Toyota in China

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AMRITA SCHOOL OF BUSINESS, AMRITAPURI

TOYOTA (TOYOTA MOTOR CO. AND ITS SUPPLIERS) IN CHINA

INTERNATIONAL BUSINESS PROJECT

INTRODUCTION

The Chinese automobile sector is one of the key sectors which was benefited by the policy reforms that started in 1987 in China. This industry has posted double digit growth rates in the past two decades and is promising to sustain that growth rate in the future also. According to Hua Wang (Policy Reforms and Foreign Direct Investment: The Case of the Chinese Automobile Industry, the journal of Economics and Business, Volume VI-2007), Until the mid-1990s, the auto industry was highly protected in China. When the government officially announced its "Industrial Policy for the Automobile Industry" in July 1994, it showed its intention to develop China's highly protected automobile industry. According to the journal, this approach was modelled on that of Korean industrial development in the 1970s.The requirements for funds, technology, to upgrade the automobile industry, forced the authorities to attract foreign direct investment (FDI). However, the operations of the foreign companies were limited by several limitation measures, the most important of which were high tariff and non-tariff barriers, screening, foreign equity limits, and local content requirements.

After 1992 almost 200 of the world’s 500 largest transnational companies had started operations in China being attracted by multiple benefits like low cost of operations, availability of cheap and skilled and technical labour etc. This interested the Japanese firm Toyota, which was targeting to capture as much market share around the world as possible. Toyota an iconic car maker founded in 1937 was known for its innovations, quality and global competiveness. The company manufactured vehicles at 53 production sites in 27 countries around the globe. In the fiscal year 2008, Toyota sold approximately 8.91 million vehicles in 170 countries. Delivering quality is one the most fundamental principles of Toyota and company success were led by unusual quality delivery at competitive prices. Toyota identified the huge potential in China and its untapped market potential made the company to come into China and start its operations. The selection of Toyota’s entry into China as the research topic is relevant because of the fact that how a company who was renowned in the world for its legendary quality was able to sustain its quality edge in China using local suppliers . Another interesting fact is that while Toyota was doing this they were also able to focus on cost cutting measures. This research also focus on the issues that a foreign company like Toyota faces in a developing economy like China and the strategy adopted by them to attain success in China. Also the matters were even difficult for Toyota as at the time of its entry into China, i.e around 1998 the 98 % of market share was controlled by the “big three plus the small three and the two minis” referring to the joint ventures of Volkswagen, Citroen, etc.( Source: Wang Hua, Policy Reforms and Foreign Direct Investment : The case of Chinese Automobile Industry).

Toyota which had the aim to become the world’s largest automaker undertook a completely different approach or pattern of entry by a Japanese Multi National Enterprise (MNE) into the Chinese market ,that of the ‘pre-clusterization’ strategy in which competitive suppliers enters the market first and develops a well integrated network in a targeted area and then only the core company enters.( F. Hatani, , Pre-clusterization in emerging markets: the Toyota group’s entry process in China ,Asia Pacific Business Review ,Vol. 15, No. 3, July 2009, 369–387).

HISTORICAL BACKGROUND FOR ENTRY OF TOYOTA INTO CHINA

Toyota used a different approach towards entering into China. Unlike the competitors from Europe and America, they took little longer for finalising on the decision to come into China. According to F....
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