Toyota Motor Corporation Strategy - Case Study Example

Toyota strategy Based in Japan, Toyota is one of the most dominant players in the global automaker industry. The company has been credited with very comprehensive and efficient management systems that the lean production management strategy is also referred to as the Toyota way. The Toyota way is also highly linked with a Japanese management ideology called Kaizen. The Kaizen ideology calls for continuous improvement on a daily basis on the production system to reduce wastage and increase efficiency. On the other hand, Liker and Hoseus say that the Toyota way is a “highly developed approach to manufacturing and the dual concepts of just in time and built in quality are standard operating procedures throughout manufacturing and logistics” (p 464). Through this efficient tailored management strategy, the company has been a global leader in auto sales. As of May this year, the company global sales are said to have dropped by a whopping 47% due to the financial crisis. In the US, the company operates mainly as Toyota Motor Corporation and Toyota Motor Sales which is more of a marketing, sales, distribution and customer service arm of Toyota and its subsidiaries while the former is the manufacturing unit. The company has an advertising unit by the name Saatchi & Saatchi. There are ten manufacturing plants in the US spread out in different states such as Alabama, Indiana and Kentucky producing mainly ten types of vehicles namely Avalon, Camry, Camry Hybrid, Camry Solara, Corolla, Sequoia, Sienna, Tacoma, Tundra and Venza. In 2008, the company sold more than 2.2 million vehicles. In the US the company has two independent subsidiaries, Lexus and Scion (Toyota Press room). Though the Toyota way is synonymous with Toyota as a brand in whole, the incorporation of the Toyota way has not been fully implemented in the US as it is in Japan. However, to facilitate the integration of the strategy, Liker and Hoseus (p, 464) informs us that at the commencement of operations in the US, the company had employed Japanese executives assisted by American managers to assist in implementation of the Toyota way. Toyota made entry in the American market in 1957 at a time when Japan was recovering from the horrors of world war two and its domestic companies were seeking expansion in foreign markets. The entrance was made with just two models, Toyopet and Landcruiser which were very inefficient and were a flop in the American market thus the company temporally withdrew and reentered the market with better versions. With the American market being very different form the Japanese and Asian markets, the company had to apply an entirely different marketing strategy in order to conform to the different market needs of Americans. A good market entry strategy had to be formulated in order to cope with the competition of existing players such as General Motors and Daimler Chrysler (Toyota pressroom). One of the most significant and also relevant in today’s market was price, fuel efficiency and simplicity. Toyota strived to achieve the three by applying the Toyota way of lean production where wastage in time resources was kept at the minimum. These eventually lowered costs at Among the many strategies that Toyota has adopted is outsourcing. According to Morgan and Liker, (2007, p 795), the company outsourcers over 70% of its vehicle content and engineering services. Most of these suppliers are engineering firms such as Denso. Although the company has maintained its lean production principles in the handling of supplies, it takes caution in maintaining a wide supplier base as its primary focus in such relationships is to obtain needed supplies at the right price and quality. Morgan and Liker, says that the company strives at keeping the supplies busy with orders, competitive and motivated. As such, the company makes orders to suppliers only through programs but not through time frames. While this may present some business insecurity to the suppliers, the fear is compensated by technical and financial assistance by Toyota in order to improve quality and competence (p, 794). Many companies are skeptical about outsourcing as quality may be compromised. However, Toyota realizes the benefits of outsourcing in flexibility and the competence of specialization. Unfortunately, outsourcing presents another hurdle in that the company may lose control and internal competence. However, this is taken care of through careful evaluation of services and vehicle components. As aforementioned, the realization that the American market is entirely different as compared to the global and Japanese market necessitated Toyota to change strategy. While the company positioned itself as the most efficient and simple car, it tended to attract the older generation and the low income earning market segments. According to Cohen (2006, 132), Toyota had an average age of its customers at 47 years while the average age in the US was 45 as of 2000. This led to introduction of Lexus and Scion Brands which were to operate independently with no reference to Toyota in order to target the young generation and high income earners. While these might be viewed as recent developments, the acceptance of Toyota as a brand name in the American car market really took place in the 1980’s according to Bodevin, Cox, Nguyen and Setianugraha (2004). They attribute the success of the company in the market to the oil embargo on the 1970’s. The petroleum shortage in the global market forced auto consumers to go for fuel efficient cars marketed by Toyota and other Japanese automakers since the Detroit three, Ford, Chrysler and GM centered on marketing powerful but fuel inefficient cars. Technology was a very crucial factor in the growth of the company. By adopting new technologies in production, the company was able to lower costs of production and hence the cars were cheaper and more fuel efficient. In 1965, Toyota introduced the Corona model which was small in size and lighter than most competing models thus was more fuel efficient. In that first year of launching the, model sold 6,388 units. In 1968, another smaller model, Corolla was introduced whose performance in the market surpassed that of its predecessor. The concentration of small cars with light engines was just one side of lowering costs. Initially, lower technology levels in Japan meant that average production costs were higher at $2,100 as compared to $1,900 in the US as of 1959. By 1961, Japanese automakers had reversed the trend whereby the average cost of making a Japanese car was $1,750 while an American car was $1,850 (Bodevin, et al). To lower further costs of production and create efficiency, the Toyota Production System, which comprised of a mixture of strategies, was introduced. Outsourcing was another element that enabled Toyota to lower her cost of production. While the company was able to guarantee lifetime employment to her permanent employees, outsourced employees were hired on contract basis. As a result, the company was not bogged down by the retirement benefits for its employees and other retirement benefits. Taylor says such costs were responsible for keeping the “Detroit 3’s” (GM, Ford and Chrysler) production costs high (Taylor, 2007). Another area that facilitated the growth of Toyota in what it is today was on human resource development. According to Bodevin et al, () the company did guarantee its employee’s lifetime employment while other employers were faced with the possibility of cutting their workforce as competition increased. Job security according to Cohen (2006) is a central component in motivating employees. In addition to that, Toyota sought to remunerate its employees accordingly to reflect the general performance of the company. Payments to employees were awarded according to the company’s profitability where the bonuses were based on seniority - not job classification, team’s performance and worker’s merit. As a result, wages would increase by 85% to 115% over time. Market research has been a strong component in the growth of Toyota Motor Corporation in the US as indicated by Hoseus and Liker (2007). They give the example of market researcher’s contribution to the company’s strategy is the introduction of the Lexus and the Scion Brands. Taylor (2007) says that this was in response to meet the demand of the young and hippy market segment that was largely dominated by Volkswagen. On another case, the company has continuously embraced technology in the most satisfactory manner. Taylor (2007) notes that GM had been toying with the idea of green cars since the 1980’s but had not marketed the idea properly. Toyota has introduced a number of hybrid makes in the market that combine various levels of technology to conserve energy. The newly launched Toyota Prius is touted as the most environmentally friendly car in the market In 2002, the company launched the Scion brand which the marketers planned on allowing it to slide in the market rather than pushing it in the market. The brand targets generation Y (2-25 yrs). Through this market entry mode, the company hoped to let the market discover the car instead of the common method where a new model is pushed in the market through intensive adverts in radio and TV. However, this has not been the overall case in the international market. The international market is best exposed to the Lexus and the Toyota with the Scion slowly seeping into other markets (Toyota pressroom). Other subsidiaries in the international market are Hino and Daihatsu. In all these brands, the Toyota Production System has been maintained in all markets. Demand triggers production in all cases. This means that the company has no inventory or stock piles that result into extra workload. Magee summarizes the global marketing strategy adopted by Toyota as slow but calculated. She says that “this style of operating has given Toyota a widespread reputation as a conservative company….. It takes time to gather facts and reach consensus, it moves quickly than competitors once decisions are made” (Magee, P 132). This slow and calculated market research has led to the development of various models as extensions of the various modes such as Corolla and Landcruiser. This way the company has been able to target various market segments on the income earning scale. Invariably, the different pricing of the various models reduces consumers’ bargaining power. References Bodevin, L. Cox, S., Nguyen, T. and Setianugraha, R. While Detroit Slept: How Toyota Invaded the American Car Market. Retrieved on May 10th 2009 from http://74.125.95.132/search?q=cache:D-IK-uZKBQwJ:www.mcafee.cc/Classes/BEM106/Papers/UTexas/351/Toyota.pdf+toyota+american+market&cd=3&hl=en&ct=clnk Cohen, S (2007), Multinational corporations and foreign direct investment: avoiding simplicity, embracing complexity (New York, Oxford University Press) Magee, D. (2007), How Toyota became #1: leadership lessons from the world's greatest car company, (Chicago, Portfolio) Morgan, J. and Liker, J. (2006), The Toyota Product Development System: Integrating People, Process, and Technology, (New York, Productivity Press) Liker, J. and Hoseus, M. (2007) Toyota Culture: The Heart and Soul of the Toyota Way, (New York, McGraw Hill) Taylor, A. America's best car company, Retrieved on May 10th 2009 from http://money.cnn.com/magazines/fortune/fortune_archive/2007/03/19/8402324/index.htm Toyota website, Retrieved on May 10th 2009 from, http://www.toyota.com/ Read More