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Running head: TOYOTA AND THE GERMAN AUTOMOBILE MARKET

Toyota and the German Automobile Market


Scott A. Treloar
Professor Bendisa Marku
Florida SouthWestern State College
November 24, 2014

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Abstract
Japanese automobile manufacturer, Toyota Motor Corporation, is one of the largest
manufacturers of automobiles and automobile parts in the world today, manufacturing personal
and commercial vehicles from sub compact cars, to trucks, SUVs, sports cars, and luxury brand
models. As globalization continues to expand throughout the world, Toyota must consider its
strategy and what approach the company will take as competition grows. In light of its strengths,
weaknesses, opportunities, and threats, how should Toyota approach competition in Germany?
This paper is an examination of its strategic position in the global market with particular research
aimed at penetration into the German automobile market sector and strategies for future growth.

TOYOTA AND THE GERMAN AUTOMOBILE MARKET

Table of Contents
Abstract

Table of Contents

Introduction

Situational Analysis

Culture and Ethics

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Managing Human Resources Globally

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Financial and Resource Analysis

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Summary

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References

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TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Introduction
In this section, this student will introduce the Toyota Motor Corporation and its presence
in the world. Toyota Motor Corporation of Japan is one of the largest automobile manufacturers
in the world, second atop the sales leader board to Volkswagen (Germany). They design and
manufacture a diverse range of product offerings from compact vehicles to hybrids, sports cars,
luxury vehicles, SUVs, trucks and minivans. They manufacture mini vehicles and commercial
trucks and buses through its subsidiary companies. The company also manufactures auto parts
for use in its various vehicles. Among the most popular models they sell is the Camry, Corolla,
Land Cruiser, Tundra truck line, and their hybrid car, Prius (Hoovers, 2014).
Toyota has a foreign presence in many countries as well. Besides Japan, cars and parts
are manufactured at factories located in North America (the United States, Canada and Mexico),
South America (Brazil, Argentina, and Venezuela), Australia, Asia (including the Middle East,
Southeast Asia, Indonesia, China, and India), Africa (Kenya, South Africa, and Egypt), and
Europe (Belgium, France, England, Russia, Czech Republic, Poland, Portugal, and Turkey).
Regional headquarters can be found in the United States (North America), Belgium (Europe),
and in Singapore, Thailand, and China (Asia) (Toyota Motor Corporation, 2014).
The global automobile industry consists of five major competitors; Toyota, Ford, General
Motors, DaimlerChrysler, and Volkswagen (Holstein, 2000). The largest areas of growth are
focused on the emerging market economies with consumers chief concerns being fuel efficiency
and durability (KPMG, 2014). The purpose of this paper is not to consider the growing markets
that exist in the emerging economies but to research penetration by Toyota into the German
automotive market. This paper looks at Toyotas strategic analysis, the German automotive
market, and the culture and ethics of the manufacturer and as well as the German market.

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Situational Analysis
In this section, this student is reviewing the German market and Toyotas presence in it.
With the barriers to trade in the European Union being reduced and almost assured to continue,
Japanese investment in Continental Europe, which is already significant, is expected to increase.
Only the United Kingdom ranks higher than Japan in FDI in Germany. 1,099 Japanese
companies employ about 75,000 Germans, earning about 100 billion DM, ranking Japans
revenues in the German economy equivalent to Daimler-Benz (Lincoln, Kerbo, & Witt'enhagen,
1995, p. 2). In light of the SWOT analysis, This student believes that Toyotas share in the
European market and Germany in particular, has growth opportunities, especially due to its
partnership with BMW and their agreement to share new technologies and build a new sports
car.
In this section, this student will review the strengths, weaknesses, opportunities, and threats
(SWOT) facing the Toyota Motor Corporation.
Strengths
Toyotas strengths include a strong market position and brand recognition around the
globe, a strong focus on research and development, and its extensive presence throughout world
markets. First, Toyota currently enjoys a strong market presence around the globe, including
market shares of 48.4% in Japan, 13.8% in North America, 16.5% in Asia (excluding Japan and
the Chinese market, which is at 5%), and 4.6% in Europe. In addition, Toyota holds significant
shares in the South American, African, Australian, and Middle Eastern markets. Toyota holds
strong brands in a variety of sectors including manufacturing of passenger vehicles, buses,
trucks, and SUVs, financing, and spare parts (MarketLine, 2014).

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Second, Toyota places a strong emphasis on research and development in order to expand
its market share and improve its products. 3.65% of its corporate expenditures are earmarked for
research and development. Among the innovative creations Toyota has developed are its
Automated Highway Driving Assistance (AHDA), a technology designed to help with safer
highway driving, and a Pre-collision system (PCS) that senses steering and braking patterns to
help avoid collisions with pedestrians (MarketLine, 2014).
Third, Toyota and its subsidiaries have an extensive manufacturing network around the
world with over fifty plants in over twenty-seven countries. This allows the car manufacturer to
produce a majority of its products locally in order to meet demand in the markets. 75.4% of the
vehicles sold in the foreign markets were produced overseas. In North America, the number was
75.3%. The number in Europe was 58.5% (MarketLine, 2014).
Weaknesses
Toyotas weaknesses include recent legal troubles, frequent product recalls, and a
reliance on outside suppliers to provide its parts and components. First, since 2009, Toyota has
had to defend itself against more than 700 punitive class action and individual product liability
law suits due to vehicle defects that led to unintended acceleration in some of its Toyota, Scion,
and Lexus models. This included a civil litigation suit filed by the District Attorney of Orange
County California. As of December 2012, economic claims were settled and in April 2013, the
claim with Orange County had been settled but there still remains the possibility of future
damages to be paid by Toyota (MarketLine, 2014).
Second, Toyota has suffered frequent product recalls affecting overall revenues and its
brand image. This included the recall of 885,000 vehicles due to an airbag deployment issue, the
recall of 2012 and newer Toyota Camry, Venza, and Avalon models. They also recalled 780,000

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Rav4 and Lexus models a second time, in 2013, to fix a suspension issue. One month later, citing
a problem with its gearbox, Toyota recalled over 600,000 of its Sienna minivans. This has the
potential to damage consumer confidence in the previously reliable reputation of Toyotas
vehicles (MarketLine, 2014).
Third, is highly dependent upon key suppliers or a key supplier for its parts and
components, making it difficult should they ever need to change suppliers. Other issues that
could come from this arrangement include being able to obtain supplies in a cost-effective and
timely manner. Delays could increase costs and hurt the companys reputation (MarketLine,
2014).
Opportunities
Toyotas opportunities include a recent, growing partnership with BMW, a recovering
US auto market, and a renewed focus on the emerging Asian markets. First, Toyota has a
growing partnership with BMW that is designed to boost shared knowledge and technology
through the creation of a new sport scar. This includes the development of new technologies in
the area of fuel cells, an electric powertrain, and lightweight components in addition to the car
itself (Mlot, 2012). The lightweight components spoken of are made of carbon fibers that can
reduce costs by over 80% of its current value (Lyon, 2014). The overall impact on this
partnership could lead to greater cost savings and increased market share in Europe.
Second, Toyota has the potential to increase market share in North America as the US
auto market is bouncing back. The past two years have seen increases in car and truck sales, with
projected new car sales to reach late 1990s and early 2000s levels by 2017. And with interest
rates at record levels, Toyota is able to offer attractive financing to encourage new vehicle sales,
which could be helpful due to the US being at record levels for vehicle ownership with the

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


average car on the road being about eleven years old. Because this market represents Toyotas
largest geographic region, the optimism surrounding the US economys recovery could bode
well for Toyota (MarketLine, 2014).
Third, Toyota is focusing more intently on the emerging Asian markets to increase
revenues and market share. Projecting 50% of new vehicle sales to come from the Asian market
by 2015, Toyota is planning on bringing eight new sub compact cars to the market to meet
customer demand. Indonesia, India, and Thailand are projected growth areas. In addition to the
Asian markets, Toyota is also targeting Brazil for increased growth of future vehicle sales
(MarketLine, 2014).
Threats
Toyotas greatest threats include intense competition, natural disasters in the
environment, and governmental regulations around the globe. First, Toyota faces intense
competition in the light of increased globalization (MarketLine, 2014) and competitor
consolidation (Holstein, 2000). The increased competition in the market could lead to slower
sales which, in-turn, leads to rising inventories and lower prices. This ultimately could lead to
lower revenues and profits for the company (MarketLine, 2014).
Second, natural disasters like earthquakes and tsunamis could affect production in Asian
markets. Since the company operates in the geographical areas of Japan and Asia there is
potential for the delay in manufacturing should the company have to shut down operations like
they did after the 2011 earthquake in Japan and the subsequent floods that year in Thailand.
Toyota faces the possibilities of delayed production and rising costs especially if the natural
disasters were to happen more frequently or with greater intensity (MarketLine, 2014).

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Third, Toyota faces the threat of possible changes in governmental laws and regulations
in the various markets in which it competes. Significant costs could be absorbed due to required
compliance with local regulations that involve recalls and manufacturing defects like they
recently suffered in the United States. Increased safety standards, new regulations, and potential
tariffs affecting imports and exports of their products could also have an impact on future
revenues and growth. Should that be the case, Toyotas financial outlook could be dimmer than
expected (MarketLine, 2014).

With the barriers to trade in the European Union being reduced and almost assured to
continue, Japanese investment in Continental Europe, which is already significant, is expected to
increase. Only the United Kingdom ranks higher than Japan in FDI in Germany. 1,099 Japanese
companies employ about 75,000 Germans, earning about 100 billion DM, ranking Japans
revenues in the German economy equivalent to Daimler-Benz (Lincoln, Kerbo, & Witt'enhagen,
1995, p. 2).
This student agrees with MarketLines SWOT analysis. In light of the current state of
Toyota Motor Corporation, market share in the European market and Germany in particular, has
growth opportunities, especially due to its partnership with BMW and their agreement to share
new technologies and build a new sports car.

TOYOTA AND THE GERMAN AUTOMOBILE MARKET


Culture and Ethics
This student is examining the culture and values that are part of the Japanese and German
corporate and personal environments. Japanese and German peoples share some cultural
similarities and display some obvious differences as well. When it comes to communication,
Japanese people are perceived as reclusive and clan-like in their associations. While both
cultures use English to communicate in International business, the Japanese are not as fluent and
comfortable with the language as are the Germans. Japanese are also known to take politeness
and humility to extreme lengths that often appear disingenuous to Westerners. With their
incessant bowing, apologetic language, and a perceived inability to firmly disagree or say no
tend to be indicative of a cultural aversion to conflict. Germans, on the other hand, tend to be
blunt, direct, and rude. They do not grovel and often come across as arrogant. They are more
social than the Japanese and are sometimes perceived as prejudiced (Lincoln, Kerbo, &
Witt'enhagen, 1995, pp. 5-9).
When it comes to business ethics, the Japanese hold a two-fold approach of social
responsibility and fairness. First is transcendental normative environment, which is the idea that
everything (animate or inanimate) is connected to the universe and is the catalyst for the diligent
work ethic associated with the Japanese. Second is the concept of group normative environment
which flows out of the transcendental normative environment. This provides the foundation of
the Japanese understanding of groupism, which leads the Japanese to see the organization as the
whole and the individual as having a part in it (Taka, 1994, pp. 53-57).
Germans value directness, usually mean what they say, and dont like to be pressured.
They do have a good sense of fairness and are open to negotiations, desiring to see a win-win for
both sides in a business deal. Punctuality is emphasized due to a strong work ethic. Gift giving is

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considered inappropriate with an exception of a token souvenir being allowed after the
conclusion of a deal (InterNations, 2014).
This student thinks that while the Japanese are investing heavily in German FDI and that
though they may share some similarities with the Germans there are some significant differences
that could play a role in expansion. However, it doesnt seem to be as big a problem in the light
of all the FDI they have made into Germany. One reason they may find international or cultural
barriers less difficult to navigate could be the approach taken in the area of human resource
management.

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Managing Human Resources Globally
This student is now examining the human resource structure of Toyota Motor
Corporation by considering Japanese human resource models in Germany today. Japanese
human resource departments tend to focus on localizing their human resource systems to
conform to regulations, customs, laws, and cultures that will allow them to attract the top talent
within their host countries (Kopp, 2013). In fact, in Germany, the Japanese companies often have
a mix of expatriates from Japan and also have workers from other countries in addition to its
German employees (Lincoln, Kerbo, & Witt'enhagen, 1995, p. 6). However, a problem is created
because the localization of human resource systems can retard advancement for local employees
who are under a different system than are the companies Japanese expatriates. The company may
not place as large a commitment to development of the local employee as it does to its
expatriates, so career advancement can be slow or non-existent in many cases (Kopp, 2013).
One way Japanese companies are attempting to solve the problem is to bring local
employees in their foreign operations to Japan to receive corporate training either short-term or
even for longer periods of time. This helps the employees to get a better understanding of the
corporate culture and develop stronger relationships with its parent company and its staff
employees. In the past, firms did not see the importance of such efforts due to the high cost of
implementation. Now, they realize that the benefits in the long run far outweigh the short-term
costs (Kopp, 2013).
This student believes that innovative approaches taken in the human resource
management of Toyota Motor Corporation can only make it more competitive in foreign
markets. By utilizing the strength available in Germany and assimilating its HCNs into the parent
company culture, Toyota can minimize the delays and issues that can arise with the cultural

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differences both personally and corporately. This can also help to reduce costs over time through
lower turnover in local employment.

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Financial and Resource Analysis
This student will examine the economic situation Toyota is facing in Germany.
According to the 2014 Index of Economic Freedom, Germany ranks as the eighteenth freest
economy in the world. Market openness, a limited government that does not levy high tariffs and
generally does not interfere with foreign investment, and high levels of free trade make its
business climate desirable (Heritage Foundation, 2014).
Toyota has a strategic alliance with German automaker, BMW. They have agreed to
share knowledge in developing innovative new automotive technologies for fuel cells, an electric
powertrain, and lightweight components. They have also agreed to collaborate together on the
building of a new Toyota brand sports car (Mlot, 2012). This will help Toyota to compete in
Europe and in Germany with the worlds largest automobile manufacturer, Volkswagen
(Hoovers, 2014). They currently hold only 4.6% of the European market which is slight when
compared to its dominant position in the Japanese market and its larger share in the United States
(MarketLine, 2014).
While there are tight restrictions of Japanese imports in certain European markets like
Portugal, Spain, and Italy, it is not the case in Germany (Smith, 1994). Toyotas strategic alliance
with BMW should help them penetrate into the Volkswagen, Mercedes, Audi, and General
Motors dominated market in Germany (Bekker, 2004). Prior to 2008, Toyota successfully
penetrated the market with its luxury brand, Lexus. However, due to the economic downturn of
2008 around the world, Toyota has shifted its attention from US and European markets to the
emerging markets around the globe which include selling more compact, fuel-efficient, pricemoderate cars to its target audience of middle-income buyers (Harner, 2012).

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When considering the data provided, this student was shocked at the openness of
competition allowed by the German government. The automobile industry is a source of German
pride. They lead the world in automobile revenues thanks to Volkswagen. This student was sure
that the German government would be as protectionist as the Japanese are and that it would be a
source of conflict for Toyotas attempts to penetrate the German market.

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Summary
Toyota has lost recent global market share. Once neck and neck with General Motors, the
company has been leap-frogged by Volkswagen in recent years (Hoovers, 2014). This students
guess is that Japanese protectionist policies coupled with the recent global economic downturn
has contributed to this loss of market share. A renewed emphasis upon the globalization of its
market strategy and market penetration has led Toyota to focus on emerging economies in Asia
(Indonesia, India, and Thailand) and also in Brazil (MarketLine, 2014). Increased revenues in
these emerging markets should lead to larger global market share.
This students initial thought is that market penetration in Germany, and the EU, due to
its free trade alliance, would be difficult due to protectionist strategies. While that may be the
case in Portugal, Spain, and Italy, it was not the case in Germany. Globalization, which is
looking at the world as a market would lead one to see Toyotas new strategy, which is to
penetrate new markets where they might be first movers (like India) to capture market share and
hold it, rather than trying to overtake a global leader that dominates its own countrys sales
(Volkswagen).
Culturally, Japan and Germany have institution-based cultures that are strong on the rule
of law, share similar professional attitudes and demeanors in business, and lead the world with
the second and third strongest economies in the world. Knowing some of the learning outcomes
taught in the course has helped in the analysis of the company and the country. There is not a lot
of research specifically discussing Toyota in Germany but this student did learn a lot about
Japanese FDI in Germany, corporate leadership, culture, and human resource systems.
Ultimately, this student would not be comfortable as an expatriate in a Japanese company but
working in Germany or with a German company would be something to be considered.

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References
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Harner, S. (2012, May 29). Japan's Automakers Turn Strategies to Emerging Markets. Retrieved
November 24, 2014, from Forbes.com:
http://www.forbes.com/sites/stephenharner/2012/05/29/japans-automakers-turnstrategies-to-emerging-markets/
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