You are on page 1of 7

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 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. 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. More jobs are created by the new industries. Toyota requires components to make its cars, so more work is created for local services and suppliers such as ‘Quick Tool’.

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 Toyota’s 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 Toyota’s 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 Toyota’s. 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 Fig 2 adapted from model on