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Benjamin Gartmann

Toyota MNC Profile Report


Due August 5, 2014
IMS 3310.0U1

Toyota Motor Corporation has impacted the automobile industry, and the lives of so
many worldwide since 1935, when the A1 passenger car was first introduced. Toyota at its
very core was built on an adaption. In 1924 Sakichi Toyoda, founder of Toyoda Automatic
Loom Works (the company from which Toyota Motors branched off), invented the Toyoda
Model G Automatic Loom based around the idea that the machine will stop if a problem
happens. In 1929 this same patent was sold to a British company, Platt Brothers (History of
Toyota). During the same year Sakichis son, Kiichiro Toyoda, was sent to Europe and the
United States to research automobiles and gas engines, under the support of the Japanese
government who wanted domestically made vehicles for war. The revenue gained from this
sale led to the creation of a division within Toyoda Automatic Loom, Hinode Motors,
dedicated to the creation of automobiles. Shortly after the division was formed, it broke off
and become an independent entity, the beginnings of modern day Toyota Motors (History
of Toyota). Presently, Toyota Motor Corporations parent company is Toyota Industries
which sells products in many other industries including being the worlds leading forklift
production. However, I am only focusing on the automobile industry with which Toyota
Motor Corporation operates.
Toyota might have been built on an adaption, but that doesnt mean everything they
do needs to be changed. Toyota is world renowned for its human resource development
based on the principle that manufacturing is about developing people (Relations with
Employees). This philosophy is cleverly coined the Toyota Way, and is being taught at the
Toyota Institute in Toyota City, Japan. This mindset was created because of Toyotas rapid
increase in the number of employees outside of Japan, while the number of employees in

Japan stayed stagnate. Toyota Way is built on a number of tenants, or ideas, to increase
visibility and shared purpose, all of which are taught in Japanese culture and society. Some
of the tenants include, mutual ownership of the problems by displaying employee
production numbers on whiteboards, solving problems at the source instead of behind
desks, and the constant drive to improve. This mindset, while the norm in Japan, is now
having to be written down so employees and managers in other regions, numbers reaching
at over 200,000 workers at 27 plants, know the standards to which the Japanese
headquarters holds themselves. This Institutes objective is to train executives by sending
them to executive offices around the world to spread the Toyota way, in a way they are
learning while teaching. With this institute Toyota is using a geocentric approach to finding
managers, disregarding nationality. The winner of the institutes 2011 gold medal
management award was actually from Thailand, yet went to work back in Japan in order to
improve the institute. Koki Konishi, head manager at the Institute, said that we must
prevent the Toyota Way from getting more and more diluted as Toyota grows overseas
(Fackler). The leadership at Toyota, as well as many business management critics, feel that
the Toyota Way is one of their strongest assets. The Toyota Way, unlike some other
companies foreign market policies, has no conflicts with foreign norms or laws because it
doesnt affect their hiring practice or work schedules. This means that as Toyota enters
foreign markets, all they have to do is find the people to manage and implement the Toyota
Way of thinking in the new market, instead of having to do loads of research into developing
strategies. Looking at the Toyota Way philosophy as a human resource management asset
through the eyes of the VRIO Framework (Valuable, Rare, Inimitable, Organized) we can find
that Toyota gains a competitive advantage with Toyota Way. The Toyota Ways value comes
from its uniformity, and ease to implement and oversee. Toyota Way is not only rare (in this
case I mean rare in terms of its success) but also inimitable since no other company, besides
maybe General Electric, has the fame, esteem, or respect that Toyota has received. The
managerial consistency that Toyota Way creates throughout Toyotas many foreign
headquarters allows them to easily regulate and manage each office individually, creating
the value to not adapt between markets. The downside to Toyota Way is while the Toyota

thought process and Japanese cultural is being taught to the employees overseas, those
same beliefs and values are not naturally instilled in those employees. Koki Konishi feels that
the some of the employees or managers do not adhere to tenants taught in Japan. One of
the largest parts of the Japanese Toyotas production line is to empower the factory
workers, something that places like the United States and China would never do. Analysts
say Toyotas recent and embarrassing surge in vehicle recalls [were] partly a failure by
Toyota to spread its obsession for craftsmanship among its growing ranks of overseas
factory workers and managers (Fackler). Toyota needs to adapt their overseas training to
give time for foreigners to accept and realize the value in the teachings behind Toyota Way.
The largest adaption that Toyota Motors makes with every entrance into a foreign
market comes with the products they produce. The Toyota vehicles, whether that be trucks,
sedans, coupes, or vans, in Japan are different than the ones in the United States of America
as well as different than the vehicles in India or China. Toyota changes their product
depending on the needs of each region, whether that be more rugged cars for work, or
larger cars for transporting larger families. From 1970 to around 1990 Toyota first starting
creating and grooming car production to local consumers in foreign markets. In 1976 and
1977 Toyota introduced two vehicles to the Philippines and Indonesia, the Tamaraw and the
Kijang respectively. In both of these countries families tend to consist of a large amount of
individuals, and families tend to use their personal vehicle for business needs as well. To fit
the size needs they defaulted to either an SUV or a Van body type, however, the roads in
both of these countries tend to be unpaved and bump so instead of leaning towards either
an SUV or a Van, Toyota made vantype multi-purpose vehicle (Annual Report 2012).
Not only does Toyota adapt products to the region they are entering, Toyota tries to
adapt the region to build their own products. In both the Philippines and Indonesia Toyota
bent and welded the metal to make the car bodies, instead of importing the stamping
equipment to reduce the costs of production. This decision not only reduces the cost of
production, which is a current benefit, it trains local residents and increases the human
capital as well as equipment in the region which benefits the region in the long term. With
the long term benefits comes the benefits of localization, location-specific benefits, through

maximizing local research and development functions and seeking to achieve local and
regional procurement rates of one hundred percent. Procurement rates are defined as tasks
such as purchasing, manufacturing and logistics. This was the beginning to an idea Toyota
would implement in 2004, the IMV project (Innovative International Multi-purpose Vehicle)
for global standardization. The purpose of this project is to optimize global manufacturing
and supply vehicles that perform equally well on unpaved byways and on urban highways,
to be affordable for ordinary people, and [provide unprecedented comfort] by having
regions specialized for part creation or vehicle assembly. Under this plan diesel engines will
be made in Thailand, gas engines in Indonesia and manual transmissions are made in India
and the Philippines. From there vehicle assembly will take place in Toyota plants in Thailand,
Indonesia, Argentina and South Africa. These assembly plants will supply the five available
IMV vehicles, three pickups, one van, and one SUV to emerging markets in Asia, Europe,
Africa, Oceania, Latin America and the Middle East (Annual Report 2012). The reasoning
behind Toyota IMV project is their plan to have a composition ratio of 50% from emerging
markets by 2015. This means that sales from emerging markets should be at least half the
total global sales. In 2011 Toyota recorded a 45% composition ratio and believe they have
reached it before their 2015 deadline. In 2008 Toyota recorded a 35% composition ratio,
showing the large increase in success of the emerging markets due to the IMV projects. This
10% increase in sales comes from the growth of the region-based production mostly
comprising of cars purchased in the same region they are constructed, from economies of
scale, and a positive shift on the learning curve. The shift on the learning curve correlates to
an increase in experience causing an increase in production while all else is held constant.
This increase in production causes a decrease in costs allowing Toyota to reduce price to
increase sales. Toyota calls these sales locally made core models (Annual Report 2012).
These increased sales are growing at the rate that the regional economies are. This caused
Toyota to think of another car model that developed nations have, while developing nations
do not. This prompted the creation of Toyotas Compact Vehicle Strategy. This decision is
brought upon by Toyotas urge to increase market share, by entering a specific market that is
under-utilized. India, a complex country with vast poverty issues and income inequality, is

quickly changing from a developing country to a developed one. Due to this quick adaption
the population is in a need for compact cars, so Toyota decided to enter the compact car
market through the Toyota Etios. The Etios comes in sedan, hatchback, and Xclusive the
luxury sedan newly released. The success of the Etios in India, it was also released in South
Africa however it hasnt garnished the same success as in India, prompted Toyota to release
the luxury version of the Etios. Toyota entered the Indian market for the strategic goal of
efficiency.
In 1993 Toyota started creating private limited companies in China in order to
establish a two way sales channel between Japan and China. First, Toyota Motor China Ltd.
(TMCL) was created to lay the foundation and trading routes in China after the foreign trade
laws in China starting easing. To handle sales operations and marketing Toyota Motor China
Investment Co., Ltd. (TMCI) was formed. In 2001 China joined the WTO and foreign capital
restrictions were eased, after this TMCI increased its minimum capital allowing the Chinese
government to recognize TMCI as Toyotas International Division in China, which was
replicated based on home-nation headquarters (Responses to Rapid Increases). After TMCI
was granted approval to trade and sell in wholesale, all business was transferred to TMCI
and TMCL was terminated (Responses to Rapid Increases). This is the direct example of
how Toyota establishes its sales structures in new markets. Toyota Motor Corporation took
advantage of a new market, it was new due to its previous restrictions, because of the strong
market demand with plenty of customers willing to pay for high quality low cost vehicles.
While each example changes slightly based on laws in that country or region, Toyota
initializes entrance by developing trading routes, establishes a sales company, and finally
combines the two to form a private limited company that Toyota Motor Corporation solely
owns.
Toyota doesnt just adapt its global offices, Toyota headquarters recently changed its
Organizational Structure. In order to steadily grow the company, to clarify operations, and
speed up decision-making, Toyota Motor Corporations automotive business will be split into
four units; Lexus International, Toyota Number 1, Toyota Number 2, and Unit Center. Lexus
International will stay as Lexus global headquarters with purpose to grow Lexus as a

premium brand with Japanese roots. Toyota Number 1 will have executive Vice Presidents
and operate as its own Toyota within North America, Europe and Japan. Toyota Number 2
will operate as its own company in China, Asia and the Middle East, East Asia and Oceania,
Africa, Latin America and the Caribbean. The Unit Center will develop components like
engines and transmissions, with a Vice President that will oversee all operations.
Toyota Motor Corporation, a company with global presence matched by few, is
learning by doing when it comes to globalization. The philosophy behind Toyotas early
success taught respect for others, striving for improvement, mutual ownership of problems,
and solving problems at the source. With the plan of continuing success on a global scale,
Toyota introduced Toyota Way, the same teachings that brought Toyota to the global
market in the first place, but written down and disseminated to foreign headquarters. In
order to grow in such a connected global market Toyota wanted to improve sales by
entering emerging markets such as India, Latin America, etc. Since they are emerging
markets, not already develop countries, Toyota had to design different products adapted
solely for these regions. The products were adapted for things such as family size, terrain
normally crossed, and what tasks the vehicle would endure, which change region to region.
The product and Toyota Way are not the only things Toyota adapts, they changed the
organizational structure of the Corporation because they believed the company is growing at
a pace they cant control as one entity, but as four. All of these adaptions, or not adapting in
the case of Toyota Way, is for a competitive advantage. Toyota feels that not changing the
mindset that the original creators of Toyota Motors instilled on workers for generations
gives them the advantage globally. Craftsmanship is vital to keep Toyota growing and
successful. The product adaption allows entry into untapped markets with large amounts of
eager and willing customers. Every single decision Toyota has made, has been justified to
strengthen a certain aspect of operation.

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