Global Management – Case: Toyota in Europe 27/12/2007
Global Management
MGT704
Essay
Toyota in Europe
Table of Contents
2. Internal company factors and external environmental factors that allowed Toyota to successfully compete in Europe
Conclusion
References
Introduction
Toyota began selling cars in Europe under a distributor agreement in 1963. Eventually this has lead to the maturing of the company into the leading Japanese car manufacturer in this highly competitive market. According to its annual report Toyota has invested over €6 billion throughout Europe since 1990, and currently employs approximately 80,000 people, both directly and through dealership channels in Europe. ‘Toyota’s operations in Europe are supported by a network of 28 National Marketing and Sales Companies in 48 countries, a total of 3,000 sales outlets, and eight manufacturing plants, with a ninth under construction in Russia’ (Toyota Annual report 2007). Toyota continues to grow as an important player in Europe in geographical perspective as in terms of market share with its unique and successful strategy.
1. Major factors that enabled Japan to resurrect their motor vehicle industry after WW II
At the end of World War II, the Japanese government asked the European Automakers to curtail exports to Japan in order to help Japan rebuild its industry. The Europeans reprociated by limiting their market to Japanese cars (C_p.267). As a result the quotas were very limited (e.g. Italy, 3,000 cars per year, France, Britain, Spain and Portugal approximately three percent share of their market). These quotas protected the domestic market and allowed European carmakers to become more competitive before the European Community made a transition to the common market. As the economy grew, Japan wanted to access the European market. The desire of Japanese Car Manufacturers for expansion related to several reasons.
Firstly, it became more expensive to employ workers in Japan as it had developed into an industrialised country where people have high salaries and quality of life. Capital and land in Japan became scarcer and thus more expensive. Global expansion would provide Japanese companies the opportunity to work in areas where production costs and wages are still relatively low.
Secondly, cheap transportation costs were a driver to expand internationally. When companies export products overseas, they usually are subject to the CIF (Cost, Insurance, and Freight) Inco terms (international transport legislation) which include cost, freight, and insurance for the seller. ‘Exporters have to pay for all of the costs occurring from the shipment, making the products more expensive as importers will charge extra price’ (Hyman, 1983). In contrast, if companies control operation in the importing countries, they are able to use the Ex-Works of the INCO terms that implies that the buyer has to pay for the transport and bear all risks. Operating in countries that are part of a regional trade agreement such as the European Union (EU) provides companies the opportunity to profit from more favourable regulations. ‘Such integrations remove tariff within the bloc, but impose tariffs against countries outside the bloc’ (Daniel & Radebaugh, 2007). Operating in Europe meant that Japanese manufacturers would minimize their tariff expenses and could ship them to all market duty-free (C_268). In addition, ‘if it invests in importing countries, it will not only save transportation cost, but will also be less affected by fluctuations of exchange rates’ (Ball, 1982).
‘Companies look for foreign capital, technology, and information that they can use at home’ (Daniel & Radenbaugh, 2007). Expansion to European market would provide the Japanese car manufacturers the opportunity to acquire more resources and minimize the risks. Demand for cars fluctuates due to economic changes and competition in the market. To minimize instability of sales and profits in the domestic market, manufacturers can take advantage by dispersing its operations in several regions.
The final reason was that customers in each region have different needs, standards and demands. Addressing those needs is easier when you are operating in that particular market
In 1999 ‘EU lifted its import quotas which made it easier for Japanese car manufacturers to expand. Japanese car manufacturers started to invest more heavily in design and manufacturing facilities in the EU’ (C_p.268). It started to set up production centers in the region which allowed Japan to produce at a lower production cost. Moreover, unemployment and low growth of economy changed the preference of the European consumer and loyalty of the European customer to European brands decreased. Japanese cars offer a relatively good quality product for a low price which fits the current European consumer preference.
Japanese car manufacturers each choose their own strategy to further penetrate the car market. Nissan started to collaborate with Renault which made them to become global car manufacturers. Toyota and Honda have a broader product range in comparison. They are currently the most significant global players.
2. Internal company factors and external environmental factors that allowed Toyota to successfully compete in Europe
Toyota has been very successful in competing the car industry in Europe. The reasons for that can be identified by analysing the company strategy and core competences and how Toyota has anticipated the challenges of the European environment. Toyota Motor Europe (TME) was established in July 2002, to ensure better coordination between marketing, research and development, manufacturing, and external affairs activities in Europe (Marketline 2007). Analysis of Toyota’s strategy (Toyota annual report 2001) at the time and the success with which they were implemented, show why their key objectives have served the market of European Union so well and has ensured Toyota’s strong competitive position.
Their first strategy was to focusing investment on the development of new technologies for the environment, safety and information and communications.
From the late 1990s, the global auto industry entered an era of tough competition in technological development. It required high speed of commercialisation and development of new technologies that would improve the products and increase the competitive advantage of Toyota in the market. Toyota is at the forefront of these technological innovations. Europe has very specific safety standards and has ratified the Kyoto Agreement (appendix b) adding strict emission standards to its vehicles. Due to heavy investment in recent R&D activities, Toyota has produced several cars that possess unique qualities that not only address the safety and environmental standards but are innovative and excel the current European safety and environmental standards. As a result, they have been awarded with several best car of the year nomination (like the Hybrid) and other car brands are now adopting Toyota’s innovations.
