IBMR-Chapter 1

Chapter 1

Introduction
 Toyota Motor Corporation
 Kirloskar Group

Introduction to Toyota Kirloskar Motor

 Background
 History of Toyota in India
 Factors for Success
 Leveraging India Advantage
 Corporate Social Responsibility

Company Profile

Organization Structure

Present Market Scenario

Future plans

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Introduction to TOYOTA
The Toyota Motor Co. Ltd (Toyota)
was first established in 1937 by
Kiichiro Toyoda as a spinoff from
Toyoda Automatic Loom Works, one
of the world’s leading manufacturers
of weaving machinery. The Toyoda
Automatic Loom Works was
established by Japan’s “King of
Inventors,” Sakichi Toyoda, who was
Kiichiro’s father. The seed-money
for the development and test building
of Toyota's first automobiles was obtained by selling to Platt Brothers (U.K.) the patent
rights to one of Sakichi Toyoda’s machines.

In 1950 the company experienced its one and only strike, from which both labor and
management emerged firmly committed to the principles of mutual trust and dependence.
This corporate philosophy continues to guide the company’s growth, so while Toyota
employees are unionized, the two parties maintain a good relationship. In fact, Toyota
Motor Sales (TMS) U.S. uses the term “associates” in place of “employees,” to
emphasize the respect for individuals that the company champions.

In the late 1950s Toyota’s production systems were improved, culminating in the
establishment of the ‘Toyota Production System’ (TPS) by Taichi Ohno, a system that
has become the basis for highly efficient “lean” manufacturing in industries worldwide.
Based on the principles of Jidoka (automation with a stop system when the machine finds
defects), Just-in-Time (through the tool of Kanban) and Kaizen (continuous
improvement), the system is a major factor in the reduction of inventories and defects in
the plants of Toyota and its suppliers, and it underpins all the company’s operations
across the world.

Toyota launched its first small car (Model SA) in 1947. Production of vehicles outside
Japan began in 1959 at a small plant in Brazil, and continued with a growing network of
overseas plants. Toyota believes in localizing its operations to provide customers with the
products they need, wherever they need them. This philosophy builds mutually beneficial
long-term relationships with local suppliers and helps the company fulfill its
commitments to local labor.

As of March 2002, besides its own 12 plants and 11 manufacturing subsidiaries and
affiliates in
Japan, Toyota has 45 manufacturing companies in 26 countries and regions, which
produce
Lexus- and Toyota-brand vehicles and components, employs 264,100 people worldwide
(on a consolidated basis), and markets vehicles in more than 160 countries and regions.

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Besides manufacturing, Toyota also has a global network of design, research and
development facilities, embracing the three major car markets of Japan, North America
and
Europe.

By 2004, Toyota was the world's second largest manufacturer of automobiles, with
combined sales of 6.78 million units in the 2003 calendar year, and by far the largest
Japanese automotive manufacturer. Their target is to reach 15 percent market share
worldwide by the 2010s, with an annual sales level of 9 million vehicles. Together with
its subsidiaries, Toyota produces a full range of model offerings! from mini-vehicles to
large trucks.

Automotive business, including sales financing, accounts for more than 90 percent of the
company’s total sales, which came to a consolidated ¥15.5 trillion in the fiscal year to
March 2003. Toyota also has a growing portfolio of diversified operations, with ventures
in telecommunications, prefabricated housing and leisure boats. Overseas, Toyota sold
more vehicles than ever in North America, reaching 2.07 million units in 2003. European
sales reached 834,700 units, also a record.

Domestics Distribution

Toyota is Japan’s market leader with 42.6 percent market share (excluding mini-vehicles)
in 2003. It faces two archrivals! Nissan (market share 19.4 percent) and Honda (11.9
percent). Toyota is an independent company, not part of a business group (or keiretsu).
This has led to a different company mission, as well as a different approach to channel
strategy, compared with the other car manufacturers. For example, Toyota in Japan
listens closely to the opinions of its dealers and offers a wider line of products in Japan,
mostly building on orders from dealers.

Distribution Channels

In Japan, Toyota’s sales and marketing work is divided into four distribution channels 1:
Toyota (mostly high-end, large cars), Toyopet (medium size), Toyota Corolla (compact),
and Netz Toyota (compact). Overall, Toyota offers about 60 car models, with each
channel offering only 15-25 models. This way, each dealer can develop deep knowledge
of all models he has for sale, and can make an effort to sell all car models assigned to
him, rather than only the few most profitable ones. About 50 percent of car models are
sold as exclusive models for a single channel. The channels and car models were
introduced over time, as Toyota expanded the market by more granular segmentation.
The Toyota dealers as a whole have approximately 6,000 outlets and 120,000 employees.
Altogether, Toyota has 295 dealerships, each with an average of 16 to 17 outlets.

In addition to the four major distribution channels, Toyota has two small channels:
Volkswagen and Rental. The Volkswagen channel was set up by Toyota as part of the
efforts by the Japanese government to show that the Japanese distribution market is not
closed to foreign cars. Toyota handles the physical distribution and order management of
Volkswagen to their dealers, acting like a distributor.
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Toyota applies the “Toyota Way” to manage dealers, based on three basic principles:
• Independence of dealers as outside investors: Dealers are free to make
independent decisions, and Toyota can only help them to invest in the right things
to improve. Such a strategy motivates dealers to be more proactive.
• Winning jointly: Both the dealers and Toyota must prosper jointly.
• Encouraging competition among the channels: Competition is a means to
improve.

Toyota measures the performance of dealers periodically, using both a ranking system
and a recognition system. The dimensions of evaluation
e include:
• Sales of new and used cars (units and market share)
• Sales from after
after-sales service (units and market share)
• Customer satisfaction
• Number of showrooms, service shops and staff
• Profitability

Criteria 1 and 2 above constitute around 50 percent

percent of the weight in the evaluation. The
normal contract term with dealers is three years. Dealers who performed poorly in the
above evaluation are given a one-year
one year contract term. After this one year, if the dealer
continues to perform poorly, then the dealer
aler may be asked to reduce the primary
marketing area it is responsible for; or another dealer could be added on to this same
primary marketing area. These dealers have to submit plans for improvements to be
evaluated by Toyota. So far, no dealers have bebeen terminated due to continual poor
performance. The Toyota National Dealers Advisory Council, made up of Toyota dealers
nationwide, exists as an advisory group to interface with TMC and to foster dealer
friendship.

Dealers are encouraged to invest in imp

improving
roving their showrooms and facilities. Dealers
have invested a total of ¥80 billion annually for such improvements, excluding
advertising budgets.
Advertising is planned by the dealers and Toyota. Toyota
Toyota is primarily responsible for
product level advertising
advertising to create and promote brand image, while dealers are
responsible for local sales campaigns. The main competition among dealers involves
after-sales
sales service and customer handling.

The First Kirloskar Group of Company

Kirloskar Brothers Limited (KBL) - the first

Kirloskar venture at Kirloskarvadi was to become the
base for all of the Kirloskar Group’s subsequent
enterprises. It began as the only Indian company with its
own standard products - the fodder cutter and the iron
plough, which competed with the British products.

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KBL also manufactured groundnut sellers, sugarcane crushers and pumps, which were to
usher in a new economic order in the Indian industry. To power these machines, diesel
engines, coal gas generators and electric motors were developed at Kirloskarvadi. In a
display of great versatility, KBL then shifted its focus to fluid handling and control. As
India's largest manufacturer of pumps and valves, and also the group's flagship company,
KBL lends its strength and expertise to every new venture of the Kirloskar Group.

 Playing a part in the War

The intensified boycott of the British goods and the approaching World War threatened
to stop imports of machine tools into India. The Kirloskar, with characteristic foresight
began making machine tools. This paradigm shift of sorts, from farm implements to
machine tools, created a new company - The Mysore Kirloskar Limited. This company,
situated in Harihar, benefited greatly from the patronage of yet another Raja - the
Maharaja of Mysore. In the first month of production, Mysore Kirloskar sold all of
manufactured seven lathes.

 The new generation -Innovation, creation, tradition from

colonialism to Independence
An important change for the country and for one of its premier industrial houses was the
Kirloskar Group. The altered political climate of the 1940s heralded the end of the
princely patronage for enterprise. The policy shifts and changes in authority were the
order of the day. This marked a turning point for the group.

Shantanurao Kirloskar, the eldest son of the founder travelled to Pune to initiate a new
aspect of the group's activities - diesel engines. His experience of trying to secure the
land for his factory in Pune was quite different from his father's in Kirloskarvadi. There
was no benevolent ruler here to bestow acres gratis. Shantanurao had to face the tangle of
red tape and public resistance to acquisition of land for industrial purposes.

Finally, after arguing that factories have a longer life than human beings Shantanurao
Kirloskar won a place for Kirloskar Oil Engines Ltd. (KOEL), twelve months after
signing an agreement of collaboration with Associated British Oil Engines Export Ltd. of
UK. This collaboration, incidentally, was the first of its kind between an Indian and a
foreign company, and signified a bridging of the technological gap between east and
west.

The KOEL factory was incorporated in 1946, and soon after that gave India her first
vertical high-speed engine. Brijlal Sarda, who reported its satisfactory running for over 4
decades, bought this first engine!

 A new direction – services

The phenomenal success of the Kirloskar name prompted entrepreneurs and businessmen
of the time to approach the group for guidance and expertise. This gave birth to the
concept of formalized engineering consultancy and a new company - Kirloskar
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Consultants Limited (KCL) in 1963. Marking an extension of the group's repertoire from
manufacturing to services, KCL, in its 25 years of operation, has contributed to critical
areas such as defense,, irrigation, roads and environment. This paradigm shift saw the
setting up of yet another service company – Pune Industrial Hotels Limited in 1964, the
Kirloskar Group's first foray into hospitality. This company set up Hotel Blue Diamond
in Punee and began to manage Hotel Pearl in Kolhapur. The Baker's Basket confectionery
chain and the Hotel and Catering Consultancy Services (HOCON) were also set up.

 The dawn of a new millennium

To meet the changing demands of a global business environment and emerging economic
trends, the Kirloskar Group has refocused and restructured its direction by concentrating
on its core segment of agriculture, water supply, power, and air conditioning.

By consciously opting out of hospitality, advertising and unreal services, the Group has
channeled its potential in these core sectors. The Group aims at unlocking the strength
and value in the Kirloskar brand and distribution to enhance returns for its stakeholders.
It has identified and is implementing processes that would bring greater customer focus
and competitiveness.

Today, the Kirloskar Group is a conglomerate with interests across a diverse range of
industries. It is still spurred by the simple yet profound ethic born with Laxmanrao
Kirloskar.

Toyota Kirloskar Motor

• Background

Established in 1997 as a joint venture between the Kirloskar Group and the Toyota Motor
Corporation (TMC), Toyota Kirloskar Motor Private Limited (TKM) has grown rapidly
to emerge as a significant player in India’s passenger car
car and MUV market segments.

The company has a long-term

long term goal in India and aims to play a major role in the
development of the automotive industry and the
creation of employment opportunities, not only
through its dealer network, but also through
ancillary industries. Toyota had a turnover of
USS 587.5 million last year, and the company
has started making profits from last year. Toyota
has brought in US$ 152 million in equity, and
has invested another US$ 40 million from
internal accruals. Toyota employs 2,2,300 people
in India.

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TKM, along with its dedicated dealers and suppliers, has adopted the “Growing
Together” philosophy of its parent company, TMC, to create long-term
long term business growth.
In this way,
TKM aims to further contribute to progress in the Indian automotive industry, realize
greater employment opportunities for local citizens, improve the quality of life of its team
members and promote robust economic activity in India.

ched its premium luxury sedan – the 6th generation

TKM has also launched generat Camry and the
premium SUV – the Land Cruiser Prado to cater top end customers. The comp company has
established 56 state of- the-art 3S (Sales, Service and Spare Parts) dealerships throughout
thr
the country, to provide maximum customer er care and satisfaction.TKM is owned in the
ratio
io of 89:11 between TMC and the Kirloskar group. Total paid-up up capital has been
Rs.700 crores and the production
pr capacity is 60,000 units per annum.

• Well-established
established in the MUV and passenger car segments
Toyota first entered the Indian automotive market in the MUV segment with the launch
of the Qualis model in 2000. The model was instantly popular and quickly grew within a
short span of 2 years to capture 20 per cent market share from established players like
M&M and Tata Motors. Quick on the heels of Qualis’ success, TKM launched two
passenger car models – Camry in 2002, in the high-endend luxury segment and Corolla in
2003, in the luxury segment. Both cars have again proved popular and registered
impressive growths – Corolla sold 9,546 units in 2003
2003-04,
04, capturing 40 per cent of the
segment share, while Camry has also grown at 140 per cent to 1,117 units during the last
year.

TKM Launch Launch Launch Launch

Establis of of of of
1997 hed in 2000 Toyota 2002 Toyota 2003 Toyota 2005 Toyota
India Qualis Camry Corolla Innova

Fig. 1.1: Brief History of Toyota in India

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• Factors for success

Toyota’s success in India has been due to
several factors – a renowned brand, world-class
world
manufacturing processes and practices, in-depth
in
market analysis, superior product quality and
committed employees.

 Leveraging brand strength

Even before its entry into India, the Toyota brand was well known in India and
had a strong
trong aspiration value. Toyota also reinforced its technical strength and
customer care through innovative ad campaigns.

 In-depth
depth market analysis

Despite strong growth in the passenger car market in the 1990s, Toyota decided to
enter India through the MUV segment. This was based on an extensive market
study and analysis that indicated the potential for a world class MUV that would
offer the driving experience of a car, at an affordable price. The MUV segment at
that time had two major players – Tata Motors and M&M, whose products, while
rugged and reliable, were not seen as substitutes for a car. Thus, while other
MNCs were competing for share in an increasingly crowded passenger car
market, Toyota was established itself in the MUV segment.

 World class manuf

manufacturing processes and practices

The Toyota Production System (TPS), originally a means of achieving mass- mass
production efficiency with a small production volume of a few thousand vehicles
per year, has become a sought after best practice for achieving highly efficient
‘lean manufacturing’ for manufacturing industries worldwide. JustJust-in-time (JIT)
production and inin-process
process quality assurance are hallmarks of the TPS, which is
applied throughout the company’s global production structure. Also, Toyota’s
world
ld class research and development has made possible technological
advancements in quality manufacturing, safety, efficiency and environment
preservation, all of which contribute to enhancing customer satisfaction.

 Committed employees

True to its belief tha

thatt the employees are the main source of strength for an organization,
Toyota seeks to create a corporate culture where values such as “Continuous
Improvement” and “Respect for People” are fully reflected in all actual corporate and

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individual activities. The

The company takes maximum care to ensure stability of
employment and strives to improve working conditions.

TKM’s young team members are regularly sent to Japan, Indonesia and Taiwan for
training. More than 400 team members have benefited from such programmers
programm at various
Toyota plants worldwide. The company also has an ongoing suggestions scheme that
seeks to increase and reward employees’ commitment and involvement.

 Unparalled service support

TKM provides a wide selection of innovative, reasonably priced and high quality
products through an exclusive dealer network with the best sales and after-sales
after
service matching global Toyota standards. Timely customer feedback through the
service network also allows the company to respond to emerging customer needs
and introduce new product tailored to the

Indian market.TKM has developed a 3S (3S is Sales, Service and Spare Parts)
dealer network comprising 56 dealers in 45 major cities in India integrating sales,
service and spare parts. Placing customer satisfaction first, the service network
features modern
moder showrooms and speedy and efficient service centers, allowing
customers to experience the convenience and pleasure of owning a Toyota
vehicle.

• Leveraging the India Advantage

 Availability of technical manpower

Availability of technical manpower is critical to Toyota’s strategy of manufacturing
locally as opposed to imports. One of the key strengths Toyota sees in India is the
availability of technical manpower from premier engineering, diploma and ITI
institutions. In addition this, manpower comes at
at an attractive wage providing good
return on investment.

 Developing India as a global source for auto parts

Toyota has set up Toyota Kirloskar Auto Parts Limited, to produce transmission
components (gear boxes) for its global operations. Apart from this, it also made fresh
investments last year into its JV Kirloskar Toyota Textile Machinery Limited (KTTM), to
build capability for producing auto
components there. Toyota officials say,
“The venture has been making textile
machinery in India. But with the global
gl
automotive business expanding, we now
intend to utilize this venture for also making
low cost components in India to complement
our transmission venture here”. Both plants
are 100 per cent export oriented units, and
reinforce Toyota’s commitment to
developing
veloping India as a sourcing hub for auto
components.

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• Corporate Social Responsibility

Some projects that have been funded by the Toyota Environmental Activities
Grant Program (Toyota Motor Corporation) in India are as follows:
• Implementing community based decentralized system of safe drinking
water supply in India.
• Biodiversity conservation through steps such as scientific harvesting,
domestication and propagation of medicinal plants in tribal Ghughari
Block of Mandla District of Madhya Pradesh.
• Project on environmental education leading to awareness and capacity
building for sustainable development in rural areas of Haryana.
• Green and Clean Himalaya: An integrated environmental education
program for better environment and eco sustainability.

Toyota Kirloskar Motor has been committed to manufacture technically advanced

and environment friendly products. The plant at Bidadi, surrounded by a
greenbelt, meets high environment standards and has obtained ISO14401
certification from the first year of operation itself. As a progressive company,
TKM aims at involving suppliers and dealers in its commitment to environmental
protection.

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Table 1.1: Company Profile

Company Name Toyota Kirloskar Motor Pvt. Ltd.

Establishment 6th October 1997

Share Holders Toyota Motor Corporation : 89% Kirloskar Group : 11%

Products Corolla Altis, Innova, Fortuner
No. of Employees Aprx. 3270
Average age 27 Years
Land Area 432 acres

Toyota Kirloskar Motor

Vision
1. Delight our customers through innovative products, by utilizing advanced
technologies and services
2. Ensure growth to become a major player in the Indian auto industry and
contribute to the Indian economy by involving all stake holders
3. Become the most admired and respected company in India by following The
Toyota Way
4. Be a core company in global Toyota operations

Mission
1. Practice ethics and transparency in all our business operations
2. Touch the heart of our customers by providing products and services of superior
quality at a competitive price
3. Cultivate a lean and flexible business model throughout the value chan by
continuous improvement
4. Lead the Toyota global operations fo emerging mass market
5. Create a challenging workplace which promote sense of pride, ownership, mutual
trust and teamwork
6. Create an eco-friendly company in harmony with nature and society

THROUGH THESE ACTIVITIES ESTABLISH SUPERIOR BRAND IMAGE IN

INDIA.

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TKM- Organization Structure

MD

DMD/Dire
ctors

Vice President

General Manager
(Grade 2)

Deputy GM (Grade 3)

Manager (Garde 4)

Deputy Manager (Grade 5)

Assistant manager (Grade 6A)

Sr. Officer (G6B)/Group Leader (G6C)

Officer (G7)/ Team Leader (G7)

Team Members (Grade 8)

Fig. 1.2: TKM Organization Structure

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• Present market scenario of Indian Automobile Industry

Among the two-wheeler segment, motorcycles have major share in the market. Hero
Honda contributes 50% motorcycles to the market. In it Honda holds 46% share in
scooter and TVS makes 82% of the mopeds in the country. 40% of the three-wheelers are
used as goods transport purpose. Piaggio holds 40% of the market share. Among the
passenger transport, Bajaj is the leader by making 68% of the three-wheelers.

Cars dominate the passenger vehicle market by 79%. Maruti Suzuki has 52% share in
passenger cars and is a complete monopoly in multipurpose vehicles. In utility vehicles
Mahindra holds 42% share.

In commercial vehicle, Tata Motors dominates the market with more than 60% share.
Tata Motors is also the world's fifth largest medium & heavy commercial vehicle
manufacturer.

• Overview of 2007-08 (Source: SIAM)

Domestic Sales

The cumulative growth of the Passenger Vehicles segment during April 2007 – March
2008 was 12.17 percent. Passenger Cars grew by 11.79 percent, Utility Vehicles by 10.57
percent and Multi Purpose Vehicles by 21.39 percent in this period.

The Commercial Vehicles segment grew marginally at 4.07 percent. While Medium &
Heavy Commercial Vehicles declined by 1.66 percent, Light Commercial Vehicles
recorded a growth of 12.29 percent.

Three Wheelers sales

fell by 9.71 percent with
sales of Goods Carriers
declining drastically by
20.49 percent and
Passenger Carriers
declined by 2.13 percent
during April- March
2008 compared to the
last year.

Two Wheelers
registered a negative
growth rate of 7.92

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percent during this period, with motorcycles and electric two wheelers segments
declining by 11.90 percent and 44.93 percent respectively. However, Scooters and
Mopeds segment grew by 11.64 percent and 16.63 percent respectively.

Exports
Automobile Exports registered a growth of 22.30 percent during the current financial
year. The growth was led by two wheelers segment which grew at 32.31 percent.
Commercial vehicles and Passenger Vehicles exports grew by 19.10 percent and 9.37
percent respectively.

• Future plans

Toyota plans to increase its market share in the MUV and car markets, alongside increasing
productivity. Toyota expects to grow 10 per cent per year in the future. Toyota will also plan to
continue working with component manufacturers to help/guide them on quality, cost and
delivery. Toyota plans to invest US$ 28.3 million to increase production capacity from 60,000 to
100,000.

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