Choose a global fashion, automobile or grocery/supermarket Company that has expanded across borders into Asia. Discuss and critique its approach to ‘Internationalization’ including a clear analysis of the strategies and process it has used to expand across borders. Also provide a detailed analysis of the challenges and problems the business has faced as it has expanded into the Asian market.
Once there was a time when vendors used to travel for the trade and now we have several options for the trade not only nationally but also internationally and that is possible through the global market and international trade. Development in multiple sectors like Transportation, communication, Education, Health and other related phenomenon are responsible to be linked globally for the expansion of economy and business. Nowadays if a creation is unique and unexpected and the things which stand out get the attention whether it is in social media or in the market. It can be a fashion, the luxury item, or that is an automobile. ( https://www.feedough.com/why-things-go-viral/) The changing culture and trends across the world makes a good to get a chance to be global and worth using. There are many industries, and other businesses which are renowned internationally. Among them this essay will discuss about an automobile company which has international fame and to be a global company how it has approached the international market along with it has used its techniques to be in a global market along with the challenges being faced by the particular company to sustain in the international arena.
The Japanese brand Toyota became the largest automobile manufacturer in the world for the first time in 2008 after its huge struggle to be a global brand and after competing especially with the then growing American automotive industry. Most of its nearly 600 subsidiary companies are involved in the production of automobiles, automobile parts, and commercial and industrial vehicles. Initiated in 1933 as a division of the Toyoda Automatic Loom Works, Ltd and later Toyota Industries Corporation, now a subsidiary is a Japanese manufacturer founded by Toyoda Sakichi. Its first production car, the Model AA sedan, was released in 1936. The following year the division was incorporated as the Toyota Motor Company, Ltd., an automotive spin-off headed by Toyoda Kiichiro, Sakichi’s son. Toyota subsequently established several related companies, including Toyoda Machine Works, Ltd. (1941), and Toyota Auto Body, Ltd. (1945). However, faced with wrecked facilities and a chaotic economy in the aftermath of World War II, the company was forced to temporarily suspend its automotive production. https://www.britannica.com/topic/Toyota-Motor-Corporation
APPROACH TO INTERNATIONALISM
What if you have more goods and the demand also rises accordingly. Definitely the industry wants to expand its business out of its comfort zone as it is said ‘More risk more gain’. Toyota was becoming a renowned brand in Japan and they thought it to take it out across the nation to be a global brand. After getting the fame as Japan’s biggest car company, it listed its name as the second largest position in the world after General Motors. It produces around eight million vehicles per year, about a million fewer than the number produced by General Motors. In course of being international brand it has expanded its markets vehicles in over 160 countries. The company dominates the market in Japan, with about 45% of all new cars registered in 2004 being Toyotas. Not only in the nearby nations Toyota also has entered in the European and North American markets along with it has significant market shares in south east Asian markets like Philippines and Malaysia.. Manufacturing in a single nation and supply was not enough for a global brand so Toyota opened its manufacturing or assembling stations all over the world which aimed vehicles for local markets, including its most popular model, the Corolla. The United States cannot be ignored by international traders. Toyota was clear about the idea of flourishing its business towards its competitive market of United States. With the aim of establishment in competitive market it has manufacturing or assembly plants in the USA. Joint ventures with international manufacturers marked the imitation of this new approach. At that time, the U.S. manufacturers General Motors and Ford were beginning to promote their cars plans aimed at producing small passenger cars on a global scale to meet the rising demand for these cars. So the trend of merger was practiced. The companies went in joint venture, a long-term alliance in which is member has an equity stake and exercises control and influence over decision-making that could offer fast and successful entry into a new location than trying to enter it alone. These benefits may spring from a partner’s local knowledge, the presence of existing distribution channels or the increased likelihood of a successful tender because of the presence of a local partner.
As part of this policy, Isuzu and Suzuki also entered into international manufacturing tie-ups with General Motors; Toyota established a joint venture company, New United Motor Manufacturing Inc. (NUMMI), with GM in the United States; and Ford expanded and reinforced its ties with Toyo Kogyo (now Mazda) in a strategy centered on Asia and the Pacific region.
Toyotas penetration in international market especially in Europe was its huge success in capturing the big market. Toyota opened its first plant outside Japan – in Brazil in 1959. From that point, Toyota managed locally both production and design of its products (that is, adapting vehicles to the places they will be used, as well as building them there). This builds long-term relationships with local suppliers and local labor. Part of this also means that Toyota does not merely build vehicles overseas, but also designs them there, with a network of both design and R;D facilities in North America and Europe (Toyoland n.d.). Toyota Motor Sales established Export Headquarters in 1962, whereas Toyota Motor Corporation set up its Export Department in 1963. By organizing the Joint Export Conference, cooperation system was set up by TMC and TME in order to develop an effective export strategy. These models adapted to local conditions for their exports had contributed to expand Toyota’s overseas sales (Shimizu n.d.). In 1960s, Toyota started to import first car to Europe and sign first distributor agreement in Denmark in 1963 (Key Dates Europe 2008), Toyota could obtain its distributors in Finland, Netherlands, Belgium, Swiss, Great Britain, France, Italy, and Austria. Though Toyota found that difficult to sell in Great Britain, France, Italy and Federal Republic of Germany because they are carmaker countries and have tight 23 sales networks, its exports to Europe rapidly grew from 13 units in 1960 to 59 thousand units in 1970. In Europe, Toyota’s marketing strategy has been in having one distributor in each country (Shimizu n.d.). And in 1970, Toyota Motor Corporation Brussels Office was opened in Brussels, Belgium, to be the center of operation in European market in that time (Toyota in Europe 2008). Toyota caught niche market as a strategy in this period. Europe has become Toyota’s second overseas market since 1972 and came to import over 300 thousand units in 1980 (Shimizu n.d.). In addition, Toyota Caetano Portugal, S.A produced first vehicle under Toyota’s license. Until now, Toyota Caetano Portugal produces mini-bus assembly and commercial vehicles assembly under Toyota brand in model Caetano, Dyna and Hiace (Toyota Caetano Portugal, SA 2008) Production Period: From 1980-1995 In the early of the 1980s Toyota face with barrier from government’s policy or condition of each country as trade conflicts and the growing claim of local for the substitution of imports by localized production and also European Commission (EC) Committee demanded the Japanese government to slow down its exporting toward EC countries to protect their local automobile industry — France, Italy especially. Consequently, the exports toward EC countries grew slowly: increase by 40% for ten years from 1980 to 1990, the peak year of its exports toward this region. According to this situation, Toyota had to change its strategy in order to handle with that crisis. Toyota began to organize a global production network, which major locate in the USA, the UK, the Australia, ASEAN countries and the South Africa. This new strategy would be clearly presented in Toyota’s “New Global Business Plan” from 1995 (Shimizu n.d.). Before Toyota open manufacturing plant in Europe, In 1987 Toyota Technical Centre was establish in Zaventem, Belgium, to be Research ; Development (R;D) department and purchasing activity center in Europe, also Production Engineering activities after they have manufacturing plant (Toyota in Europe 2008). Toyota set up it for study about consumer and local market. According to Toyota export in the previous part, Toyota tries to establish distributor by at least one place per country. To control all distributors, in 1989, Toyota established marketing part to managed European marketing and sales activities also in Belgium, And in 1990, they decided to open Toyota Training Centre again in Zaventem, Belgium, for provides essential training to service instructors and engineers from all of Toyota’s European distributors (Toyota in Europe 2008), to keep the same distributor’s quality standard all over Europe. 24 Toyota’s production in Europe began with the construction of Toyota Motor Manufacturing in UK (TMUK) in 1992. TMUK resembled in assembly line to that of its mother plant, Tsutsumi assembly plant, however adopting a different approach from that in its American transplants to the management of industrial relations and the purchase. As for the purchase of parts, Toyota gave the priority to the procurement from European suppliers (160 firms founded in 10 countries, the half of which were in UK in 1994), so it was TMUK that was coming to gather the parts. Like as in the USA, TMUK organized a Technical Support Team in order to help its suppliers to improve the quality of their products under the long-term relationship with them. Then, here also, the just in-time supply has not been applied as in Japan. Is confirmed then the adaptation of Toyota Production System (TPS) to the local industrial and business conditions (Shimizu n.d.). In 1994, Toyota opened second manufacturing plant in Europe in Turkey, Toyota Motor Manufacturing Turkey (TMMT) located in Adapazari, Turkey, to produce Corolla Verso and Auris models. Majority of the production is exported to European countries (General Information about TMMT 2004). From the beginning to 1985, its exports had a tendency to expand, being accelerated in the period between two oil crises and interrupted by short sluggish terms as those in 1973, 1978-1979, and 1981-1984. Even the fall of the sales by half in the Southeast Asia in 1998 with respect to the previous year because of the economic crisis of the ASEAN countries was compensated for by the increase in sales in the North America and Europe and had no substantial effect on its overseas sales (Shimizu n.d.). New Global Business Plan Period: From 1995 According to Toyota’s “New Global Business Plan”, which focused on advancing localization and increasing imports, and has made numerous efforts toward achieving these goals, we can see Toyota spread business unit allover European location. Toyota Motor Manufacturing UK opened second assembly plant and started produced Corolla lift-back models in September 1998 (autointell n.d.). In the same year, Because Toyota started to have manufacturing unit, Toyota Motor Europe Manufacturing (TMEM) established in Belgium to organize manufacturing operations in Europe (was merged and become one part of Toyota Motor Europe in 2005) (Toyota in Europe 2008). In 1998, Toyota opened Le Rendez-Vous Toyota in Paris, France (Toyota in Europe 2008), to be a premium show room of Toyota for support marketing activity. For supporting R;D, in 2000, Toyota Europe Design Development (ED) was establish in Nice, France, to run design concepts for the European market, production support for European models and design research information (Toyota in Europe 25 2008). The new operation in France, Toyota Motor Manufacturing France (TMMF), began production of the Yaris in 2001, and in April 2002, the engine assembly unit was created at the manufacturing plant in France. In 2002 Toyota Motor Manufacturing Poland (TMMP) was establish for produced transmission part in the Walbrzych Special Economic Zone in Poland, which would begin exporting the parts to Toyota’s manufacturing centers in France and Turkey. For that time, Toyota’s phenomenal growth in Europe as having several of business in Europe, not only manufacturing plants, but also supporting facilities and many complex activities about seal and marketing, manufacturing operation and engineer, that necessary for Toyota to change some organizational structure. In 2002 they decided to set up Toyota Motor Europe (TME) as a holding company to control subsidiaries in Europe (Toyota in Europe 2008). TME play a role as the share holder for control all manufacturing plants and National Marketing ; Sales Companies (NMSCs) in Europe to go on in the same direction and follow the company’s plan by work with headquarter in Japan and other supporting facilities. In 2005, TMME, which manage about marketing and sale activity in Europe, and TMEM, which organize manufacturing operations in Europe, were integrated into TME for strongly coordination in production, sales, marketing and technology departments for more efficiency in management (Toyota in Europe 2008). In 2005, Toyota had 3 events happen in production part. First, TMMP began producing engines. Secomd, they also opened new manufacturing plant in Poland, Toyota Motor Industries Poland (TMIP) to supply desel engine to other Toyota manufacturing plants (Toyota in Europe 2008). And third, Toyota Peugeot Citroën Automobile (TPCA) Car Production Plant was established in Czech Republic as a joint-venture of Toyota Motor Corporation and PSA Peugeot Citroën to combine their knowledge supplier relationships: PSA Peugeot Citroën’s knowledge of small cars in Europe and its expertise in purchasing activities; and TMC’s skill in development, manufacturing and production processes. TPCA produces three small cars on the same platform under different brand: the Citroën C1, the Peugeot 107 and the Toyota Aygo (TPCA Car Production Plant Opens in Czech Republic 2005). In 2006, Toyota opened another supporting facility in UK, European Global Production Centre (E-GPC) – Derbyshire, UK, to teach train production staff and supervisors from all over Europe (Toyota in Europe 2008). The last manufacturing plant opened in 2007, Toyota Motor Manufacturing Russia (TMMR), to produce Toyota Camry (RUSSIA: Toyota Camry build starts 2007). To sum up, Toyota’s internationalization process in the Euro market are started later than the market of American and Asia. And in Euro market, Toyota applied a little bit different way of enter due to the size and the policy of that market. In the first period, 26 Toyota created its centre in Denmark, and then distributed its productions directly to the countries around. But the policy of exporting was changed in the second period, so Toyota changed its center to UK, and began assembling there. And for New Global Business Plan, which placed renewed focus on innovation and international expansion, Toyota create more manufactory in Europe.
Toyota’s Entry Mode( STRATEGIES AND PROCESS IT USED TO BE GLOBAL)
As what we said before, Toyota established Export Headquarters in 1962, and started to penetrate into Euro market. They chose Denmark as the first market center in that market, because starting from there, Toyota could obtain its distributors in other 7 countries around. But there were still some difficulty to sell their car to UK, France, and Italy due to the existed car makers and their tight sales network. So, Toyota announced its arrival in the UK with the launch of the Corona in 1965. (Toyota GB 2008) After that, Toyota launched two other types of car again in the market; both of them got a satisfied result. From that time, Toyota’s sole UK importer became Toyota GB. (Toyota’s History 2008) In 1970s, oil crisis broke out all over the world. But Toyota’s cars were and are famous for the economical. Therefore, since that Toyota flourished. After such a chance, Toyota expanded rapidly. In 1971, the first Toyota car was made totally in Euro by licensing in Portugal and in 1977, Toyota finished the change from only exporting to joint venture in Europeaan market, the Toyota (GB) Ltd became part of the Inchcape group (a Britain Car Company), Before Toyota hold share in 51% and change to be a public limited company in 1999 (Toyota’s History 2008). In the next decade, Toyota made its 50 millionth vehicle in 1985. (Toyota’s History 2008) During that decade, good design stand for a more and more important position. In 1984, Toyota opened their own European design centre in the south of France. (Toyota’s History 2008) Finally, in Sep 1992, Toyota Manufacturing (UK) Ltd, which is wholly owned by Toyota, arrived at Burnaston in North Wales to make the Carina E family car. For today, Toyota distributors is many style of company as public limited company and Toyota take full ownership example Toyota (GB) PLC in UK (Toyota’s History 2008), or agreement distributor example Louwman ; Parqui in Netherlands (Louwman and Parqui B.V.2008). That mean in Toyota National Marketing ; Sales Companies (NMSCs) have both via again export and sale subsidiary. Also in manufacturing plants, Toyota have many style of contract as wholly-own subsidiary in UK (Toyota Motor Manufacturing UK), joint venture by Toyota is 27 superior share holder in Turkey (Toyota Motor Manufacturing Turkey), joint venture 50-50 in Czech Republic (Toyota Peugeot Citroën Automobile) or license in Portugal (Toyota Caetano Portugal, S.A). Till 2006, the information can be summarized in the table below: Name Start of operation TMC-related equity Czech Republic Toyota Peugeot Citroën Automobile Czech, s.r.o. (TPCA) Feb. 2005 TMC 50% Peugeot Citroën Automobile S.A. 50% France Toyota Motor Manufacturing France S.A.S. (TMMF) Jan. 2001 TME 100% Poland Toyota Motor Manufacturing Poland SP.zo.o. (TMMP) Apr. 2002 TME 94.3% Toyota Motor Industries Poland SP.zo.o. (TMIP) Mar. 2005 TME 60% TICO 40% Turkey Toyota Motor Manufacturing Turkey Inc. (TMMT) Sep. 1994 TME 90% Mitsui 10% U.K. Toyota Motor Manufacturing (UK) Ltd. (TMUK) Sep. 1992 TME 100% Table1. The operation of Toyota in European market. (Source: http://www.toyota.eu/) 5.3 Toyota’s Network From the first point that Toyota started to create first network by sign distributor agreement in Denmark, they have just an easy network wed as a directly connection between Toyota Motor Corporation in Japan and Distributor in Denmark. Then, Toyota tried to spread their network to cover Europe, not only in sale subsidiary, but also other business unit as R&D or design department. At the same time, they try to bond their network to stronger link. After that, Toyota expand by establish production part in Europe. They set up Toyota Motor Europe (TME) to ensure better coordination between marketing, research and development, manufacturing, and external affairs activities in Europe (Toyota in Europe 2008). In present, 6 manufacturing plants National Marketing and Sales Companies (NMSCs) are controlled by Toyota Motor Europe (TME) to manage in marketing and production operation. TME was controlled by Toyota Motor Corporation (TMC) and work with other supporting facilities under TMC in Europe.
CHALLENGES AND PROBLEMS AFTER EXPANDING ACROSS ASIA/ OBSTACLES
Firms have to consider several fields of factors which will have influence on the entry mode, when they go abroad. In this part, we summarized the external and internal factors and analyze them with the case of Toyota. Network, one of the key reasons, will be discussed in the next chapter. In the following part, the other reason about how to choose entry mode and how to modify it to become more suitable to the market is discussed. 6.1.1 External Factors “Change in external factors in the foreign target country may encourage or force a company to revise its entry mode. It is vital; therefore, that a company continually monitors external factors in the target market and prepared to revise its entry mode in the appropriate time.” (Root 1998, p.18) Market Size “Size of a foreign market influences entry mode decisions, when the market size increases, benefits of internalization will increase.” (Chen and Hu, 2001, p.197) Generally speaking, the control of foreign market should be in proportion with the size of market. But it is a little bit hard for a firm to get enough and deeply understanding about the information of one market before really dip into it. As we said before, “the outsider can only achieve a very superficial comprehension of such a complex and fluid network.”(Johanson and Mattsson 1988, p.18) Therefore, the most safe way of enter into a new market is by using a relevant low risk entry mode as Toyota’s choice (exporting or licensing etc.). But this kind of entry mode can only apply for the market which does not require a big amount of manufacture. For Toyota, after familiar with the local situation, European market is a definitely attractive market with high sales potentials. So some kind of high risk entry mode began to appear, like joint venture in UK, or wholly owned subsidiaries in France. Government policies and regulations In the external factors, “the most noteworthy are government policies and regulations pertaining to international business.” (Root 1998, p.10) This factor is the easiest one for investors to get. But this factor is also the most difficult one to control. Of course, all the others factor cannot be dominate by people too. But the policy’s change speed will be faster than others. This is why the reason should be considered carefully all the 30 times. “Restrictive policy obviously discourage the investment, on the other hand, a target country may encourage foreign investment by offering some incentives as tax holidays.” (Root 1998, p.10) For example, about 1970s, at that time, there is no very strict limitation of Toyota’s exporting. But, after the oil crisis, their car became so popular due to the saving of oil. Its amount of exporting was increased dramatically. So the governments were published new policies to protect its own car industry and prevent the high quantity’s exporting of Toyota. In order to solve the problem, Toyota had to change its market centre from Denmark to UK with the action of changing the entry mode from only exporting to joint venture. Economic Status Economic status should be considered from three perspectives. First is the size of economic (always measured by GNP). Second is the dynamic of economic that is “the growth rate of GNP, the rate of investment, and personal income and so on”. (Root 1998, p.11) Third is the target country’s external economic relations, like the balance of payment, or the debt service burden. Some people hold that the economy status is the basic ground for doing business. And the authors also believe that economy should be one of the powerful decisive factors when choosing entry mode. Because the fundamental aim of a firm to entry a new market is to gain more profit. That is why “the unstable of economic status will make the internalization becomes less attractive.” (Rodriguez 2002, p599) For Toyota, they also pay attention to this problem. We can get the information directly from the country the firm chooses as their beginning in the European market, such as Denmark, UK, France and so on.(Toyota in Europe, 2008) All of them are highly development country. The stable increase economic status of those countries can provide a safe environment for Toyota to develop. Moreover, the current economic status cannot represent the strength of a country forever. Therefore, care about the potential development of a country’s economy is also needed. “Entry mode will be negatively associated with the level of potential economic risk of the country.” (Rodriguez 2002, p599) So after penetration some highly developed countries in a satisfied degree, Toyota began to rise the second round of enter. That is the action of entering into east European market, which is less developed compared with the UK etc. but we have to admit that the potential of those country is great. Psychic distance Now it turns to the most famous point, which had been discussed nearly by every expert in the field of international business. The psychic distance is defined as “the sum of factors preventing the flow of information from and to the market Examples is 31 differences in language, education, business practices, and culture.” (Johanson and Vahlne 1977, p.24) Nevertheless, the distance of geographical cannot be a measurement of psychic difference. So, no matter which country a firm intends to go, the high cost of information acquisition is needed, such as do some market research or hire some people with experience in such field. From Toyota’s extension process in the European market, we believe that the firm has a deeply understanding about the result of neglect the power of psychic difference. We can find that the development order of Toyota in the European market is followed the risk level of entry mode. Padmanabhan and Cho (1996) said “large psychic distance between home and host countries has a positive influence on the Japanese firms’ choice from low to high control mode.” (Cited in Chen and Hu 2001, p.197) Normally, Toyota is started with exporting, and then after get sufficient information, they changed to a higher risk level’s entry mode. Take the development in UK as the example, they began dip into the market with the lowest risks way (exporting). About five years later, they changed to joint venture, with the company become bigger and bigger. Finally, they choose to build a 100% owned subsidiaries in 1992. Although there is such a long time during the process, it is a very safe way to narrow down the difference in culture. And till now, there is little efficient way to overcome this problem yet. Due to the psychic distance, the favorite style of car also differs in Japan and European market. So, in 1998, Toyota setup its design center in France to solve this problem. 6.1.2 Internal Factors Experience The first and foremost internal factor should be experience. The framework of this thesis in chapter 3 presents a clear way about a firm’s action when it has the willingness to go abroad. So, the only tool a firm has, before it enter the target, is the knowledge it already got from its former and current activities. The knowledge can help the firm to choose an entry mode through the analysis of the external and internal factors in the market. As we introduce before, Penrose (1995) divided the knowledge into two kinds. One of them is experience, and it cannot teach by others, change to another words, to get the experience is not an easy process. The experience of a firm can help it to solve some problem and save a lot of times. On the other hand, the experience can also help the company has to avoid the mistake that “using the same entry mode to every target market.” (Root 1998, p.98) In the case 32 of Toyota, the company already had the experience in entering American market, but the situation in European market is not all the same. So, use the knowledge to analysis the factors which affect the choice of entry mode become more important. In Toyota, the experience must play a significant role to assist the company conquer the European market. We can go back to trace their history story again. At first beginning, both Toyota and other similar company do not have enough experience about how to expand abroad. The most practical way is learned from their own activities —- learn by doing, this is also an idea come from Penrose (1995). Without enough relevant knowledge, Toyota decided to entry European market from only one country with the lowest risk way. That is entered in to Denmark with exporting in 1960s. (Toyota in Europe, 2008) Normally, “the more experience the firm has, the less help it will require from a local partner and it will therefore be less inclined to use cooperative modes.” (Rodriguez 2002, p.607) After considering the entire conditions, Toyota chooses the way of exporting to enter the European market, which is started from the beginning stage of the evolution process of entry mode. In the international market, “a company is more concerned with minimizing the risk and maximizing control over the market. Given this situation, exporting appeared to be the first choice to a totally strange market.” (Root 1998, 53) Till now, Toyota already became a famous multinational corporation all over the world, and this factor can be the most powerful evidence that the choice in European market is right. Even till now, Toyota still considers the knowledge as a very important thing. They established a new training centre in UK in 1992(Toyota in Europe, 2008) in order to transform the most up-to-date knowledge to their staff, meanwhile, the centre provides a channel to get the experience from the Toyota’s history. Company Size Talking about the factor of company size, it should have some relation with the network the firm builds with local firms and its own subsidiaries. Generally speaking, “The bigger the firm, the more probable it is that it will opt for joint venture or wholly owned subsidiaries.” (Rodriguez 2002, p.607) Small firms usually do not have as tight internal network with its own subsidiaries as big ones. So the transform of the knowledge or resources will be less efficient. Next, in the small company the direct control is often applied. So when enter into a long geographical distance country, the problem of language, culture barriers will become harder to overcome when compared with big ones. Therefore, “there is a negative relationship between the size of the MNC and the choice of high control entry mode.” (Taylor, Zou and Osland 1999, p.151) In Toyota’s case, they also use an appropriate way to settle this problem. The entry 33 mode they choose, are always according to the company size. For instance, in the real beginning, Toyota is not as famous as right now. It does not hold so much relationship with local firms, suppliers and customers. So it chose entre by exporting. But with Toyota dip into the European market, the company size became bigger and bigger. And its entry mode also changed in time, such as the market center in UK with the entry mode from joint venture to wholly owned subsidiaries, and the new plant in Poland with joint venture.