CASE 12

1. Why do you think Toyota waited so long to move much of its manufacturing for European sales to Europe? As the automobile industry is very capital intensive, Toyota wanted to continue pursuing economies of scale and scope. In addition to that, even though only 26% of the cars sold in Europe were manufactured there, Europe was still the second largest foreign market for Toyota. The European market sales were second only to North America where 60% of the manufacturing was done locally. With such numbers Toyota did not see it as a pressing issue to move manufacturing locally, as importing cars and components did not seem so risky, expensive and for that particular moment it worked well enough.

2. If Britain were the join the European Monetary Union, would the problem be resolved? How likely do you think it is that Britain will join? The contributors to the 26% European market sales which come from local manufacturing are Britain, Portugal and Turkey. Only Portugal has the Euro as official currency, Turkey has the Lira and Britain has the Pound. Britain joining the European Monetary Union (EMU) will not solve the problem as the Euro had been continuously falling against both the Japanese yen and British pound. Joining the EMU will eliminate only the pound/euro currency deviations but not the euro/yen deviations. Britain will not join the EMU, at least not any time soon, as the euro is not the most stable currency due to the crisis. Becoming part of the EMU and accepting the euro as a main currency means dependency which Britain does not want or need right now.

3. If you were Mr. Shuhei, how would you categorize your problems and solutions? What was a short-term and what was a long-term problem? Short-term problem: the current exchange-rate issues (the continuous falling of the euro against the yen and the pound) Long-term problem: manufacturing strategy (for some reasons the North American sales were supported by 100% local manufacturing, while in Europe not and this is where the costs and losses came from) Solutions: continue absorbing the yen costs until the market stabilizes and move manufacturing for the European market to European countries which are part of the EMU, i.e. move away from the facilities in Britain

4.

What measures would you recommend Toyota Europe take to resolve the continuing operating losses? Manufacturing of cars targeted for Europe should be moved to Europe. However, Toyota should consider moving its manufacturing facilities to countries within the European Monetary Union, as Britain does not seem to be working on joining any time soon. This way currency-related risks, deviations and losses will be eliminated. In addition to that, Toyota should prioritize among its market-share and profit-oriented goals and develop a proper strategy based on that prioritization.