assignment 1 toyota ve1

8/8/2019 Assignment 1 Toyota Ve1

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EDITH COWAN UNIVERSITY

INTERNATIONAL BUSINESS

INB5607

TOYOTA MOTOR CORPORATION A GLOBAL LEADER IN THEMOTOR INDUSTRY

ASSIGNMENT 1- ESSAY

Mutema Chella

Lecturer ChibambaKanyama8/20/2010


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TABLE OF CONTENTS

1 INTRODUCTION ...............................................................................................................12 TOYOTAS COMPETIVE ADVANTAGE .........................................................................1

Advantage through management of Market Risk.....................................................3Strategic Alliances as a way of ensuring advantage ...............................................4Advantage through flexible production system .........................................................5

3 GLOBAL FINANCIAL AND ECONOMIC CRISIS AND EFFECTS ON TOYOTA ..........5How the recent financial and economic crisis was triggered .................................5Overview of evolution of the motor industry ...............................................................7Major challenges to be faced by Toyota due to the financial crisis .....................7

4 DISCUSSION AND CONCLUSION .................................................................................95 REFERENCES .................................................................................................................. 10


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TOYOTA MOTOR CORPORATION A GLOBAL LEADER IN THE MOTOR

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1 INTRODUCTIONFor 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 GMs 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. GMs 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 Toyotas 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.

2 TOYOTAS COMPETIVE ADVANTAGEToyotas global competitive advantage is based on a corporate philosophy

that has evolved from the companys origins and has been reflected in theterms Lean manufacturing and just in Time Production, which it was

instrumental in developing (Toyota, 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.

Advantagethrough Production Systems

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

guide, 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: Valuable; allows firms to neutralize threats or exploit

opportunities, Rarity; possessedby a few, if any current and potential

competitors, Costly to imitate; when other firms either cannot obtain them or

must obtain them at higher cost and organized to be exploited ; supported by

the appropriate structures, controls and rewards

According to the business guide (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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Corporateculture

It is stated that (Business guide, n.d.), the fundamental reason for Toyotas

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 firms 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

companys approach to both product development and distribution is very

consumer-friendly and market-driven. It is said by the Business guide, (n.d.)

that the companys 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).

Advantagethrough managementofMarket Risk

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.com, 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

Toyotas operating results. (Edgar-online.com, n.d.).

The financial instruments included in the market risk analysis consist of all of

Toyotas cash and cash equivalents, marketable securities, finance receivables,

securities investments, long-term and short-term debt and all derivative financial

instruments. Toyotas 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.com, n.d.).

Strategic Alliancesasa wayofensuringadvantage

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 one; 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).

Advantagethrough flexibleproductionsystem

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 increasedifferentiation 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)

3 GLOBAL FINANCIAL AND ECONOMIC CRISIS AND EFFECTS ON TOYOTAHow therecentfinancialand economiccrisis wastriggered

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

liquidity shortfall in the USA banking system (Financial Crisis of 2007-2010, 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 crisis, n.d.). Economies

worldwide slowed down during this period as credit tightened and international

trade declined (Sendanyoye, 2009)


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Overview ofevolutionofthemotor industry

The automobile industry has evolved in the Global North as a brown Sunrise

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 revolutions; 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 (GMs

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

Majorchallengesto befaced by Toyota duetothefinancialcrisis

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 2008-2010,

(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

kiaPicanto, Kia ceed and Hyundai I 30 that have attracted global

consumers at the time of severe economic recession (Automotive industry Crisis

of 2008-2010, n.d.)


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4 DISCUSSION AND CONCLUSIONAlthough 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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5 REFERENCESAutomotive Industry Crisis of 2008-2010 (n.d.).Business guide, (n.d). Retrieved August 17, 2010 from

http://www.1000venture.com/business guide/csefficiencytoyotaPs.html

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

Edgar-online.com (n.d.). Retrieved August 17, 2010 fromhttp://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-WesternPublishing Company

Jackson E.S & Schuler, R (2003) Managing Human Resources ThroughStrategic Partnerships (8th ed.). Thomson South-Western Publishing Co

Liker, J.K. (2004). The Toyota Way: 14 Management Principals from theWorlds Greatest Manufacturer (2nd ed.) McGraw-Hill, Two Penn

Plaza, New York

Rowe& Sheppard (2009). Strategic Management: Competitiveness andglobalization. (Notes available from Nelson Publishing)

Sendanyoye, J. (2009). Impact of the Financial Crisis on Finance SectorWorkers. International Labour Office, Geneva (Document ID:GDFFCW-2009-02-018-1-EN.Doc)

Stenzel, L.P. (2010). Strategic Alliances Reference for Business, Encyclopaediaof Business (2nded.)., Retrieved on July 29, 2010 from website:http://www.referenceforbusiness.com/encyclopedia

Toyota (n.d.). Retrieved July 28,2010 from ToyotaWiki:http://en.wikipedia.org/wiki/Toyota


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

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