ACHIEVING GLOBAL COMPETITIVE ADVANTAGE: THE CASE OF TOYOTA

ACHIEVING GLOBAL COMPETITIVE ADVANTAGE: THE CASE OF TOYOTA

Many companies have embraced the opportunities offered by globalization to invest in foreign countries. The quest to dominate foreign markets demands that a company must have a well designed global strategy. Such a strategy offers competitive advantage in the highly competitive world. For the strategy to be competitive, it must provide efficiency and flexibility to the organization so that it can meet and exceed the expectations of its customers (Albaum, 2006). Toyota Motor Corporation is a multinational company that manufactures automobiles. As at 2011, the company was the third largest motor producer in the world. The success of Toyota Corporation is based on its good corporate culture, good relationship with suppliers, partners, customers and competitors. This paper will explore the different strategies employed by Toyota to gain global competitive advantage. To achieve this objective, Spulber’s star framework analysis and other theoretical frameworks will be used.

The home country for Toyota Motor Corporation is Japan, which has continuously remained the major market for its products. Therefore, the success of Toyota at the global scene started from the corporation’s home country. This dominance in the home country is well understood by exploring success factors using Porter’s diamond model. According to this model, there are certain factors that home countries provide corporations, which enable them to gain competitive advantage (Skare, 2003). These factors include skilled workforce, rich deposits of raw materials, workforce linguistic abilities and workforce shortage. Skilled human resource is one main factor that has provided Toyota with a competitive advantage over other players in the automobile industry. Almost every corporation in Japan is run by either an engineer or a technologist. In other countries that host Toyota competitors, the organizations are run by CEOs whose qualifications are in the business field. Toyota’s leadership is, therefore, in a better position to understand the implication of any technology and innovation without unduly concentrating on quarterly results as business CEOs do. This provides Toyota Corporation with a global competitive edge. Toyota’s corporate culture is a reflection of the cultural values that Japanese corporations appraise. Hosfede’s cultural dimension framework provides insights to the corporate culture of corporations in Japan and particularly Toyota Corporation. The framework consists of five factors, which include power distance, individualism, masculinity, uncertainty avoidance index and long term orientation. Many Japanese corporations highly value the inputs of their employees. As such, the power relationship between the leaders and frontline employees is different from other cultures. The power distance is low among employees so that they can freely give their insights into their working system. Japanese corporations, Toyota being one of them emphasize on teamwork. This shows that individualism is minimal in these organizations. The core values of total quality management and continuous improvement have persisted over the years. They guide Japanese corporations without major changes except for improvement (Cho and Mun, 2001. This is an indication of a culture with a long term orientation. The reduced power distance, insistence on teamwork and persistence in their core values provides Japanese corporations with a global competitive advantage especially in decision making, cohesive workforce and quality management.

The competitor country for Toyota Corporation is the United States of America because that is General Motor’s home country. General Motors is the main competitor of Toyota on the global scene. Although General Motors has demonstrated its involvement in international business, its international organization is not as elaborate as that of Toyota. General Motors has concentrated most of its effort in its home market. This decision has been encouraged by the political will of America to promote the growth of home companies. General Motors’ generic strategy is to be cost-effective while improving the existing brands. The choice of this strategy may have been informed by specific characteristics of the competitor country (Wintzer, 2007). First, the United States felt the most effects of the recent economic downturn. Previously, General Motors had invested highly on employee pension and health benefits. During the economic recession, General Motors performance went down, but its expenses on employees’ pension remained constant. This put tension on the company since the pension had been negotiated by unions and was impossible to overturn. Therefore, General Motors had to adopt a generic strategy that could enable it survive the economic recession. Moreover, the United States, compared to Japan is an individualistic society. Therefore, individualism permeates organizations such as General Motors. This individualism is evident in the vertical organization structure at General Motors that hinders effective communication and quality decision making. General Motors’ international business strategy is to be the leaders of automotive industry in the world by providing customers with world class products. The competitor country’s specific characteristics have given Toyota Corporation global competitive advantage in several ways. First, the economic recession that mostly hit the United States drove the sales of vehicles down in that country. Since General Motors had concentrated on the American market, it lost its competitiveness to Toyota that has a broad focus on the international market. Secondly, the individualistic culture has widened the power gap between corporate leaders and other employees. This has made the organizational structure rigid, limiting the spirit of teamwork (Peng, 2010). However, Toyota has capitalized on teamwork and a flat organizational structure to create values for its customers.

Toyota has entered into several partnerships with various organizations in different countries. BMW, a Germany automaker entered into an agreement with Toyota to build the next generation of green technologies in the automotive industry (Blanco, 2012). Value chain analysis of this partnership reveals that the partnership will provide both organizations with a competitive advantage in the long run. The first competitive advantage is a shared one where the cost of doing research on the future green technologies will be reduced. This less costly venture is likely to revolutionize the future of the automotive technologies. The venture would have been extremely expensive for a single organization to undertake (Spulber, 2007). Moreover, both companies will get a rare chance to enter each other’s country markets. For instance, Toyota can use the partnership to increase its market share in Germany by collaborating with BMW in marketing and sharing distribution channels. On the other hand, BMW can utilize the partnership to enter Japan’s auto market. Although both companies will benefit from the partnership, Toyota will gain more competitive advantage because it has already entered the green technology market by producing hybrid vehicles. Therefore, it is an already trusted brand in the green technology. The partnership will work to cement the leadership role Toyota plays in the automotive industry. This competitive edge will ensure that Toyota maintains the highest market share in the new technology. Another partnership country that Toyota entered a contract with is the United States. Microsoft Corporation, which is based in the United States, entered into a strategic partner with Toyota. The strategic partnership would involve building a global platform for Toyota’s next generation telematics. This partnership was to use Microsoft’s Azure platform telematics involves merging information technologies in vehicles with telecommunications (Ballmer, 2011). Toyota will gain competitive advantage by having systems that can manage energy consumption of its vehicles as well as offering security solutions through GPS tracking systems. Since the current customers are very concerned with the environmental conservation, the move would attract new and existing customers to try the new products. Before competitors emerge with more superior technologies, Toyota will have a big market share and sales globally.

The global penetration extent of Toyota Corporation makes it hard to explore each country within which the corporation operates. To evaluate the customer countries for Toyota, the countries are grouped as Japan, United States, Europe, Asia and other developing countries. In many of the customer countries, the demand for Toyota vehicles is relatively high compared to other companies. The demand is, however, different in Europe, where the company is struggling to sell its Lexus vehicle as a premium product. Toyota has the ability to deliver quality products irrespective of the cost of production. Quality is a bottom line that all products from Toyota Corporation must adhere to. This feature, therefore, enables the corporation to create value for its customers across demographics. The broad product line enables customers from various economic segments afford the corporation’s products (Root, 2004). In the North American market, Toyota is the leading company in sales for hybrid vehicles. This is an indication that the demand for Toyota products, especially those friendly to the environment is gaining ground in the United States. In other countries in Africa, the auto market is flooded with Toyota vehicles since they perform well, their accessories are easily available and are affordable to a large part of the population. Toyota entered its different markets using different modes since various countries had unique opportunities and challenges. In the United States, Toyota entered the market by establishing a sales branch there. Later, it established manufacturing plants in the country and formed a joint-venture with General motors. In other countries, the company used wholly owned subsidiaries like in Brazil. In china, the company first established a parts manufacturing plant and then formed joint-ventures with local dealers. Toyota’s boundary decisions were influenced by the nature of the customer market. Where government regulations were tight regarding foreign companies, Toyota avoided fully owned subsidiaries and formed joint ventures with local players. Toyota, like any other multinational corporation faces challenges to integrate globally to reduce costs and the need to respond to local needs. These challenges are consistence with the integration-responsive framework. Toyota has used international strategy by creating uniform products for all its customers irrespective of location.

In the automotive industry, the quality of supplies is a major factor in determining the quality of automobiles. Suppliers are, therefore, very important players in the automotive industry because they provide critical components of the manufacturing process. Toyota has an extensive process of choosing the right suppliers for its auto parts. Orders for a specific part are sent to various suppliers who compete for the production of the best part. This practice allows the prices for the auto parts to go down. The practice is aimed at improving technical competencies and reducing risks that may be posed by unforeseen circumstances (Hino, 2006).  The supplier countries are usually countries with the capability to produce the needed parts, but at an affordable rate to the company. Apart from compliance with quality standards, the labour costs in the supplier countries influence Toyota’s choice of suppliers. However, this does not mean that low labour costs will force the corporation to choose supplier countries and neglect the quality aspect. Supplier countries with low labour costs and high quality product provide Toyota Corporation with a competitive global advantage because the company spends less than competitors on supplies. Consequently, profit margins are high. Toyota Corporation also consolidates all its suppliers to form suppliers’ association. Moreover, Toyota produces organizational charts for its part suppliers. Bringing together all suppliers ensures that the parts produced by each comply with Toyota’s quality assurance policies (Stewart and Raman, 2007). As a result, the quality of the products is consistent throughout the years. This provides a competitive advantage to Toyota because it is able to coordinate its supply chain better. Moreover, consistent quality products attract loyal customers the corporation, thus increasing sales and profit margins. To ensure that suppliers maintain the expected standard levels, Toyota trains and support suppliers with information to the suppliers to ensure that the company’s expectations are met. One critical criterion that influences whether a particular supplier will be chosen by Toyota or not is the length of the relationship the supplier has had with the corporation. Toyota maintains a long working relationship with suppliers. Suppliers with longer working relationships with the corporation are likely to get an order as opposed to those with a short working relationship.

The global competitive strategy of any organization can be evaluated using Spulber’s star analysis framework. Toyota Motor Corporation has drawn its competitive advantage globally by utilizing home country factors such as skilled workforce. Toyota’s competitive advantage   over its main competitor is well understood by understanding the competitor’s home country conditions that makes it lose business to Toyota. Partners’ countries and their characteristics determine the opportunities Toyota has by collaborating with its partners. On the other hand, Toyota’s customer countries influence the business volume generated and practices that the corporation has to adhere to in order to compete in these countries. Characteristics such as labour costs and technological advances in supplier countries influence the decision made by Toyota Corporation on supplier to be given a tender. All these factors come together to shape the global strategy of Toyota corporation and any other company operating on a global scale.

Reference List

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