Case Study 2

Toyota’s Globalization Strategies

Suggested case discussion questions

Q1 Identify what ‘drivers’ have been influential in Toyota’s pursuit of globalization

Toyota’s journey to become a global automotive firm has had a number of key drivers. The
leadership of first Sakichi and Kiichiro Toyada in the early days, and then Fujio Cho in the
later years have been crucial in Toyota developing the ambition to succeed on a global basis.
Of the ‘drivers’ of globalization discussed in chapter three, some have played a more
important role others. Cultural homogenization has played some part as populations in
emerging economies, in particular, aspire to car ownership. Countries like China, India and
Brazil are seen as huge potential markets for Toyota as an increasing middle class seek car
ownership to affirm their status. Economies of scale and scope was a significant driver as
Toyota utilized scale economies by opening manufacturing plants in low-cost countries, and
exploited scope economies by sharing significant parts across product lines and with other
manufacturers in joint ventures. Technological developments had some effect, but Toyota
took the decision to centralize these activities in its global operations in its third globalization
program. Deregulation and the lowering of trade barriers gets little mention in the case study,
but was influential in that how China opened up its markets to outsiders, in turn, shaped how
Toyota moved into that market through the setting up of alliances and joint ventures. Strong
international competitors appear a key driver. Kiichiro Toyada seemed strongly influenced
by what he witnessed at Ford and the desire to compete at that level became embedded within
the fabric of Toyota. Its latest explicit aim is to overtake GM as the biggest global firm in the
automobile market.

Q2 Explain how Toyota reconciled the need for a global strategy with regional and
country specific adaptations

The bulk of the case discusses and explains this aspect and there are many examples of how
Toyota’s ‘global localization’ strategy became manifest. In each of the three globalization
programs from 1995 to 2010, localization of production became more and more of an issue.
Through the approach of locating manufacturing facilities in or close to markets, Toyota was
able to become more adaptive to local needs and flexible in its approach to products.
Changes were made to the Lexus product in the US that enabled it to serve that market more
effectively, while a new small car (Yaris) was developed specifically for the European
market. Toyota restructured its profit structure into three profit bases: Japan, North America
and Europe in a move to regionalize its core activities. Its European headquarters was given
more autonomy, which allowed it to strengthen its sales network and expand local
manufacturing capacity, cutting costs and increasing production volumes. The potential
downside of localization, fragmentation and a loss of global identity, appear to have been
avoided by Toyota. Its executives make a point of visiting its local manufacturing plants
when they are able to and a large marketing outlay helps to maintain relations with the
corporate ‘parent’.

Q3 Toyota’s pursuit of globalization appears heavily dependent on the Japanese and

North American markets. Given this, can Toyota’s approach be considered truly
global, and what are the risks associated with such a strategy?
Exhibit VI shows that, although Toyota has overseas sales in seven regions, by far the most
significant sales occur in North America, 1,940.8 (1000s) vehicles, for 2002, while total
overseas sales were 3,838.3 (1000s). Domestic sales in Japan for 2002 were 1,680.5 (1000s).
So, domestic and North American sales account for 3621.3 (1000s) out of 5,518.8 (1000s)
total sales. As both of these markets, but particularly Japan, are mature, if not saturated, the
opportunity to increase sales in these regions appears low. The best that Toyota can perhaps
hope for is to maintain current levels and hope that it can take some sales from its direct
competitors. Being quite heavily reliant on two markets can mean Toyota is vulnerable to
downturns in their economies. The slowdown in the Japanese economy in the early 1990s
had proved a stimulus for it at that time to expand its globalization activities. However, it
appears that its objective of 15% worldwide market share by 2010 assumes that sales in its
two main markets will remain constant. A downturn in sales in either of these would
adversely its ambitions. Exhibit IV outlines Toyota’s worldwide operations, identifying its
presence in 26 different countries. Such broad coverage of activities in eight different
geographic regions seems to qualify Toyota as a global company.