Overview of the Global Strategies
Globalization strategies refer to the means multinational corporations use to achieve their strategic goals at the global marketplace. The strategies that organizations must adopt globally differ significantly with those they use in their home countries because of the nature of conditions in the international markets. Multinational Corporations (MNCs) in the auto industry have expanded globally to take advantage of several competitive advantages. Growth is the first, and major reason automakers opt for globalization strategies. Developed countries have recently experienced slow economic growth, especially those in Europe and North America. Slow economic growth means the reduction of the consumers purchasing power, which lowers earnings and profits. On the contrary, developing countries have been experiencing remarkable economic growth, which makes them attractive destinations for the automakers. The economic factors prompt firms to enter the foreign markets. The costs of production in some countries are higher than in others. Therefore, companies always seek locations that provide them with cost advantages. Innovation is another driver of globalization in the automotive industry. Increased customer expectations for vehicle performance and environmental sustainability have made innovation an essential part of firms strategies. The broad differentiation strategy that characterizes the automotive industry depends on innovation to succeed.
The corporate level strategy that various MNCs in the auto industry use at the global marketplace is the transnational strategy. Transnational strategy aims at reducing costs while remaining responsive to local tastes and preferences. The choice of this strategy by different players has been shaped by market forces such as customers demanding affordable vehicles that suit their needs. At the business level, the firms use a combination of cost leadership and broad differentiation. Cost leadership focuses on minimizing costs using various techniques such as continuous quality improvement and using cost-effective labor sources. Additionally, the MNCs use suppliers that have global supply systems so that they can respond to changes in the market promptly such as locating their operations near various global destinations that the automakers may wish in response to market needs. The fact that motor vehicle parts are bulky has influenced the companies to establish manufacturing near the final markets, which reduces transportation costs. Most of the major competitors have adopted lean production techniques. Moreover, the firms use an integrated production strategy by creating common platforms and interchangeable modules to avoid overlaps across product lines. They also utilize global sourcing by purchasing materials from locations that offer cost reduction advantages. The relationship between automakers and their suppliers have become critical because the suppliers must be present at all the regional locations that the automakers establish a production sites. This paper will analyze Toyota Motor Corporation and its globalization strategies to understand the strategies in details.
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Toyota Motor Corporations Globalization Strategies
Toyota is a Japanese MNC headquartered in Toyota, Japan. It was founded in 1937 by Kiichiro Toyoda. The companys initial operations concentrated in the Japanese market. However, it later entered the United States in 1957. Its entry into the United States was through the process of exportation. Selling its products as exports was convenient at the time but became unfavourable in the 1960s when the United States placed heavy tariffs on foreign manufactured motor vehicles. In response to the market entry barriers, Toyota established its production facility in the United States and started selling products that suited the North American market. By the 1990s, the company had expanded its product lines to incorporate luxurious products and entered the global markets such as Europe.
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Market Entry Strategies
Toyota exemplifies the globalization of the automotive industry in many ways. The market entry mode in the industry depends on the market into which a company wishes to enter. There are variations of rules and regulations in different countries that affect the choice of entry mode. Toyota decides the entry mode on a case-to-case basis. For instance, it could not venture into the Chinese market through a wholly-owned subsidiary because the government could not allow it. Consequently, Toyota entered into a joint venture with a Chinese corporation known as Tianjin Xiali Automotive Co Ltd. Each party in the joint venture had a 50% share. On the other hand, the regulations in the United Kingdom were not so strict when the company decided to serve the market. As a result, it established a wholly-owned subsidiary called Toyota Manufacturing (UK) Ltd with which it started operating in the United Kingdom. The two examples clearly indicate how critical it is for companies in the automotive industry to have flexibility in their market entry strategies. Governments policies have played an essential role in influencing the mode of operations in the international markets. When MNCs are allowed to use any market entry mode, they are likely to use methods that do not benefit the local economies. Part of Toyotas corporate social responsibility is to help local economies through its business activities. As such, the company is competitive because it is always willing to cooperate with governments to alleviate local economic conditions.
Toyotas slogan is think global act local, which is an indication of its corporate level globalization strategy. Once the company enters a foreign market, it focuses on reducing costs and satisfying the local needs of its customers. According to Sturgeon, Japanese firms create long-term relationships with their suppliers using tactics such as equity ties. Toyota has such relationships with its suppliers. They agree to relocate with Toyota wherever the need arises to serve emerging markets. The company collaborates with them so that they can supply it with the parts that suit its designs. Toyota locates its research, design and production facilities close to each other. In this arrangement, it requires its suppliers to be within a 56 miles radius of its manufacturing site so that it can serve its needs. As such, it relies on regional suppliers with economies.
Lean Production Techniques
Lean manufacturing is part of Toyotas processes and entails waste reduction in the system to control costs. The competition in the global markets is fierce and each MNC is trying to capture a market share. Those that succeed have the capabilities to reduce their production costs while offering high-quality products at affordable prices. Toyota uses the Kaizen concept that means improvement to achieve the cost-effectiveness. Just-in-time inventory practices form a crucial part of the manufacturing process and reduce the cost of holding inventory. Through cooperation with suppliers at various locations in the world, Toyota has established a system in which they can deliver parts when required. Consequently, the company does not incur storage costs. Additionally, with such swift delivery, the company can identify defects quickly and request for replacement without significantly affecting lead times. The effect of quality in the companys strategy is the reduction of waste, which eventually translates to cost savings.
Toyota also utilizes differentiation of products at the local level to cater for the variation in needs, which is a competitive advantage in the industry. Toyota achieves the standardization goal by having common platforms that can produce a range of its products using similar materials and processes. Once the almost finished products roll out of the platforms, Toyota adds the features that each market segment demands. As such, the company enjoys the benefits of globalization while dealing effectively with the pressures of local responsiveness. The company is, therefore, able to utilize the cost-leadership and broad differentiation by varying products according to national demands.
Mergers and Acquisitions
Sometimes, it is not possible to achieve the required economies of scale because of the specialization of each company. Mergers and acquisition have become viable strategies to attain the economies of scale and scope. For instance, Toyota acquired Daihatsu Motor, which manufactures small cars. Toyotas intention was to expand its scope and gain ability to serve the small cars segment my leveraging Daihatsu Motors expertise and network. On the on the other hand, Daihatsu Motor would benefit from Toyotas technologies in developing its next generation vehicles. The acquisition strategy thus enhanced Toyotas capabilities to serve a larger portion of the global market by giving it access to a market segment it did not serve initially.
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The Role of Innovation in Toyotas Globalization Strategy
Technological innovation has been a driving force in Toyotas global strategy. The ability of the company to standardize parts and platforms to reduce overlaps and replication of process depends on the Toyota New Global Architecture (TNGA). Through research and development, Toyota created TNGA with the aim of maximizing the utility of the existing platforms. TNGA has empowered Toyota to reduce the number of platforms that could complicate its supply chain and lead to materials wastage.
Clients around the globe are becoming conscious of their environmental impact and are searching products that help them reduce their carbon footprint. Since one of Toyotas goals is to remain responsive to customer needs, it has invested resources in the development of technologies that reduce environmental pollution. The company has managed to create plug-in hybrid vehicles that use both petroleum-based fuels and electricity. Apart from using electricity as an alternative energy source, such vehicles have mechanisms to ensure efficient fuel consumption by the automobiles and carbon dioxide emissions reduction. The fuel efficiency also benefits customers because they can get more value from fuel than when using ordinary vehicles. Toyotas innovation thus provides it with a competitive advantage especially in market segments with environmental-conscious clients.
The competitiveness of MNCs depends on their ability to sustain their competitive edge in the future. Current global strategies may be short-lived if companies cannot sustain them. The only way to achieve sustainability is to innovate and create solutions to possible future problems. Toyota has realized that its global strategy is unsustainable if it will not solve emerging challenges. As a result, it has dedicated its resources to developing automobiles that use electricity only. The move is critical because the petroleum products are non-renewable and will be exhausted in the future. The main challenge in the manufacture and use of electric vehicles is the charging system, which is currently limited. Toyota has created Toyota Smart Center that links homes, vehicles and power supply companies and enables users to use energy efficiently. The center facilitates the use of hybrid and electric cars, which will be the dominant types of vehicles in the future.
Discussion and Conclusion
MNCs in the Auto industry are competing in the 21st century by using a variety of strategies. The convergence of these corporations and their suppliers at various regional hubs is one of the strategies that enable them to take advantage of low labor and material costs while serving the global marketplace. Flexibility provides competitive advantage, especially because markets are different and conditions in them keep shifting. MNCs thus consider the specific conditions in the markets to determine the appropriate market entry strategy. When operating in the global markets, MNCs face a complicated scenario where they have to reduce cost and satisfy the local needs. Local needs satisfaction requires differentiation, which increases costs instead of reducing them. As such, the only way to achieve the set goals is to use the transnational strategy. The main reason MNCs can use the strategy effectively is the existence of platforms that produce similar products thus reducing the number of platforms and their associated expenses. The creation of such common platforms is impossible without innovations. As such, the innovations from each corporation in the industry influence the globalization strategies because they provide the processes and technologies for differentiation and cost reduction. Lean production is a useful process that reduces wastage and leads to continuous quality improvement. Differentiation serves the local markets well by appealing to unique needs while mergers and acquisitions expand capabilities to produce more and enter new markets. Toyota represents the MNCs that operate in the industry, and its use of the various strategies gives insights as to the dynamics of the industry and the role of technology in the globalization strategies.
In conclusion, the globalization strategies that MNCs in the auto industry use include transnational, cost leadership and differentiation strategies. Additionally, the MNCs utilize suppliers with global reach, lean production techniques, global sourcing, and integrated production strategies and locate their operations in regional hubs near markets. Innovation provides competitive advantage by enabling superior product development. Toyotas strategies that elaborate on the globalization strategies include market entry, transnational and differentiation strategies, lean production, mergers, and acquisition. Toyotas innovation drives its globalization strategies by providing the production platforms, environmental-friendly products, safety and fuel efficiency.