Toyota's Globalization case study:

In 2004, Toyota Motor Corporation (Toyota) was the world's second largest

automobile manufacturer, selling 6.78 million vehicles worldwide. Toyota was

established in 1937, when Toyoda Automatic Lo0oms Works (TALW), which had

diversified into automobile production, decided to spin off its automobile department

as a separate entity. Since the term Toyoda' was difficult to remember and

pronounce, TALW named the new entity Toyota Motor Corporation. TALW, which

was founded by Sakichi Toyoda in 1926, manufactured automatic looms.

Toyota flourished during World War II selling trucks and buses to the army. In 1947,

the company launched its first small car (SA Model). However, it faced a series of

financial problems after the War. The company managed to survive with the financial

support given by a consortium of banks. In 1952, Toyota made a turnaround and by

1953, it appointed distributors in El Salvador and Saudi Arabia. In 1957, the company

entered the US market by setting up its subsidiary, Toyota Motor Sales, USA. Toyota

established its first overseas production unit in Brazil in 1959 and over a period of

time, expanded its overseas production. By 2004, the company had 51 manufacturing

facilities in 26 countries and locations. Toyota also had 12 plants and 11

manufacturing subsidies and afiliates in Japan. By 2004, he company sold its

vehicles in more than 140 countries.

Toyota began its globalization efforts in 1995 by announcing the "New Global

Business Plan". Under this plan, the company aimed at advancing localization (of

production) and increasing imports (through foreign collaborations) overa three-year

period. The company's main objective was to increase its off-shore production

capacity to 2 million by 1998. As part of the localization efforts, Toyota focused on

increasing overseas production significantly by establishing new plants and

expanding the capacity of the existing plants situated in other countries.

Accordingly, in North America, the company increased the capacity of Toyota Motor

Manufacturing Kentucky Inc., from 400,000 units/annum to 500,000 units/annum and

of Toyota Motor Manufacturing Canada Inc., from 100,000 units/year to 200,000

units/year. Toyota also set up manufacturing facilities in Indiana, USA, and West

Virginia, USA. The company established secondary plants in Thailand, Indonesia,

Taiwan, and the Philippines as well.

By 2004, Toyota had 295 dealers in Japan itself. These dealers were under channels

such as "Toyota" dealers, "Toyota Corolla" dealers, "Toyopet" dealers and "Netz

Toyota" dealers. The company also strengthened the sales structure of its Duo stores

that sold Volkswagen and Audi Cars. Apart from this, the company made significant

progress in optimizing its global purchasing. It established the "Toyota Global

Optimum Purchasing System', under which it took many initiatives to optimize its

global procurement operations.

Toyota also framed a long-term global business vision in 1996 termed 'Global Vision

2005'. Under this plan, the company wanted to achieve a competitive edge in

technology and accelerate globalization, while sustaining market leadership in Japan.

As part of its globalization efforts, the company focused more on increasing the

production of automobiles in the markets where they were sold. The company also

invested heavily on Research & Development to develop a new line of products that

met the diverse needs of its varied customer base. For instance, the company replaced

the engines of its Lexus cars with stronger and more efficient engine models and also

made changes in the design of the cars based on customer feedback. As a resut, the

company's car sales soared in the US. The company further launched Pirus, a

gasoline-electric car, the world's first ever mass-produced car. This car received rave

reviews for its energy conservation and environment friendly features. Toyota also specifically designed a new small car, Yaris, to capture the European market. The car

immediately caught the fancy of the Europeans as it fitted in with their style and

quality demands.

The company's overseas production increased from I.22 million units per year in

1994 to 1.54 million units per year by 1998. However, this was still much below the 2

million mark that the company expected. In 1999, the arrival of Fujio Cho (Cho) as

the president of Toyota marked the next phase of globalization at Toyota. Cho

defined globalization as "global localization' and hence focused on localizing design.

development, and purchase in every region and country. Toyota propagated the

*Toyota Production System' and its unique corporate culture throughout its global

manufacturing concern. As a result, Toyota employees everywhere practiced

philosophies such as Kaizen (continuous improvement), PDCA (plan, do, check,

action), Pokayoke (mistake-proofing), just-in-time (JIT) and Construction of Cost

Competitiveness (CCC21). This enabled the overseas plants to achieve the same

quality levels as its plants in Japan. In addition, the top management at Toyota

adopted some Western management practices along with traditional Japanese ones.

The company also focused on the key global markets North America, Europe,

and China.

To further accelerate its globalization efforts, Toyota announced the *2010 Global

Vision' in April 2002. Under this strategy, the company targeted achieving a 15

percent market share (from the prevailing 10 percent) of the global automobile market

by early 2010, exceeding the 14.2 percent market share held by the market leader

General Motors. The company focused on a new vision called "Innovation into the

Future. Toyota concentrated on accelerating technology refoms and technology

development across its global operations, to strengthen its core technologies like

engines and platforms. The company also aimed at management restructuring so that

Toyota would be supported by three profit bases-Japan, North America, and Europe.

Later, Toyota began focusing more on the trucks market in the US, the small car

market in Europe, and targeting emerging economies like China, India, and the

African countries. To cut costs, the company decided to manufacture vehicles or parts

in countries like India, Malaysia, Thailand, the Philippines, Indonesia, and Vietnam

taking advantage of the cheap labor existing in these countries.

In early 2003, Toyota announced plans to evolve Lexus into a truly global premium

brand in China and Japan. The company released diesel-powered versions of the

Yaris, Corolla, and Avensis during 2002 and 2003 in Europe. In North America,

Toyota focused its new launches in the SUV, minivan, truck, environmental, and

youth segments. It launched new models in the Tundra (truck) Series, Sienna

(minivan) Series, Lexus Lx 470, and different models of Pirus by early 2003. By

early 2003, the company had achieved a 5 percent market share in the Chinese

passenger market and a 10.4 percent market share in North America by April 2003.

By mid-2003, the company also garnered 12 percent of the high sUV segment

North America.

The company was present in almost all the major segments of the automobile market

by mid-2003. This included small cars, luxury, sedans, full-sized pick-up trucks,

SUVs, small trucks, and crossover vehicles. According to reports, while global

vehicle production had increased by 3.3 times since the early 1960s, Toyota's

production increased by 38 times. Toyota's worldwide sales totaled 6.57 million units

in the fiscal of 2004. The company achieved sales of 2.12 million units in North

America and a 5 percent market share in Europe by 2004.

While some analysts felt that Toyota's strong financial position, globally eficient

production system, unique corporate culture, and the ability to develop a product

range that met the unique needs of different customers would help it in accomplishing

its goals. Others said the company would not be able to sustain this growth in the

future as the global automobile market was becoming saturated. They also said that

the company's overdependence on the US market and intensifying competition might

hinder its success. Toyota, however, expressed confidence that it would meet its

targets with the help of its new products, expanded manufacturing base, and

production and quality control strategies.

Question for Discussion:

1. Critically examine Toyota's globalization efforts.

2. Considering the extremely competitive global market scenario and the nearly

saturated demand in its core automobile markets (US and Japan), do you think

Toyota will be able to achieve its goal of attining a 15% market share by 2010?

Justify your stand.