Faculty of Humanities and Social Sciences
B.A. (Hons.) International Trade and Business Communication, BA
This study revolves around the Toyota Motor Company (TMC), which is a popular multinational firm in the automobile industry. The main topic is about the entry of TMC into UK and Chinese markets. The study tries to find to establish the importance of a suitable mode of entry into a foreign market. Its findings are relevant to the privately and publicly owned firms as entry into the foreign markets is increasingly common in today’s globalized world. The choice of Toyota Motor Company has been influenced by its long existence and achievement within the auto mobile industry.
Toyota Motor Corporation (TMC) is a multinational company. It is the biggest manufacturer in motor vehicles within Japan. Its main offices are located in Japan, Toyota City. Toyota has several competitors namely Ford, Honda Motor, and Nissan Motor. TMC produces brands such as Allion, Camry, Premio, and Lexus among others. Toyota is listed in Tokyo, Fukuoka, and Osaka, New York's stock exchange listings. The major markets targeted by Toyota include Europe, Asia, Japan, Europe, Asia, and North American regions. TMC has been in the forefront in manufacturing and assembling environmental friendly vehicles.
Toyota’s success story has been in existence since the 1950s. Competitors have tried to imitate their success strategies unsuccessfully. Toyota was ranked second after General Motors in the year 2003. It has been the main leader in the motor industry within Japan where its headquarters are situated. This development has spread out to other foreign countries such as China, and the United Kingdom. Regardless of its remarkable growth worldwide, Japan remains its largest market. The Toyota Production System (TPS) enabled the growth, which is a strategy that seeks to improve products continuously. TPS offered the company a competitive edge both at home and abroad, as competitors could not emulate it easily.
Purpose of the study
This topic was preferred due to its importance to other companies. These companies include those related to manufacturing of cars and those within other sectors. Entry into foreign markets is one way of firms’ expansion. These firms need to know some of the factors to consider through the experiences of other companies. Additionally, entry into foreign markets in this globalization age is almost unavoidable for most firms.
The mode of entry into a foreign market determines the success of the firm.
What is Toyota’s position in the Chinese automobile market?
What is Toyota’s position in the European automobile market?
Which modes of entry were used by Toyota for Europe and China?
Which competitors within these foreign markets used alternative modes of entry?
What are their positions in comparison to Toyota?
Toyota Motor Company has recorded remarkable growth over the years. This growth has spread to the foreign countries. China, being one of these foreign countries, is an essential market for the company. The Toyota Company is just one of the several firms that have gained entry into the Chinese market. Various factors are essential when considering entry into a foreign market. One of these is the mode of entry, which includes: alliances, franchises, joint ventures, or export among others. The mode of entry depends entirely on the firm. Other aspects that come into play include the time of entry, economic gap between the country of origin, and the targeted country, cultural distance, openness, country risk, and the size of the firm.
According to a study conducted, it was established that there is a higher likelihood of success in China than other countries for foreign firms. As the local automobile companies could not meet the demand for cars in China, imports increased. Toyota was one of the companies whose products were imported. China provides a good platform for Toyota as it is ranked among its top automobile markets. This is due to the increase in number of wealthy Chinese citizens who purchase cars more. Most auto companies have penetrated the Chinese market through joint ventures including Toyota. This study also concluded that a mode of entry whereby the firm has more control is much better than one with less control. Joint ventures and alliances came in handy where Toyota collaborated with PSA, Volkswagen (VS), and DaimlerChrysler to form Dongfeng Automobile. By the year 1997, Toyota had successfully secured 21% of the Chinese market. Today, General Motors (GM) and VS have taken the larger market share in China. In order to increase sales in China, Toyota has stated that it needs to focus more on the distribution networks within the region.
Toyota established itself in the United Kingdom in the year 1987. Its main location is in Belgium within the Europe continent. However, its operation within the continent commenced as early as the 1960s. Toyota began supplying its products in Europe through other well founded companies. It has grown tremendously to be the leading auto company in Europe. The company has heavily invested in this market and provided employment to numerous people. Due to this growth, additional facilities such as Toyota Motor Europe (TME) were established. In order to increase their sales, Toyota has resolved that production of environmentally friendly motor vehicles is more suitable in Europe. Cars that take into account space maximisation and efficiency are also better suited for its European market.
This study is based on qualitative research design. This is important in explanation of the results and making valid conclusions regarding the topic of study. It shall be necessary in allowing the readers to comprehend various sensations and development of answers to the research questions.
The study will mainly use secondary data, which involves analysing findings of studies conducted earlier. The researcher will also use other reading materials and especially those related closely to the company.
Toyota’s European Market
Japanese stakeholders have turned to Europe, a marketplace which they consider dynamic not only for their merchandises, but also motivations to become leading global player. Toyota Motor, which is the second largest global car manufacturer, initiated this trend. The company has eight factories in the "old continent", France, Poland, Turkey, in UK, and the Czech Republic, with an aggregate of 55,000 employees, including a delivery network, a research and an expansion center in Zavetem, Belgium. Any site it would have operations, the company gets annual profits of millions from contracts completed. It conveys an important chain in exploration and development associated to design and safety standards.
In 2003, the Japanese company under 3 brands owned Daihatsu, Toyota and Hino, made a 4.4% market share in Europe. In 2004 there were seventeen production units of Japanese automobile conveniences in the European Union where they produce 1.3 million automobiles and fourteen research and improvement centers. It is projected that these investments have generated 200,000 new jobs. The Euro zone market is too significant to be ignored; the Japanese say, it is still a solid market that foes many companies for and it has a distinctive industrial base. Japanese companies have commenced a series of investments in Russia, where domestic market is increasing. In June 2005, Toyota started building a plant near St. Petersburg that will yield, beginning with the 2007 Camry models.
While the UK gains from about half of total Japanese venture, Japanese companies start to move eastward industrial facilities to take benefit of lower salary costs and to be nearer by the more elastic markets of new EU’s members, which some of them will embrace the euro in a few years. They want to combine their positions on the secure, stable, and developing markets, but competitive, too. The Euro zone market is one of them and on the Euro zone market Toyota Motor Corporation made increases in sales every year. Its achievement owes to adjust its supply to the desires and requirements of the Europeans, centered on total quality strategy, revolution and continuous competitive essence.
Toyota’s China Market
Toyota made an additional step towards winning global automotive market. It expanded the markets China; its main strategy is low-cost cars. Toyota’s strategy is to build three new factories that yield over 450,000 units yearly in order to satisfy market demand in India and China. Up to 2010 Toyota planned to hold 15% of the universal auto market: In 2010 Toyota sold about 73 million automobiles, up 12% of sales in the past five years. Japan planed to envisage the enlargement on the emergent markets like Brazil, Russia, India and China. Toyota depends on the flexibility of these markets, which, they feel is the key to accomplishment for increasing their sales considerably. The main target is the Chinese market. China presently registered the uppermost rate of economic growth and the locomotive segment is a very large enlargement, which necessitates Toyota to hurry and take over the control of this market.
The most remarkable evolution of the deals took place in China, the most vibrant region for Toyota in 2006. In 2008 Toyota vended in China 62% more cars than in 2006 whose growth rate was 68% during this period. Middle East placed second place among the areas with the largest growing sales of Toyota cars. TMC will capitalize about 680 million dollars in the second assembly plant in India. The new production plant will be yielding the Corolla model. At the same site other models were produced which were launched in 2010. It cost around 8000 dollars and the corporation said that it aimed at low-cost segment.
Toyota Market Strategy
Strategies applied by Toyota to gain accomplishment on selected markets to improve business and to enact on these markets are plans mostly created by Japanese professionals.
The strategy that commonly based both Toyota Company and most Japanese corporations is KAIZEN strategy which means continuous development and the influence that it has on the level of product value. "KAIZEN" is an integrative approach, which means a cross-functional approach that appoints the gradual development, management and continuous trade activities and the parameters of value, productivity and effectiveness, with direct involvement of all employees.
The product strategy of Toyota is grounded on high quality, on developing new advanced technologies, focusing on further exploration, creativity, but also determination. Toyota is a global leader in research and improvement of advanced automotive skills. Toyota develops intellectual responses to the tasks of the automotive industry in the present day, while assuming concern for future generations.
As regards to the problem of pollutant discharges, Toyota explores concurrently a variety of solutions for scheming less polluting vehicles as well. Toyota has dedicated to develop hybrid structures as a basic factor in producing clean technology cars, combining diverse sources of power. It has made substantial progress in designing engines that use alternate energy sources. One of the most encouraging approaches is combining two unlike sources of energy in a single method with the potential to use both. This way out is known as hybrid technology and is the most favorable way to realize Toyota’s green machine.
Hunt for innovative solutions are founded on new technological ideas of this company. Exceptional ideas need a way of countenance, and future technologies has to be tried in terms of real life. Consequently, Toyota develops models such as the Fine-N engine driven by a fuel cell or CS&S roadster ran by a Hybrid Synergy Drive system.
The assembly technology of engines is one of the most appreciated properties of Toyota. Toyota’s performance variety of engines and radical design reflects the high values set by engineers. Toyota’s engines are intended for comfort and performance, while continuously aiming to reduce discharges and optimal fuel consumption. Today, Toyota may offer its consumers the following benefits: gasoline engines with innovative technology, adjustable rate control valves VV-i and VVT-i, D-4D mutual rail turbocharged engine - now accessible in D-CAT modified to equip Avensis, unique amalgam propulsion system Synergy Drive.
Safety precautions are a priority for Toyota. Unconventional steering systems, brakes, and interruption and traction control help keep rheostat of the car. Each is planned with a Toyota exciting care in terms of wellbeing, using innovative computer simulations and crash trials. Body and chassis are planned to absorb energy from impact and offer a maximum occupant safeguard, besides SRS (Supplementary Restraint System) airbags safety system they used. Toyota made with time many innovations and enhancement in active and passive welfare. From the first active deferment system in the world in 1991, to the promoting of Stability Control System Vehicle in 1995, and to the first screen airbag launched in 1998, Toyota has intended to improve the safety and technology benefits that it bids to its clients. It can be assumed that Toyota’s main strategy is the total regulating of the quality using the "zero defects", constant improvement of its produces.
Toyota makes sovereign studies on consumer needs, receiving the vote of assurance on their part. Also, this is strengthened by the exceptional results of Toyota automobiles in Euro NCAP safety tests. Customers trust Toyota cars and feel harmless in their wheels. This confidence is the result of the highest values of quality which Toyota plans and produces its cars.
The Japanese have twisted their attention to markets with substantial growth potential. In Europe car companies have invested substantial sums to build production plants, research hubs and design workshops. Toyota engineers from three continents are exploring concepts, visions and requests in order to design innovative machines and new technologies getting more quality of life. Toyota commenced operations in 1954 in Tokyo, Japan, Head Office, which was the middle of design events, planning, planning, and production of models and evaluation of vehicles. It was accountable for all fields, including scheduling, designing and evaluating automobiles. Additionally, the center is also in control of security technologies, energy preservation and environmental safeguard.
In 1973, in Newport Beach, Toyota opened the design firm Calty Design Research, Inc. Toyota Europe Design Development was opened in 2000 and is found in Nice, France. The company made the European Laboratory for Design ED for a better accepting of local influences and predilections of current and potential customers. Here, the team has established successful models Yaris, Corolla Verso, Avensis, Corolla, and Land Cruiser. The company professionals were quickly realized that local production of vehicles and exporting them to various countries is not as cost-effective business as their installation even in areas of promoting. Very swift conquest of substantial market share in the EU is a direct outcome of rapid variation to the specifics of each region and complying with guidelines without trying to evade or modify them (a typical of U.S. firms).
Definition of entry modes
Also, a major element in Toyota’s strategy is to form more research and design centers in the propinquity of production facilities. These convey specific items of the zones regarding the strategy and amenities. Unexpected achievement of the Japanese led to the exportation of automobiles produced in Europe to other marketplaces of the world. This is the plan that Toyota has implemented to penetrate foreign markets globally. "Think global, act local" is the motto that guides the company on the universal market. Toyota has embraced the strategy of straight investments on the increasing and stable markets, as we have established, and it is fully managed. Not all the corporations would like to trail such a step to getting at the end of the wholly-owned subordinate. Small Corporation may not include in the step of sale branch/subsidiary. Large Corporation may have a different approach from a global viewpoint. So, Hill (2007) declared in his book that normally firms can use diverse modes to entre target markets: turnkey projects, licensing, franchising, exporting, establishing joint ventures with a host country plant, or setting up a new wholly retained subsidiary in the host state." But each type of entry mode has its own benefits and disadvantages, so the managers should be thinking carefully before determining which to use.
Hill (2007) said exporting is frequently used by firms as the commencement of their global development due to the low risk, but only later they will shift to another mode for attending the target market. And typically the way of exporting is seen as one of the finest way to the manufacture to getting the experience of a new market. The turnkey plan is a means of exporting practice technology to other states. It is most conjoint in the pharmaceutical, petroleum refining, chemical, and metal refining industries, all of which use compound, expensive production technologies.
Licensing is an agreement whereby a licensor grant the privileges to intangible property to another unit for a specified period, and the licensor receives a royalty fee from the licensee in return. The intangible assets include; formulas, process, designs, patents, inventions, copyright and trade marks. (Hill 2007, p.489)
Franchising, as defined by the most famous encyclopedia is: "a process of doing business wherein a "franchisor" allows proven methods of doing commercial to a "franchisee" for a fee and a ratio of sales or profits. Different tangibles and intangibles such as nationwide or international advertising, teaching, and other support services are generally made available by the franchisor, and may certainly be required by the franchisor, which usually requires audited books, and might subject the franchisee or the channel to periodic and surprise instant checks. Disappointments of such tests typically include non-renewal or termination of franchise rights." This definition is also supported by Hill, who argues that "franchising is essentially a specialized form of certifying in which the franchiser sells intangible property and also assist the franchisee to manage the business in an ongoing basis." (Hill 2007, p.490)
Toyota’s mode of entry in Europe
In 1962 Toyota established Export Headquarters, and began to penetrate into Euro zone market. They selected Denmark as the first marketplace center in that market, because beginning from there, Toyota could increase its distributors in other Euro-zone countries all over the place. But there were still some trouble to sell their car to UK, Italy and France due to the present car makers and their taut sales network. Therefore, Toyota announced its entrance in the UK with the introduction of the Corona in 1965. (Toyota GB 2008) Later, Toyota launched two other brands of car again in the market; both of them became a satisfied result. After that time, Toyota’s only UK importer became Toyota GB.
In 1970s, oil predicament broke out all over the globe, but Toyota’s cars stood and are famous for the economical fuel consumption. Therefore, in the meantime that Toyota prospered. After such an opportunity, Toyota stretched out rapidly. In 1971, the premier Toyota car was completed totally in Euro by permitting in Portugal and in 1977; Toyota completed the change from only shipping to joint venture in European flea market, the Toyota (GB) Ltd come to be part of the Inchcape cluster (a Britain Car Company). Previously Toyota hold share was 51% and was modified to be a public limited company in 1999.
In the subsequent decade, Toyota made 50 million vehicles in 1985. (Toyota’s History 2008) All through that decade, good design stance for a more and more imperative position.
In 1984, Toyota released their own European design Centre in the South France. (Toyota’s History 2008) Lastly, in Sep 1992, Toyota Manufacturing (UK) Ltd, which is wholly maintained by Toyota, reached at Burnaston in North Wales to create the Carina E family car.
For in the present day, Toyota distributors is many elegance of company as public limited company and Toyota has full ownership example Toyota (GB) in UK, or contract distributor, for example, Louwman & Parqui in Netherlands (Louwman & Parqui B.V.2008). That imply in Toyota National Marketing & Sales Companies have both via yet again export and sale subsidiary. Moreover, in manufacturing firms, Toyota have various style of contract as wholly-own subordinate in UK (Toyota Motor Manufacturing UK), combined venture by Toyota is superior stake holder in Turkey (Toyota Motor Manufacturing Turkey), common venture
50-50 in Czech Republic (Toyota Citroën Automobile) or authorization in Portugal (Toyota Caetano Portugal, S.A)
Toyota’s mode of entry in China
After merely three years production in China, FAW Toyota (Toyota’s leading joint venture partner is northeast China created FAW, which also associates with Volkswagen) already sells nine diverse models in the mainland, containing its luxury offering, the Crown, intermediary sedan brands Reiz & Corolla, the entry-level 1.5 and 1.3 liter Vios, its cross Prius, as well as 3 SUV’s, the Prado, the Land Cruiser, the Terios, and its Coaster bus.
In 2010 sales propagated a whopping 89% to 156,717 automobiles, while China’s full passenger vehicle marketplace only grew around 26.5%. Dong Haiyang, the vice president at FAW Toyota Motor Sales Co., Ltd, with his points of view during a March 1st discussion at China head office in Beijing, on the Toyota’s mode of entry in China:
He also identified Toyota’s potential customers. He highlighted three things in a car that matter most to the Chinese consumer, importance of low price for Chinese consumers, and first gave a picture of China’s distinct auto buyers. There are four types: quality shoppers, brand shoppers, price shoppers, and value shoppers. The ratio of automobiles purchased for single use has risen from 40% to 90% in the earlier ten years in China. Historically, people wanted a categorically low price. Currently, they have added something, they also need quality. The Chinese automobile consumers are converting from price shoppers to quality shoppers.
Toyota is a beginner to the market; in the previous they only imported vehicles. From 2003 they started manufacturing automobiles in China. Now they have nine brands. FAW Toyota’s customers are mainly value consumers. But they are much related to those buyers in the U.S. who are "QRD" buyers; which means quality, reliability, and durability. China, obviously, is a nation of first time car purchasers, where brand distinctiveness is often very weak.
Toyota builds its brand identity by use of media, including traditional means and online marketing. The brand idea was only introduced in China approximately ten years ago. Fifteen years since then there was no such model at all. The concept of product is not so strong in China but now Chinese customers are adopting quickly. Toyota classifies their promotion into three levels: for their central marketing, they use national broadcasting like TV, newspapers and internet websites. This is to stimulate the core values of their brand; for example, they will say "buy Crown." Another level they use regional marketing is, they may say [to their potential consumers] "buy Crown now." The last level is at the dealerships. Their message is "buy Crown, here and now." All the three levels used all of these means also including magazines, radio, and both social and commercial websites. It also determined by on the vehicle. In the case for Crown, the prospective buyer is strongly subjective by golf and other high end publications. The entry level purchaser is strongly prejudiced by websites and the Internet. They ask basic background facts of every visitor to their dealerships. They do phone interviews with Toyota possessors. They also organize marketing and promotional events. They take a brand localization methodology. Consequently, many of such actions are at the dealership level. For example, they invite consumers to have a party in the course of Chinese traditional festivals.
Toyota’s biggest competitors in China in high-end market include Audi, BMW, and Benz. Toyota thinks the biggest competitor is themselves. Crown currently has a 30% market stake and that is only after a year in China. [It’s inspiring to grow that fast.] In the low-end of the market, there are besides many new cars they don’t even know the number of brands that are out there. China has become a booming market. Yearly the rank [of the motor manufactures is leading] changes. A firm goes up and another else goes down. It is a shoving [competition] in China. It is not like the United States.
The overall automobile market in China to grew this year and they expect it to grow for Toyota. Their projected growth for 2006 was 8-12%, however in January the growth rate was so good. It touched 90%. Nevertheless, they still have a very low car capability. They want to sell 210,000 vehicles this year. Their sales in 2005 were 156,717 vehicles.
They see the potential for a noteworthy market for used Toyota’s in the future and they think there is an abundant future for the used car trade and they are working on that. Their target is to have all sellers have the capability to do used-car business, giving certification, teaching and licensing. Last year they sent a delegation to Taiwan to investigate the used car market there. They were able to establish Taiwan used car market is very huge. Toyota has a plus because of the quality and stability of their cars.
The biggest challenge Toyota is facing in China is the attraction and retention of management staff, and salaries are rising. So far they have 500 staff and 420 of them are fresh and have less than 3 years of working experience. Their staff is very young and lacks the required experience and expertise. Young people like to shift jobs regularly and this challenge is one overall to all industries in China.
BMW mode of entry in china
Christoph Stark, CEO of BMW Group Region China told the China Daily reporter that in the next five to decade, China will be the leading market for all products and become a big area of competition. The most significant thing is to be highly supple and take chances, but also be equipped for some possible depressions in the market. He concluded that for BMW the most treasured thing is the product.
Later, while sitting in his research, Stark, overlooking the Shanghai horizon at night, he thought back to his comments previously. As head of the China tasks, it was up to him to guarantee that the company conserves its market dominance. Nevertheless, he realized that the problems the company now faces are fundamentally different than those of the previous.
While in the past they desired to identify their customer base, localize their product to meet the Chinese buyers’ needs and build their manufacture and service network, they now had to sustain all these, but also handle with legislation limiting the number of new vehicles, as a means to deal traffic overcrowding; legislative proposals to increase tax on cars with large engines – from the 660 Yuan annually maximum tax to 3600-5400 Yuan per year, to decrease greenhouse emissions; increased struggle from local brands that are achieving fast the know-how and expertise desired and are steering themselves into the luxury car marketplace as they build their products; international competitors cutting into their market share; the development, making and perfection of more fuel proficient engines, due to rising gas prices.
The circumstance that China has become BMW’s third biggest market world-wide after Germany and the U.S., preordained that they had to work that much tougher to maintain their supremacy, as in this cut-throat market-situation there are no guarantees.
Toyota versus BMW
In 2006, Toyota was the first non-American corporation to crack Fortune's list as among the Most Admired Companies in America by managing to be at number nine. A year later, they skipped up to number three on the list. Today, they remain on the list at the 5th position, despite recording huge sales gains worldwide and having Ford as the second largest seller of automobiles in America. Obviously, not everything has been smooth for Toyota along the way, but it is hard to claim that the automaker's ascendancy has not been well-earned.
The ranking list changes a bit when the other world's admirers are counted as well. Toyota remains great on that list venturing out the number two spot global, while the only other auto-manufacturer in the top ten is BMW at number 9. They would have expected to see Honda upper than number 23, bearing in mind that they are quite prosperous in both the automotive and the motorbike market, as well as being the biggest manufacturer of engines in the domain. It is notable that no American car firms made either list, but several American dealers, including Visteon, Delphi, Federal Mogul, Dana, ArvinMeritor and Navistar exhibited up on the "least admired" list for years 2007 and 2008. On the optimistic side for both BMW and Toyota though, there is no place to go but up.
Taking benefit of the opportunities of a worldwide market, Toyota has adopted a global strategy, but bearing in mind the characteristics of markets in which it operated. The motto "think global, act local" suggests the need to contemplate market and business in global standings, and in the same time to accomplish adapting to the local consumers’ needs. Toyota’s achievement both on the Japanese market and international market is due to its craving to make products with high eminence, always perfecting and modernizing automotive technologies, making new models, showing apprehension for consumption, but also for the atmosphere surroundings, focusing on the customer. Thus, Toyota has dedicated to develop hybrid systems as a basic issue of the eco-vehicle technology. The firm set up design labs in Europe and China for a better understanding of local impacts and preferences of existing and potential clients, showing attention for their needs. Toyota’s universal strategies are considering ingoing the international growing market, stable, gradually and surely.
Moreover, Toyota took advantage of the chances offered by emerging nations with growing economies, lower salary costs and more flexible markets of new EU’s member states. Japan plans to envisage expansion in developing markets like Brazil, Russia, India and China. The main armament Toyota uses in order to overcome these markets is the low-cost vehicles. Even if universal economic crisis has affected the whole automobile industry, touching Toyota too, the company is still on the top of the most successful international companies of the auto industry. Even though, recently, Toyota cars registered some manufacturing difficulties and they had to be introverted from the market, the company executive has remained in its original values, namely, honesty and loyalty to consumer, care for his wellbeing, asking for public request for forgiveness for shortcomings of its cars lately and encouraging more attention for the eminence and safety of future products of their firm. Implementing a global strategy based on the product policy, investigation and continuous quality enhancement, technological improvement, but also respect for customers around the world, they can bravely say without any doubt that Toyota Motors Company dominated the Euro zone and China markets.