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In January 2004, leading global automobile company and Japan's number one automaker, Toyota Motor Corporation (Toyota), replaced Ford Motors (Ford), as the world's second largest automobile manufacturer; Ford had been in that spot for over seven decades. In 2003, Toyota sold 6.78 million vehicles worldwide while Ford's worldwide sales amounted to 6.72 million vehicles (General Motors, the world's largest car manufacturer sold 8.60 million vehicles). According to reports, while Toyota's market share in the US increased from 10.4% in 2002 to 11.2% in 2003, Ford's declined from 21.5% to 20.8% during the same period. Reaching the No.2 slot was a major achievement for Toyota, which had begun as a spinning and weaving company in 1918. Ford was reportedly plagued by high labor costs, quality-control problems, lack of new designs and innovations, and a weak economy during the early 21st century, which made it vulnerable to competition. Toyota, aided by its new product offerings and strong financial muscle had successfully used this scenario to surpass Ford and affect a dramatic increase in its sales figures. In November 2003, Toyota announced its financial results for the half-year ended September 30, 2003. The company reported a 23% increase in net income (as compared to the corresponding period of the previous year) to $4.4 billion on revenues of $69.7 billion. This took Toyota way ahead of World's top three automobile makers (at that time) by sales, General Motors (GM), Ford Motors (Ford) and Daimler Chrysler. Its market capitalization of $110 billion (on November 05, 2003) was more than the combined market capitalization of these three players. (See Table I). Given the fact that in 2003, these top three companies were struggling to maintain their sales and profitability targets, Toyota's performance was termed remarkable by industry observers (See Exhibit I for the company's financials). Toyota had emerged as a formidable player in almost all the major automobile markets in the world. Interestingly, one of its strongest markets was the US, the world's largest automobile market and the home turf of Ford and GM. Toyota had emerged as a strong foreign player in Europe as well, with a 4.4% market share. In China, which the company had identified as a strategic market for growth in the early 21st century, it had a 1.5% market share.
Introduction Contd...
The other major markets in which the company was fast strengthening its presence were South America, Southwest Asia, Southeast Asia and Africa.3 Back home in Japan, it enjoyed a market share of over 43%. Analysts attributed Toyota's growing sales across the world to its aggressive globalization efforts that began in the mid-1990s. The company constantly strived to ensure that each of its market segments - Japan, North America, and Europe and other markets - generated one-third of the annual sales (See Exhibits II and III for revenues and revenue growth data in its core markets). This goal was at the heart of Toyota's three globalization programs - New Global Business Plan (1995-1998), Global Vision 2005 (1996-2005) and Global Vision 2010 (2002-2010). In the light of Toyota's intensifying globalization
efforts, Toyota's competitors themselves stated that Toyota could not be taken lightly. GM's Chairman, John F. Smith Jr., said, "I would not say they will not make it. Toyota is an excellent company. They are very focused on what they do and they do it well, and that is what makes them great."4
Background Note
Toyota's history dates back to 1897, when Japan's Sakichi Toyoda (Sakichi) diversified from his traditional family business of carpentry into handloom machinery. He founded Toyoda Automatic Loom Works (TALW) in 1926 for manufacturing automatic looms. Sakichi invented a loom that stopped automatically when any of the threads snapped. This concept (designing equipment to stop so that defects could be fixed immediately) formed the basis of the Toyota Production System (TPS) and later became a major factor in the company's success. In 1933, Sakichi established an automobile department within TALW and the first passenger car prototype was developed in 1935. Sakichi's son, Kiichiro Toyoda (Kiichiro), convinced him to enter the automobile business, and this led to the establishment of Toyota in 1937. During a visit to Ford to study the US automotive industry, Kiichiro saw that an average US worker's production was nine times that of an average Japanese worker. He realized that to compete globally, the Japanese automobile industry's productivity had to be increased...
Japan. In 1998, Japan sales accounted for a mere 38% of the company's total sales, as compared to 52% in 1990. Also, Toyota's Japan sales contributed to a very small share of its total profits. US sales contributed to the majority share (80%) of the profits, followed by Europe. By the late 1990s; young buyers accounted for 30% of the customer base as compared to over 45% in the late 1980s. In 1998, models from rival companies such as Honda and BMW were more popular than the ones offered by Toyota. According to reports, Japanese youngsters felt that Toyota cars 'lacked attitude.' Toyota realized that by losing its young customers to other companies, it ran the risk of losing its future market as well. Analysts claimed that despite its efforts to cater to the young, the company had failed to give them zippy compact minivans and sports utility vehicles...