Toyota Motor Corporation - Essay Example

TOYOTA MOTOR CORPORATION Introduction Toyota Motor Corporation is now in a critical point as it has to deal not only with the lingering effects of the 2008 Financial Crisis but also with the crippling effects of the Great East Japan Earthquake. With the ever changing global business setting and the emergence of lucrative markets in developing countries, the company now stands at a crossroads as it ventures into new, exciting opportunities which, however, present greater risks that it might be accustomed to. This report aims to provide an analysis of the opportunities and threats the company faces and in so doing evaluate the course of action/strategy to be taken by the company. China and Emerging Markets While the United States languishes from the 2008 financial crisis and the European Union battles credit crunch issues that threaten to undermine the whole continent, several countries have been posting tremendous economic growth especially China, India, Indonesia, Latin American countries and South Africa. These emerging markets provide ample opportunities for car sales precisely because the consumer base is so large and undeveloped. China, for example, has 1/6th of the world’s population followed closely by India. The increase in economic health has resulted to availability of car financing services and higher disposable income that can ultimately translate to increased demand for luxury items such as automobiles.These emerging markets also offer cheaper production rates due to lower labor costs and availability of raw materials as compared to Toyota’s main base of production in Japan, a country that is resource poor and has higher salary requirements when compared to its Chinese counterparts. Toyota’s philosophy of producing where there is demand presents an opportunity to the company. Having said this, the company may want to rethink its policy of keeping 3 million automobile production in its home country. There are huge risks, however, in establishing production bases in emerging markets particularly in China. Sino-Japanese relations are now at a low point due to the increasing assertiveness of the former in its sovereignty claim of a string of islands that the later now possesses. This string of islands, known as Diaoyu to the Chinese and Senkakku to the Japanese, has been the flashpoint of national sentiment especially when Tokyo purchased the islands from its private Japanese owners. Ever since the purchase, several Japanese establishments and even diplomats have been under threat by Chinese activists leading to shutdowns. Nationalistic sentiment has risen to the point that boycotts of Japanese products have been called upon. Warships and jet fighters have also been recently deployed underlining the turmoil between the two nations (Gao, 2013). There are also threats of regulatory requirements requiring companies to reveal industry secrets especially technological innovations. The Wall Street Journal, for example, reported that Chinese authorities are contemplating about requiring foreign companies to register all information on their products before they can operate in the country (Alexander, 2010). Cases have also been filed against local Chinese manufacturers alleging that they have copied designs of certain models. In the worst case, nationalization of Toyota’s assets in China can happen as Chinese history provides several examples especially during its communist transformation. The wounds of World War 2 is being brought up to the front with China and South Korea declaring that Japan has not fully addressed issues of war crimes especially the use of their women as sex slaves of Japanese soldiers (Reuters,2012). Hence, while emerging markets present tremendous opportunity for sales and lower production costs, the current political and social situation can present losses to the company. Careful consideration of current events should be conducted in light of the territorial dispute between the two countries. Toyota does not enjoy the same diplomatic normalcy as its greatest competitor, General Motors, which is aggressively producing and selling in the world’s current largest consumer market. Focus on Safety When people decides about a car purchase, several factors such as price, financing plans, attractiveness, brand image, intended usage and safety factors come into consideration. Toyota places much importance for safety which is understandable considering the financial backlash of recalls and fines. Toyota’s seriousness in this endeavor is evidenced by the by the different programs and facilities it has funded and maintained. However, while conducting studies regarding traffic safety and creation of smart cars is laudable, there appears to be too much focus and allocated resources for these concerns. Chinese and Indian automakers, for example, sells units at half the price of its foreign counterparts made possible, although not entirely, by less incorporations of safety features. Volkswagen, one of Toyota’s fiercest competitors, has also taken a different business philosophy to pursue. The company is now predicted to overtake Toyota and GM in automobile production and sales because of its new vehicle platform, the Modularer Querbaukasten, where parts of different car models are interchangeable (Colwell, 2012).While Toyota has been focusing on improving safety and IT integration, Volkswagen has been devising ways to minimize production of different spare parts thus minimizing the number of production facilities and inventory management required. For example, Car A has part A1 and Car B has part B1. What Volkswagen has done is to make this all into A1 thus removing the need to produce B1. The Effect of the Great East Japan Earthquake As Toyota’s report honestly put it, the earthquake in Japan which happened in March 11, 2011 presented a severe blow to its production and supply chain as component makers where located in the affected area. However, the effect of the earthquake is far more than what the report puts it. As stated in the report, the company had a production loss of 800,000 units through June which is 3 months after the quake. Despite their best efforts, the production goal was predicted to be 450,000 units from their goal. The huge, unrecoverable loss was because not only has the earthquake forced facilities and infrastructure to shut down for a certain period, it has also caused a nuclear plant to fail catastrophically resulting to severe power deficits. Hence, while production plants and infrastructure has been restored to capacity, power shortages in the region is severely hampering operations. Japan is nowalso lock on a debate on whether to shut down its nuclear plants to avoid such disasters from occurring (Endo, 2011). When approved, this will inevitably result to more power shortages effectively affecting production and increasing costs associated with delays. While this presents a pressing threat, it can also present an opportunity for the company to rethink its policy of focusing production on the country and search for more suitable and stable countries. IT Integration and Environment-Friendly Cars From a vantage point, one can see that the future of automobiles is smart, environment friendly cars. The craze for mobiles with cutting-edge technology and ‘cool’ applications is highly indicative of the appetite of consumers for products which incorporates the so-called future-techs. Hence, ‘smart cars with apps’ can be the new fad and Toyota is in a prime position to lead this revolution given its technological capacity. The development of environment-friendly cars such as hybrids and plug-in vehicles is indeed logical given the swathes of smog in cities particularly in China and India and the ever-increasing cost and deficit of petroleum products. Toyota’s Direction GM Motors, Volkswagen, Hyundai and other competitors are now aggressively operating and expanding in emerging markets especially China. The company should do the same as their main production base in Japan is now unsustainable given the long-term effects of the Great East Japan Earthquake. However, Toyota should generally avoid centralizing its production base in China since Japan and China are bound to be hostile to each other due to their nationalistic tendencies. Several countries should be considered particularly in their intermediate neighbors Thailand, Philippines and Indonesia which is now having healthy economies. Sales in China, however, should be aggressively pursued though not entirely relied upon given the propensity for copyright infringement and lower costs of locally made automobiles. Technological innovations in the field of developing ‘smart cars with apps’ and environment-friendly, non-petrol will be the new must-haves. Safety concerns should also be a priority but not on top of the list. Instead, the company may want to produce its own interchangeable-parts vehicle platform as Volkswagen is doing. References: Alexander, Jacob (2010). China wants foreign companies to disclose EV secrets. Paultan Org. Retrieved from http://paultan.org/2010/09/22/china-wants-foreign-companies-to-disclose-ev-secrets/ Colwell, KC (2012). A Look at Volkswagen’s New MQB Platform for Front-Wheel-Drive Cars. Car and Driver Online. Retrieved from http://blog.caranddriver.com/a-look-at-volkswagen%e2%80%99s-new-mqb-platform-for-front-wheel-drive-cars/ Endo, Koji (2011). How Japan’s Car Industry Almost shutdown. Advanced Research Japan. Gao, Victor (2013). Viewpoints: How serious are China-Japan tensions?. BBC Online. Retrieved from http://www.bbc.co.uk/news/world-asia-21290349 Reuters (2012). Japanese Companies Close Facilities in China as Tensions Rise. The New York Times. 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