Toyota in Us Market

1. Introduction of Toyota 1. 1 History of Toyota Toyota was founded in Japan, in 1890 by Sakichi Toyoda, it was first a company specialized in the textile industry and Sakichi Toyoda invented a wooden handloom [1]. It’s only 40 years after that a member of Toyoda’s family began to work on gasolinepowered engines. The first Toyota, called the AA Sedan, was launched in 1936, 1404 models were sale. This first model was a large copy of another model, the Chrysler Airflow. In 1938 a major breakthrough was done into the supply chain area of Toyota, the Just-in-Time process [1]

According to this process, the goods arrived only when they are needed, the amounts of goods in stocks are tremendously reduced which avoid storage costs. During the 40’ Toyota’s range of activity became bigger. They established various department like a Physical and Chemical Research Institute, a rubber department and a steel department for example. In 1947, the range of products is composed of 3 models, 2 trucks and a compact passenger car. The 100 000 Toyota was made [1]. In 1951, the Creative Idea Suggestion System began.

The goal is that workers themselves improved the manufacturing process and it works well. 1957, was the year of the exportation of Toyota in the United States, followed by Brazil in 1958 [1]. At the early 60’ Toyota, as Honda and Nissan, opened plants in the United States in response to the tariffs that the US government put on the importation of foreign cars [2]. During the 60’ and the 70’ Toyota get into several markets and opened an impressive number of plant (one per year in Japan). They increased their portfolio of activity and created partnerships with industrials companies like Hino Motors and Daihatsu [3].

After the oil crisis of 1973, American consumers began to turn to small car which was more fuel economic [1] . This market segment wasn’t occupied by American car manufacturers which considered this as an “entry level product”. It was the real beginning of the worldwide success of Toyota, they sale 5 millions of cars abroad between 1975 and 1979 and 10 million more from 1979 to 1985 [1]. After these huge successes Toyota chairman Eiji Toyoda, wanted to reach the American upper class consumers. The goal was to compete world’s best automaker, like German ones.

A secret project called F1 (Flagship one) was created and a bunch of Japanese engineers and designers went to the United States to observe the behaviour and the habits of potential consumers [4] . After 6 years of development they launched a new brand, called Lexus, to cut with the image of entry-level vehicle from Toyota. One more time it was a huge success, all the automobile specialists recognized the Lexus LS 400 as a very good car and even better than Mercedes and BMW models which prices were way over. 1. 2. Toyota since few years; the different axes of progress 1. 2. Toyota today After 81 years of leadership from General Motor, Toyota took them over in 2007 and became the biggest car manufacturer in the world, selling 9. 5 million of cars throughout the world [5] and a turnover of 76. 4 billion [3]. Also in 2007 the group sales for the first time more into the North American Market than into its domestic market. The group belongs several brands as Lexus, Scion, Hino Motors and Daihatsu which are produced on the 5 continents. In term of management techniques, improving and quality made products Toyota is recognized by everyone in this field of activity as a pioneer.

A list of 14 principles these principles: ? ? ? ? ? ? Base the company’s management decisions on a long-term philosophy, even at the expense of short-term goals; Foster a continuous process flow to sight problems; Build a culture that stops to fix problems, in order to get quality perfect at the first try; Standardised tasks are the company’s foundation for its continuous improvement and the development of the employees; Train leaders who understand the company’s work, live its philosophies, and share it to others; Train and develop a workforce who follow the company’s philosophy [1] as been implemented for years in the company and serves as guide. Here are some of The goal of these principles is to guide both people and the company to improve the quality of their product till the perfection, keeping in mind the satisfaction of its employees, their welfare and the brand image of the company. Toyota, as most of the car manufacturer, had problems with certain series of cars and between 2009 and 2011 more than 10 million cars had been recalled which is one of the biggest recall of all time [6]. These events tarnished the image of quality of the brand.

That reminded them to be extremely cautious even if they are the biggest car manufacturer in the world. 1. 2. 2 Hybrid car and electric ones Toyota invested on future technology for years, electric one especially, and launched in 1997 its Toyota Prius, the first hybrid mass product car. A hybrid car is composed of an electric motor and a thermic one, it aim to reduce the environmental impact of the car and to reduce the consumption of gas. Today the Prius is the most selling hybrid car in the world with more than 2. 8 million units [1].

Toyota use also this system on several models of their brands from compact car to SUV and became the leader in this field of activity [7] . They signed in 2011 a mid-long term partnership with BMW to improve [1] cars of both brands in term of impact on the environment . Toyota also produce recently Plug-in hybrids cars, the future of hybrid car. This system is only available for the Prius model, it has been sale in 2012 at almost 19 000 copies throughout the world. Thanks to the partnership with Tesla motor (car manufacturer specialized in the production of electric car) Toyota developed also full electric cars with lithium ion batteries.

These cars Zero-emissions vehicles and almost 500 units have been produced in 2012 [1]. 1. 3 SWOT Analysis 1. 3. 1 Strength One of the main forces of Toyota is that they are a worldwide leader. This leadership provide them a strong bargaining power and economies of scale could be done. Moreover moving lines of Toyota are the fastest and the most efficient of the world, they can produce more cars in a day so that a lower price policy can be pursue. Toyota has also a great brand image of quality for years.

Potential consumers can trust them and know that they will buy a reliable car instead of other brands. Toyota also benefit of an innovative brand image with their range of hybrid cars. The brand is implement throughout the world and not only in a continent like Peugeot or Renault. Even if a strong crisis, like the one in Europe at the moment, make demand decrease they can still sell their models in other parts of the world. They are also supportive of different causes like in America with the attacks in 2001. They also support the fight against the breast cancer.

This type of support provides them the image of a good company that don’t search only to make profits. 1. 3. 2 Weakness The Company structure is complicated and it could be difficult to manage, as they are present in every continent with a various number of models and plants. They have to be aware of that for the future for being sure to be as efficient as before. The company has also debts, due to the large number of plants that they opened for years. They have to be cautious in the future in a case of a big meltdown of the markets or an over-estimated production which would cause losses. 1. . 3 Opportunity They could become the symbol of next generation cars with its Prius model and its hybrid technology. They could also extend their ranges of products to other fields of activity. They could benefit from their brand image for example in the domain of hybrid car and electricity to create solar panels, batteries …

1. 3. 4 Threat Automobile sector is submitted to an intense rivalry and even more as Toyota’s model are sale all over the world and has to compete with different competitors (Peugeot in France for example or new brands from emerging countries as China). The threat of ew entrants is also high for example if a brand wanted to launch their models in the US market they would have to advertise to defend their market shares. Many goods and furniture are needed to create a car as steel, glass, rubber and their prices could rapidly increase depending on supply and demand. Different crisis could also affect the company as the demand would slow down with a decrease of the purchasing power of consumers. 2. The analysis of US market 2. 1 Why Toyota chose US market? Toyota chose US market as the first step of internationalization process due to the following reasons.

First of all, compared to the European and Asian market, the US market owned the biggest market share in mid-20th century. The annual sale of the US auto market was about 7 million [8] which is quite huge and attractive for Toyota. And in addition, in the early 1960s, Europe was still suffering from the after-effects of World War II. From the perspective of economic development, there’s no indication of the booming economy in European market. However, for the Americans the post-war boom produced a generation of teenagers with enough income to buy their own cars. Therefore, the only obvious export market was USA.

Although there’re several competitors, for example: General Motors, Ford and Chrysler dominated the market, Toyota decided to avoid direct confrontation with the market leader. They started a research in US market extensively and finally decided to go into subcompacts segmentation because of their comparative advantages and less competitors in this section. Market research on the consumers and distributors also showed that customers were looking for car as simply a mean of transportation instead of statues symbols. [9] In other words, there’s a demand in subcompacts in US market which was not totally satisfied by the competitors.

There’s opportunity for Toyota, so they launched Corona in California, where was proximate to Japan in order to reduce the transportation cost but kept cost under control. Furthermore California market was so attractive since it had a large, wealthy, young population and there was a large Japanese migrant community. 2. 2 Hofstede five dimensions Cultural is important in international business because it can make it easy or difficult. Since it has impacts on the strategic moves are presented and also influences management, decision making and negotiations.

Therefore, the best management strategy may need to modify according to different cultural and local conditions. Geert Hofstede carried out one of the most comprehensive studies on how values in the workplace are influenced by culture. As we can see from the following table2. 1, the US market has almost the opposite cultural values to the Japan market. Table2. 1 From the perspective of Power of distance, both Japan and US are relatively low. That means Supervisors and employees have a largely egalitarian relationship where consensus on both parts is required for making decisions.

Rather than being a source of authority, top management is seen as a facilitator builder and has the responsibility of maintaining harmony so that employees can work together. Top management takes cues from middle management, who base policies on the information forwarded by subordinates. From the perspective of individualism, Out of all the countries analyzed in Hofstede’s research, only seven have individualism (IDV) as their highest dimension including the U. S. That means American people expect that their employees are supposed to take care of themselves and remain emotionally independent from groups.

However, Japanese society shows many of the characteristics of a collectivistic society: such as putting harmony of group above the expression of individual opinions and people have strong senses of shame for losing face. From the perspective of Masculinity, Japan is one of the most masculine societies in the world. That means the Japanese society will be driven by competition, achievement and success. And in America, although the MAS are lower than Japan but still relatively higher than the average. This situation generates a female population that is more assertive and competitive.

Women tend to shift toward the male role model and away from the conventional female one. From the perspective of Uncertainty avoidance, Japan is one of the most uncertainty avoiding countries on earth. This is often attributed to the fact that Japan is constantly threatened by natural disasters from earthquakes, tsunamis, typhoons to volcano eruptions. Under these circumstances Japanese learned to prepare themselves for any uncertain situation. On the other side, American society is what one would describe as “uncertainty accepting.

Consequently, there is a larger degree of acceptance for new ideas, innovative products and a willingness to try something new or different, whether it pertains to technology, business practices, or foodstuffs. From the perspective of long term orientation, Japanese see their life as a very short moment in a long history of mankind. In corporate Japan, you see long term orientation in the constantly high rate of investment in R&D even in economically difficult times, higher own capital rate, priority to steady growth of market share rather than to a quarterly profit, and so on.

They all serve the durability of the companies. But American businesses measure their performance on a short-term basis, with profit and loss statements being issued on a quarterly basis. This also drives individuals to strive for quick results within the work place. There is also a need to have the “absolute truth” in all matters. 2. 3 E. T. Hall’s culture theory Table 2. 2 According to the table 2. 2, Japan is a high context culture which means What Is Said and How or Where It is Said Are Significant and US is a low context culture which means What Is Said Is More Important Than How or Where It Is Said.

Besides that high context culture or low context culture has not only impact on the communication but also influence the business. For example, in japan people used to build relationship before doing business and credibility is also based on relationship while the US will separate the business and relationship and the credibility is based on expertise and performance. In addition, in high context culture, agreements usually founded on trusts and negotiations are efficient but in low context culture agreement founded by legal contract and negotiations are slow and ritualistic.

In conclusion, there’re various differences not only from the culture aspect but also from the business aspect. Doing business in these two different situations, Toyota should raise the awareness of the culture difference in these two markets and modify the management strategy to suit the local condition. 2. 4 The US market environment When a firm entering a foreign market, developments in a country’s political, legal and economic environments may have impacts on the potential loss or adverse effects on the company. Therefore, Toyota has to take the environment of US market into consideration.

First of all, from the perspective of political system, both Japan and USA have elements of democracy. That means firms and individuals are the main decision-makers and the government intervention is limited. There’re strong rule of law in such market which will be easier for the Japanese company Toyota to entre to the economic freedom country. However, there’re still risks for Toyota. For example, in order to protect domestic auto industry, the Reagan administration imposed a bilateral voluntary export restraint (VER) with Japan. The initial VER agreement in May 1981 imposed on import ceilings for Japan of 1. 8millions units per year. [10] This agreement impels Toyota change their strategy to establish a joint venture with GM. Secondly, concerning the legal system, Japan used civil law while US is a typical country of common law. This may produce many problems in doing business in a different legal system country. For example: Toyota may put specific possible disputes in the contract because the common law is relatively flexible than civil law. Toyota should also raise the awareness of other problems such as foreign investment laws and controls on operation forms and practices etc.

Thirdly, as we can see from the table2. 3, in 1960s US economy is the largest and most advanced in the world, with $3972. 1 GNP per capital in 1966 while japan has $1058. 5 GNP per capital in 1966. And other European countries still suffering from the aftereffect of world war II, for example France or UK owned about $1960 GNP per capital which is less than half of that of US. Therefore, although uncertainty still remains regarding the changes in foreign investment policies, the US is still a low economic risk country. Table2. GDP per capita (current US$) From the micro aspects, the US auto industry began in the 1890s and rapidly evolved into the largest in the world as a result of the size of the domestic market and the use of mass-production.

By the end of the 1920s it was dominated by three large companies General Motors, Ford and Chrysler. After the Great Depression and World War II, these companies continued to prosper and the US produced near three quarters of all automobiles in the World near 1950. [11] However, beginning in the 1970s, a combination of high oil prices, increased ompetition from foreign auto manufacturers severely affected the companies. For Toyota, it’s quite an opportunity to enter US market with high quality cars but in lower price. There’re still other risks in US market, Safety and environmental issues during the 1960s led to stricter government regulation of the auto industry which resulted in higher costs and eventually to weaker performance for cars in the 1970s. 3 Toyota in US market 3. 1 Toyota’s entry to the US Market Toyota marketing, sales, and distribution in the US are conducted through a separate subsidiary, Toyota Motor Sales U.

S. A. Inc. Toyota Motor Sales USA Inc. was formed in October 31, 1957 and headquarter was established in Hollywood, California. They began sales in 1958 with 288 vehicles. By July 1967, Toyota had become the third-best-selling import brand and in 1972, it sold one millionth vehicle in the USA. In 1975, it surpassed Volkswagen to become No. 1 import brand in the USA. In 1986, it became the first import automaker that had sold more than 1 million vehicles in the United States in a single year. In 1987, it established the Toyota USA Foundation with $ 10 million endowment.

In 1991, Toyota Lexus became No. 1 luxury import by surpassing both BMW and Mercedes Benz and by December 1997, Toyota Camry earned the title of No. 1-selling passenger car in America. By the end of 2001, it became the third-best-selling auto brand in the United States. Unfortunately, its sales reduced in 2008 because of an economic recession but still it is third-best-seller automaker in 2012 in terms of July 2012 data. (1. General Motors 2. Ford Motor Company) Also in sales rank, it has become to the world leader in front of General Motors.

Toyota Motor Sales Inc. created 365,000 jobs, made $18 billion investment in the United States. 3. 1. 1 U. S Market Share 3. 1. 2 Main Competitors in the US ? ? ? ? General Motors Ford Motor Company Chrysler Honda General Motors is the leader of auto industry over past nearly 80 years and its dominance was really big in the last century and current century until their bankruptcy in 2009 but still they are best-seller-automaker in the USA with less market share compared to years before bankruptcy. Their market is shrinking year by year.

In 2008, Toyota sold more vehicles than GM in the world, 4. 72 million vehicles for the Japanese group compared with 4. 67 million vehicles of GM. The race between GM and Toyota is not only about the number of vehicles sold. In terms of profitability, GM is significantly behind those of Toyota, which also invests heavily in research and development of new models. On costs and profits of the auto industry, for each vehicle produced in North America in 2006, GM posted a profit of $ 2,123 less than Toyota did.

Japanese car manufacturer is the most profitable car manufacturer in the world, its profit per vehicle increasing from U. S. $ 1. 175 in 2005 to $ 1,977 in 2006. [12] Ford Motor Company was behind of Toyota in 2007, 2008 and 2009 in terms of market share but in 2010, Toyota’s reputation took a hit and Ford became resurgent. Currently, they are on the second place in the US market. Chrysler surpassed Honda in 2011 and follows Toyota in the US market. Honda, which is Japanese company as Toyota, had fluctuations in terms of market share in United States and currently, they stand behind Chrysler.

We can look some numbers to understand how Toyota grows day by day and surpasses its rivals: [13] Toyota: ? ? ? ? ? Market cap: $129. 65B Enterprise Value: $237. 13B Revenue: $272. 90B Total Cash: $38. 94B Total Debt: $148. 99B Price/sales is 0. 47 and price/book is 0. 93 General Motors: ? ? ? ? ? Market cap: $36. 76B Enterprise Value: $22. 12B Revenue: $150. 94B Total Cash: $31. 92B Total Debt: $16. 65B Price/sales is 0. 25 and price/book is 1. 20 Ford Motor Company: ? ? ? ? ? Market cap: $40. 19B Enterprise Value: $117. 17B Revenue: $132. 40B Total Cash: $24. 10B Total Debt: $100. 7B Price/sales is 0. 30 and price/book is 2. 14 3. 1. 3 Competitive Advantages of Toyota in the US Market ? Partnering with suppliers who provide an array of ideas ? Using an effective product development process that was able to reduce cycle time for developing new models, bringing new products to market nearly 30 percent faster than its competitors. ? ? ? ? ?

Economies of scale (Commitment to quality, low cost, and fuel efficiency eventually made their cars more desirable than American and German car) Innovative production system that is hard to be copied by its competitors. Just-intime) Using multi-skilled workers unlike the narrow tasks assigned to workers under Mass production. Using less of everything: less human effort in the factory, less manufacturing space, less investment tools, and half the engineering hours to develop new products compared to American and European manufacturers. 3. 2 Entry Modes of Toyota in the US Market There were some barriers for Toyota while they wanted to enter the United States [14]: Bad reputation of Japanese cars in the United States. As low quality cars)

In the 1950s, American car companies had significant economies of scale. To overcome these barriers to entry, Toyota hires manufacturing and quality control consultants from the United States and by 1964 the Toyota Production System has resulted in economies of scale. In 1957, firstly Toyota started to export and adjusted its products to satisfy American consumers’ needs by increasing engine size but it was not easy to compete with GM, Chrysler and Ford because they held big shares in the US market.

Besides, it faced a big problem in export because of the Voluntary Export Restraint Agreement that limited the Export from Japan to the US. Secondly; Toyota decided to use Foreign Direct Investment. It started manufacturing operations by establishing five assembly factories (currently it has six assembly plants: Huntsville, Alabama; Georgetown, Kentucky; Princeton, Indiana; San Antonio, Texas; Buffalo, West Virginia and Blue Springs, Mississippi) and in 1968, they had a first big advantage by launching smaller Corolla and profited from the economies of scale.

In 1978 it reached 25% of market share in the US. In 1984, it created a joint venture with General Motors and opened NUMMI (New United Motor Manufacturing, Inc. ) to manufacture vehicles to be sold under both brands. [15] It lasted until May 2010. GM saw the joint venture as an opportunity to learn about lean manufacturing from the Japanese company, while Toyota gained its first manufacturing base in North America and a chance to implement its production system in an American labor environment.

Up to May 2010, NUMMI built an average of 6000 vehicles a week, or nearly eight million cars and trucks since opening in 1984. [16][17] Since 2006, Toyota has a joint venture with Subaru at Subaru of Indiana Automotive, Inc. (SIA), in Lafayette, Indiana. 3. 3 International strategy 3. 3. 1 Four basic international strategies Facing the firms with foreign market orientation are two contradictory goals, to reduce cost by product standardization and to cater to local demands for customization by product differentiation.

However, localized marketing mix and so on which unquestionably tend to raise cost. In order to deal with these two opposing ends, four international business strategies have been emerging from the integration responsiveness framework, called home replication strategy, multi-domestic strategy, global strategy and transnational strategy. [18] 3. 3. 2 The international strategy of Toyota Any firm that aims to expand foreign market initially intends to gain benefits of economies of scale and location and learning effect which could be realized by and boost product and service standardization.

However, here unavoidably arise problems of localization due to demand for response by the firm to local conditions like customer taste and preference, local government regulations and cultural traits, etc. In the international business strategy matrix along two dimensions of pressure for cost reductions and pressure for local responsiveness, transnational strategy has the highest degrees along both dimensions. Among the four typical international business strategy postures, Toyota, like many other multinational enterprises (MNEs), chooses transnational Strategy. 18] How best to implement a transnational strategy in America car market is one of the most complex questions. The need to compete with international competitors like GM and Ford forced Toyota to look for greater cost economies. However, variations in consumers taste and government regulations across countries mean that Toyota also has to be responsive to local demands. Therefore, Toyota confronts significant pressures for cost reductions and for local responsiveness. [18] 3. 3. 3 Development strategies of I.

Ansoff Obviously, Toyota used the diversification strategy in America car market. Due to the feedback from American consumer surveys and US road tests, Toyota redesigned several of its models accordingly, and reshaped its market reputation considerably in US market late 1960s, selling well with welcomed product, like Toyota Corolla, which is characteristics and consistently falling production cost and retail prices. 3. 4 Organizational Structure Board of Directors CEO Finance Marketing America North America South America Europe&Africa Europe Africa China Beijing Shanghai …

Australia&Asia Production … Australia Asia As a global industry, Toyota uses the functional structure with regional divisions to manage the whole company. [19] And also to every region, Toyota uses global matrix structure to manage the subsidiaries outside the Japan. [20] Thus in a global matrix organization structure a Toyota subsidiary, like America subsidiary, should reports to more than one group, Finance, Marketing and Production. One advantage of a matrix structure is that it facilitates the use of highly specialized staff and equipment.

Rather than duplicating functions as would be done in a simple product department structure, resources are shared as needed. In addition, maintaining functional departments promotes functional expertise, while at the same time working in project groups with experts from other functions fosters crossfertilization of ideas. Finance America Europe & Africa China Australia & Asia 3. 5 Dunning’s Eclectic paradigm The eclectic paradigm is a theory in economics and is also known as the OLI-Model or OLI-Framework.

In this theory, three conditions determine whether or not a company will internationalize via FDI: Ownership-specific advantages, Location-specific advantages and Internalization advantages. [21] Marketing Production 3. 5. 1 Ownership-specific advantages This firm specific advantage is usually intangible and can be transferred within the multinational enterprise at low cost (e. g. , technology, brand name, benefits of economies of scale). The advantage either gives rise to higher revenues and/or lower costs that can offset the costs of operating at a distance in an abroad location.

About Toyota, its Ownership-specific advantages are brand, technology in cars and skills in manufacturing. 3. 5. 2 Location-specific advantages The firm must use some foreign factors in connection with its native Firm Specific Advantages (FASs) in order to earn full rents on these FSAs. Therefore the locational advantages of different countries are key in determining which will become host countries for the Multinational enterprises. About America auto market, it has a large market size and a good economic environment after the Second World War.

So Toyota choose to export cars to the America at first. 3. 5. Internalization advantages The Multinational enterprises has several choices of entry mode, ranking from the market to the hierarchy. The Multinational enterprises chooses internalization where the market does not exist or functions poorly so that transactions expenses of the external route are high. In early 1980s, import quotas imposed by United Stated over Toyota stagnated export growth substantially. To cope with this problem, Toyota’s first overseas operation, NUMMI, was born. Encouraged by its success at NUMMI and already having obtained knowledge of marketing, sales, service, etc. in US market, Toyota established its first