Case Study 2

Toyota’s Globalization Strategies

Suggested case discussion questions

Q1 Identify what ‘drivers’ have been influential in Toyota’s pursuit of globalization

Toyota’s journey to become a global automotive firm has had a number of key drivers.
Strong family values based leadership: The leadership of first Sakichi and Kiichiro Toyada in the early days, and then Fujio Cho in the later years have been crucial in Toyota developing the ambition to succeed on a global basis. Of the ‘drivers’ of globalization discussed in chapter three, some have played a more important role others.
Culture: Cultural homogenization has played some part as populations in emerging economies, in particular, aspire to car ownership. Countries like China, India and Brazil are seen as huge potential markets for Toyota
Target segmentation clear: Increasing middle class seek car ownership to affirm their status. Economies of scale and scope: Significant driver as Toyota utilized scale economies by opening manufacturing plants in low-cost countries, and exploited scope economies by sharing significant parts across product lines and with other manufacturers in joint ventures.

Centralise: Toyota took the decision to centralize these activities in its global operations in its third globalization program.
Market factors: Deregulation and the lowering of trade barriers gets little mention in the case study, but was influential in that how China opened up its markets to outsiders, in turn, shaped how Toyota moved into that market through the setting up of alliances and joint ventures. Strong international competitors appear a key driver.

Influenced by certain western qualities: Kiichiro Toyada seemed strongly influenced by what he witnessed at Ford and the desire to compete at that level became embedded within the fabric of Toyota. Its latest explicit aim is to overtake GM as the biggest global firm in the automobile market.

Q2 Explain how Toyota reconciled the need for a global strategy with regional and country specific adaptations

The bulk of the case discusses and explains this aspect and there are many examples of how Toyota’s ‘global localization’ strategy became manifest. In each of the three globalization programs from 1995 to 2010, localization of production became more and more of an issue. Through the approach of locating manufacturing facilities in or close to markets, Toyota was able to become more adaptive to local needs and flexible in its approach to products. Changes were made to the Lexus product in the US that enabled it to serve that market more effectively, while a new small car (Yaris) was developed specifically for the European market. Toyota restructured its profit structure into three profit bases: Japan, North America and Europe in a move to regionalize its core activities. Its European headquarters was given more autonomy, which allowed it to strengthen its sales network and expand local manufacturing capacity, cutting costs and increasing production volumes. The potential downside of localization, fragmentation and a loss of global identity, appear to have been avoided by Toyota. Its executives make a point of visiting its local manufacturing plants when they are able to and a large marketing outlay helps to maintain relations with the corporate ‘parent’.

Q3 Toyota’s pursuit of globalization appears heavily dependent on the Japanese and North American markets. Given this, can Toyota’s approach be considered truly global, and what are the risks associated with such a strategy?

Exhibit VI shows that, although Toyota has overseas sales in seven regions, by far the most significant sales occur in North America, 1,940.8 (1000s) vehicles, for 2002, while total overseas sales were 3,838.3 (1000s). Domestic sales in Japan for 2002 were 1,680.5 (1000s). So, domestic and North American sales account for 3621.3 (1000s) out of 5,518.8 (1000s) total sales. As both of these markets, but particularly Japan, are mature, if not saturated, the opportunity to increase sales in these regions appears low. The best that Toyota can perhaps hope for is to maintain current levels and hope that it can take some sales from its direct competitors. Being quite heavily reliant on two markets can mean Toyota is vulnerable to downturns in their economies. The slowdown in the Japanese economy in the early 1990s had proved a stimulus for it at that time to expand its globalization activities. However, it appears that its objective of 15% worldwide market share by 2010 assumes that sales in its two main markets will remain constant. A downturn in sales in either of these would adversely its ambitions. Exhibit IV outlines Toyota’s worldwide operations, identifying its presence in 26 different countries. Such broad coverage of activities in eight different geographic regions seems to qualify Toyota as a global company.