Toyota is one of the worlds leading car manufacturers and is the third largest in the world. Although based in Japan, Toyota produces most of its cars in its transplants in Georgetown, Kentucky, and Burnaston, Derbyshire. Toyota is a typical transnational corporation who understand that considerable gains can be made by locating manufacturing plants outside their country of origin. Toyota expanded to Europe in 1992 in order to achieve the benefits associated with establishing a manufacturing base in another country.
Transnational corporations search out locations for their plants outside their original country because they can overcome costs such as transport and duties on imports and exports. Transnational corporations are the most important force causing changes in global economic activity. Companies often use transplants for routine assembly work which is known as 'backend work'. This allows the main company base to focus closely on the research and development aspect of the industry. This is the higher paid 'front end work'.
A company often sets up a transplant in an area where the raw materials required for the manufacture of their products can be found. This saves transportation costs and the company can avoid import/export tariffs.
One of the main reasons for companies setting up transplants is to gain a better understanding of the local market. It is beneficial for a company to manufacture the products in the country where the majority of them are sold. This ensures that local needs can be accounted for, and the product can be adapted according to what people in the market want. Another reason for setting up transplants nearer to the market for the product is to 'compete and co-operate' with rival companies. Healthy competition is good for the company because it encourages them to improve their products and learn from the rival company's mistakes.
This is true of many electronics companies who rely on Newly Industrialising Countries (NIC's) to buy their products. These countries, such as Singapore and Malaysia, are beginning to demand more sophisticated technology as their wealth increases. Compared to the technology demanded by places such as the USA, the products supplied to the NIC's are basic, such as televisions. The electronics companies therefore move the production of these products to the area where they are in demand, freeing the other plants to deal with research and development of more advanced technology.
Toyota's need for a European location came in 1992. The quotas and tariffs that had protected domestic car industries since the 1970's would be removed in January 1993 to create a 'Single European Market'. By locating a transplant in Burnaston, Toyota effectively became 'a European car manufacturer', and could therefore avoid paying the tariffs that still existed for countries outside the EU. Toyota's previous problem was that it could not supply enough cars to meet demand in Europe due to quotas restricting the number of cars that could be manufactured. In 1992, they were able to overcome this by moving the manufacture of the more popular models to the Burnaston plant. The less popular models were still produced in Japan.
At Burnaston, Toyota was able to employ an educated work force. The large labour force had good engineering skills and high levels of productivity and training. As well as this, labour costs were also relatively low, causing the UK to be known as the Taiwan of Europe.' Toyota was attracted to the East Midlands because of its engineering tradition. They may have looked at the success of Rolls Royce in the area and hoped to follow in their footsteps.
Toyota also has a plant in Deeside, North Wales; this provides the engines, which are transported to Burnaston by a road linking the two plants. Infrastructure is very important for a TNC. By locating transplants in MEDC's, Toyota benefits from the...