Business Essays - International Market Sales - Free Essay Example

Sample details Pages: 6 Words: 1710 Downloads: 1 Date added: 2017/06/26 Category Marketing Essay Type Analytical essay Did you like this example? International Market Sales 1. Introduction Toyota is the automotive company with the biggest market share of the industry and over the course of the last decade has almost doubled it Sales. Growth in Japan has only accounted for 27% of this achievement, highlighting the importance internationalisation has had for Toyotaà ¢Ã¢â€š ¬Ã¢â€ž ¢s ambition to become the worldà ¢Ã¢â€š ¬Ã¢â€ž ¢s number one automobile producer. Don’t waste time! Our writers will create an original "Business Essays International Market Sales" essay for you Create order Figure 1: Global Market Share (Source: Datamonitor 2008) The Automobiles Industry is one of the few truly global industries as demand is spread around the world, and the big car companies all compete in all markets. Currently NAM still accounts for the biggest market, closely followed by Europe. However Asia-Pacific is the fastest growing market and is likely that over the next couple of years the market shares per regions will converge. Figure 2: Market share by region (Source: Datamonitor 2008) This report will look at understanding the key drivers for internationalisation as well as local differentiation from the perspective of manufacturing and supply chain. In 2007, exactly 50% (all figures are based on Toyota Databook 2008 figures replicated in Appendix 1: Production and Sales by region) of production took place outside Japan, compared to 32% in 1998. This was achieved during a period of intense growth and translates into an expansion of 293% in overseas production capacities, compared to an increase of 134% in production capacity in Japan. Figure 3: Share of Overseas Production as % of total Production The fact that Toyota has internationalised its capacities should not cloud the fact that there is still significant production in Japan for external markets 62% of all cars produced in Japan 2007 were exported. The key export market is NAM, which like most regions shows a production deficit compared to its Sales. The only region where sales equal production is Asia (excluding Japan), all other regions are net importers. Figure 4: Consolidated Vehicle Sales and Production (Source: Toyota Annual Report 2008) To quantify the level of internationalisation a company has achieved, the calculation of a à ¢Ã¢â€š ¬Ã…“Transnationality indexà ¢Ã¢â€š ¬Ã‚  is used as a measure. It is computed as an average of three ratios. Foreign assets as proportion of total assets Foreign Sales as proportion of total sales Foreign Employees as proportion of total employees: Figure 5 shows the transnationality index for Toyota and its two biggest rivals. The data shows that Toyota is now the most internationalised of these three, and has overtaken Ford who ten years ago was ahead with regards to transnationalization. The comparison also shows the discrepancy between foreign assets, which it leads, and foreign employees, where it scores significantly lower than its competitors. This could indicate a less labour intensive and more effective production as well as a more centralized organization structure that keeps many of the non-asset leveraging staff functions in Japan. 2005 Toyota 2005 GM 2005 Ford 2005 Foreign Assets as proportion of total assets 54% 37% 44% Foreign Sales as proportion of total sales 63% 34% 45% Foreign Employees as proportion of total employees 38% 58% 53% Transnationality index 52% 43% 48% 1996 Foreign Assets as proportion of total assets 35% 25% 31% Foreign Sales as proportion of total sales 47% 32% 45% Foreign Employees as proportion of total employees 23% 34% 38% Transnationality index 35% 30% 38% Figure 5: Transnationality Index for Top 3 Automotive companies (Source: UNCTAD WIR 1998/2007) 2. 1 Globalisation at Toyota The automotive industry is a mature, highly-competitive market that is experiencing global concentration (Datamonitor: Global Automobiles Industry Report 2008). The key driver for growth is the need for increased economies of scale in RD, engineering, design, production and marketing. In addition, regulatory requirements with regards to safety, fuel economy, emissions etc require large central investments. Many competitors of Toyota have engaged in MA and RD alliances, Toyota is one of the few companies that has grown mainly organically. Japan has a home market provided only limited potential for growth, and in fact declined (Sales of 2007 have been only 92% of sales in 1998), therefore international expansion has been the way to enable scale economies. Many of the drivers for internationalisation of its production system can be based on the framework depicted below. Push factors have been cost disadvantages experienced through a relatively costly production environment in Ja pan, cost of shipping for export, and the need for risk diversification with regards to developments in the home market. A maturing market and increased foreign competition have forced Toyota to focus its growth strategy abroad, and the need to internationalise its production network in response to the sales success has followed. Figure 6: Drivers of internationalisation (Source: WBS Course Notes IB, Lesson 5) Car manufacturing is a complex process and its production chain can be broken into three major subprocesses (Bodies, Components and Engines Transmissions) plus assembly, all of which are fairly independent from each other. This lends itself to a globally diversified set of production locations based on the best factor endowments with regards to the needs of the subprocess, i.e. assembly is fairly labour intensive whereas Engines Transmissions is highly technologically advanced process. In short, the key drivers for internationalisation can be summarised below: enabling growth and access to new markets economies of scale: central cost of product development need to control quality have let to a full ownership model reuse of technology à ¢Ã¢â€š ¬Ã¢â‚¬Å" standardizing, the lesser parts the better, etc. 2.2 Drivers of localisation Toyota was successful in following its internationalisation strategy and stimulated demand abroad. Initially, it followed an export strategy to meet foreign demand, however encountered trade barriers leading it to a second phase of internationalisation in which it started to build production facilities abroad. Given the highly idiosyncratic production environment of Toyota à ¢Ã¢â€š ¬Ã¢â‚¬Å" which has become synonymous for lean operations and quality focus à ¢Ã¢â€š ¬Ã¢â‚¬Å" this step has created more anxiety than usual, as the Toyota Production system and its supplier system were deemed culturally entwined with the mentality of a Japanese workforce and the keiretsu structures of a the Japanese environment. However the drivers towards a localisation of manufacturing and supply-chain were so strong that Toyota had to attempt transferring its management system and culture into culturally different places. The main drivers that drove this decision were: tariff barriers and pressure for FDI rather than just exports (particularly from the US) off-setting currency risks cost of shipment need to match local taste of consumers One of the key decisions was where to place the new plants abroad. As particularly the auto industry leads to an agglomeration of supporting industries down the value chain, there is significant national and regional government support to be gained as host country governments are aware of the job creation effects and possibilities for home companies in the development of the supplier industries. In addition, these clusters support the knowledge sharing and excellence building, and have a significant impact on technological innovation that can lead to spill-over effects.. Toyota has become famous for its choice of Greenfield sites at rural places, which is firmly linked to the development of its particular organizational capabilities and the need of a workforce that is open to the Toyota approach and can be acculturated to the Toyota way. Therefore Toyota was in a position to chose a location with maximum support of government bodies, and a match to the sales requirements of the region. In 2008, Toyota has 53 manufacturing companies established in 27 countries of the world, see details below: Figure 7: Overseas Manufacturing Companies (Source: Toyota Databook 2008) Given the physical restraints, and particularly the just-in-time system that Toyota has championed, supply chains are required to be local and flexible to meet the different needs. Despite the fact that in theory transaction costs can be minimized through the reduction of suppliers a company entertains relationships with, the benefits of flexibility and local responsiveness outweigh this concept in many cases. As an example, Toyota is now sourcing some of its engines for the European market from Porsche rather than importing it from its own motor production plants. Local responsiveness to the needs of the consumers is another reason why production has become more localised over the last decade. Until shortly, the tastes and preferences of European and American consumers were very diff erent, although the explosion in gasoline prices might lead to a convergence of preferences for fuel efficient cars in the future. It therefore was a logical conclusion to build the models in the regions where they matched the majority of the demand. Whereas this limits scale effects as products are produced in more and smaller plants, the scope effects with regards to core technology, learning effects of generic manufacturing and human resource management techniques still apply, thereby enabling Toyota to implement a production system that can reap the benefits of internationalisation as well as be responsive to its local customers. 3. Summary Toyotas internationalisation strategy has been highly successful, evidenced by a 200% increase in revenues over 10 years with stable profit margins, which stands in sharp comparison to its rivals, particularly its American ones (see graphs below). The push for internationalisation has initially been market seeking given the limitations for growth in its home country Japan. However initially production has not mirrored internationalisation of demand and followed an export model. The restrictive trade policies encountered in Europe and the US however have driven Toyota to internationalise its production capabilities, which it has almost tripled with regards to capacity in the last 10 years. As production capability is considered to be one of Toyotaà ¢Ã¢â€š ¬Ã¢â€ž ¢s core capabilities lending competitive advantage, it is only stringent that Toyota has opted for a full ownership approach. Toyotaà ¢Ã¢â€š ¬Ã¢â€ž ¢s production facilities now cover the globe and remain centrally in tegrated, although the key focus on models produced is those that meet local market demand. Achieving the right mix of internationalisation and localisation remains one of the key challenges as the trade-offs of scale economies versus flexibility and customisation remain. Appendix 1: Vehicle Production, Sales and Exports by Region Appendix 2 References Datamonitor (2008): Automobiles Industry Profile: Global. https://search.ebscohost.com/login.aspx?direct=truedb=buhAN=32200475site=bsi-live Toyota Corporation (2008), Overseas Production companies. Toyota in the world 2008 Databook, accessed 02.08.2008 https://www.toyota.co.jp/en/about_toyota/in_the_world/pdf2008/26overseas.pdf Toyota Corporation (2008): Vehicle Production, Sales and Exports by Region, Toyota in the world 2008 Databook, accessed 02.08.2008 https://www.toyota.co.jp/en/about_toyota/in_the_world/pdf2008/32sales.pdf Unctad: World Investment report 2007, accessed 02.08.2008-08-03 https://www.unctad.org/en/docs//wir2007_en.pdf Unctad: World Investment report 1998, accessed 02.08.2008-08-03 https://www.unctad.org/en/docs/wir1998_en.pdf WBS course notes (2008): International Business.