Toyota Companys Global Production Network - Case Study Example

GLОBАL РRОDUСTIОN NЕTWОRK (GРN) ОF TOYOTA COMPANY Name Course Instructor’s name Institution Date GLОBАL РRОDUСTIОN NЕTWОRK (GРN) ОF TOYOTA COMPANY The global economic complexities, the unevenness and inequality of geography in the business context are claimed to pose as a great problem to companies whose operations are in more than one country. These organizations have therefore, been forced to incorporate complex interactions and actions with interest groups ranging from social, cultural, economic and political field (Kelly 2013, p.87). They are therefore forced to embrace dynamism brought by its multi-scalar operation levels in different territories; in this case, the symmetrical power between these parties’ relationship and dynamism is focused on achievement of a specific geographical outcome. This paper therefore aims to review Toyota’s Global Production Network as it tries to find out the type of labor that is used in product or service creation at different points of the Global Production Network, the institutional arrangement that best explains this GPN structure and whether value is evenly captured in the GNP if not who are the major benefiters. Global Production Networks offer global organization and easy route to the international markets. Thus, organization such as Toyota that strive to meet the market specifications in regards to affordability and efficiency of its products is able to gain access to the overseas market and some market intelligence through its Global Production Networks (Amasaka, & Sakai 2009, p.411). On the other hand, the Global Production Network also enables Toyota benefit from a steady product demand which is attributed to company’s increased productions overseas and the technical assistance it obtains from clients firms within its Global Production Network (Zirpoli and Becker n.d. pp.16-17). Therefore, the Global Production networks offers the company attractive intermediaries in its efforts to penetrate the foreign market. Through its Global Production Networks it has been able to export its products at affordable transactional cost. The type of labor that goes into creating a product or service at the different points in the GPN entails Toyota embracing the notion of subcontracting with specialized suppliers, for instance, the company enlarged its equity in its three main large parts suppliers; Toyota Gosei, Denso and Aishin Seiki (Minhyung 2010, p.65). However, the organization was forced to reduce the number of components used in its products and reducing its first-tier suppliers range to a smaller number hence ensuring that the cost of production for the assemblers was relatively low (Takeishi 2010, pp.321-338). On the other hand, this particular strategy also simplified the organization’s global supply change management. Division of labor between firms is another type of labour that goes into creating products at different points in Toyota’s global production networks. This gives Toyota some slight competitive advantage and also enables them to meet the market demand. Toyota often partners with other company’s whose product line is automobile such as; Nissan Mitsubishi and Honda where they divide labor in engine manufacturing and assembly (Amasaka & Sakai 2009, p.421). In addition these companies also partner with suppliers/subcontractors who are tasked with supplying their products range in different markets. Moreover, Toyota’s production system also comprises of several assembly plants and other automakers operating units (Tiwana, 2013, pp.216-237). Toyota’s type of labor that goes into creating a product and service at the different points of GPN is the myriad of small medium sized firms that are involved directly or indirectly in Toyota’s production process. In this case, these firms supply the company’s products and services to the country’s direct subcontractors. Keirestu, (2001) claims that Toyota has maintained a high degree of control over its first layer of subcontractors. This has been made possible through the use of obligation contracts which are created on the basics of trust –based relationship and innovation. On the other hand, Toyota’s production in the Global Production Network is also characterized by the manufacturer –supplier relationship of the Anglo-American subcontractors. This particular arrangement is price –oriented and short-term unlike those from the other markets (Mehri 2012, p.143). In line with this, it is also claimed that the relationship between Toyota as an auto-maker and its suppliers which it subcontracts is diversified and it revolves around collaborative qualities that are product-based. Asanuma, (2005) developed the concept of relation-specific skill to understand the relationship between Toyota and its partners who they share with division of labor and the suppliers which Toyota subcontracts. She argues that the relation –specific skill enables these suppliers respond specifically to the core firm’s needs more so on a global scale and limits the overall price of its products (Takeishi 2010, pp.321-338). She further states that this skill should be developed by the suppliers through repeated interaction with the parent manufacturing companies such as Toyota. On the other hand she also emphasizes of the importance of inter-firm relation which is fostered through product-based technological learning. In line with the type of labor that goes into creation of products and services at different points of Global Production Network there is evident mutual dependence between suppliers and manufactures such as Toyota. Hence, the argument that there is a need for collaborative qualities since they foster mass production and product development at different points globally and with the very same standards and specifications (Ichijo & Kohlbacher 2008, p.147). However, Asanuma, 2005 cautions that cooperation and bargaining between the manufactures and the suppliers in this case is not easy. Moreover, she emphasizes that there are different types of relationships between the manufacturers and suppliers which include; design –supplied, design approved and run-of the-mill relationship (Koo and Lee 2013, p.3). Asanuma, (2005) also argues that only during transaction of customized parts it’s when a long standing relationship can be attained. On the other hand, the relation-specific skill also differ in the three mentioned categories of part suppliers since they have different transaction processes. Thus, the importance of spatial procurement and proximity vary in the distribution process and the transaction process (Sturgeon et al. 2008, p.16). The types of labor that goes into creating the products or services at the different points in the GPN also revolves around sharing and learning information on specific needs. This ensures steady production of design-approved and design –supplied (Lee and Jo 2007, p.3665-3679). In addition to this Toyota also tries to form a localized production network around some of its subcontracted suppliers. Toyota’s Global Production network is also known as ‘vertical Keiretsu’ this structure is characterized by a distinctive relationship between Toyota and its suppliers which is re-resented in a tier pyramid where Toyota company interacts with its suppliers in the tier directly below the company. Additionally, these suppliers also have their own direct suppliers in the tier below them. This structure therefore is naturally formed with a hierarchy ensuring that the span of control for Toyota Company is clearly brought out (Yeung & Coe 2015, p.41). On the other hand, this structure also showcases the dependence of a peripheral firm such as Toyota on its direct clients creating a chain where the suppliers are dependent on the main assembler in this case, Toyota (Lander and Liker 2007, p.3681-3698). Therefore, through these chains the suppliers are galvanized with the incentives of uniting and working together for a common interest which is to ensure one’s own survival more so in countries where Toyota has production networks. Some features of this structure has been highlighted by a number of literatures. This has enriched the focus on this structure as well as contributing to the perception that this structure is seemingly complicated (Rutherford & Holmes 2008, p.31). In this case, Tezuka (2002), has suggested that it would be ideal if another form of interconnection between firms would be included in this structure. Consequently, Smitka, 2000 also recommended the implementation of financial and ownership interconnection in this structure (Mehri 2012, p.153). However, Sako and Nobeoka, (2000) cautioned against this claiming that the implementation of these multi-threaded relationship between these firms would result to competitiveness cropping up which would pose a great threat to this structural model. In line with this, Ahamadjian and Lincon, 2000 also state that this structure is self-sustaining through encouraging efficient investments in the firms dedicated assets, it also incentivizes the organizational learning as well as fostering efficient product development both locally and globally (Sturgeon et al. 2008, n.d). Tekeisha, (2002) also supports the current Global Production Network of Toyota Company by arguing that it ensures reduction of transaction cost more so in transportation costs. Nishiguchi and Beaudet (2001) advocated for the current structure of Toyota GPN structure by using an empirical case where they referred to the catastrophic fire of Aisi Seiki Corporation which was one of Toyota Company’s main assemblers and suppliers. Thus, they argue that due to this structure Toyota was able to benefit from its global production networks through rapid recovery of production after this disaster had faced the company. They argued that this structure provides a system level that guarantees resilience and robustness for firms in alliance and those with global production networks thus ensuring continuity (Klonowski 2008, p.90). Further, Nishiguchi (2007) argues that this structures robustness aspects is majorly focused on a number of network properties which include; scale-free degree distribution and small-world properties. Xuan and Li (2007), purport that these properties are genetic features for this structure. However, Hearnshaw and Wilson 2013 are less positive about this structure, claiming that to some extent it seems as a way of excluding new entrants for instance the Western component manufactures in to the structure. The structure of Toyota Global Production Network also comprises of sub-networks which contain groups which are densely connected with each other as opposed to the rest of the network. Porter et al. (2009), maintains that these sub-networks are often not evident in the structure nonetheless, they are seen as natural occurrences which result from the heterogeneous distribution of the connection as well as the special specialization in the complex GPN network of Toyota company (Kleibert 2016, pp.333-345). Thus, these sub-networks are claimed to make one understand the building blocks of this structure as a whole. A method is proposed by Newman, (2004) which focuses on finding the appropriate set of sub-networks making up this structure. In this case, he recommends maximizing the ‘modularity’ which evaluates the quality of networks partition into sub –networks. This method has proven to be quite effective in pointing out the sub-networks in a rather larger network and helping push production agendas of most MNC’s globally (Kelly 2013, p.91). The production sub- networks within Toyota’s Global Production Network are made evident nevertheless, they vary due to the Company’s product portfolio and geographical location of the firms in this structure. Additionally, it was also noted that each firm within this structure affects these sub-networks composition, these sub-networks also take into consideration the directionality of the supplier’s ties within this GPN structure as well as the flow of the products in the structure (Jürgens 2013, p.71). The proposed method of pointing out these sub- network as claimed by Newman (2004), is an extended version of modularity which is composed of the maximization algorithm of the networks directed this method classifies each actor in a specific sub –network which is based on the analogy of the firm ties. On the other hand, this method does not require any prior knowledge on the sub-networks numbers and has no limit on the numbers of actors within these sub-networks (Minhyung 2010, p.65). The capture of value is not evenly distributed throughout Toyota Company’s Global Production Network, in this case the company seemingly benefits from the GPN than any other party involved. Hence, there is experienced change in the company’s production networks (Kim 2006, pp.183-196). These changes led to the links and nodes of Toyota’s GPN to expand past its national bodies and across a number of regions which meant that the company market tremendously increased. Yun (2003), claims that these changes led to the formation of three sub categories in Toyota’s networks. The first category was the hub networks which comprised of a number of the regional affiliates that are linked to Toyota Company however they do not necessarily interact quite a lot. The second network is the cluster of suppliers which comprised of car manufacturing Companies and subcontracted suppliers who get the cars parts and assemble them in different countries. The third network is the vertically integrated network which entails car manufactures who share similar technology in their production processes (Jullien and Pardi 2013, p.96). In addition to this, firms partner and are involved in division of labor where they share technologically appropriate sites. Therefore, this shows that Toyota Company benefits from transnational production networks hence, the company’s business strategies are aligned with the industries private sector decisions. Besides, this also shows that the government also has a substantial influence in the industry success therefore Toyota Company and all other companies entwined in these networks will as well benefit immensely (Jacobs 2012, p.90). Furthermore, Toyota Corporation is also the main benefiting party through its Global Production Networks, Dicken (2005) supports this claim by stating that these transnational networks are greatly influenced by cultural and institutional condition as well as the social-political condition which favor Toyota. Toyota also greatly benefited from its Global Production Network especially with the emergence of the Eastern Europe market. The market in Eastern Europe was evidently advantageous to Toyota Company especially with the significantly reduced Eastern European tariffs on imported vehicles in the countries around this region (Ichijo & Kohlbacher 2008, p.174). With Toyota competing in context to price-sensitive sections of the market this market was therefore quite ideal for the company’s success. On the other hand, through its GPN it also benefited from availability of skilled labor which was relatively cheap in countries like India and china (Kim 2006, pp.183-196). Likewise, Toyota also benefited in the Easters Europe markets due to the to the company’s product rising purchasing power which resulted to a significant increment in car sales in this particular region since the market preference there mainly focuses on relatively cheaper cars. In addition to this through Toyota’s Global Production Network it jointly ventures with Peugeot in an effort to address the emerging challenges. In this case, through this alliance it was able to embrace innovation as a strategy to solve these challenges. These two companies agreed to create “Toyota Peugeot Citroën Automobile” (TCPA) in the year 2001 through a signed agreed principle (Jullien and Pardi 2013, p.96). Furthermore, through this joint venture Toyota also benefited from contraction of a factory in Prague and after two years trials began. Toyota also benefited from a significant increment in production where it moved from a two-shift operation to a three shift operation producing an estimated 100,000 cars annually (Hatani 2011, p.214). Additionally, through Toyota’s GPN, it was able to create subcompact four-door vehicle which was jointly developed with Peugeot. This particular car received a wide reception in the market an issue which enabled Toyota to earn a significant increment in sales in Prague (Henderson &Nadvi 2011, P.285-297). Since the company wanted to promote its brand awareness in this region these cars were sold separately using the respective brand name an issue which was also a positive for Toyota Company since it popularity and product adaptability grew exponentially. Thus, Toyota vehicles were sold as Toyota Aygo. Due to this growing popularity its production capacity also grew on Toyota Aygo (Jullien and Pardi 2013, p.96). The assembly company in Czech Republic enabled Toyota to come up with the vehicle product that fitted the customer’s preference in this particular regions market as a result of its GPN strategies and ventures. The vehicle products assemble in Czech Republic were virtually identical to Toyota original vehicle’s shape an aspect which ensured that the company’s brand was presented without alteration to this country’s market. Evidence that Toyota gained more value from its Global Production Network is seen through its joint venture with Peugeot in its entry in the Eastern Europe market. In this case, due to the company’s popularity in the region its product range was not limited to TPCA product. Toyota is claimed to have built two engine plants in Poland in Walbryzch where the company produced gearboxes and engines and the other in Jelcz-Laskowice which made diesel engines (Kelly, 2013, pp.82-92). This shows that this intraregional production was seemingly more successful, commercially to Toyota Company compared to Peugeot which entered the same market with Toyota in a joint venture agreement. Toyota also opened a major parts warehouse in the same region in Krupka. Foreign Direct Investment has played a huge role in Toyotas efforts to turn around the Company’s success in its Global Production Networks. A clear indication that Toyota’s success under its Global Production Networks is attributed to regional concentration of the company’s production (Hatani 2011, pp.213-215). In conclusion, it is evident that Toyota’s product development is not only limited to product development rather it scales to the final manufactures which include its suppliers who as essential players in the company’s Global Production Networks. However, Toyota global dominance through its Global Production Networks is seemingly under threat due to the political resistance that the company is currently facing from other ASEAN countries. However, it can be said that this company’s Global Production Networks structure has been strategically created to benefit it. Despite that all the players in this structure also benefit Toyota seemingly takes the most benefits and with its global production networks sprout out globally, it products consumption is likely to hit a record high. 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