Toyota as a Multinational Auto Company in China - Research Paper Example

Case Study on TOYOTA as a Multinational Auto Company in China Introduction Concurrent with the changes happening in the competitive environment within the business realm is the emergence of industries engaging in the international scene. Their entry into the global market is a means to expand or promote their product and services in a wider scale. According to Castellani and Zanifei ( p. 18), the emergence of a number of multinational firms (MNF) staged a globalized market and intensified technological advancement.

By means of strategic efforts to expand business operations to other regions potentially viable for the successful implementation of its business development, the impact of MNFs investments to their hosting locations is believed to be significant and influential. At present, the emerging trend of Asian market as promising venues for large firms’ to conduct strategic globalization is mainly due to cheaper costs of labor, favorable foreign investment policies, good infrastructure and potential market.

Likewise, examples of emerging markets in Asia or those that have embarked on drastic transition as regards political and economical aspects; and had experienced a fast-turnaround in its growth and development include China, India, Indonesia, and South Korea. These four Asian nations are included in the ‘Big 10 Emerging Markets” which were announced by the United States Department of Commerce in 1994. Among these four countries, China and India are gauged to be included among the four (4) largest emerging markets in the world alongside Brazil and Russia (Fan, 2008).

BRIC (Brazil, Russia, India and China) are expected to turn in some 225 million “middle class” consumers in their population who are all earning a hefty amount of US$ 15,000 annually. Based on this perspective, the apparent spillover of business opportunities, capital and technological advancement from multinational firms toward their host countries are very significant in the latter’s attainment for progress and development (Navaretti and Venables, 2004). Besides the fact that MNFs are aware of the vast opportunities that they could derived from the profitable market and conducive for business environment of Asia, it is also asserted that there are challenges which are entwined with the collaboration of two distinct and culturally different nations.

Moreover, the recent financial crunch which affected the whole world created a big blow for foreign invested companies especially those multinational firms in Asia. Apart from the tremendous impact on capital and profit, recession has also altered the perception and behavior of multinational firms in regards with their business activities within the host country. For this paper, the researcher aims to provide an in-depth analysis on how a Multinational auto company like Toyota is able to stay and thrive in the market of Mainland China despite the impact of the economic recession.

This research report will focus on China as the biggest and most influential emerging market in Asia which also home to about 24 Multinational firms listed in Fortune Global 500 and about 44 firms in BCG top 100 EMMs list. The manner on how Toyota has sustained its success in the Chinese market through its strategic initiatives will be explored and investigated to obtain deeper understanding. TOYOTA as an MNF Toyota is among the world’s three largest multinational automobile industries aside from GM and Volkswagen (People’s Daily Online, 2009).

This Japanese automobile company entered into the Chinese market late in 2002 compared to its counterparts such as Volkswagen and GM. Nonetheless, despite its late entrant into the mainstream market, Toyota managed to be on top and stay in this position as one of the world’s top car manufacturers. Toyota’s history as a leading car manufacturer begun with the development of work practices called “Kaizen” and “Jidoka” , an accomplishment of Toyota’s legendary former Executive Vice President Tochi Ohno.

Accordingly, the aim for continuous improvement (Kaizen) by means of self-regulation (Jidoka) asserted that worker of Toyota manufacturing are also part of the overall quality control of products which allow them to take responsibility over this aspect and subsequently reduced boredom but increased productivity as well. More so, it also presented the philosophy, Muda muri muri , which means “waste, unevenness, and overburden”. In this manufacturing philosophy, it has been emphasized by Tochii Ohni that the best way to deal with waste is prevention whereby Toyota only manufactures “just in time”.

Meaning parts and components are only delivered according to its designated date, time and location to avoid stockpiling and subsequently lead to greater efficiency (Strategic Direction, 2006). These manufacturing philosophies and work practices are integrated in the organization’s system and are being practiced in its all of its factories around the globe. China as Emerging Market for Toyota China is now considered a hotspot for large multinational automobile industries such as Toyota, GM, Ford, Volkswagen , Honda, Nissan, Hyundai, PSA Peugeot Citron and many more.

This is in spite of the negative impact on global earning that other car industries are enduring because of the global financial crises (People’s Daily Online, 2009). Perhaps, the most significant factor which contributes to the positive performance of multinational car industries in this country despite impact of economic recession is the rapid growth and development of the internal market which accounts for the increased high standard of living amongst middle class Chinese consumers (Qiu, 2005).

As a reaction, many Chinese are prompted to buy private automobiles and this lucrative domestic car market of China enticed both local and foreign automobile companies as well. As argued by Chantasasawat et al (2008), parallel to growth of China is its increase in market size and growing consumer-needs as entailed by high standards of living. As such, this instigates many companies especially the multinational firms to come to China to invest, produce and sell in this country which also include Toyota as a leading car manufacturing company.

Moreover, aside from the prospective domestic market of this country, the costs of labor is apparently cheaper in addition to the large volume of human capital in the country that are educated and trained in specialized courses particularly in Science and Engineering. Therefore, it means that the firms will have a wide array of choices for labor capital for its various areas of specialties. Moreover, the favorable foreign invested policies of China which makes it conducive for direct foreign investments also gained positive impact from the multinational firms.

Challenges and strategic solutions of Toyota as MNF in China Based on previous literature, Toyota is strongly grounded on its principles of proper and effective manufacturing work practices such as Kaizen and Jidoka. Nonetheless, with its entry to China’s market, the company ‘s system is no longer applicable. It has been stressed that inculcating such philosophies in the minds of Chinese people will nevertheless be difficult for the environment of Chinese market may still consider the historical aversion between these two nations and that China’s political system is far different from the authoritative approach of Japanese firms.

Conclusion Given these challenges in Toyota’s stance as a multinational firm in the land of its old opponent, the following are the strategic movements that Toyota had implemented in order to maintain efficiency and success of its company: 1. Toyota opted to send its Chinese workers in Japan for a couple of months for training and experience of the unique work practices based on its philosophies. In this manner, it is hoped that these group of Chinese workers will bring with them the knowledge and skills derived from the training abroad into application in the efficiency and quality of their products in local factories. 2. Toyota also adopted the Chinese’ single production line task, purchasing parts outside the company’s affiliates and stockpiling which entails a complete diversion from Toyota’s own derivatives. 3. With the rapid development in the internal economy of China, Toyota have also seen this as a potential target for investment especially that export industries are no longer viable due to the impact of economic recession.

Targeting the increasing consumption of “middle class” in China is perceived sufficient enough to be a profitable venue for foreign investments (Shankar et al, 2008). Accordingly, the reason behind these strategies is for Toyota believed in the potentiality of the Chinese market due to its unique features such as limited manufacturing infrastructure, favorable political system and availability of cheap labor are all influencing the company’s decision to stay in China and to go with the flow as part of its strategic scheme to become more successful in this region.

References “China market is growth hope for multinational auto giants”. (2009). People’s Daily Online. Retrieved on August 24, 2009 from http://english.people.com.cn/90001/90778/90857/90860/6717233.html Chantasasawat, B., Fung, KC., Iizaka, H., and Siu, A. (2008). Multinational enterprises in China, East Asia, Latin America, and Eastern Europe. Moving out or moving in?. Journal of Chinese Economic and Foreign Trade Studies. 1(2), pp. 122-135 Castellani, D. and Zanfei, A. (2006). Multinational firms, innovation and productivity.

Edward Elgar Publishing. Fan, Y. (2008). The rise of emerging market multinationals and the impact on marketing. Market Intelligence and Planning, 26(4), 353-358 Qiu, LD. (2005). China’s automotive Industry. HKUST “It’s Toyota, but now as we know it, Jim”. Toyota overturns its traditional strategies to succeed in China (2006). Strategic Direction. Emerald Group publishing Ltd. 22(9), 24-26. Shankar, S., Ormiston, C., Bloch, N., et al. (2008). How to win Emerging markets. MIT Sloan Management Review. 49(3), 18-24.