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back to index backASIAtalk October,  2005

Rapid Penetration Into The Emerging Markets – The Toyota Way

The Toyota Motor Corporation is currently one of the most successful automotive companies in the world. With the largest market capitalisation in the global automotive industry, Toyota has built a strong reputation for the high quality, durability and reliability of its cars – and, owing to this widely recognized competence, Toyota has steadily been developing its business globally.

Initially, Toyota developed and produced cars only in Japan and exported them abroad in order to ensure high quality and to maintain customer trust in the brand.

Then, because of increasing overseas demand, the need to tailor production to local needs, the opportunity of tax breaks, and in order to save shipping costs, Toyota evolved to the second stage of its manufacturing model: it started to produce vehicles where the market is.

This model has been working well in established mass markets such as North America and Europe, because the high sales volume justifies the production overhead. Recently, like other global companies, Toyota has identified attractive business opportunities in other developing markets such as BRICs (Brazil, Russia, India, and China). Each has huge growth potential.

The strategic challenge to Toyota now is whether the previous manufacturing model used in the North American and European markets will apply equally well in emerging markets. In these emerging markets, local demand sometimes fluctuates widely, or may vary greatly from that in Japan, Europe, and the US. Equally, demand is usually not high enough to achieve optimal production, as shown in Table 1 (see download).

The solution for globally operating companies – including Toyota – has, in the past, tended to be to build manufacturing facilities in developing markets (such as Asian regions) mainly owing to their cheap labour costs. However, in developing and producing cars for these regions, Toyota used to stay reliant on Japanese designers and engineers, rather than exploiting local talent.

The problem is obvious. People who are not familiar with local tastes and local unique customer needs are probably not the best to develop and produce cars which will satisfy unique local customer needs! Growth rates in emerging markets are significant and a growing number of companies are trying to gain and sustain competitive advantage.

The victors in this tough competition are likely to be those companies able to satisfy unique customer needs efficiently and effectively - and to achieve this, a new way of developing business in emerging markets might be necessary. Innovation in the business model for such emerging markets has emerged as an important agenda point for Toyota.


Innovation in Developing Business in Emerging Markets

The emergence of free trade agreements in different parts of the world has presented tremendous opportunities for Toyota to allow its manufacturing model to evolve to its third stage: a global production and supply network that will solve, efficiently and effectively, the problems of local production in emerging markets.

In 2004, Toyota announced a break-through initiative called the ‘Innovative International Multi-purpose Vehicles (‘IMV') Project'. At its heart, this model increases the self-reliance of overseas manufacturing facilities in such a way as to optimise overall worldwide production, especially in emerging markets, by both understanding common needs and paying sufficient attention to unique local needs.

To read entire article (download pdf file document), click here.

Source: The Criitical Eye - GAI

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India Takes First Steps in Electronics
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Rapid Penetration Into The Emerging Markets – The Toyota Way
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