Toyota Case Study

Executive Summary
This research traces the internationalization of global manufacturing companies
using known theories with focus on how one successful company has used finance,
marketing and human resource management in helping it to internationalize its
operations and product sales.
In particular this research will use Toyota Motor Company as the case study of this
research tracing how since its inception in the year 1937 the company has been
able to achieve such phenomenal growth in manufacturing and selling automobiles.
The main reasons for choosing this company for this research is the growth the
company has achieved over the years and has gained significant global market
share in the automobile segment and the contribution that home country conditions
has had on the success of the company.
Introduction
Toyota Motor Corporation is the third worlds prevalent automaker. It was instituted
in the year 1937 in Japan. It has 12 plants in Japan as well as 54 manufacturing
companies in 27 countries; it also markets its vehicles in more than 160 countries
worldwide. In the year, 2010, Toyota employed approximately 300,734 people
globally. It is the second largest automobile manufacture worldwide plus the ninth
largest company globally by its revenue. In 2002, its estimated capital was about
397 billion yen (Toyota Global Corporate Site OICA Internet Site).

Impacts of globalization on Toyota Motor Company

Globalization can be termed as the network in which policies and networks operate
in so as to aid in the success of multinational corporations in their aim to exploit
successfully the resources of nations and communities. In the world, there are
various globalization schemes that take place. However, the scrutiny of a single
case will assist us in understanding the impacts that globalization has on
multinational corporations and the differences in political economy. (Buckley, 2000)
Globally, Toyota Motor Corporation is ranked the seventh biggest company and the
second largest in the automobile industry. Toyota Motor Corporation has its
branches in 28 countries with over 50 branches in place. In the year 2007, it is
reported that Toyota Motor Corporation made a profit of 14.9 billion dollars.
Globally, Toyota can be categorized as the standard of globalization since its
practices and policies have been imitated.
The Organization
Toyota Motor Corporation uses lean production as a way of maximizing its profits.
Lean production can be termed as the way in which operational costs are minimized
while the sellable outputs are maximized. In this sense, Toyota Motor Corporation
can be seen to be using cheap labor to fulfill its policies of lean production. No

matter how efficient this system works for Toyota, it is evident that their revenues
are boosted further by tax abatements and the reduction of the operational costs.
It is no wonder that Toyota Motor Corporation has reported to be reaping millions of
profits with a net profit of over fifteen billion U.S dollars in the year 2007 and it is
speculated to grow as the years progress. However, as the profits of Toyota
continue to grow the impact of globalization must be the community, environment
and people(Svensson,2002).

Labor
It is evident that Toyota Motor Corporation has succeeded in globalization by
laboring people all across the world. Globalization, by utilizing cheap labor markets
has divided labor in to two levels. Firstly, the competition between laborers for
workers has intensified and secondly, the laborers have been stratified.
By creating competition for cheap labor, there has been a large economic
displacement of the working communities. Furthermore, laborers have become
more frustrated since they are paid way below the living wage which is not enough
to sustain them. These laborers and the communities in which they live in has been
the key driver to globalization. This trend which is not only practiced by Toyota but
other multinational corporations cannot have succeeded without the states
collaborating.
Toyota Motor Corporation and other multinational corporations manage to control
the wages of their workers by paying surwages. In this way, they maintain their low
labor costs by subverting the unionization of the laborers. The state has also
assisted the multinational corporations in maintaining their cheap labor costs by
providing anti-labor registration. In the end, globalization continues to expand.
The community
The impact that Toyota Motor Corporation has had on the community is parallel with
that of labor. It is only some few individuals who stand to gain from the plants of
Toyota that have been distributed all over the world. In the end, the community at
large is at a big loss. This can be specifically portrayed in the education sector.
In 2003, the Toyota Motor Corporation was granted an incentive package that
diverted the public funds and abetment of taxes. In the end, the community at large
continues to lose public education funds leading to the rise of the rate of school
drop outs. This can be greatly reflected in the Toyota plant that exists in Texas. In
the end, while the community is losing a big deal since they are unable to challenge
Toyota in the courts because of their influential powers, it is evident that Toyota has
more to gain.
International Business Ethics Issues of Toyota
Ethics involves being accountable, responsible and liable for your mistakes. Toyota
has been faced with a lot of recalls. The latest recall which was done in 2010 was

because the sticky gas pedals of its make could lead to acceleration problems which
in the end can lead to fatal accident.
Toyota faces the probability of losing billions of dollars in this scandals and its
operations decreasing this is because in only two recalls that Toyota had done, a
whooping 9 million cars were recalled with the production and sales of its top eight
makes being halted. In the end, Toyotas profits are going to go down immensely
with its brand being affected. Once known for the quality of cars that they produce,
Toyotas brand name will go down the drain due to these issues.
One of the factors that contributed greatly to Toyota recalling majority of its makes
is the necessity to over shine General Motors which was the leading company in the
automobile sector. Its zeal and aggressiveness lead them to produce bad makes of
cars which had serious consequences on them. One of the consequences was that
Consumer reports magazine stopped recommending any model that came from
Toyota due to the decline of its top three models.
Toyota accepted their responsibility on the recalls and did not blame it on the
supplier of the foot pedals who apparently cost them this much. A hard lesson that
other multinational corporations should learn from the way Toyota carried itself is
that the supply chain department is as important as the sales department. This is
especially for corporations which rely greatly on suppliers for the assembling
process of the car. The reputation of Toyota in the market has greatly been
damaged. Although they are trying their best to control the situation it is unlikely
that they will fall of completely. This crisis that has hit Toyota should be a big lesson
to all other multinational corporations.
Relevant International Trade Theory of Toyota
The most relevant trade theory that can be associated with Toyota Motor
Corporation is the Country Similarity Theory. This theory was formulated by Linder
who was trying to explain the concept of countries which are in the same level of
trade export products to one another. In this theory, the most important factor is the
brand name and the reputation of the product. As we know for Toyota, their brand is
a famous name in the motor industry. This will tend to have a buying power over the
clients. This assists the Multinational Corporation to flourish well in the country that
they export their goods to. In the Toyota case, Japan (where the main Toyota firm is
based), exports Toyotas to Germany while Germany exports their automobiles to
Japan so that they may be consumed by the Japanese Population. This greatly
assists Toyota in selling their products in Germany.
Another relevant international Trade theory that can be associated with Toyota is
the Global Strategic Rivalry Theory. This theory, which was developed by Lancaster
and Grugman focuses on the Multinational Corporations in which Toyota Motor
Corporation is one of them. This theory stresses on the efforts that a certain
Multinational Corporation will put so as to have a competitive advantage over the
other Multinational Corporations.

When opening another branch is a new country, for Toyota, their basic research is
whether the community in which the firm will be located will be able to provide
cheap labor. As we have seen from an above discussion, it is evident that Toyota
heavily relies on cheap labor so that it may maximize its profits. This usually gives
them a competitive advantage over other Multinational Corporations where majority
of them do not have access to cheap labor therefore lowering their profits.
Various Direct Investment of Toyota
Japanese direct Investment in the U.S has been highly publicized especially in the
automobile industry. These Japanese automakers which include Toyota have highly
invested billions of dollars in the transplant of the United States. There are various
advantages that these Japanese Automakers which include Toyota stand to benefit.
Firstly, this was a way to curb the critics and the propagandas that was being
spread that autos which are to be sold in the United States are to be made there. In
addition to that, this was another way of curbing any import barriers that might
arise in the United States. Moreover, this was a way of expanding their markets
since the local markets in Japan were becoming oversaturated. Lastly, the Yen Dollar
fluctuation rate was increasing therefore this was a way of curbing it.
For Toyota, they have pledged to supply North America with at least three quarter of
the cars that North America sells. In addition to that, Toyota has opened different
plants which are spread all over the U.SA. As a way of fighting obstacles, Toyota has
become more friendly with the federals and state. One of the reasons is to protect
their business interests and policies. Another reason is because since Toyota breaks
most of the international trade policies by paying a rate standard that is way below
the living wage, the federals and states that have been hired assist in covering up
their dirty deeds.
Foreign Exchange Risks faced By Toyota Company.
Generally, for the past three years, the value of the Japanese yen has plunged
against the Euro and the dollar though there had been eras of fluctuations.
Adjustments in foreign exchange rate impinge on Toyota's retained earnings,
revenue, and net income, gross margins, operating income and operating costs. Its
liabilities and costs are affected by exposure which is transactional which primarily
relates to sales proceeds from its non domestic sales produced in Japan. To a lesser
extent it also has an effect on the sale proceed from Toyotas Continental Europe
Sales produced in U.K.

Ways of minimizing foreign exchange related risks.

Toyota's exploit of forward exchange rate indentures and currency options is to
evade foreign exchange risk related with trade receivables denominated mainly in
U.S. dollars. It also takes on foreign currency resolutions with domestic counter
parties. The company goes into forward contracts and procures currency options
mainly the dollar and the Euros to evade definite portions of predicted cash flows

denominated in foreign currencies. Furthermore, the Company goes into forward

exchange indentures to counteract the earnings impact connecting to exchange
rate variations on definite pecuniary liabilities and assets. The Company goes into
forward exchange indentures as evades of net investments in global operations.
This lessens foreign exchange risk and operation costs in those resolutions by
handling receptions in the foreign currencies in which they are denominated.

Toyota procures provisions from Peugeot in France and is consequently rendered to

the Euro exchange rate. Additionally, it produces engines for BMW in Japan. These
outflows and inflows as a consequence of dealing with these European companies
render Toyota to foreign exchange risks. Cars manufactured in Japan and other
fabrication sites are vessel led to America and Europe, which are the main market
for Toyota.
Toyota has to formulate a decision as to which coinage to price the cars. If the
automobiles are feed in yen in order to shun foreign exchange risk, Toyota wont be
viable in those markets, as it would have transferred the risk to its consumers. If the
cost is in the home currencies Toyota will be rendered to foreign exchange peril.
When there is decrease or increase of the currencies in relative to the yen, Toyota
will be frayed between altering the price to replicate the alteration in the exchange
rate. This verdict will depend on the cost elasticity of stipulate for cars among other
aspects. Toyota manages this jeopardys by means of, money market hedging,
forward contracts and option market hedging. Toyota as well enters into currency
sponge to address a segment of its transaction risk.

How Toyota Company can benefit from the global capital Market
In respect to future global capital market, it is expected that the economy of
developing countries such as China and India is likely to grow. In addition to that,
the economy of Europe and USA will continue to recover slowly. However, in the USA
and Europe, there are certain risks which are associated in investing in them for
instance the unemployment rate and the rise in crude oils. In its home market
Japan, it is expected that the economy will rise slowly because of the adverse
effects of the tsunami earthquakes. There were Toyota plantations that were located
in these areas. For Toyota to survive in the global market, they have to put every
effort to recover from the tragedy (Kotler, &Armstrong, 2007)
For Toyota, the global competition in automobile is likely to rise due to the rise of
vehicles that are environmental friendly and also cheaper than the Toyota brands.
However, Toyota must continue to market their brand name and should also try and
address these issues of environmental friendly cars and cheaper products.
In the development of their products, Toyota should aim to improve their designs
and also quality. In addition to that, when launching new products, Toyota must put
in mind the needs of that particular environment they are to launch their product.

Since it is known that global warming has become the topic of the day, in order for
Toyota to benefit from the global market, they must develop eco friendly cars such
as electric cars and hybrid cars.
In addition to that, there are markets that are emerging that are promising.
For these markets, Toyota should design new models for local production for
instance Innovative Multi-purpose Vehicles and also should consider launching
hybrid vehicles. In this way, Toyota will have addressed the needs of both
developing countries and developed countries.
Toyota should also highly invest in research and development so as to get
its clients feedbacks. In this, they should build local firms whereby decisions are
made according to the demands of the customers. Toyota should strive to improve
the quality of their products, to reduce their costs and also develop the human
resource. In this way, Toyota will highly benefit from the global market and make
huge returns of profits.
Conclusion
From the diverse scrutiny that has been done on this paper, it is evident that Toyota
is a multinational corporation that uses the international Trade Theory in order to
stay relevant in the market. However, there are many challenges that Toyota face.
Firstly, Toyota has been widely publicized for paying way below the living wage.
Toyota must address these issues. In addition to that, in the past two years, Toyota
has recalled most of its products due to technical failure.
This greatly affects their brand name and the number of customers loyal to their
products goes down. Therefore, Toyota should be more careful in addressing such
issues in the nearby future. In order to stay relevant in the market, Toyota should
also expand their territories and invest in the developing countries such as China
and India since their markets look promising. They should be in a position to
address the future needs of cars for instance developing eco friendly cars.

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