Free «Response: Toyota's Business Strategy» Essay Sample
Toyota is the biggest and one of the most popular auto companies in the world, which remains highly successful on the international market. It traces its history from the second quarter of the twentieth century. However, it began internalization in the third quarter. It started from successful export of cars by Brazilian and American markets. Hence, in 1960s, it launched a new business strategy focused on internalization of Western European market. Nowadays, Toyota is well-recognized company that sells its cars effectively in Europe, which is a result of successful internalization process in the 1960s.
Before analyzing the reasons for choosing the sixties as the period of internalization in Western Europe, it is important to describe the overall process in detail. In 1962, the company created Export Headquarters, and in 1963, it launched Export Department responsible for operating in Western Europe. In the same year, it started its Western European internalization campaign, having chosen Denmark as the first country (Toyoland, n.d.). This choice enabled the company to expand further on in the following years. The company was able to trade its cars in the neighboring markets due to distribution agreement on the sale of vehicles in Denmark. Therefore, the company chose an effective geographic location for its international plans. For instance, it was able to succeed in Belgium, Holland, Finland, Switzerland, and Austria. Since it had to deal with serious rivals in Italy, the Great Britain, France, and Germany, it used some innovative strategies to succeed in those countries, too.
Returning to the question of time, the company chose the right period to enter the Western European business market in order to extend its international strategy. It is necessary to understand that there are many factors that influence the company’s internalization decisions (Mtigwe, 2006). Thus, external factors as well as overall situation on the business market are extremely important (Root, 1998). One of such factors was the existing size of the auto market. In the sixties, the Western European countries experienced economic growth, which increased the demand of people for cars. Since there were highly developed countries with high average salaries, but few options for buying cars, Toyota seized this opportunity. Focusing on the countries, which were well-developed, but lacked national automakers as well as effective distribution, the company chose the right time when people were willing to spend their finances on cars. The internalization is possible in case there is an increase in the market size (Chen, & Hu, 2001); and this is what has been happening in Western Europe in the sixties. Therefore, it was an important reason for choosing the time to expand into the Western European market. The company selected a low risk entry mode, which meant exporting and licensing, but not involving in a financial risk. Toyota was able to succeed owing to the fact that it chose the right moment. Nevertheless, despite its big size, Toyota decided to take some risks later on when it started expanding into markets in France and the Great Britain, which differed due to high competition and fewer chances to succeed. It is important to point out that the company moved to these markets after testing the fields of smaller markets in smaller countries where it was easier to expand.
Another reason for choosing this time was the absence of strict regulations and policies to conduct the business in Western Europe. Since the auto market was developing at that time, it was relatively easy to launch new projects and receive licenses to sell cars there. Therefore, Toyota used an opportunity of expansion into this region because it was possible to do it fast without any legal complications. Western Europe was encouraging the engagement of investors, simplifying the rules and making the market attractive and open for the foreign companies. Thus, it was a good time for Toyota to use this chance and enter the business market during the liberalization period.
Economic factor had a tremendous impact on the internalization at that time. When evaluating this factor, it is important to analyze the size, growth, and international economic relations. In the sixties, Western European countries overcame the challenges and economic problems that remained after the war; the part of the world was experiencing economic development and fast growth. In the previous decade, it was difficult to expand into the European market since it was less attractive due to its instability and postwar issues, which was a reason many companies found it less attractive to start business there (Rodriguez, 2002). Therefore, Toyota made the right decision to wait for the situation to stabilize in order to have a successful launch in Western Europe.
The choice of countries also contributes to this idea. Toyota selected the countries, which were the strongest and the most developed economically. It meant their markets were growing stably. Although these markets were not the biggest comparing to those of other states in Europe, they were the safest for the international company to begin internalization.
Besides, Toyota management did not focus on small, developed and easy-to-enter countries, taking into consideration only the potential changes and shifts on the Western European market. Therefore, after establishing themselves in well-developed countries with little competition in 1960s, they moved on to more challenging markets. The competition was high there, but the markets were bigger as well. This way, the company already had a stable platform in some European countries, being able to enter other markets in the process.
Experience as an important part of knowledge (Penrose, 1995) was another reason for selecting that time in order to penetrate the European market. Toyota has been operating for around three decades, having a positive reputation and stable profits in Japan. It has also strengthened its international ties and business by going global, particularly entering the United States and Brazil’s markets. This experience helped Toyota managers to be prepared to enter the Western European market at that time since they already succeeded in other international plans and viewed the Western Europe as a logical continuation of an international strategy.
The company also took its size into consideration using low risk entry mode and expanding through exporting. It was the right choice in the 1960s when the company was not as big as it is now. This approach made it possible to satisfy the local customers, paying attention to the cultural differences and other specifics. The overall analysis shows that the company had the right timing since it was able to succeed.
The choice of countries, which was mentioned earlier, also needs to be analyzed in detail. It was stated before that Toyota initially started to work in Denmark. Since the company has never worked in Europe before and has not possessed any practical knowledge or relevant experience, it settled for a state with the highest economic development and the lowest risk. This way, the company selected a state where it guaranteed itself economic development and growth due to the country’s situation. Denmark of that time was the state with high financial flows and increasing car demand with relatively little competition. In this situation, Toyota had high chances to succeed. Thus, it is easy to understand why Denmark was the first choice for the sake of further Western European expansion.
The overall choice of Western Europe was dictated by many factors, some of which were already explained in the previous section. It was mentioned earlier that Western European countries had relatively easy regulations regarding legal functioning of the companies at the international level. Besides, taking into consideration that Toyota already succeeded in American market, it needed another one, and the Western Europe was a logical choice. This part of the world was rich comparing to other parts; it had a high demand for vehicles; and there were many countries without local producers, making the market open for importers. The region also needed more foreign investments, and it was possible for Toyota to become one.
The company chose Western Europe because it was easy to establish distribution there. The geographic location made it more difficult to expand into the market. Another complication consisted in the cultural differences since the European market culture as well as the demands of European customers could be very different from those of the Japanese. Nevertheless, the company’s managers could not ignore the fact that if they had not been involved in the European market, it could have had many negative effects. The European market has always been attractive due to its development, living expenses and buying capacities of the residents. After some European experience, it expanded its reach and began distribution in more countries, having gained more knowledge on how to do business in Europe. This way, it transformed its entry mode from the lowest risk to the more challenging one.
Regarding the entry mode, Toyota started with the lowest risk due to the fact that the market already had some strong competitors, and the company did not have much experience related to work with the European clients. It also did not have much control and had a relatively small start in Europe. As a result, the company entered with a low level of commitment, which meant exporting to Denmark and acquiring regional distributors there as well as in the following countries. Later on, the company switched to licensed production due to its success and expansion into British, German, and French markets. The company’s strategy included working with one distributor in each Western European country (Shimizu, n.d.). Thus, after seven-year selling practice in Europe, Toyota opened its corporation’s office in Brussels as the central operating office for Western Europe.
Exporting was the right choice due to the fact that the company knew little about Europe, and it was difficult to predict the possible outcomes of its actions. Thus, instead of launching a time-consuming business model with European production, the company tested its capacities by exporting the cars made in Japan. Due to the later success, it is possible to determine that exporting the cars in the beginning of European internalization has been an effective approach.
Although it was relatively easy to enter Denmark and neighboring countries, there were challenges in the Great Britain, France, Germany, and Italy. Since the company subsequently started operating in these markets, it moved from the lowest risk entry mode to a riskier one, which included production under license. The company launched a car model Corona specially for the British market in 1965. After a successful attempt, Toyota decided to create and sell two more of its new models for the British market. Due to the company’s success, it established Toyota GB to operate in the country, which became responsible for the production and sales there (Toyoland, n.d).
Regarding the further development of the company’s outreach in Western Europe, it is important to analyze how it worked in the following years. It entered the European market when it was experiencing the economic boom. Accordingly, it was relatively easy to sell the cars and establish its position on the market. Nevertheless, in the 1970s, the world has experienced an oil crisis and prices significantly increased. Therefore, it became more difficult for people to buy cars due to the economic situation. However, Toyota seized the opportunity once again. The European market is well known for its relatively high prices for gas, especially in comparison to American ones. Therefore, Toyota positioned itself as a producer of an economy-car on the European market, emphasizing the fact that it does not require much gas and is relatively cheap to use. This way, the company did not only secure its market positions, but also grew and expanded. It was able to increase its market reach and worth, reinforcing its influence on the European market.
After 14 years of work in the Western Europe, Toyota shifted to total European licensing; for instance, in 1977, it provided the full European licensing on the Portuguese market. After years of European experience, the company moved into a joint venture, launching Toyota GB Ltd and joining the British corporation called Inchcape group. In 1999, the company became public (Toyoland, n.d.). It shows how the company was able to gain more control in the market over the years of its operation there.
At the present day, the company remains the biggest car dealer in the world, which proves that it succeeds both internationally and domestically (Associated Press, 2013). It also serves as a proof of the company’s successful choice of entry mode, as well as time and location. Nevertheless, it is still very important to evaluate the company’s results and the foreign entry strategy critically in order to see the mistakes it has made in the process as well the major steps it took.
It is essential to point out that the company selected the market, which had huge competition despite the fact that Denmark was relatively open for more car dealers. The abovementioned markets of Italy, France, UK, and Germany had their own strong brands, such as Mercedes, Fiat, Peugeot, and Citroen. These companies had an advantage: they were local, better recognized, and they understood the business environment better. They also did not have to face the cultural barriers because they were working within the conditions that were more typical of them in comparison with Japanese automaker. It is important to mention that many customers would prefer buying a car made inside of their country since it is often cheaper and supports the local economy. All of these factors were against Toyota that had to make its way in an already established market. From one perspective, many experts could say it was not advisable to enter the market that was already having major corporations working there since it would be extremely difficult to compete with them. Thus, entering the market with smaller competition could be more effective. However, in this situation, it is also essential to analyze the buying capacities of the European citizens and the demand in the area. Although some countries had their local producers, they still did not reach all of the states, which was the opportunity Toyota seized. Besides, at that time, Europe was one of the most developed parts of the world, which could afford buying cars unlike less developed regions. The company could join the undeveloped regions where it could be the sole producer and seller. However, there would be no guarantees that people would buy the cars since the population could simply be unable to afford them. With Europe, it was possible to reach the countries that were not as big in size, but possessed great deal of financial potential and could serve as the first stage in European expansion.
Another important factor that needs to be analyzed is the fact that the European companies were competing with one another by creating substitute models of their rivals. From the very beginning, Toyota chose a different strategy since it operated in another sector. It focused on mini-vehicles that were economical and relatively cheap. While European automobile manufacturers were competing with one another, Toyota worked in this niche and was able to succeed because of relatively low number of rivaling substitutes.
The bargaining power of customers was very high in the sixties, and it remained such until now. The company chose a stable market, which did not have many economic shifts and turbulent situations, and where the customers were demanding and willing to spend large amounts of money on the cars they preferred (Marcus, 2008). In the sixties, the middle and upper classes of Europeans were willing to invest into personal vehicles and were not interested in experimentation with a car design and so on (Marcus, 2008). Therefore, the company considered the tastes and preferences of consumers after testing the market and was able to satisfy this demand. Firstly, it started selling the cars, which met the expectations of Western Europeans, and then, it started producing automobiles, which were demanded and needed on the European market, such as economy vehicles.
The company also had an advantage over its European rivals, which was the low bargaining power of the members of its chain management in Europe. According to Adelina Selimi and Alifeta Selimi, the “low bargaining power of its suppliers also derives from the fact that Toyota Motor Europe launched its factory in a joint venture with PSA, a company featured by an immense bargaining power and established market share and authority in the European car market” (2011). Apparently, the company was able to reduce costs and increase its profits while transitioning to a riskier entry mode.
Therefore, the given analysis shows that from the very beginning, the company was successful because of its selection of the right strategy while working in the European market. It focused on the gap that existed there as well as worked on the markets that were overlooked and could be used for selling the vehicles.
Still, the company’s strategy could be improved. For instance, Toyota could try to involve more countries, such as Scandinavian markets, since they had the highest purchasing power and did not have the major local automakers. Therefore, it would be an effective strategy to follow in the sixties because it could enable the company to make higher profits. This recommendation is closely connected to the company’s positioning. From the very start, it focused on its economical cars without trying to compete with expensive automakers. That image would most likely work in smaller European countries where people do not need to drive long distances. Another recommendation would be to merge or acquire some of the smaller local automakers in order to reduce the competition and use the already prepared market for its benefit. This way, the company would be able to develop in different directions while remaining profitable and increasing its outreach as well as strengthening the reputation.