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INTERNATIONAL BUSINESS
INB5607

TOYOTA MOTOR CORPORATION A GLOBAL LEADER IN THE

MOTOR INDUSTRY
ASSIGNMENT 1- ESSAY |
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1| INTRODUCTION ...............................................................................................................1|

2| TOYOTA·S COMPETIVE ADVANTAGE .........................................................................1|

Advantage through management of Market Risk.....................................................3|

Strategic Alliances as a way of ensuring advantage ...............................................4|

Advantage through flexible production system .........................................................5|

3| GLOBAL FINANCIAL AND ECONOMIC CRISIS AND EFFECTS ON TOYOTA..........5|

How the recent financial and economic crisis was triggered.................................5|

Overview of evolution of the motor industry ...............................................................7|

Major challenges to be faced by Toyota due to the financial crisis .....................7|

4| DISCUSSION AND CONCLUSION .................................................................................9|

5| REFERENCES .................................................................................................................. 10|


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For 76 years, General Motors (GM) was the global industry leader. In 2006 GM
sold approximately 9.1 million vehicles, yet its global market share has been
declining over the years. In fact in 2007 Toyota became the world largest
automaker. In addition GM has been struggling to earn positive returns in recent
years. GM finally returned to profitability in 2007 after experiencing several years
of significant losses. Many of GM·s problems stem from its competitive
capabilities in the North American market, where Toyota and other foreign
automakers have made substantial gains. GMs return to profitability have come
from its international operations especially its sales in the Chinese market where
it invested over $ 2 billion and these results have resulted in positive returns. GM
sold more than 875,000 cars in China during 2006. GM·s competitive advantage
is clear because Toyota sold slightly more than 275,000 cars during the same
period. However, Toyota plans to double its production capacity in China by
2010[1].This essay attempts to explain the basis of Toyota·s competitive success
and goes on to discuss the major challenges Toyota will face as a result of the
global economic and financial crisis and further examines pitfalls to avoid to
keep its number one leadership.

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Toyota·s global competitive advantage is based on a corporate philosophy
that has evolved from the company·s origins and has been reflected in the
terms ¶Lean manufacturing· and just in Time Production, which it was
instrumental in developing (´Toyotaµ, n.d.). The managerial values and business
methods are collectively known as the Toyota Way (Liker, 2004)

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A firm is said to have a competitive advantage when it implements a strategy

that its competitors are unable to duplicate or find costly to try to imitate (Hitt,
Hoskisson & Ireland, 2007). According to Sheppard (2009) this is achieved when
a firm successfully formulates and implements a value-creating strategy and
further states that a Sustained Competitive Advantage occurs when a firm
develops a strategy that competitors are not simultaneously implementing. And
thus provides benefits which current and potential competitors are unable to
duplicate.



  
 

 

The Toyota Production System depends in part on human resource

management policy that stimulates employee creativity and loyalty but also on
a highly efficient network of suppliers and components manufacturers (´Business
guideµ, n.d.). According to Rowe & Sheppard (2009), resources and capabilities
ought to possess the following attributes to be able to produce a competitive
advantage for a firm: ›
 
l allows firms to neutralize threats or exploit
opportunities,   l possessedby a few, if any current and potential
competitors,

  l when other firms either cannot obtain them or
must obtain them at higher cost and organized to be exploitedl supported by
the appropriate structures, controls and rewards

According to the ´business guideµ (n.d.), the Toyota Way consists of the
fundamental principles of Toyota culture which allows the production system to
function effectively

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It is stated that (´Business guideµ, n.d.), the fundamental reason for Toyota·s
success in the global market lies in its corporate culture. Corporate culture is the
set of rules and attitudes that govern the use of a firm·s resources (Jackson &
Schuler, 2003).

Toyota has successfully penetrated global markets and established a world-

wide presence by virtue of its productivity (Liker, 2004). He further states that the
company·s approach to both product development and distribution is very
consumer-friendly and market-driven. It is said by the ´Business guideµ, (n.d.)
that the company·s philosophy of empowering its workers is the centre-piece of
human resources management system that bring up creativity, continuous
improvement and innovation by encouraging employee participation. Liker
(2004) further asserts that this engenders high levels of employee participation,
and likewise produces high levels of employee loyalty.A workplace with high
morale and job satisfaction is more likely to produce reliable, high-quality
products at affordable prices. Toyota has institutionalized many successful work
force practices and the strength of this is that it has not only been done for its
own plants but also in supplier plants that were experiencing problems (Liker,
2004).



  

 

Toyota is exposed to market risk from changes in foreign currency exchange

rates, interest rates, and certain commodity and equity security prices. In order
to manage the risk arising from changes in foreign currency exchange rates and
interest rates, Toyota enters into a variety of derivative financial instruments.
(´Edgar-online.comµ, n.d).

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Toyota monitors and manages these financial exposures as an integral part of its
overall risk management program, which recognizes the unpredictability of
financial markets and seeks to reduce the potentially adverse effects on
Toyota·s operating results. (´Edgar-online.comµ, n.d.).

The financial instruments included in the market risk analysis consist of all of
Toyota·s cash and cash equivalents, marketable securities, finance receivables,
securities investments, long-term and short-term debt and all derivative financial
instruments. Toyota·s portfolio of derivative financial instruments consists of
forward foreign currency exchange contracts, foreign currency options, interest
rate swaps, interest rate currency swap agreements and interest rate options.
Anticipated transactions denominated in foreign currencies that are covered
(´Edgar-online.comµ, n.d.).


   

  


According to Stenzel (2010), a strategic alliance is a business arrangement in

which two or more firms cooperate for their mutual benefit, firms may combine
their efforts for a variety of purposes, including but not limited to, sharing
knowledge expertise and expenses as well as gain entry to new markets or gain
a competitive advantage in one. Rowe & Sheppard (2009), state that a
creation of a strategic alliance may turn actual or potential competitors into
partners. This was the case with Toyota (TMC) and GM, in 1983 Toyota was
number three automaker while GM, was number onel the two firms entered into
a joint venture to produce a small car for the USA market (Chan & Wong, 1994).
They further assert that GM wanted the help in learning how to produce small
cars more efficiently while TMC typically a conservative company with no U.S
manufacturing facilities at the time wanted experience in dealing with U.S
labour within its Toyota Production System (TPS). The result was a joint-venture

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called New United Motor Manufacturing Incorporated (NUMMI). NUMMI now

produces the Prizm for Chevrolet Division of GM and Corolla and a pick-up for
Toyota. The vehicles are consistently rated as some of the best-built vehicles sold
in the U.S (Chan & Wong, 1994).



  
 



Toyota has had flexible manufacturing systems based on information networks and
Total Quality Management Systems. Such a system focuses on meeting customer
expectations while striving to exceed them, work activities to drive out waste,
continuous improvement and flexibility to sport opportunities to simultaneously increase
differentiation and or drive out cost (Rowe & Sheppard, 2009). By using such a system
Toyota has been able to continue extending product life cycles of their different
models. When a particular model reaches maturity, before it begins to decline in sales
the life is extended by introducing an upgraded version with additional/different
features (Liker, 2004)

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Through The recent financial and economic crisis is a crisis triggered by a

liquidity shortfall in the USA banking system (´Financial Crisis of 2007-2010µ, n.d). It
had resulted in the collapse of large financial institutions, the bail out of banks by
national governments and downturns in the stock markets problems had their
origins in a steep contraction in credit, whose full effect started to be felt in mid-
2007 (Sendanyoye, 2009). Sendanyoye (2009) states that it can be traced further
back to the deflation of the high-tech bubble of a decade ago. He further
states that when the stock market began a steep decline in 2000 and the global
economy started to slide into recession, the USA Federal Reserve and other
central banks sharply lowered interest rates to limit economic damage. The

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sustained lower interest rate fuelled a mortgage-borrowing boom, while

encouraging millions of home owners to refinance their existing mortgages. A
financial innovation that separated mortgage initiation from lending decisions
added to the mix, with a half million independent American mortgage brokers
being paid commission to prospect for home buyers on behalf of mortgage
lenders, while commissions were solely based on the number of clients they
brought to lenders .
The ability of customers to repay the mortgage was of no concern, because of
yet another innovation. Traditionally, banks had financed housing loans through
customer deposits which had a limiting effect on the amount they could lend.
However the financial industry had developed new business models that greatly
expanded the funds available to increase mortgage lending dramatically.
Mortgage lenders could immediately sell on to investment banks the home
loans they made to borrowers. The investment bank in turn would bundle
thousands of mortgage-backed securities on to investors who were eager for
high-yielding investment products in a low interest environment. Many of these
securities included sub-prime loans made to people with low credit ratings who
were give ¶triple A· ratings by the major credit-ratings agencies in return for a
fee from issuers. As the industry expanded rapidly, the quality of the mortgage it
issued started to deteriorate, eventually turning sour when many home buyers
became over-leveraged. The collapse of the global housing bubble which
peaked in the US in 2006 caused values of securities to plummet thereafter,
damaging financial institutions globally (´Financial crisisµ, n.d.). Economies
worldwide slowed down during this period as credit tightened and international
trade declined (Sendanyoye, 2009)

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The automobile industry has evolved in the Global North as a ´brown Sunriseµ
industry in the early 20th Century and Internationalized into the Global South
already from the 1920s under the control of western automakers The Industry
under went three business revolutionsl From a craft based organization to a
¶brown· standard mass assembly industry (Fordism) then into a customized, but
divisional organized and vertically integrated mass production industry (GM·s
productive model), and further onto a production system of flexible
specialization or lean manufacturing (Toyotism). Now the industry faces a fourth
and ¶green· revolution (automotive sustainability) aiming to increase fuel
efficiency and renewable energy, lowering emission and fuel insecurity and
pursuing complete recycling of scrap. This transition is driven by rising fuel and
commodity prices, external supply dependence, environmental pollution, global
warming, tighter environmental

  




 

    

The global financial crisis broke out in 2008 and hit the international automobile
markets in October 2008 when automobile sales plummeted in USA and Europe
(Wad, 2009). On the global scale demand for vehicles diminished virtually
overnight resulting in worldwide over stock situation (Wad, 2009). So one of the
immediate measures for Toyota to take is to limit its self to this exposure is to
cutback in production.

Prior to the global financial crisis the motor industry in South Africa, Mexico and
Thailand were seen to be global manufacturing hubs (Wad, 2010). It means
production facilities of Toyota in some of these countries had to suffer the shock
created by the global situation by reducing export production.

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Another challenge for Toyota is to take strategic initiatives to improve

competitiveness on one hand and to transform a ¶brown industry· to a ¶greener·
industry by beginning to produce automobile that are less dependent on fossil
fuel to greener technology and hence a need for investment in appropriate
infrastructure and green technology R&D.

Toyota had will have to combat off the stiff competition from the South Korean
automaker. It has been reported by ´Automotive industry Crisis of 2008-2010µ,
(n.d.) that South Korean automakers have been generally much profitable than
their USA and Japanese counterparts, recording strong growth even in
depressed markets such as the USA. They have been able to produce
affordable yet high quality and well deigned vehicles. The success in increased
market share and growth has been attributed to their producing fuel-efficient
and well equipped, yet affordable car with generous warranties such as the
¶kiaPicantoµ, ¶Kia cee·d· and ¶Hyundai I 30· that have attracted global
consumers at the time of severe economic recession (´Automotive industry Crisis
of 2008-2010µ, n.d.) |

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÷ 

Although National boundaries, cultural differences, and geographical distances
all pose barriers to entry into many markets, significant opportunities motivate
businesses to enter international markets. A business that plans to operate
globally must formulate a successful strategy to take advantage of the global
opportunities. Furthermore, to mold their firms into truly global companies,
managers must develop a global ¶mind-set·. As firms move into international
markets, they develop relationships and are thus able to learn new capabilities
from such partnership.

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´Automotive Industry Crisis of 2008-2010µ (n.d.).
´Business guideµ, (n.d). Retrieved August 17, 2010 from
http://www.1000venture.com/business guide/cs
efficiencytoyotaPs.html

Chan, P.S. & Wong, A. (1994). ´Global Strategic Alliances and Organizational
Learningµ, Leadership & Organization Development Journal, Vol. 15 Iss:
4, pp.31-36

´Edgar-online.comµ (n.d.). Retrieved August 17, 2010 from

http://google.brand.edgar-
online.com/EFX_dll/EDGARpro.dll?fetchFilingHtmlSection1?SectionID=6
012888-443969-449563&SessionID=XcKRHWLzxztZA17

Hitt, A.M., Hoskisson, E.R & Ireland, D.R (2007) Strategic Management:
Competitiveness and Globalization (7th ed.). Thomson/South-Western
Publishing Company

Jackson E.S & Schuler, R (2003) Managing Human Resources Through

Strategic Partnerships (8th ed.). Thomson South-Western Publishing Co

Liker, J.K. (2004). The Toyota Way: 14 Management Principals from the
World·s Greatest Manufacturer (2nd ed.) McGraw-Hill, Two Penn
Plaza, New York

Rowe& Sheppard (2009). Strategic Management: Competitiveness and

globalization. (Notes available from Nelson Publishing)

Sendanyoye, J. (2009). Impact of the Financial Crisis on Finance Sector

Workers. International Labour Office, Geneva (Document ID:
GDFFCW-2009-02-018-1-EN.Doc)

Stenzel, L.P. (2010). Strategic Alliances Reference for Business, Encyclopaedia

of Business (2nded.)., Retrieved on July 29, 2010 from website:
http://www.referenceforbusiness.com/encyclopedia

´Toyotaµ (n.d.). Retrieved July 28,2010 from Toyota

Wiki:http://en.wikipedia.org/wiki/Toyota

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Wad, P. (2009). Impact of the Global Economic and Financial Crisis over the
Automotive Industry in Developing Countries, UNIDO, Research and
statistics Branch: working Paper 16/2009

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