In January 2004, leading global automobile company
and Japan's number one automaker, Toyota Motor Corporation (Toyota), replaced
Ford Motors (Ford), as the world's second largest automobile manufacturer; Ford
had
been in that spot for over seven decades. In 2003,
Toyota sold 6.78 million vehicles worldwide while Ford's worldwide sales
amounted to 6.72 million vehicles (General Motors, the world's largest car
manufacturer sold 8.60 million vehicles).
According to reports, while Toyota's market share
in the US increased from 10.4% in 2002 to 11.2% in 2003, Ford's declined from
21.5% to 20.8% during the same period. Reaching the No.2 slot was a major
achievement for Toyota, which had begun as a spinning and weaving company in
1918. Ford was reportedly plagued by high labor costs, quality-control
problems, lack of new designs and innovations, and a weak economy during the
early 21st century, which made it
vulnerable to competition. Toyota, aided by its new product offerings and
strong financial muscle had successfully used this scenario to surpass Ford and
affect a dramatic increase in its sales figures.
In November 2003, Toyota announced its financial
results for the half-year ended September 30, 2003. Business Strategy | Case
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The company reported a 23% increase in net income
(as compared to the corresponding period of the previous year) to $4.4 billion
on revenues of $69.7 billion. This took Toyota way ahead of World's top three
automobile makers (at that time) by sales, General Motors (GM), Ford Motors
(Ford) and
Daimler Chrysler. Its market capitalization of $110
billion (on November 05, 2003) was more than the combined market capitalization
of these three players. (See Table I).
Given the fact that in 2003, these top three
companies were struggling to maintain their sales and profitability targets,
Toyota's performance was termed remarkable by industry observers (See Exhibit I
for the company's financials). Toyota had emerged as a formidable player in
almost all the major automobile markets in the world. Interestingly, one of its
strongest markets was the US, the world's largest automobile market and the
home
turf of Ford and GM. Toyota
had emerged as a strong foreign player in Europe as well, with a 4.4% market
share. In China, which the company had identified as a strategic market for
growth in the early 21st century, it had a 1.5% market share.
The other major markets in which the company was
fast strengthening its presence were South America, Southwest Asia, Southeast
Asia and Africa.3 Back home in Japan, it enjoyed a market share of over 43%.
Analysts attributed Toyota's growing sales across the world to its aggressive
globalization efforts that began in the mid-1990s.
The company constantly strived
to ensure that each of its market segments - Japan, North America, and Europe
and other markets - generated onethird of the annual sales (See Exhibits II and
III for revenues and revenue growth data in its core markets). This goal was at
the heart of Toyota's three globalization programs - New Global Business Plan
(1995-1998), Global
Vision 2005 (1996-2005) and Global Vision 2010
(2002-2010). In the light of Toyota's intensifying globalization efforts,
Toyota's competitors themselves stated that Toyota could not be taken lightly.
GM's Chairman, John F. Smith Jr., said, "I would not say they will not
make it. Toyota is an excellent company. They are very focused on what they do
and they do it well, and that is what makes them great."4
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Background Note
Toyota's history dates back to 1897, when Japan's
Sakichi Toyoda (Sakichi) diversified from his traditional family business of
carpentry into handloom machinery. He founded Toyoda Automatic Loom Works
(TALW) in 1926 for manufacturing automatic looms. Sakichi invented a loom that
stopped automatically when any of the threads snapped. This concept (designing
equipment to stop so that defects could be fixed immediately) formed the basis
of the Toyota Production System (TPS) and later became a major factor in the
company's success. In 1933, Sakichi established an automobile department within
TALW and the first passenger car prototype was developed in 1935. Sakichi's
son, Kiichiro Toyod (Kiichiro), convinced him to enter the automobile business,
and this led to the establishment of Toyota in 1937. During a visit to Ford to
study the US automotive industry, Kiichiro saw that an average US worker's
production was nine times that of an average Japanese worker. He realized that
to compete globally, the Japanese automobile industry's productivity had to be
increased...
The Second Phase
of Globalization
Cho decided to focus more on localization - he
believed that by doing so, Toyota would be able to provide its customers with
the products they needed, where they needed them. This was expected to help
build mutually benefiting, long-term relationships with local suppliers and
fulfill Toyota's commitments to local labor and communities. Cho defined
globalization as 'global localization.' Therefore, besides focusing on
increasing the number of manufacturing centers and expanding the sales networks
worldwide, Toyota also focused on localizing design, development and purchasing
in every region and country...
The 2010 Global Vision
In April 2002, Toyota
announced another corporate strategy to boost its globalization efforts. This initiative,
termed the '2010 Global Vision' was aimed at achieving a 15% market share (from
the prevailing 10%) of the global automobile market by early 2010, exceeding
the 14.2% market share
held by the leader GM.
The theme of the new vision was 'Innovation into
the Future,' which focused on four key components: Recycling Based Society; Age
of Information Technology; Development of Motorization on a Global Sale; and
Diverse
Society (See Table III)...
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The Globalization Pay-Off
By mid-2003, Toyota was present in almost all the
major segments of the automobile market that included small cars, luxury
sedans, full-sized pickup trucks, SUVs, small trucks and crossover vehicles.
According to reports, while global vehicle production increased by 3.3 times
since the early 1960s, Toyota's production had increased by 38 times. As a
result of its localization initiatives, Toyota had 45 manufacturing plants in
26 countries and regions by this time, and sold vehicles in 160 countries
(See
Exhibit IV and V for Toyota's worldwide
manufacturing operations and production details)...
Which Way to Drive From Here?
By the end of 2003, Toyota seemed to be well on its
way to achieving its globalization goals - worldwide sales of 6.57 million
units in fiscal 2004;
sales of 2.12 million units in North America by
2004; a 5% market share (800,000 units sales) in Europe by 2004; a 15% market
share in the global market and a 10% market share in China by 2010.
Analysts felt that the
following factors were helping the company in its quest to become a truly
global automobile major: strong financial condition, globally efficient
production system, unique corporate culture, and the ability to develop a
product range that met the unique needs and desires of customers in different
regions.
1. What was the end result of
Toyota's crisis management situation?
2. What marketing strategies does Toyota use?
3. What are the problems faced by Toyota?
4. Why Toyota is so successful in the market?
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