Toyota: A Transnational Case Study

Toyota is one of the worlds leading car manufacturers and is the third largest in the
world. Although based in Japan, Toyota produces most of its cars in its transplants
in Georgetown, Kentucky, and Burnaston, Derbyshire. Toyota is a typical
transnational corporation who understand that considerable gains can be made by
locating manufacturing plants outside their country of origin. Toyota expanded to
Europe in 1992 in order to achieve the benefits associated with establishing a
manufacturing base in another country.
Transnational corporations search out locations for their plants outside their original
country because they can overcome costs such as transport and duties on imports
and exports. Transnational corporations are the most important force causing
changes in global economic activity. Companies often use transplants for routine
assembly work which is known as 'backend work'. This allows the main company
base to focus closely on the research and development aspect of the industry. This
is the higher paid 'front end work'.
A company often sets up a transplant in an area where the raw materials required
for the manufacture of their products can be found. This saves transportation costs
and the company can avoid import/export tariffs.
One of the main reasons for companies setting up transplants is to gain a better
understanding of the local market. It is beneficial for a company to manufacture the
products in the country where the majority of them are sold. This ensures that local
needs can be accounted for, and the product can be adapted according to what
people in the market want. Another reason for setting up transplants nearer to the
market for the product is to 'compete and co-operate' with rival companies. Healthy
competition is good for the company because it encourages them to improve their
products and learn from the rival company's mistakes.
This is true of many electronics companies who rely on Newly Industrialising
Countries (NIC's) to buy their products. These countries, such as Singapore and
Malaysia, are beginning to demand more sophisticated technology as their wealth
increases. Compared to the technology demanded by places such as the USA, the
products supplied to the NIC's are basic, such as televisions. The electronics
companies therefore move the production of these products to the area where they
are in demand, freeing the other plants to deal with research and development of
more advanced technology.
Toyota's need for a European location came in 1992. The quotas and tariffs that had
protected domestic car industries since the 1970's would be removed in January
1993 to create a 'Single European Market'. By locating a transplant in Burnaston,
Toyota effectively became 'a European car manufacturer', and could therefore avoid
paying the tariffs that still existed for countries outside the EU. Toyota's previous
problem was that it could not supply enough cars to meet demand in Europe due to
quotas restricting the number of cars that could be manufactured. In 1992, they

were able to overcome this by moving the manufacture of the more popular models
to the Burnaston plant. The less popular models were still produced in Japan.
At Burnaston, Toyota was able to employ an educated work force. The large labour
force had good engineering skills and high levels of productivity and training. As well
as this, labour costs were also relatively low, causing the UK to be known as the
Taiwan of Europe.' Toyota was attracted to the East Midlands because of its
engineering tradition. They may have looked at the success of Rolls Royce in the
area and hoped to follow in their footsteps.
Toyota also has a plant in Deeside, North Wales; this provides the engines, which
are transported to Burnaston by a road linking the two plants. Infrastructure is very
important for a TNC. By locating transplants in MEDC's, Toyota benefits from the
sophisticated infrastructure that is already likely to exist, whereas in LEDC's, lack of
infrastructure may cause problems. In Burnaston, Toyota benefited from the money
that was available to build new road. The ASS and A50 make access to the plant
easy, and provide a link with the Ml and M6.
At the plant in Kentucky, there weren't many trained labourers, so Toyota had the
advantage of green labour' where many of their employees had never worked in a
factory before. With 'green labour', there are less likely to be disputes over pay or
working conditions. Employees can also be trained from scratch the 'Toyota way;
they won't be stuck in the ways of their previous company. In Kentucky, Toyota pays
double the average wage in the area, and its popularity is shown in the fact that
70000 people applied for only 3000 jobs.
Toyota is a 'footloose industry' and is not tied to any particular location by raw
materials or industrial inertia. Toyota's plant at Burnaston is located on a 'greenfield
site' a piece of land that has never been used for industry. The land was once an
airfield, and provided 280 acres for the development and expansion of the
transplant.
MEDC's offer lots of incentives to TNC's which are looking to locate a factory in their
country. This is because the introduction of a new industry will make a big difference
to that country's economy. Toyota was given $3million to help build the plant in
Kentucky. At the Burnaston plant, Derbyshire county council offered many financial
and social incentives to attract the factory to their area.
Toyota has many philosophies behind the way its transplants operate. Toyota
demands loyalty and commitment from its employees in return for regular pay rises,
a generous pension plan, and a safe, well run environment in which to work. Toyota
calls its employees 'team members'. This is unusual, and adds to the originality of
the company. Becoming 'team members' makes each individual feel like an
important part of an international company.
Toyota is such a popular company to work for that it can afford to choose its
employees carefully to ensure they get the highest quality labour force. They are
one of the few companies that interviews applicants who will work on the 'shop floor'
and they have one of the most technical training programs around. Workshops are

set up where potential employees can demonstrate their technical and practical
skills as well as their ability to work as a team. Team work is essential if Toyota is to
continue its success.
Toyota sets high standards and aims to produce 1 car per minute. There is no room
for carelessness or mistakes. However, the factory line is not highly automated and
they rely on quality and rectification.
This means 'team members' are given a lot of trust and responsibility, this leads to a
high level of job satisfaction. The employees work better because they know they
are trusted and don't want to let the company down. A win-win situation is created.
The system of car production in Toyota's transplants is very precise so maximum
efficiency is achieved. Employees know exactly how many car parts they fit each
day. This can lead to problems. Repetitiveness can lead to low job satisfaction and
repetitive strain injury. To overcome these problems, Toyota operates on a rotation
job basis. Workers use different muscles so risk of injury is lowered. It also leads to
the development of a multi skilled work force.
A multi skilled work force is very important because it means that if people are ill or
are on holiday, there will be no problem finding someone else to carry out their
tasks. It also prevents demarcation disputes; there are no dividing lines between
one job function and another.
Toyota recently decided to introduce a third shift at its Derbyshire plant. It pushes its
employees hard, but despite this, there are no trade unions. This is surprising,
because although Toyota appears to be the ideal company to work for, there must
be disputes that occur. There is an anonymous complaints line which is put in place
to deal with problems that workers may have. Toyota offers a job for life, but may
find that they cannot always fulfil this promise and this could be seen as going back
on their word, and give the company a bad name.
Toyota has a 'no blame' culture, if anything goes wrong, the system is blamed, not
the employees. Toyota has a teamwork ethos, and there is less of a hierarchical
structure compared to other companies.
Toyota uses Just-in-time production, a Japanese philosophy whereby components
are not stockpiled months in advance, but ordered when required. This has
implications such as their quality control must be excellent and ensure 'zero
defects'. It also means that local suppliers would be at an advantage if they locate
close to the assembly point, as some batches must be delivered several times a
day. Just-in-time production removes storage costs and benefits local suppliers.
When companies such as Toyota locate transplants in another country, their impact
on the local economy is great. There are also social and environmental impacts.
Transplants create direct and indirect employment, local people become wealthier
and spend more, and therefore local services benefit too. This is known as the
multiplier effect.

Fig 1: Myrdal's theory of cumulative causation.

The multiplier is a method by which job opportunities and wealth are created by
attracting new industry into an area. It is hoped that the industries linked to the new
industry will follow and increase the number of job opportunities and the wealth of
the people with those new jobs.
This has knock-on effects that 'multiply' the wealth in an area. People have more
money to spend and so shops and other services benefit. These services can then
increase their size and range of services, and this will create more jobs. These
effects create the money needed to enhance the infrastructure and image of the
area, therefore more industry is attracted.

Fig 2: diagram to show the multiplier effect in relation to Toyota

Toyota opens a
transplant in
Burnaston in 1992
More than 2000
jobs are created
and this number
increases as the
manufacture of
more cars and
new models
begins

Toyota requires
components to
make its cars, so
more work is
created for local
services and
suppliers such as
Quick Tool.
New industry is
attracted to the
East Midlands due
to the success and
reputation of
Toyota

Toyota
employees have
greater spending
power, so
services in
nearby
settlements
improve, e.g.
Derby and
Burton. Local
businesses also
have increased
spending power.

More jobs are

created by the
new industries.

The East
Midlands
becomes a more
desirable location
for industry
because of the
improved
infrastructure and
the changes that
Toyota has
brought.

Money is spent on
building new
roads, e.g. the
A50 (M1 M6
link) so the local
and regional
infrastructure is
improved.

Toyota's Burnaston plant employs 2700 people, and new jobs are being created all
the time. This has had many effects on the area. When the factory was built, the
road network was improved; this not only benefits the company, but the country in
general. The infrastructure is improved, and attracts more industry to the area.

When the factory opened, it was thought to be 'the most talked about industrial site
in the Midlands', it produces 220,000 cars a year, and so requires a large work
force.
The employees have greater spending power, and this benefits local services. There
may be an influx of people moving to the area if they don't want to have to commute
long distances, so houses may be in high demand in areas such as Chellaston.
People will pay higher taxes, government revenue is increased, and then more
money is invested in the area.
Toyota relies on other manufacturing industries to supply it with components. These
industries become wealthier due to the custom of Toyota. These companies are all
over the country, so the impact of Toyota can be seen many miles away from the
actual factory.
'Johnson Controls' in Telford produces car seats for Toyota, and another company;
'Quick Tool' produces brackets and fixtures. These industries can take on more
workers and may gain a good reputation for supplying such a well known car
manufacturer. This could earn them more deals in the future.
Transplants employ relatively few workers and more jobs are created indirectly.
Toyota has an identical transplant in Georgetown, Kentucky. Georgetown has
benefited because of additions in the payment of taxes and evidence of the
multiplier effect is great. Toyota pays a total of $350 million in wages, giving a huge
boost to the local economy.
There are 3400 jobs in the plant, and 9000 jobs in related industries. Overall, 35,000
jobs were created. This reduces unemployment levels greatly.
One of the conditions of Toyotas move to Europe was that its cars had to be 80%
local content. Toyota had to buy the components from local suppliers so the British
economy would benefit. However, legislation states that, if two Japanese
components are put together in Britain to form a new component that can be
classed as local content, even though the parts are essentially Japanese. This
affects the extent of the multiplier effect on the economy, because a large amount of
money is going to Japan.
Toyota has achieved overwhelming success in Britain. This is shown in the number
of extra jobs that are created and the output of cars that are exported to the rest of
Europe. Toyota's competitors complain that Toyota has unfair advantages, such as
still using Japanese components. British car manufacturers have suffered greatly
due to competition from foreign manufacturers, and their complaints could be
regarded as sour grapes, but they may have valid points to make.
Toyota is a Japanese manufacturer taking advantage of the benefits it gains from
having a plant in Britain, but it also has all the advantages of the Japanese
philosophies, and it continues to use Japanese components and they can still be
regarded as 'Local content'. Japan is making most of the money and using Britain as
a cheap place to manufacture its cars. 60% of Toyotas cars are transported to
Europe, and British manufacturers are suffering due to the overwhelming
competition.
Competitors say that Britain has turned into a 'Japanese aircraft carrier,' a base for
Japan to sell cars and make money at the expense of British car manufacturers.

Ford and other British car manufacturers have suffered closures and job losses.
Ford had to stop car production at Dagenham, Vauxhall was forced to close its
Luton plant, and Rover went bankrupt and was bought out by a Chinese company.
Many British cars have been taken over by other companies; the mini is now owned
by BMW, Jaguar by Ford.
One of the reasons that the British car manufacturers have suffered is because their
methods of manufacture are slower than and not as efficient as Toyotas. Toyota
uses the latest technology and best methods of production which ensures its profits
are high, whereas other companies like Ford and GM are stuck in a downward spiral
unable to achieve the same success as Toyota.
Another reason for the downfall of British manufacturers is the impact the weak Euro
had on the strong pound, which meant, in effect, that British cars were getting more
expensive for people buying them in Europe.
However, Toyota's decision to increase production at its Burnaston plant shows that
it has faith in the British economy and the UK operation as part of its European
strategy. Toyota is a thriving corporation, and overall, I believe competitors
complaints can be regarded as sour grapes, simply because they realise they will
never be able to keep up with the fast pace of Toyota.

Bibliography
'Toyota at Burnaston' sheet.
'Toyota comes to town' Video
'The Japanese are coming' Geography review
www.bbc.co.uk/news
Fig 2 adapted from model on www.kesgrave.suffolk.sch.uk/Curric/geog/linkmult.html