Application of the Eclectic Paradigm in International Business by Toyota Motors Corporation - Case Study Example

Running Head: Toyota Motors Corporation from an Eclectic Paradigm Institution Name Course Tutors name Submission date Introduction The Dunning Paradigm has been used by various international business scholars to asses the strategy used by various multinationals in running operations. Specifically, the Dunning Paradigm, as an analytical tool, seeks to assess how Multinational Enterprises (MNEs) utilises the aspects of ownership, location and internalisation to their benefit. In other words, it assesses how firms manage to gain competitive advantages out of their ownership (firm specific), geographic location (country specific) and international presence. The Japanese based Toyota Motors Corporation is a global brand in motor vehicles employing about 320,808 people employed worldwide with 52 production facilities in 26 countries, 12 product design and research and development centres in 7 countries (Toyota 2010). The Toyota brand is well known globally and the firm has been on a consistent upward growth path for a long time. This paper will use the Eclectic paradigm to demonstrate how Toyota as used the various aspects of the paradigm for its own benefits. Discussion The ownership aspect in the eclectic paradigm is largely derived from the resource based view of the firm (Dunning & Lundan 2008). From the resource based view, an MNE emerges as a result of a growth process that goes beyond national and geographic boundaries. However the new approach focuses on the mechanism that firms employ to differentiate their resources, capabilities and access to markets from competitors (Huang 2006). Resources are recognised both as tangible and intangible. It is only recently that intangible resources have taken centre stage in this approach. In particular, knowledge is regarded as firm specific capability and international knowledge experience as a priceless and distinctive asset that cannot be easily imitated. Tacit knowledge or personal knowledge takes centre stage in discussing knowledge as a resource while organisational knowledge plays a secondary role. Hagharian (2009) advises that tacit knowledge is hard to transfer through organisational hierarchies unless it happens on a personal level. This has been practiced by Toyota Motors on so many levels. For instance, when the company is planning to pen a new factory in a new market, the firm typically selects a sizeable number of new employees and sends for several months training and work in some of the existing Toyota factories. When these workers return home, they do not return alone but are also accompanied by about two hundred highly experienced expatriates to work alongside them in the long term. The expatriates and the trained employees work alongside all new employees to ensure that knowledge on how the Toyota production process works is transferred to all employees in the new factory. Quality management at Toyota Motors has attained undisputed success in all its factories globally. As pioneers of the Total Quality Management tool, Toyota has excelled in ensuring high quality in all stages of production and business processes. This has been achieved b utilizing teamwork optimally. Employees from various departments are grouped into teams with a team leader. At the end of every week, production teams from various stages met to discuss the performance of their stage and high potential problems and make suggestions on potential solutions (Alina 2009). These quality meetings are called quality circles at Toyota. As for the members of these teams, each one of them is empowered and encouraged to ‘own’ quality control and strive for ‘kaizen’-continuos improvement. The management acknowledges supplements these efforts by adopting employee suggestions. According to Toyota Georgetown, over 90,000 employee suggestions are adopted annually with individual team member suggestions being over 1000 (Toyota 2010). Toyota Motors was established in 1933 as a division of Toyoda Automatic Loom Works in its home country Japan. The country has over the years expanded into many countries suing a variety of models to penetrate the market. Having established its first production unit in 1938, Toyota ventured into international marketing fully in the 1960s by delivering an order of 100 units from Brazil. This was followed up by setting up Toyota Motor Sales to venture into foreign markets through exporting. However, the firm had started exporting as early as 1947 to Egypt. In the early stages when Toyota entered the US market, the firm had a disastrous start. Its vehicles could not match the performance of American made models from General Motors. In fact, consumers complained that Toyota models vibrated too much and overheated in the long interstate drives (Alina 2009). This prompted Toyota to respond by developing high performance and sports cars to suit the American market. Location of other factories in various countries has been prompted by country specific advantages and challenges. For instance, Toyota motors preferred exporting vehicles to North America due to the availability of large ports on the western coast. However, with introduction of tough import barriers, Toyota moved entered into a joint venture with General Motors in 1983 which did not work very well prompting setting up of a local subsidiary. In the highly restricted European market, Toyota opted to set up a wholly owned subsidiary in the UK in 1983. While the Toyota targeted such markets due to the economic powers of the market, other considerations in the market came up soon, costs. Cutting costs is an intrinsic trait in the auto-manufacturing industry. This thus saw Toyota set up factories in Thailand and China, some of the countries with the lowest production costs especially in labor. In line with globalization, MNE’s have had foreign governments to deal with, whose policies affect organizational policies and profitability. Some governments are keen on attracting foreign direct investment in their countries and hence have eased the regulatory requirements for potential MNEs. Haghirian (2009) discusses the major incentives that encouraged a sample of American MNEs to invest abroad. Among the top reasons cited were currency convertibility, guarantee against expropriation, and host country political stability. Tax incentives were ranked a distant fourth in importance. This could explain why Toyota has over the years only invested in politically stable countries such as the US, Australia, the UK and France. This in spite of the fact that some countries especially African ones are very ready to offer tax holidays to such an MNE. Other scholars such as Upathamwaranon and Guo (2008) write that lower tax rates do not increase FDI in flow. Intensive market research allows Toyota to make incisive decisions on internalization decisions. Over the years, the firm has followed the conventional route recommended by marketers that entry into new markets should begin with exporting. This has been witnessed at Toyota where the first Toyota motors in the US, UK, France Australia and all other developed countries began with exportation to assess the market conditions. Currently, Toyota has factories in over 56 countries and research and developed centre in over 26 countries. Each of these countries provides location specific advantages that have allowed Toyota Motors to internalize (Alina 2009). For the highly regulated markets such as the US several decades ago (early 1980’s), Toyota motors choose to establish a joint venture with General Motors to create the subsidiary New United Motor Manufacturing, Inc. (NUMMI) which enabled the firm to circumvent the import quotas placed on Japanese vehicles. The existing political, economic and social conditions in foreign markets determine the ease and the likelihood of firms exporting and transporting their firm specific advantages to the given market. In that regard, Toyota has excelled in choosing for the working internalisation strategies gained from experience (Alina 2009). The experience has not been smooth all the way. The failed entry into the US market through a joint venture with General motors marked an important lesson in Toyota’s internalisation push. With internalisation, Toyota has exposed itself to more volatile markets and a divergent market needs. How the firm has managed to apply its firm specific advantages such as knowledge sharing and management and make it work in new markets remains to be admired (Dunning & Lundan 2008). First and foremost is the fact that Toyota has utilised its internalisation advantages by managing globally and also acting locally faced with the need to respond to local consumer tastes and preferences and also government policies. Among the four major internal business strategy approaches, Toyota, just like other successful MNEs, has pursued a transnational strategy from the very word go. This approach is rooted in the idea of managing globally to reduce costs and responding to local needs to increase market share. How has Toyota achieved this? Toyota has diversified its range of models but in the same time sought to create fewer vehicle platforms. This strategy aims at creating numerous models on a single platform. Such vehicles would share parts and components thereby standardizing their international brands while the different models based on the international platforms will respond to local market needs (Alina 2009).. In the same length, international institutions in international business have followed the same route. Financial accounting standards have been internationalised with internationally recognised benchmarks. However, local national governments still retain a significant level of control on financial reporting standards which they utilize to customize financial reporting for MNEs and local firms to fit well with their economic and political policies. Conclusion Any firm keen on expanding their reach into the international market must choose carefully from the array of international business strategies available. The market analysis tools and strategy used in assessing the international market have a bearing on the views of the firm and choice of strategy in venturing in international business. As indicated, Toyota has successfully applied the eclectic paradigm in international business. However, given that the theory was introduced only thirty years ago while Toyota Motors ventured into international business, it can be argued that the eclectic paradigm is derived from practice but cannot guarantee successful international business for aspiring MNEs. References Alina, Hagui. (2009). The internationalization strategy in a global age. The International Conference on Administration and Business. Retrieved online on 20/06/2012 from, https://docs.google.com/viewer?a=v&q=cache:wJ4gBvSXgAoJ:www.itchannel.ro/faa/375_pdfsam_ICEA_FAA_2009.pdf+&hl=en&pid=bl&srcid=ADGEESjtZQExY7TDZDzC62vFDUgch8L7rp9HA29kcx--mV_DMSus-5-DqrkeKqMmEM8E95b20hbePpZcOlIb9EawzvS3vECPXXChYiKRIYI119acdlhZxnoflxEMr8LzWRIwzFLyg6FP&sig=AHIEtbTI4J-8eb5sMYWpueKkyKVOVFBOhA Dunning, J. and Lundan, S. (2008). Institutions and the OLI paradigm of the multinational enterprise. Asia Pacific Journal of Management, 25(2), 573–593 Haghirian, P. (2009). J-Management: Fresh Perspectives on the Japanese Firm in the 21st Century. New York: iUniverse, Huang, W. (2006). Internationalisation of Chinese firms: A case study of Huawei Technologies Ltd. A dissertation presented in part consideration for the degree of MA Finance and Investment. Retrieved online on 20/06/2012 from, https://docs.google.com/viewer?a=v&q=cache:GFRSTBp0bigJ:edissertations.nottingham.ac.uk/195/1/06MAlixwh8.pdf+Internationalisation+of+Chinese+firms:+A+case+study+of+Huawei+Technologies+Ltd.&hl=en&gl=ke&pid=bl&srcid=ADGEESi0My3kHgiaLswvN8toTbBGGKYGc6nWws4j7ToOCsgtRxQbCQytJZCmAT8_DNFYPR-XmcdiYqZYQmMvGGJzGOchC_-o6cbmld7_Mqd-MqJEr6TjjnNZxWJDvG93LdChSceeq7a6&sig=AHIEtbTYL5C_Ip08vURoq8j1ua3HsrimxA Toyota (2012, 2010) Retrieved online on 20/06/2012 from, www.toyota.com.au/ Upathamwaranon, P. and Guo, S. (2008). The Internationalization Process of Toyota in Europe From the Perspectives of Entry Mode and Network Structure. Mälardalen University School of Sustainable Development of Society and Technology. Master Thesis EFO 705. Retrieved online on 20/06/2012 from, https://docs.google.com/viewer?a=v&q=cache:T6rZExkPZUIJ:www.eki.mdh.se/uppsatser/seminarie/old/VT2008-FEK-D-2016.pdf+The+Internationalization+Process+of+Toyota+in+Europe:+From+the+Perspectives+of+Entry+Mode+and+Network+Structure&hl=en&gl=ke&pid=bl&srcid=ADGEESgqRhIvdHlUIvaqKhZ0w7HxEmFkqeOjQ44BDaHaHAffr8oJu4xmMqmXOmuXiMqygdkC5jCmqi03rlvKQPgLEbNqwwzpxwqJW9wXYYDx_OtxeLxx-7M3trBtmDI8sykHDJOdiQOy&sig=AHIEtbS2axxrR23nb60yq-ZHpB-e0I9THA Read More