and make its name recognized. It produces vehicles matching people of every class. It has small cars to luxury sedans, full-sized pickup trucks, and crossover vehicles. For example, Corolla vehicles are for middle class people while Camry sedans suit high-class drivers. These various choices make people in foreign countries interested in buying Toyota’s vehicles.
When the number of people who are interested in buying Toyota’s automobiles increase, it raises its sales by joining international activities. Acquire resources: Companies look for foreign capital, technology, and information that they can use at home (Daniel ; Radenbaugh, 2001). Toyota opened Toyota Technical Center Inc. (TTC) the research and development (R;D) in California in 1977. This is not because the technologies and human resources in the US are better than in Japan. It is because the US government offers investing incentives to Japanese automakers to encourage them to operate business in the US to create jobs for local people.
TTC is a dynamic company that conducts the design-engineering and development of Toyota products, particularly those developed for North America market. 12 In this case Toyota gets both capital and information as a fringe benefit to bring back home. For instance, after the success of Toyota Prius the hybrid vehicles which developed by TTC, it brought the hybrid technology information back to Japan. It then launched FCHV-BUS2 the fuel cell hybrid bus having zero emission and low noise for Japanese people. This is also how Toyota employs workers in industrialized countries where employees have high salary.
Minimize risk: Moreover, Toyota’s vehicle sales in Japan have been declining gradually because foreign vehicles such as American and European cars share the automobile market in Japan. 13 In contrast, vehicle sales of Toyota in North America, Europe, Asia, Central and South America, Oceania, and Middle East have raised. The annual sales in calendar 2001 in the US market, for example, were buoyant, reaching the second highest level ever, at 17. 18 million units. 14 To minimize instability of sales and profits in the domestic market, Toyota decides to try to take advantage of the business cycle.
Figure 1. represents Toyota’s global sales which are higher than domestic. Toyota’s Major Factors Toyota is an automobile company whose operations extend beyond its domestic operations shores is faced with lots of hurdles and environmental factors, the extent to which it is able to combat these factors will determine how successful its operations will strive globally. Major challenges Low labor cost: The first reason is low labor cost. It is expensive to employ workers in Japan as it is a developed and industrialized country where people have high salaries and quality of life.
Most countries that Toyota controls operation re in Asiasuch as China and the Philippines where people have low wages and education. Alternatively, Toyota operates R&D in industrialized countries as workers with higher educations are needed for controlling R&D. For example, Toyota operates R&D in the US where people have higher education and it then controls operations in countries where it can find low labor cost. Transportation cost: In addition, cheap transportation costs are another important challenge. When companies export products overseas, they usually use CIF transport system which includes cost, freight, and insurance.
Exporters have to pay for all of the costs occurring from the shipment, making the products more expensive as importers will charge extra price (Hyman, 1983). In contrast, if companies control operation in the importing countries, they can use Ex-Work transport system instead of CIF. EX-Work is a transport system that purchasers can collect the products from factories of sellers. It is generally adopted by companies having subsidiaries and factories in importing countries. This is why Toyota has overseas affiliates and subsidiaries.
If it invests in importing countries, it will not only save transportation cost, but also does not have to be concerned much about fluctuations of exchange rates (Ball, 1982). Threat of new entrants: New entrants to an industry typically bring to its new capacity, a desire to gain market share and substantial resources. They are, therefore, threats to an established corporation. The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors. Global entrants may pose a threat to Toyota’s market share, especially from other Asia, Europe ; U. S. A. car market leaders.
Toyota as global car manufacturing company started its production of vehicle outside Japan in 1959. Toyota has established its own car manufacturing plant in different countries in Europe and successfully operating its business activities. In terms of car manufacturing company index, the following companies are as follows: 1) Ford. 2) BMW. 3) Jaguar 5) Mitsubishi. 6) Suzuki. Ford, BMW ; Jaguar already has secured market position in the British market environment, therefore their threat is made all the greater as they now have knowledge of the British market system and are building their customer and loyalty base.
On the other hand Toyota is trying to adopt the market share in Europe. Toyota as a multinational enterprise has already launched its product to the online market and is currently mature stage of online product cycle. However Toyota’s online venture is in mature stage besides this they are always aware of what the potential threats to its business are. More established online car manufacturing company, who have already identified and possibly combated the risks to their market share may gain a competitive edge here, like rival Ford.
In a price sensitive and competitive industry achieving profits where prices are nailed down, low cost production is particularly difficult, especially if there is elasticity of demand, the loyalty of the customer may not be gained or retained unless cost incentives and quality assurance are customary. The purpose of online sales facilities is to boost more sales and gain profit. Customers are prone to repeat orders; the backbone of business profit, therefore switching costs is not such as threat if brand loyalty is a prevalent sales feature. Therefore Toyota may be viewed as a threat to other car manufacturing company such as Toyota.

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