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John Hurley Dennis Norton Pablo Quiroga Marc Zelina* Prof. Dr. M. Fetscherin INB 300 – Discovery Project Date Submitted: December 1st, 2005
INB 300 – Discovery Project
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Cover Page Table of Contents 1. Phase I- Company Analysis 1.1 Company Description 1.1.1 Overview 1.1.2 Japan’s Conducive Business Climate 1.1.3 Mission Statement 1.2 Marketing Analysis 1.2.1 Overview 1.2.2 The United States 1.2.3 Other Nations 1.3 Expansion Strategies 1.3.1 Successful Projects Underway 1.3.2 Failing International Expansion 1.4 Financial Analysis 1.5 Corporate Responsibility 2. Phase II – Industry Analysis 2.1. Major Competitors and International Regions 2.1.1. Overview 2.1.2. General Motors 2.1.3. Daimler-Chrysler 2.1.4. Ford Motors 2.1.5. Nissan Motors 2.1.6. Honda Motors 2.2. Porter 5 Forces and SWOT Analysis 2.2.1. SWOT 2.2.2. Porter 5 Forces 2.2.3. Market Potential 2.2.4. Projected Growth 2.3. Major Challenges Facing the Automotive Industry 2.3.1. Integration of Dealer Networks 2.3.2. Leveraging Customer Relationships 2.3.3. Information Gathering and Sharing 2.3.4. Employee Resources 2.3.5. Ethical Basis for Production 3. Phase III – National Business Environments Analysis 3.1.Toyota’s United States Presence 3.1.1. Overview 3.1.2. Present-day Toyota in the U.S. – Sales 3.1.3. Present-day Toyota in the U.S. – Production 3.1.4. Toyota versus Big Three 3.1.5. Growth in Sales 3.1.6. Future Plans for North America 3.2. Toyota’s International Presence 3.2.1. Overview 3.2.2. Europe
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3.2.3. South Africa 3.2.4. Middle-East 3.2.5. Asia 3.3. Future Global Expansion 3.3.1. Japanese and International Divisions 4. Phase IV – Synthesis 4.1 Toyota’s Competitive Strategies 4.1.1 Overview 4.1.2 S.W.O.T. Analysis 4.1.3 Diversified Products and Innovative Technology 4.1.4 Targeted Marketing and International Positioning 4.1.5 Efficient Manufacturing 4.1.6 Internal Hedging 4.2 Toyota’s Shortcomings 4.2.1 Market Concentrations 4.3 Company Performance 5. Phase V – Emerging Market Expansion 5.1 China 5.1.1 Overview 5.1.2 Current State of the Auto Industry 5.1.3 Toyota’s Current Presence 5.1.4 Potential for a Subsidiary 5.1.5 A Toyota Brand 6. Final Thoughts Works Cited
cia. Overview Toyota Motor Corporation is one of the leading global manufacturers of automobiles. this company has grown to employ over 260. Along with its head office in the Aichi Prefecture. government-industry cooperation remains important. this growth can be attributed to the technologically advanced producers of automobiles and electronics.000 employees worldwide. COMPANY DESCRIPTION 1. Company Overview.1% of Japan’s GDP being rooted in services.2 In large part. Japan’s Conducive Business Climate A large part of Toyota’s success can be attributed to the political. is in power. Nevertheless. Established on August 28th.co. Their importance in global markets is consistently increasing. Its seven principles are as follows: 1 2 Toyota Motor Corporation.1 Toyota’s headquarters remain in the nation of incorporation. in a city named after the automaker mogul. in the capital city Tokyo and Nagoya. Mission Statement The growth of these high-tech industries is only made possible by following specific guidelines.toyota. The current composition of the economy reflects the cultural practices of the Japanese.3. the importance of the industry sector is consistently growing. www.” originally devised in Japanese in 1990 and later revised and translated in 1997. the Liberal Democratic Party. 1. producing all-size vehicles ranging from mini sport-coupes to large trucks.gov . and we can expect the Japanese economy to witness a fundamental shift in years to come. the market forces of supply and demand dominate pricing and production. and has the third highest purchasing power parity. Japan is a constitutional monarchy with a parliamentary system.1. following the United States and China.INB 300 – Discovery Project 4 1. such as Toyota and Sony. headed by Prime Minister Junichiro Koizumi.1. 1. and is a main reason for global acclaim of the Japanese economy. with production facilities in 26 different countries. which translates into a capitalist outlook on the economy. www. address many of the concerns that international businesses must react to in the continuously changing nature of the global market.jp CIA World Factbook. Japan. most notably the fact that they are very work-oriented. or the LDP. 1937 in Japan. Currently.1. economic and demographic factors of the nation.1.2. it has two more offices within Japan.1. Toyota’s “guiding principles. Despite 74. whose legal model is based on that of European civil law. PHASE I – COMPANY ANALYSIS 1. It is the second most technologically advanced economy in the world. In turn. Toyota City.
while honoring mutual trust and respect between labor and management. MARKETING ANALYSIS 1. 5.co. Create and develop advanced technologies and provide outstanding products and services that fulfill the needs of customers worldwide.4 Trailing marginally behind the world’s top two. General Motors and Daimler Chrysler. Pursue growth in harmony with the global community through innovative management. respectively. First. Nevertheless. it still occupies an important role at home.toyota.INB 300 – Discovery Project 5 1. and markets in over 140 countries. Toyota Motors is making an effort to act responsibly in its penetration of foreign markets. Toyota Motor Corporation is a publicly traded company on many national stock exchanges around the world. Foster a corporate culture that enhances individual creativity and teamwork value. its ticker symbol varies. and the reasoning is twofold. it is imperialistic to enter another country and impose one’s own values with blatant disregard for others. 3.toyota. 1. Toyota’s vision for the future make it a valiant competitor for jumping into first place. longterm growth and mutual benefits. 5 Toyota Motor Corporation. and secondly. the Toyota stock 3 Toyota Motor Corporation.5 So.co. www. TM refers to Toyota Motors.2. it continues to provide respectable employment opportunities in its home country Japan. it is in the best interest of the company to respect cultural differences. through the provision of an adequate job market.1. Work with business partners in research and creation to achieve stable. 7. These principles successfully helped Toyota become the third largest automaker in the world and the largest in Asia with revenues totaling over $172 million USD in 2005. while keeping ourselves open to new partnerships.jp Hoover’s A D& B Company. Overview Toyota has become a global company. As of September 30th. 2. Respect the culture and customs of every nation and contribute to economic and social development through corporate activities in the communities.jp 4 . with 51 manufacturing companies in 26 countries. www. with 12 plants and 11 manufacturing subsidiary companies.2. on the New York Stock Exchange (NYSE).3 In abiding by these guidelines. Toyota Motor Corporation. With global expansion comes a need to balance company values with the values of the foreign culture. Mission Statement. 6. instead of trying to change it outright. Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world. As such. while Japan reduces its labor costs by producing in foreign markets. The product will have a greater chance of success if Toyota enters a market and embraces a certain culture. 4. Dedicate ourselves to providing clean and safe products and to enhancing the quality of life everywhere through all our activities. Hoover’s Company Records – In-depth Records.
In 2004. Toyota was in 4th place with a market share of 12. Since its entrance into the U. and so Toyota is taking advantage of foreign trade zones (FTZs) where customs and taxes are much lower. market. The United States Shares of Toyota climbed 20% in 2004.95. but managed to jump into third in the beginning of 2005: Figure 1. Figure 1. and it is a great improvement from when it hit rock bottom. Knight.INB 300 – Discovery Project 6 price was $92. This gain on the field can be attributed to its competitive cost advantages that allow it to manufacture automobiles cheaper in its foreign plants. 6 Ridder.S. Toyota may become World’s Biggest Automaker Next Year.2.37USD. Tribune Business News. sales account for a large percent of its market-base.33. it has been challenging the Big Three.1: Toyota’s Market Share in the U.S. while many of its largest competitors’ stock prices fell.69% since it closed the day before.S. which represents a slight decrease of 1.6 Its U. More specifically.2.2: Toyota’s Production in the U. to reduce their ultimate distribution costs. 1. Toyota uses these zones for final assembly.2%. . trading four months ago at $70.S. This figure is not too far from this year’s stock peak of $94.
1.3.).3. Although Turkey is considered part of the Middle East. Other Nations Foreign sales are almost three times that of domestic sales at 69. An example of an existing and highly profit-driven expansion project was their 1990’s project to develop in India. With the introduction of manufacturing plants in Turkey. as well as provide a relatively regionally local export country with lower tariff percentages into the European Union. Europe remains a thriving market for economy cars.3. it was a market already saturated by domestic manufacturers. and although this seems usual given the population difference between Japan and the rest of the world. . Successful Projects Underway Toyota’s global expansion strategy focuses on producing reliable and durable cars at affordable prices. in the early 1990’s.. Toyota found it very difficult to grasp any sort of market share in Central and Western Europe due to the high cost of production. already operating two highly productive plants. and Toyota simply could not cater to this demand. but it continues to pursue an ambitious globalization strategy. it borders Eastern Europe and provides an export-oriented manufacturing division of Toyota that can ship finished products into the European market at a production cost that can compete with the existing domestic vehicle manufacturers. where domestic producers already dominate the industry (i. Failing International Expansion Toyota’s ability to expand manufacturing plants into the middle of flourishing local markets has not always resulted in success. Ford in the U.S.2. and its plans to expand into more developing countries carries a strong strategy to become one of the most dominant corporations on the planet.3% of total sales. like Citroen and Renault. Toyota is at the top of the list when it comes to foreign presence. Toyota chose San Antonio for its location and hopes to boost its revenues in North America to gain ground on General Motors and Ford. Toyota was able to lower their costs of production. Moreover.e: GM. For instance. we must keep in mind the difficulty of penetrating foreign markets.1. Toyota’s sales are projected to grow in next five years. Toyota’s expansion plan into Turkey solved the problem of high production costs. Toyota continues its pursuit of a strong market share in the growing industrialization and population of India. the company has looked to expand its company’s borders to even more distant locations. While the ability of the population to purchase these low cost vehicles is only now beginning to rise. EXPANSION STRATEGIES 1. Other recent expansions include a plan to develop the company’s 6th manufacturing plant in North America. 1.3. while Toyota has stayed atop cars with reliable Camry model. These two traditional automakers have long dominated the industry of truck sales. Its foreign presence includes existing plants in almost every continent.2.INB 300 – Discovery Project 7 1. With the success of Toyota’s presence in India. The introduction of the plant in San Antonio will boost Toyota’s truck sales for one main reason.
www. When automakers released their month-end reports of September.9 This discrepancy shows the increased incentive of producing abroad.co. in which the company hopes to continue developing earth-shattering products that will hit the market with a bang. GM.com Toyota Motor Corporation. GM and Ford Motors both reported drastic decreases in sales. These “losses” are the result of a temporary increased research and development budget. with export sales increasing at a faster rate than domestic ones. 2005. In stark contrast. For example. Financial Highlights. overall vehicle production rose 5. Toyota’s overall sales rose 10%. www.abcnews. 14. Financial Highlights. www. Moreover. 24% and 20%.8 Toyota’s vehicle sales rose 10.jp 9 Toyota Motor Corporation. instead of in Japan and later shipping them overseas. At the same time. Prius. as well as its division between domestic and foreign markets.9% decrease in profit does raise some questions for potential investors and shareholders. Despite the negative effect recent gas shortages and price hikes are having on the global automotive industry.3: Toyota’s consolidated vehicle sales for 2005. respectively. Ford Sales Tumble in September. More specifically. they witnessed a 90% increase in sales of Toyota’s hybrid.3% from 2004 to 2005.7 An examination of Toyota’s financial figures gives further insight into the growth trends of the corporation. It is interesting to note that although sales and revenues have increased consistently throughout past years. thanks to a 22% increase in car sales.INB 300 – Discovery Project 8 1. First. the following figure shows the consistent sales increase since 2001: Figure 1.toyota.4.3% at home. FINANCIAL ANALYSIS The continuously more efficient economic cars of Toyota are helping it cope with today’s volatile oil prices.S. transportation costs are reduced by producing vehicles in the U. net profits have not followed suit.. While a 6.jp . and revenue. Toyota is continuing to expand in terms of total sales.1% overseas and 2.toyota.co. these R&D costs focus on developing alternate fuel sources. it is essential to look at the bigger picture.go.4%. in markets that Toyota intends to sell its products. such as the fuel 7 8 Associated Press.
with the 90% increase of hybrid vehicles. In his Environment and Social Report of 2005. perhaps one of the finest examples of social responsibility is protecting the environment through pollution reduction measures. Financial Highlights. More specifically. companies are being reminded to act ethically and responsibly.” Toyota is leading by example in this regard. This is not 10 11 CoreData. social responsibility is defined as the “practice of companies going beyond legal obligations to actively balance commitments to investors. other companies.10 The general trend of increasing R&D expenses can be seen in the following figure: Figure 1. Katsuaki Watanabe. corporate social responsibility is at the forefront of international business decisions.jp . Toyota has taken a stand on this issue. so as not to inflict harm on any group of people.INB 300 – Discovery Project 9 cell or the fully electric vehicle. Toyota Motor Corporation.5. As mentioned above. www. As a global automaker. 1. both in terms of production and markets. Toyota Motor Corporation. According to International Business: The Challenges of Globalization. and communities. International Institutional Database.6 billion USD. From 2004 to 2005. the President noted that Toyota must strive to create a product that “benefits both people and the world as a whole. and is leading the way with its production of hybrid vehicles that substantially lower emission quantities.co.toyota. the President of Toyota Motors. Toyota has set out stringent 2010 fuel efficiency standards.” an assertion that can be seen empirically by the huge research and development costs of Toyota Motors. R&D costs increased from less than 6 billion USD to over 6. which many of its current cars are already conforming to. CORPORATE RESPONSIBILITY With the increasingly important effects of globalization. these investments are already yielding high returns. and in fact the majority of its “guiding principles” target this particular issue. More specifically. Inc. customers. noted the importance of producing a product that benefits all its stakeholders. its global competitors are being put to the test in an effort to create a car of comparison.4: Capital Investment and R&D Expenses.11 As the leading producer of hybrid vehicles. Research and Development.
Complete domination of the automotive industry is the goal that GM has in mind. so it is Toyota’s future goal to strive for global market share and outperform its competitors. General Motors and Daimler-Chrysler. Chevrolet. and GM is no exception.INB 300 – Discovery Project 10 only an environmental accomplishment. is being used by Chrysler. all while providing their employees with the benefits they deserve.S. MAJOR COMPETITORS AND INTERNATIONAL REGIONS 2. almost all the main competitors in the auto industry have reported slow or negative growth in profits. Iaccoca. as they are required to provide a healthcare program as benefits for their employees. Chrysler is resorting to its advertising in the U. and their plan to invest in competitors is a way to begin this quest. along with Ford. and has been looking for a long term growth plan after a decrease in sales in the first two quarters of 2005. Honda. GM. General Motors is the number one automotive maker in the world with numerous brands of cars and trucks. to capture the American consumer. and the shifts in the top companies’ rankings are forcing each enterprise to search for a catalyst to put them at the top.1. Because of its enormous revenues of around $193.2. Saturn and the popular newly acquired company Hummer. Daimler-Chrysler owns Mercedes and the Chrysler Group. With the addition of four new commercial ads featuring the ever popular Lee Iaccoca. Its main competitors are Ford Motors. GM’s brands include Buick. strive to reduce production costs and launch new models.1. 2. Their domestic troubles come as a result of their high health care costs. as well as pop . but also one that deals with the constant decrease of global oil supply. Recently. 2. Overview Throughout the lifespan of the automotive industry. GM is not satisfied with its position in the automotive industry. Daimler-Chrysler Daimler-Chrysler has been a powerhouse in the automotive industry for decades and continues to be a popular brand worldwide.1. ranking second in global automotive sales. who was previously employed by GM. PHASE II – INDUSTRY ANALYSIS 2. Pontiac. General Motors General Motors has always been a colossal force in the auto industry and is among the rivals of Toyota. Even with growth in sales and top rank in revenues. 2.1. and withdrew their stake in Subaru. GM ranks number five on the 2005 Fortune 500 list ahead of Daimler-Chrysler (6) and Toyota (7).3.1. They recently purchased Suzuki and Daewoo stock. many competitors have emerged in Japan and throughout the world to compete with Toyota Motor Corporation.5 billion USD. Cadillac. The auto industry is going through an intense period of change. Saab. Automobiles reflect a technological revolution of the 19th century that will not soon be lost.
Jaguar. which affect their market more than that of producers of fuel-efficient vehicles.daimlerchrysler. which are the Taurus and the F-150 truck series.INB 300 – Discovery Project 11 icons such as Snoop Dogg and Jason Alexander.1. Ford believes it can drastically counterbalance its recent weak profits in North America and Europe that began in 2001. Ford is considering a movement towards the production of cars powered by fuel cells. Fusion. Chrysler ranks number six on the Fortune 500 global list with approximately $176. now has a controlling stake in Nissan and recently implemented its legendary CEO. Nissan Motor Nissan Motors currently ranks 2nd in terms of Japanese auto sales. They have incurred a solid increase in sales and net income in the past four years following their unfortunate losses of around 300 billion dollars in 2000.7 billion USD in revenues in 2004. Nissan also owns Infinity. www. Ford also owns Hertz. much like Toyota. considered 12 Daimler-Chrysler Corporation. Ford Motors Ford has held its strong reputation for over one hundred years since Henry Ford first invented the “Model T”. Still considered an auto giant with a commanding market share. In more recent times. and irregular gas prices. although we can be sure that their engineers are considering the possibilities. their numbers have only proven to increase marginally. called the Escape. Carlos Ghosn. Ford. Hybrids are an emerging opportunity for the entire automotive industry. while introducing new models of hybrid cars.com . 2005.98 on September 30th. With popularity exponentially increasing for hybrid models due to the environmentally unsafe gas powered pollutants. Nissan is traded on the NASDAQ.S.4. and is willing to continue production by adding the Mercury Mariner.S and Japan. there has been a decrease in the demand for their large-size engine vehicles due to high interest rates and high prices of oil. and their stock closed at $22. Mercury and Volvo. the new gas guzzling Mercedes models are still considered Chrysler’s catalyst for expanding their foothold on worldwide markets. With this new innovation. which is an upscale version of Nissan models. It has introduced new models since declining revenues in 2001 in hopes of regaining profits. Lincoln.1. the leading car rental company which has enjoyed success in the U. Renault.5.12 2. Mercury Milan. Its new Models include the highly anticipated remake of the Ford Mustang and Mustang GT. Ford. the French automobile company. behind Toyota and ahead of Honda Motor Corporation. 2. Ford has primarily relied on its two most popular models to achieve global auto market dominance. Ford has had some success with its first hybrid. Despite this fact. however. They have not yet publicly mentioned any interest in hybrid or fuel celled technology to boost sales. This is a result of their heightened success of new model cars and trucks in the U. and foreign markets. They believe that a reduction in the number of its current models by half. Ford has thrived by developing its various brands including Aston Martin. would translate into lower production costs and attract new consumers based on recent surging gas prices. feels that hybrid cars are the new innovative technology that could increase sales revenue due to the recent changes in the economy. and Mazda Tribute.
www. all seem to have a low level of differentiation when it comes to their line of automobiles. Ford.14 2. as well as cars and trucks. Honda Motor Honda ranks two spots higher of the Fortune 500 global list ahead of Nissan Motors despite trailing in the Japanese market.com . In comparing the brand names above. Nissan is a company aiming to prosper in the future and move up from its 29th position on the Fortune 500 global list. and Honda rank highest when it comes to company innovation in the automotive market.13 2. Toyota is not threatened in the short run by Honda.1: McKinsey Bubble Analysis of Competitors Toyota. Honda is also traded on the NYSE and currently sits at approximately $29. This is the result of first-mover development in the hybrid automobile and fuel cell market. It differs by selling other types of products such as construction and recreational vehicles like motorcycles. This is a judgment made relative to the entire automotive industry. making it one of the largest motorcycle companies in the world.1.nissan-global.INB 300 – Discovery Project 12 famous for cutting costs in various automotive companies.1. They have five different manufacturing plants in Japan and twenty others located across the rest of the globe. The company’s motorcycle division account for around 13% of its annual revenues. They also have the Honda brand and Acura brand which have been successful lately with gas prices rising. 13 14 Nissan Corporation. but the volatile nature of the automotive market will surely keep its competitors on its toes.7. www. Daimler-Chrysler ranks the lowest in this category as they have not yet expressed interest in the development of a hybrid.6.50 per share. Automotive Industry Competition Innovation Toyota Differentiation Marketing Global Brand Production GM Ford DaimlerChrysler Honda Figure 2.honda.com Honda Motor Corporation.
GM already has been successful in marketing its product in China. however. as concrete marketing-specific data was not found. we attributed global branding with technological innovation and overall high sales.1. depending on whether they increase or decrease. Other opportunities include the development of new innovative products. they can ensure future sales due to the threat of increasing oil prices. while Toyota has done a better job in Canada. In terms of marketing. Raw material prices can be considered an opportunity or a threat to the automotive industry. as well as increasing technologies which can be used to create different models to suit the changes in consumer tastes. A similar scenario exists with global brand recognition. . If companies can invest properly in new emerging hybrid technology.2. as it represents potential to gain market share from scratch. Each excel in different regions more than the other. moreover. PORTER 5 FORCES AND SWOT ANALYSIS 2. Chrysler trailed in the innovation department.INB 300 – Discovery Project 13 taking into account the luxury brands of Germany and Great Britain. 2. For example. and there was no clear cut winner in the category. Increasing raw material prices boosts the cost of production and threatens the profit margin of the entire industry. SWOT + Emerging hybrid market Decreases in raw material prices New innovative products Increasing technologies Increasing oil prices High interest rates Increases in raw material prices External Figure 2. decreasing raw material prices increase profit margins and create heightened competition. and so scored less than the field. it was difficult to differentiate between the successes of the brands. Honda’s sales were not important in all their markets.2.2: Opportunities and Threats to the Market The emerging hybrid market can be viewed as an opportunity for the entire industry. These conclusions are drawn from sales figures and personal experience. On the other hand.
2.2. GM. it is evident that the automotive industry will continue to grow over the long-term. while Toyota leads the way with its economical Camry. suppliers. industry competitors. In the global brand category. and Daimler-Chrysler lead the way in sales throughout the world.2.INB 300 – Discovery Project 14 2. The automotive market is currently generating sales of more than 60 million units and it is expected to reach 75 million vehicles over the next decade. Toyota. Toyota’s response to these conditions is to continue controlling their solid financial infrastructure to strengthen their market competitiveness and continuing to create foundations for long-term growth.3. 2. Their production measures within their existing markets are at the highest. buyers. they are the leading producer of specific automobiles within that market. Global automotive competition is becoming more ferocious as auto manufactures develop large numbers of new models and continue innovating new generation technologies that address environmental issues. These are the three biggest automakers in the world mainly because they have provided brands that are acceptable to more markets throughout the world. and substitutes are listed below. Porter 5 Forces Figure 2. . Ford leads the way with its truck lines.3: Porter 5 Forces In marketing. Market Potential In examining industry trends. every company listed seems to have generally the same level of marketing capabilities and strategies. A summary of the five forces affecting the automotive industry including potential entrants. Within the markets that Ford and Toyota exist.
as well as investment requirements. Also.3. Projected Growth According to the Porter 5 Forces model. along with the growth of Toyota’s hybrid sales. 2.1 Integration of Dealer Networks As the number of dealerships of major automakers grows. the importance of communication between headquarters and these dealers is increasing as well. With the increase in oil and gasoline prices.2. and in order for these dealers to portray a solid image of the company. In recent times. The market potential is continually growing due to the gas prices which are making consumers consider purchasing hybrid vehicles.INB 300 – Discovery Project 15 Projected expansions. and must continue to attend to as we progress into this new millennium. the increased functions of the internet and email aid in making this flow of information more efficient. have inspired other competitors to enter the market. The intensity of rivalry in the automotive industry will continue to be intense given its structure. giving . Beginning in the late 20th century.4. efficient management and effective advertising campaigns. 2. Car companies are constantly challenged by new ways of presenting their models. there has never been a better time for consumers to consider the possibilities of traveling in the less convenient. Barriers to entry include the high cost of capital that is needed. there are five forces that determine industry attractiveness and long-run industry profitability. internet and information technology in general revolutionized the way the automotive industry related to its consumers. Leveraging Customer Relationships through Demand Chain Planning The main issue here concerns the reduction of costs through efficiency in catering to customers. creating even more intense rivalry.2.3. each trying to assert themselves as the biggest and the best. In order for “consumer’s primary touch point” to be successful in customer service and relations. a majority of the automakers are beginning to develop hybrid models of their own. The threat of public transportation as a substitute to purchasing automobiles is a challenge the industry has dealt with for many decades. There are many equal size competitors with comparable market shares. This can fundamentally be traced back to customer service. according to the Porter 5 diagram. and swaying their client-base to purchase their vehicles. This transfer of information has recently been facilitated by standardized practices that have been established by the headquarters of these multinational corporations. 2. but only recently has it posed a serious threat to sales.3. The automotive industry is very difficult to penetrate as a new business. MAJOR CHALLENGES FACING THE AUTOMOTIVE INDUSTRY 2. with the growth of new technologies. but cheaper modes of public transportation. there must be a free flow of information both to and from dealers. Public transportation has been a substitute of the automotive industry for as long as it has existed.
in hopes of reducing overall costs by not having to repeat the same work over. that of outsourcing.3. 2005 marks the year when this automaker asserted its true dominance in the largest automobile market in the world. service. Overview Since Toyota Motors’ incorporation in 1937. In the past. but also to email the company directly with any of their concerns. This attempt at establishing a more personal relationship is a step in the right direction to foster consumer loyalty. PHASE III – NATIONAL BUSINESS ENVIRONMENT ANALYSIS 3. overcoming a mogul that no other company has yet been able to challenge. Toyota .4. automakers are constantly trying to reduce costs in hopes of being able to undersell their competitors both domestically and internationally.5.1. Information Gathering and Sharing This issue concerns the effective sharing of information between the different functional units of a corporation. Ethical Basis for Production The main ethical issue surrounding the automotive industry is one which most industries are facing in today’s day and age. and this has resulted in an inability to maximize “share of wallet” from every customer through cross-selling.3. In this competitive industry. Automotive companies must provide their employees with all the necessary information to deal with clients in such a fast-paced industry. Employee Resources Similar to the aforementioned point of information sharing. but the company is also establishing a unified view of their consumers. not only are costs being reduced.3. 3. its emphasis on foreign market penetration and its successes therein have been remarkable. Is it ethical for global automakers to export their production to countries where labor costs are reduced. and from the company’s perspective. 2.1. while reducing overall costs of advertising and customer service. TOYOTA’S UNITED STATES PRESENCE 3. the answer is a resounding yes. this must extend to include all employees at any dealership. 2. even if brings about certain negative humanitarian ramifications? If we examine this issue from a strictly economic standpoint. This helps in promoting new products on the market 2.3.INB 300 – Discovery Project 16 them the ability to not only view highly advanced websites. as customers have other options if they feel dissatisfied.1. and marketing” have not collaborated in their research of consumer patterns and customer information. “traditionally independent functional groups such as sales. In sharing information about their client-base.
S. and is quickly gaining ground on Ford Motors and General Motors. “Toyota targets U. The importance of Canada in Toyota’s production and sales is consistently increasing. The following figure shows the vehicle sales by region. 1. North America represents 30. Norihiko. market with expansion plan”.INB 300 – Discovery Project 17 increased its market share in the United States to 15.1%.” and so we can expect the larger corporations to draw eventual long-term benefits. While it is constantly expanding through the building of new plants in all of North America. market being the largest and richest automobile market in the world.15 million vehicles. it currently relies on its Japanese plants and exports to stock its inventory in foreign markets.S. and the effect of the stagnation will ironically only propel it more in the future. 3. and left GM and Ford crippled in terms of growth figures. are increasingly being used to reduce transportation costs and in turn the 15 16 Shirouzu. Strategic penetration techniques however.3. Present-day Toyota in the United States . and finally broke into the top three ranking that was forever occupied by the Big Three. Figure 3. Both suffered 26% sales drops. which represents the third consecutive month of negative sales.1: Vehicle Sales by Region16 From the above graph.2. and it will be discussed in more detail in a later section of the paper.3 Toyota in the United States – Production The importance of production in the United States does not match the importance of its sales.co. representing a majority of about 70% of consolidated sales. Wall Street Journal Toyota Motor Corporation. at this time.S. They agree that “the industry appears to be headed for a period in which strong players use their financial and market power to hammer weaker ones into surrendering market share.1. such as the use of Foreign Trade Zones. with the U. Financial Highlights.15 For Toyota.Sales Despite the U.7% of Toyota’s consolidated sales in 2005. www. It passed Daimler-Chrysler in terms of net sales in the beginning of 2005. Domestic auto sales fell 14% in October to 1. the United States already represents a huge block of its sales.jp .toyota. it is experiencing a period of stagnation.
The increased focus on fuel efficient automobiles has manifested itself through the sales figures of the main automakers.5 billion into capital. automakers.0% figure to jump substantially. a growing demand for smaller and more efficient automobiles.co.S. This capital investment can be seen through plant construction. Toyota is adapting its production to its sales. and thus must reorganize to cater to the growing U.3 billion. 3.INB 300 – Discovery Project 18 selling price. and now lies at 52%. to reassess their priorities in selecting an automobile. a figure about 16% larger than GM’s $7. as its sixth is 17 Toyota Motor Corporation. In large part.S.S.S. and number seven and eight scheduled soon after.jp . and fuel efficient vehicles of Toyota and Honda. market due to a decline in demand for the traditional gas-guzzling vehicles produced by American automakers.4. A major dichotomy between Toyota and the Big Three lies in the capital spending amounts of 2004. which reflect current production and sales capabilities. it more importantly signifies a rise in Japanese presence and by extension. Toyota has been able to gain ground on its main competitors in the U. Toyota versus Big Three In recent months. today. Financial Highlights. reliable. This will force U. that number dropped by 5%.toyota. The following figure shows Toyota’s current structure of production.2: Vehicle Production by Region17 With the creation of sixth plant in process. The Japanese producer invested $8. www. where GM and Daimler-Chrysler have witnessed double-digit declines while companies such as Nissan and Toyota have witnessed increases. Exactly a year ago. the Big Three had a combined stake in the U. market of 57%. and the world in general.1. we can expect the 16. market. this success can be attributed to the recent price hikes for gas that have forced many people in America. Not only does this signify a decline in the influence of U.S. showing the importance of its Japanese production plants: Figure 3. perhaps as much as 5% by the end of the decade. producers to rethink their cost-cutting strategies and product development. in order to compete with the more affordable.
one in Tohoku. its vehicle assembly affiliates. To put this number into perspective. Toyota increased sales by 1. dollar. more interested by fuel efficiency. This expansion will boost Toyota and its luxury . Growth in Sales Toyota’s U. and the currencies they use all different. 3.2. Future Plans for North America First. In October.S. Africa and Europe. but largely to do with the marketing techniques and demand for Toyota’s models.. One of Toyota’s main tools to ensure consistent return on investment is a sort of internal hedging. as is apparent by the creation of a plant in Kentucky to solely produce the new hybrid Camry model. is opening new plants in continents such as Asia. 3.S.2. this is however highly unlikely to happen.1. United States. Toyota’s plant size in North America is expected to reach a total of seven by the end of this decade. the very fact that the Big Three agreed to rich pension and health-care packages increases the cost of every vehicle by 1 to 2 thousand USD.1. The automobile market trends reveal negative sales figures. so as to reduce their real cost of production. Their global presence is rapidly exploding as a result of consumer preference.4%. 3. Isuzu’s total sales in 2004 matched the average one week sales of Toyota. For example. First. Toyota will start their campaign to further dominate the automotive industry in Japan. Since Toyota’s markets are so diverse. selling a total of 2. Texas.06 million cars and trucks. this works as a natural hedge as they have the ability to shift production to any designated region.3%. Toyota’s increase in sales has to do with cutting costs in production. and other automakers are still fighting to get out of double-digit red numbers.S. Toyota can choose to increase production at home and reduce production in the U. including one in Hokkaido.. if the value of the Yen drops against the U. and its plans to build two more by the end of the decade. Toyota will boost vehicle and parts production at its five factories in Japan.5. This is just one benefit on the multinationals.6. we must put it into perspective.1. Latin America. Overview As a result of high demand Toyota Corp. Although this growth rate is expected to slow by 2010. by this time Toyota hopes to pass Ford Motors and jump into second position of largest automaker in the U. sales increased from 2004 by 10.S.INB 300 – Discovery Project 19 currently being built in San Antonio. TOYOTA’S INTERNATIONAL PRESENCE 3. It is targeting the preferences of the new American consumer. and while this figure does not seem impressive. two in Kyushu. Toyota is working on continued production of its new hybrid automobiles. and at Kanto Auto Works Ltd.
In 2004. During this year Toyota Corp. After analyzing Toyota’s recent growth in the European market the potential for growth is inevitable. Europe's second-largest carmaker.net . Eastern Europe is becoming the world's newest car capital. Toyota has been a huge community influence in South Africa since it developed its first production plant there in 1961. “When it reaches [full capacity]. an important advantage for Toyota is the ability to construct manufacturing facilities in lower-cost countries throughout Europe such as Czech Republic. In result. Toyota Motor and PSA Peugeot Citroën inaugurated a $1.2. Bloomberg News Tierney. 3. In 2004.20 Furthermore. as PSA Peugeot Citroën does with Toyota in Czech Republic.INB 300 – Discovery Project 20 brand Lexus' domestic production by 8.000 cars a year in Kolin.2 percent of the total GDP of South Africa.868 units in South Africa. finally surpassing that of mining. 21 www.000 workers. from 3. Auto sales in South Africa are only predicted to increase in the next few years.6 percent and achieving the number one spot for 25 years in a row since 1981. and PSA Peugeot Citroën.5 million units now18.000 just east of Prague in the Czech Republic. the family-size Corolla Versa is made in Turkey for sale only in Europe and the tiny Toyota Aygo is made in the Czech Republic. raised the competition in Europe when they unveiled three small cars they are producing jointly in a Czech factory. For example. 60% of Toyota’s automobiles sold in Europe are made in the region. president and CEO of Toyota Motor Europe. contributing to 7. Since then it has had a significant impact on the 18 19 Kae Inoue.2.6 percent to 3. Europe There are many advantages for Toyota in the European markets.4 Trillion Yen. Toyota Raises Capital Spending 12% to Record 1. Japan is currently the second largest investor in the overall economy of South Africa. With the promising growth of South Africa’s currency and business opportunities. Peugeot make big plans for tiny cars across Europe. European consumers have a reputation for being cost conscious and environmentally conscious consumers.” says Shinichi Sasaki.19 On May 30.2.osakanews. finishing the year with a market share of 27. Europeans are finding ways to cooperate with Toyota like sharing a production line. Toyota. The recent boom in sales over the last year was due to a moderate increase in the demand for more urban-style and affordable cars. a city of almost 30.3. Toyota faces a challenge because it must gain traction in Europe to reach its stated goal of a 15 % global market share.8 billion joint factory to produce 300. there has been a rapid increase in investment throughout the nation. 20 Gail Edmondson. Toyota achieved net sales of 127. just trailing that of Germany21. headed by the industry leading presence of Toyota. there were record domestic sales in the automotive industry. Christine. Kolin will be Toyota's most efficient factory in the world. The plant will employ 3. South Africa Previous to 2004.8 million units in 2006. The Detroit News. mining was atop the charts as the number one source of GDP in South Africa. 3. these characteristics appeal to Toyota’s vehicles. which would put it ahead of GM as the world's largest carmaker. Buisness Week Online.
3.2.au/ . the Chinese government has realized many of the positive advantages that capitalism can hold. Toyota has also directed its business in South Africa towards sales and service in the region alongside its already thriving manufacturing presence. Toyota. making its 300.toyota. in turn. Toyota began exporting the popular Camry from Australia to the Middle East. Toyota’s primary subsidiary in Africa. http://. which is the largest taxi service in the United Arab Emirates. Toyota Global.000th delivery in the region23. Toyota has developed a subsidiary that controls a significant stake in the automotive market of the country and its bordering nations. a program developed to help train and develop citizens into employees demanded by the increasing automotive industry. Toyota feels confident that sales will grow 3 percent in this area within the next year. The variety of budgets and service policies make Toyota the most successful automotive company in the UAE and have the most potential for future sales throughout the rest of the Middle. Toyota SA has developed various programs to influence the surrounding culture. The Australian manufacturing plant has been a great source for the imports needed in the Middle East. The Dubai Transport Company. there are 249 Toyota dealerships in the 13 colonies of South Africa that are managed by Toyota SA.drive.autoweb. Currently. In recent years though. Toyota Motor Corporation developed a strong foothold in the Asian automotive market with an enduring presence in Indonesia. The Middle East is an emerging market where Toyota feels its global popularity and implementation of manufacturing plants can hopefully find a permanent and profitable niche in the Middle East.jp Toyota UAE. www. has also enjoyed great success with the Camry and would like to continue its imports of them. Toyota currently runs manufacturing companies in India. Asia Since shortly after its establishment in 1937.com. Since the 1970’s.22 With the significant presence of Toyota affecting the economy of South Africa. and Eastern Russia. The demand for the Camry has forced the Australian manufacturing plant to switch 93% of its exports to the Middle East in the form of the Camry model. and has partially opened its borders to specific markets of interest. After years of success with the Australian built Camry in the Middle East.INB 300 – Discovery Project 21 economy of South Africa by developing its numerous production facilities and warehouses.5.4. Middle East The global demand for cars in the region has led Toyota to expand its sales into the Middle East. One of the most successful cultural programs Toyota SA introduced is the Toyota Academy of Learning. Turkey and Pakistan. 22 23 Toyota Motor Corporation.co. Thailand. In April 2004. Toyota’s influence in China has always been neglected due to strong internal political and economical policies held by its government. however. 3. has taken its invitation into the Chinese automotive market as one of its primary focuses of interest in the upcoming years in hopes of boosting its influence in the Asian automotive market to new levels. The model seems to be popular in the region due to its affordability.2. With the largest network of dealers in South Africa.
Toyota has entered the third stage.3.000 units. the IMV venture represents the third phase of manufacturing for Toyota. Toyota is attempting to continue its growth by reengineering more efficient production and supply frameworks on a global scale.3: Toyota Motors’ Vehicle Supply Network25 From a geographical and historical perspective. In addition. 24 25 Kae Inoue. Toyota will have a total capacity of 855. In the first stage. sold as the Vitz in Japan.000 units of capacity to its current 775. In Europe.co.toyota. The figure below shows the stages of production in the past and a perspective for the future of Toyota. Toyota began the IMV project for several reasons. www. However.000 units in Europe. Toyota’s Vehicle Supply Network. Bloomberg News. by expanding its factory in Valenciennes. Toyota plans to open its first factory in Russia.000 units to European production.INB 300 – Discovery Project 22 3. By 2007. through this project Toyota is exercising their Business Process Offshore Outsourcing strategies to allow faster vehicle delivery and lower cost while still assuring Toyota’s quality products. They are attempting to expand their global manufacturing and supply systems for multi-purpose vehicles to meet market demands in more than 140 countries. Also. Toyota manufactured vehicles in Japan and exported them worldwide.24 Toyota’s recent development of the Innovative International Multi-purpose Vehicle project could add to their strategic production plans. Thus. supported by free trade initiatives such as CEPT in the ASEAN countries and other trade agreements. In doing so. GLOBAL EXPANSION Two of the main reasons why Toyota is expanding their production plants overseas are to counter a stronger yen and deliver models faster to dealers around the world. The diagram below depicts Toyota’s network locations worldwide: Figure 3. Toyota Raises Capital Spending 12% to Record 1. France. In the second stage. the company is reacting to demand for a new version of the Yaris compact. Toyota plans to add 30.4 Trillion Yen.jp . which will add 50. Toyota Motor Corporation. Toyota initiated operations only in key market areas.
Africa. Toyota will use plants in Thailand. Argentina and South Africa. Toyota’s Competitive Strategies 4. The IMV project will create the biggest manufacture network the corporation has ever seen.1. Toyota’s BPOO strategy consists of vehicle assembly.toyota. These four main IMV production and export bases will supply to Asia. The market in Japan and Europe is much bigger and less risky than the United States therefore it is much easier to have so many subsidiaries. Overview The negative economic trend in the automotive industry makes us question Toyota’s continued growth in a market where all its competitors are falling by the 26 27 Toyota Motor Corporation. Japan. There is conflict between North America and Japanese divisions in that. www.4: Toyota Motors’ Stages of Production Development26 The components for the IMV project vehicles are manufactured mostly outside of Japan.27 3. .toyota. Indonesia.co.1.1. Japanese and International Divisions Toyota’s 12 original manufacturing and marketing plants are located in or around Toyota City. Oceania.jp Toyota Motor Corporation. 4. The 12 different plants and 11 different subsidiary plants manufacture either different components or different vehicles depending on the location and strategic positioning of Toyota’s marketing schemes.jp . Europe. The North American market and the Japanese market differ by these economic trends that govern their conflict. Toyota’s production volume in Japan is almost three times larger than its next largest production plant located in North America. www.co. There has been a significant measure made by Toyota’s subsidiaries to produce vehicles throughout the world. Production Development Diagram. Latin America and the Middle East with five all-new IMV vehicles.3.INB 300 – Discovery Project 23 Figure 3.1. It also indicates that international countries support the expansion for Toyota’s long-term market. Phase IV – Synthesis 4. IMV Project Shifts into Production Gear. This demonstrates Toyota’s confidence in delivering quality vehicles no matter where manufacturing takes place. For example.
as well as financial position. preferences. .1. While certain companies choose to market a good that targets a specific consumer base. with sales and revenues constantly on the rise. Toyota diversifies its products to attract consumers with different needs. it is only necessary to examine the SW aspect of SWAT. What positive actions has Toyota taken to maintain profits in this seemingly volatile market? What could Toyota further do to become the largest automaker in the world market and pass General Motors in terms of market share? A brief examination of its internal structure and strategies reveals why Toyota is striving during this period of economic stagnation.1. the quality. The company’s ability to identify the tastes and preferences of the global consumer reflects his ability to sell product effectively and increase market share. Diversified Products and Innovative Technology As with any company in retail. we will explore the opportunities and threats of the automotive industry as a whole. general appeal and cost of a product is optimal. and how it can further increase its presence in the global automotive market.INB 300 – Discovery Project 24 wayside. This reflects its desire to constantly be a first-mover into new high technology product markets. 4. In a later phase. 4. drawing many consumers to purchase its new. none or all of these products can be sold. Its vehicles range from tiny two-door coupes to large cargo trucks.9% decrease in profit. and increase its global market share.1: Strengths and Weaknesses In order to identify the internal strengths and weaknesses of Toyota.2. Based on what Toyota’s marketing division deems to be attractive in a particular market. SWOT Analysis + Internal Diversified Product Innovative Technology Marketing Strategy Manufacturing Capabilities Internal Hedging Production Recalls Dealerships and Customer Service Adapting to Economic Fluctuation Figure 4. Of late. Toyota’s unparalleled capital investment in 2004 resulted in a 6. Toyota has established itself as a leader in developing new hybrid models to deal with rising oil prices and a heightened desire to purchase fuel-efficient automobiles. albeit “reliable” product. from large luxury sedans to small fuel efficient hatchbacks. and lead the way in setting global trends and introducing new concepts. The fact that Toyota produces a model for everyone reflects an ability to target large markets with varied tastes and financial classes. it has already established itself as a pioneer of this technology. It is the only company in the top five to experience continued growth in sales. A large part of Toyota’s success in developing new models to adapt to evolving trends lies in its technological innovation. While Toyota must deal with competition from the likes of General Motors and Ford Motors.3.
Khurram.5. . which could result in an overstocking of inventory. relating each product to the individual consumer’s preferences. such a practice is available to all car manufacturers. When a buyer purchases a commodity. customer service.) to focus on meeting customer needs and organizational objectives. Internal Hedging Toyota’s presence in so many markets naturally protects it from currency fluctuations.” Six Sigma: 2005. Its ability to shift production to different plants in different countries with rapidity has allowed it to take advantage of a weak currency in those countries where it has production plants. which could result in forced price hikes to cover increased production costs. Toyota has the opportunity to set up manufacturing plants in those regions to reduce its transportation costs. 4. Targeted Marketing and International Positioning While Toyota produces an array of models that attract a diversified client-base. The growing want for hybrid automobiles in the U.4.”28 This TQM strategy pertains to floor employees as well as top level managers and executives. and production. he does so with the intention of buying the product that best caters to his needs. Efficient Manufacturing Toyota’s efficient manufacturing relies on its management philosophy of Total Quality Management.INB 300 – Discovery Project 25 4. 28 Hashmi. engineering. Toyota has not only been successful in guarding against currency fluctuations. Upon establishing the particular models that satisfy the preferences of particular populations. one especially the size of an automobile.S.1. 4. Toyota’s ability to market only certain goods in different markets reflects its success in analyzing consumer tastes. For example. its marketing strategy targets the individual consumer. etc. however. This is the exact logic of Toyota’s marketing strategy. Toyota is in the process of setting up its 7th plant in Kentucky to begin production of the hybrid Camry. and reduce production in those countries where the currency is actually stronger. Toyota has been successful in speculation. and over the years has perfected the system to establish a quality system and quality culture. In theory. “Introduction and Implementation of Total Quality Management (TQM).1. market presented Toyota with the opportunity to create a hub for hybrid cars in their largest market in the world. as well as moving with quickness. by allowing it to concentrate its activities in different markets at different times. finance. Toyota has implemented TQM since its founding during the 1950s. An agreed risk of both national and transnational corporations is the potential for sudden fluctuations in a country’s currency. This theory “seeks to integrate all organizational functions (marketing.6.1. it has actually been able to take advantage of the seemingly negative economic condition. Another danger of currency fluctuation is a decreased demand due to a higher real price of a commodity. design. and reflects a purposedriven focus.
4. COMPANY PERFORMANCE The following bar charts highlight the performance of Toyota relative to its industry average and best performing company for selected criteria. The following criteria selected cover two corporate sustainability dimensions: Figure 4.com/ . much of its production and sales are still highly concentrated in only two markets: Japan and the United States.2. Moreover. While Toyota is present in over 150 markets around the world. Toyota leaves itself somewhat vulnerable to the political and economic conditions of these two countries. 2004.3.sustainability-index. its percent sales in countries other than the U. other economic factors leading to either recessionary periods in these countries can severely affect Toyota’s sales. While the internal hedging strategy does protect Toyota to some extent from currency fluctuation. revenue and profit. This very susceptibility may be the reason why Toyota is beginning to expand and develop in new markets like China. an unstable political climate in any of these countries can result in a decreased demand for their good. Sustainability Leader Toyota Motor. TOYOTA’S SHORTCOMINGS 4.S. or Japan are marginal and cannot balance out those in its two main markets. As such.2: Company performance vs.2. However. Market concentrations Toyota has a particular advantage in identifying national preferences and setting up international manufacturing plants accordingly. and ultimately less sales.1. www. industry average29 29 SAM Research Inc.INB 300 – Discovery Project 26 4.
Not only does this transition translate into opportunities for foreign investors.cia. meaning more openness to foreign enterprise and competition. and consistently growing at 0. This can be attributed to large foreign investment and a growing demand for vehicles.2. only six hold a considerable market share in the industry. sales volume and percentages rose drastically.com 32 China Automobile Industry. Overview With China’s population sitting at just over 1. Since 2003. up 50% in 2002 alone. Current state of the auto industry China is leading the world in terms of its auto industry’s growth rates. and over one hundred car manufacturers are already in existence.com .1. but it also means more prosperity for the people of China. This booming market has drawn the attention of many Chinese entrepreneurs. with a sales growth of 44.30 Analyst predictions show that in 2005.1.32 By joining the World Trade Organization in 2001. CHINA 5. and are partnerships with European and American automakers. Research and Consultancy Outsourcing Systems. EMERGING MARKET EXPANSION 5. the industry has grown to become the third largest in the world. The gross domestic product per capita in China rose more than 600% from 2001 to 2004. The government is attempting to protect its domestic producers by solely allowing joint-ventures. http://www. www.58% per year. about 42 million households will be able to afford the purchase of an automobile.31 5.1. From its previous communist form of government.gov “The China Stock Blog.” http://chinastockblog. This increase in purchasing power parity means an increased ability to purchase high-priced goods such as automobiles. China has only recently begun to make the transition to a more capitalistic economy.1.4%. The position of these enterprises and joint venture partners can be seen in the following figure: 30 31 CIA World Factbook.3 billion in July 2005.marketresearch.INB 300 – Discovery Project 27 5. its consumer base is the largest in the world. However. from just over 900 USD to just under 6 thousand USD.
co. taking advantage of low labor and land costs. there was not a risky proposition. beginning with its “crown” model and potential SUV line. Toyota in the World 2005.1: China’s automakers and joint ventures. 5.4. In the very near future. and secondly. www.jp 35 “Chinese Auto Industry Slowed in ’04. it has nonetheless drawn many benefits from its joint venture with one of China’s largest automakers. www.35 At this time. Toyota provides FAW with financing and technical assistance in their production activity. however. This “slowdown” came from weaker earnings in China.3. to be exported back into Japan and Philippines. with large foreign automakers vying 33 34 Economics and Business Group Centre for Automotive Research. Potential for a subsidiary? Although the automotive industry in China slowed down in 2004. Toyota’s current presence Despite Toyota entering the Chinese automotive industry after the initial boom in October 2002. as of 200233 5.com .1. They have 12 plants in China for reasons of cost-reduction. as early as the end of this year.INB 300 – Discovery Project 28 Figure 5. competition in the market is also at an all-time high. the General Motors Chief Financial Officer. China First Automotive Works Group Corporation (FAW).toyota. historic tensions still make purchasing Japanese products uncommon in China. in conjunction with FAW. The FAW-Toyota partnership currently sits in 4th place in the auto market.thecarconnection. its growth rates were still hovering around10%.cargroup. Toyota has plans of beginning to release its own Toyota models. Toyota more recently used their joint venture to produce their own parts and materials. with gross sales of almost 100 thousand units in 2002. according to John Devine.34 This move into China keeps it on a level playing field with Japanese competitors like Honda who have pursued similar joint ventures.1. This joint venture was undertaken for several strategic economic reasons: First. Currently.” www.org/ Toyota Motor Corporation. no concrete share figures have yet been disclosed.
but also on Chinese policy making.detnews. both have seen sales grow at rates around 25%.INB 300 – Discovery Project 29 for a large stake in the booming market. many of them university students. and it not only dependent on internal decision-making. consumers will place a greater importance on the “intangible assets” like branding than on the technical characteristics of the vehicle. which was already outlined in its “three-stage plan. it will be difficult for Toyota. when “some Japanese model cars were overturned and damaged during the demonstrations.5. which drew crowds of 20. and explore all the new ways of cost reduction. it is a sign to further penetrate the market. but Toyota must not shy away from the challenge. Competition and foreign interest in the Chinese auto market will continue to be high. 5. at least until the industry matures. foreign companies are already leading the industry.36 Nonetheless. Toyota’s success in the Chinese market thus not only depends on its internal strategy to developing in China. if these historical wounds can be repaired. it must open its borders completely and allow more healthy competition. if it hopes to lower costs for consumers. if Toyota hopes to develop gain market share in the industry.” http://chinastockblog.38 36 37 The McKinsey Quarterly. it was unheard of that anyone would crack the Big Three. If the partnership witnesses success in the industry.” but more importantly. in a “rapidly evolving car market”. as well as appealing to local tastes. it must begin to understand the local tastes and produce models accordingly. When they decided to undertake the United States market several decades ago. Toyota now stands in 3rd.” www. and any other Japanese automaker to penetrate the market. however. and only time will tell whether the Chinese will be more tolerant towards their Japanese brand. with Volkswagen and GM occupying the top spots.” www. Volkswagen cut prices by just under 12%.com . Japanese car manufacturers were victim to protests before the 2005 Shanghai auto show.000 people. Currently. It must apply a similar competitive strategy to its China expansion. and if barriers in fact do begin to drop.mckinseyquarterly. A Toyota Brand According to McKinsey analysts. This is likely to be the case in coming years. it is a no-brainer whether to enter this lucrative market that is expected to become the largest by 2025. What we do know is that there is still resentment towards Japan in some demographics of the population. however.”37 If such actions continue. It is very difficult to speculate as to the future of Toyota’s name in China.com 38 “The China Stock Blog. From our perspective. it must use its FAW partnership as a trial run for the potential construction of its own subsidiary. The concept of building a Toyota manufacturing facility in China is still an uncertain idea. the government has joint-venture requirements on foreign entrants in hopes of protecting domestic producers.1. and can compete with the low-priced Chinese automakers. In response to GM China offering 11% discounts.com “Japanese Automakers say Sales Not Yet Affected by Protests. “Shaping the future of China’s auto industry. Currently. coping to the changing Chinese attitudes towards Japan.
Toyota’s product differentiation strategy for their wide array of markets has proved to be a success. as is apparent by the substantial increase in the research and development budget. Toyota feels their way of car making is of equal or higher quality to their global competitors. Toyota has used this as an opportunity to get ahead. The demand for Toyota’s top of the line fuel efficient vehicles is thriving.toyota. and the executives have no intention of looking back. expressed this sentiment with the following assertion: “We will step up growth through further innovation inspired by the Toyota Way tradition. www. Message from Management. This strategy reflects the seven guiding principles of Toyota. Message from Management. Recent environmental catastrophes and global economics have put pressure on automakers to seek more fuel efficient vehicle development. www. The success of its new hybrid models will contribute to its branding as a global company. and the need to understand culture in order to cater to specific peoples’ needs. it should nonetheless be noted that Toyota still believes in room for improvement. The management feels that new markets and new products with the creative ingenuity of Toyota will help fuel this expansion. The president.jp Toyota Motor Corporation. While the sharp increase in oil prices has put strain on many global automakers. It is confident in its continued foreign expansion. The company feels strongly about maintaining order between technology and the earth. the long-term benefits for society clearly outweigh them. they will however not overlook their values of global responsibility. and they intend to build upon the knowledge they have already acquired throughout the years. and although this approach may result in short-term profit reduction. Toyota will strive on the development of other global automakers through the increased need to be efficient and reduce costs. and by extension its rise in the ranks of the automotive industry.co. Despite this inherent belief of their leading efficiency in production. Toyota’s Chairman Hiroshi Okuda is attempting to promote his belief that “Toyota will realize sustainable growth while contributing to the development of the automobile industry worldwide guided by an overriding belief in the value of competition.”39 In other words. Katsuaki Watanabe. 39 40 Toyota Motor Corporation.jp .toyota.”40 This message is posted on their global website as a sign of an optimistic future for Toyota Motor Corporation.co.INB 300 – Discovery Project 30 FINAL THOUGHTS Toyota Motor Corporation has set high standards for its company’s future.
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