Purpose of the European Market for Toyota - Assignment Example

International Business Student Name Course name Date Table of Contents 1.0 International Business 1 Table of Contents 2 Mahidhar, V, Giffi, C, Rethinking Emerging Market Strategies, 2009. 4 Czinkota, M and Ronkainen, H, Fundamentals of International Business, Wessex Publishing, 2008 6 3.2Improved Innovation In order to capture a wider market 9 Existing European based multinationals such as Toyota will also have to make initiatives of innovation and product quality in order to maintain the exiting market and also to expand their market. Panos (2006) highlights that increased competition within a particular targeted market results to improved innovativeness and product quality among business competing within a particular region. For instance the In 2000 Toyota manufactured the hybrid car as a strategy of developing an energy efficient technology, later in 2007 Shanghai Automotive one of the leading manufacturing companies is China partnered with General Mortars in order to develop a new brand of hybrid cars. The company had plans to roll out its latest hybrid brand to the EU market. 9 This type of trend indicates that there is need for existing multinational to expand their innovative capacities and quality of products in order to deal effectively with rising competition. 9 3.3 Strengthening Presence 9 In the past decades, EU-based companies such as Toyota have fostered a number of business opportunities within the fast-growing E.U markets. According to the Grant Thornton International Business Report, a number of EU-based businesses have been able to seriously capitalize on trading opportunities with the fast-expanding economies. The growth of the economics such as China has therefore had a positive impact on the EU-based businesses over the past 2-3 years. Grant Thornton (2007) argues out that the EU-based businesses have been able to benefit from the opportunities presented by these fast-expanding economies over the past few years. In addition, venture capitalists from the EU-based multinationals are gradually more looking to these emerging markets for new opportunities. According to Grant Thornton (2007), EU businesses ranked China’s impact as +14 during the year 2007 when compared with 0% in the previous year. European businesses have therefore been able to focus on the opportunities coming out from these emerging economies as it is critical for them to continue engaging in these markets if they have to stay competitive. 10 Archibald, J, Theory and Practice of International Commerce, New York, International book publishing company, 2008. 15 Czinkota, M and Ronkainen, H, Fundamentals of International Business, Wessex Publishing, 2008 15 Kim,Chang-Ran ‘’Toyota Motor Corp aimed to boost its market share in Europe’’, 2009 15 Grant Thornton, 2007, Businesses Capitalizing on Opportunities in the World’s Fastest Growing Economies, 2007, retrieved on 12 January from 16 Kiyoshi ,K, Direct foreign investment: a Japanese model of multinational business operations, Taylor & Francis, 1978. 16 Mahidhar, V, Giffi, C, Rethinking Emerging Market Strategies,2009. 16 1.0 Introduction International trade and investment provides a theoretical framework in which contemporary organizations compete and operate.1 On the other hand, business activities in the European market has greatly been transformed, essentially due to various significant trends such as increasing competition and globalization which are reshaping business strategies at a scale that has never been witnessed before. This particular report seeks to evaluate the purpose of the European market for one of the E.U based multinational companies Toyota Company. The scope of the analysis will further be grounded on evaluating the impacts of emerging countries such as China, on the European based companies and the strategies in which UK and EU companies may benefit from the rise of these countries. 2.0Purposes of the European market for Toyota In the context of multinational companies, international trade is primarily about risk and gains to both the firm and also to the host country.2 Toyota has had a good take on the global market share and the European market. For instance in early 1960 Toyota entered the European market by exporting its brands to Belgium, another expansion strategy was the construction of an assembly plant in Britain. 3 One of the purposes of the European market for Toyota is the facilitation of foreign direct investment FDI. Foreign direct investment is an undertaking majorly driven by the motive of making profits. Foreign firms such as Toyota face uncertainty concerning how consumers will respond to their products and the costs associated to investing on a foreign market. However the E.U has actually provided safe grounds for investment for Toyota Company. Craig and Campbell (2005) highlight that Toyota’s objective of direct investment into the European market was basically to overcome the restrictions on imports placed by the E.U on imports from foreign borders.4 The E.U market has therefore been an asset for Toyota by providing opportunities for production from within Europe. As a result Toyota has effectively undertaken foreign direct investment. For instance the North Wales Toyota plant concentrates on the production of engines while the Derbyshire plant is dedicated to the production of passenger cars for the European market. The foreign direct investment theory in the context of multinational firms focus on aspects of maximization of profits for the firm by ensuring that the conditions provided by the foreign market are conducive for foreign direct investment. As a result the E.U market can be termed as consistent with the (FDI) foreign direct investment theory practices of reduction of production, transport and export costs which are major constrains of international trade.5 Czinkota, M and Ronkainen (2008) also brings to light the fact that European trade barriers have made manufacturing in Europe to be more attractive than undertaking home exportation. Government regulations such as the proliferation of diverse standard products, made it increasingly efficient and effective for multinational companies such as Toyota to manufacture their products in the local European market as opposed to exporting them from their home country. The theory competitive advantage is therefore efficiently propagated by the European market. This is essentially because as proposed by the theory the competiveness of a firm within an international market is determined by the ability of the firm to enter and succeed in the selected foreign market; in addition the competencies of the firm should be derived from its size, cost and innovative strengths within the selected market. Toyota can be described as having established a well grounded competitive advantage within the European market by having several manufacturing plants in Europe that produces a variety of brands that measure up to government legislations such as the production of hybrid cars in 2000 in order to deal with the looming shortage of crude oil and environmental challenges caused by emission.6 The European market has also made considerable progress in terms of improvements in the capital markets following the establishment of a single market and further the introduction of the Euro which has resulted to a considerable improvement in the enhancing operations of Multinational companies such as Toyota. For instance the uncertainties that result from fluctuations of exchange rates have been eliminated as a result of the introduction of the Euro thus multinational firms like Toyota can increase their investment plans within the European market. Kim (2009) in a recent report highlights that the formation of the European Union has greatly provided opportunities for Toyota to expand its target market in Europe. The company’s European executive vice president, Thierry Dombreval reveals that the company had plans to boost its European market share by 5.3%.In 2008 the company managed to expand its commercial vehicle sales to the broader European market in regions such as Turkey, Russia and Ukraine. 7 As proposed by the absolute advantage theory an organization should invest its services or products to a country in which it is more productive. 8In the context of Toyota, the company has confidence that investing widely expanded European market will be a beneficial investment. The vastly integrated E.U market also provides possibility for attaining comparative advantage. According to the comparative advantage theory, a country specializes on investing or producing what it can do best. The E.U market has facilitated the development of comparative advantage for Toyota by enabling the company to accomplish specialization in the production of its car brands within the region. Toyota utilizes resources such as capital, natural and human resources from the region which have facilitated an effective comparative advantage.9 3.0The impact of emerging countries China is one great emerging economy that is evidently posing a lot of threats for various developed nations. In the past decades, EU-based multinational companies such as Toyota have fostered a number of business opportunities within the fast-growing E.U markets. However with emergence of economies such as China, E.U based multinational have felt their impact either positively or negatively. Although China is not extensively involved in the automotive industry, its emergence as an economic strong hold, actually impacts the operations of Toyota Company within the E.U market. The various impacts include: 3.1Increased Competition within the E.U market In recent years China has accomplished great milestones in the automotive industry through establishing a chain of car manufacturing companies that have also found their way into the European market. For instance the Chery Automobile Company initiated in 1997 in the City of Wuhu China, has attained various breakthroughs by becoming one of the fastest expanding independent automaker within China and also launching its products to the larger the European market.10 It is evident that the operations of these particular Chinese company and many others such as Shanghai Maple Automotive (SMA) and Zhongxing Automobile are posing the serious threat of competition to Toyota Company within the European market. 3.2Improved Innovation In order to capture a wider market Existing European based multinationals such as Toyota will also have to make initiatives of innovation and product quality in order to maintain the exiting market and also to expand their market. Panos (2006) highlights that increased competition within a particular targeted market results to improved innovativeness and product quality among business competing within a particular region. For instance the In 2000 Toyota manufactured the hybrid car as a strategy of developing an energy efficient technology, later in 2007 Shanghai Automotive one of the leading manufacturing companies is China partnered with General Mortars in order to develop a new brand of hybrid cars. The company had plans to roll out its latest hybrid brand to the EU market. This type of trend indicates that there is need for existing multinational to expand their innovative capacities and quality of products in order to deal effectively with rising competition. 3.3 Strengthening Presence One of the positive significant impacts of the emerging economies such as China on the leading EU-based companies such As Toyota is that the existence of an emerging market like China has made Toyota to strive in order to strengthen their presence while operating within E.U markets. Toyota has been able to roll out their global brand campaign, focusing their commitments on being positive forces within the E. U markets in order to sustain their competitive advantage. 11 This is essentially because emerging economies such as China have also been striving to strengthen their presence within the EU market For instance Davis (2010) highlights that China has recently cemented its position within the automotive industry through the acquisition of Volvo from Ford which is definitely perceived as a move of strengthening its presence.12 Consequently EU based multinational such as Toyota have to adopt strategies of strengthening their presence if they still want to maintain their market standing within the European market. 3.4 Increased businesses capitalization on opportunities within the emerging economies In the past decades, EU-based companies such as Toyota have fostered a number of business opportunities within the fast-growing E.U markets. According to the Grant Thornton International Business Report, a number of EU-based businesses have been able to seriously capitalize on trading opportunities with the fast-expanding economies. The growth of the economics such as China has therefore had a positive impact on the EU-based businesses over the past 2-3 years. Grant Thornton (2007) argues out that the EU-based businesses have been able to benefit from the opportunities presented by these fast-expanding economies over the past few years. In addition, venture capitalists from the EU-based multinationals are gradually more looking to these emerging markets for new opportunities. According to Grant Thornton (2007), EU businesses ranked China’s impact as +14 during the year 2007 when compared with 0% in the previous year. European businesses have therefore been able to focus on the opportunities coming out from these emerging economies as it is critical for them to continue engaging in these markets if they have to stay competitive.13 4.0 The strategies in which UK and EU companies may benefit from the rise of the emerging economies 4.1Assessing Prices and Distribution Channels The UK and EU based companies will need to thoroughly assess the various markets as well as the distribution channels in order to price their contents appropriately. The pricing point offered by emerging economies is usually merely a fraction of what many consumers would pay for in a developed market as a result of competition and regulations. Despite that, the huge as well as the fast-growing volumes often make up for the lower prices. Thus the E.U based multinational companies should adopt the strategy of assessing prices and distributions channels in order to offer prices that fit the market segments chosen.14 4.2 Understand regional distinction within each country Another significant strategy in which UK and EU companies may benefit from the rise of the emerging economies is through an in-depth understanding that such emerging power houses within the world business market have on internal markets. For instance, the M&E market in South India is clearly different from the North. As a result, the UK and EU companies ought to adopt various strategies for each and every region as there will be differences in terms of demand. 15 4.3Financial risk mitigation The UK and EU companies should also remember that expected diligence process within these emerging markets can present unique challenges. Lack of transparency as well as concerns regarding financial data may significantly reduce the ability to come up with a clear picture of the financial results. Such companies therefore need to be aware of their exposure to financial contingencies. Identifying major risks as well as exposures would enhance the chances of carrying out successful transactions within these emerging markets. 4.4Flexible business plans It is clear that a number of companies within the emerging markets are beating various global players in their countries. This means the UK and EU companies ought to have flexible business plans. Moreover, the rising demand for local substance is predicted to outpace the rising supply of the local substances resulting in super-inflation, which therefore needs to be considered into their business plans.16 5.0 Conclusion and Recommendation The above analysis has provided an evaluation of international trade for multinational companies within the context of the EU market. Toyota being a leading multination organization in Europe has over the years been able to carryout its operations due to the opportunities that exist within the EU. However with emergence of competitive emerging economies like China, EU based companies such as Toyota have to change their business strategies in order maintain effective operations within the EU market. References Archibald, J, Theory and Practice of International Commerce, New York, International book publishing company, 2008. Campbell, D, Craig, T, Organizations and the business environment, Butterworth-Heinemann, 2005. Czinkota, M and Ronkainen, H, Fundamentals of International Business, Wessex Publishing, 2008 Kim,Chang-Ran ‘’Toyota Motor Corp aimed to boost its market share in Europe’’, 2009 Retrieved Davies, R, ‘’China becomes world's leading car manufacturer with purchase of Volvo from Ford for £1.2billion, 2010. Retrived Grant Thornton, 2007, Businesses Capitalizing on Opportunities in the World’s Fastest Growing Economies, 2007, retrieved on 12 January from Kiyoshi ,K, Direct foreign investment: a Japanese model of multinational business operations, Taylor & Francis, 1978. Mahidhar, V, Giffi, C, Rethinking Emerging Market Strategies,2009. Panos, M, Business strategy in a semi global economy, M.E. Sharpe, 2006. Read More