* Views expressed in this report are those of the authors.

International Management Group Assignment

Toyota Multinational Corporation Analysis in United States of America and Japan

Written By: Kenneth Bell Sarah Prest Bridget Chong

TABLE OF CONTENTS

Executive Summary Introduction Culture Competition/ Trends Competition Industry Trends Organisation Analysis Internal Analysis Structure Strengths in Structure Weakness in Structure Operations Design and R&D Manufacturing Sales and Service External Analysis Opportunity Problems Recommendations Conclusion References

Page 1 2 2 4 4 5 6 6 6 6 7 8 8 9 9 10 10 12 14 16

18 Appendix 20

EXECUTIVE SUMMARY
The following Report concerns global car maker Toyota, and its American subsidiary: Toyota America. Inside we discover that Toyota has reached a global market share of 10%, with a goal to be the worlds best auto manufacturer ahead of General Motors (GM), by achieving 15%. An analysis of the cultural differences between America and Japan reveals some significant differences, most notably between the individualism in America and collectivism in Japan. A brief examination of Toyotas competitors and industry trends reveals that Toyotas recent growth has not been shared by its three American rivals GM, Ford and Chrysler, and that any trouble for the oil industry inturn spells trouble for the car industry. Toyota uses a geographic-area global structure, and is decentralised. By focusing on market share instead of profits, the emphasis has Toyota is also shifted towards product quality and customer satisfaction. Its key strengths include product quality, efficiency of production, R&D, and sales satisfaction. Honda and leading the way in hybrid technology. Despite these many strengths, Toyota is not without its share of problems. The lack of taking advantage of numerous opportunities, such as forming a close relationship with

communication and cultural understanding has caused friction between operations in the two countries, with different attitudes towards cost estimation, the need in American culture for horsepower, and (perhaps most importantly) the lack of improvement suggestions by American employees relative to their Japanese counterparts. The subsidiarys production efficiency is inferior to that of the parent companies, as their policy of helping customers in need of financial support is increasing the lead time for receiving sales income; although it is great for sales satisfaction. The report recommends that increased communication is the key to Toyotas future success. By unifying executive training, better understanding each others culture, and standardising production methods, cost estimation, and achieving economies of scale, Toyota and Toyota America will become closer to one another in terms of product quality and production efficiency.

INTRODUCTI ON
The subject of this International Management report is the Japanese auto maker Toyota, and its subsidiary Toyota America. The analysis of the countries key cultural These factors are why differences is used to understand Toyotas structure (both global and operational), also its competitors, its strengths, weaknesses, goals and opportunities. threatened by competitors. Toyota is increasing its market share, becoming more dominant and is feeling less Finally, in accordance with Toyotas own policy of constant improvement, there is an outline of what the companies current and potential problems are perceived to be and recommendations of how the company can overcome them. However, before we specifically examine Toyota we need to briefly observe the fundamental differences between Japanese and American culture, and their impact on management.

CULTURE
Geert Hofstedes value dimensions for America and Japan are as follows:

Source: Geert Hofstede, 2003

There are great contrasts and the occasional similarity when analysing the two nations cultures (Japan and America). Geert Hofstedes value dimensions show America is less On the Power Difference Index (PDI) both Japan is also below W.A for accepting of power inequality than Japan.

Japan and America are below the world average (W.A).

individualism, having a collective culture, preferring group work and group decision making; seeking the best group outcomes (Bond, 1986). Conversely, America is ranked the highest in the world for individualism, having great emphasis on individual decision making and seeking positive outcomes for the individual/family.

According to Hofstedes study Japan is considered to be a masculine society in comparison to Americans who have a relaxed lifestyle and show concern for others. Japan is a male dominated society with work taking priority over personal life/families; aiming for advancement, success and money. Yet another significant contrast between Japan and America can be seen with Uncertainty Avoidance. Americans prefer to take risks, being less reliant on rules/regulations and However, the main discrepancy between Japanese and American Japan prefers to plan well ahead, setting long term happy to make their own decisions; in contrast to Japan who prefers rules/regulations and less informality. culture is Long Term Orientation. rewards and goals. Using a select few of Trompenaarss Value Dimensions further exemplifies the differences between the American and Japanese cultures. Japan is a neutral culture, showing little (if any) emotion in business discussions; in comparison America has an affective culture, with body contact and emotional expression the norm. Furthermore, America is said to be a specific-orientated culture, opting to separate their work and private life, whereas in Japan the two are linked, being a diffuse-orientated society. America is also known to be universalistic, as it applies one standard, placing more emphasis on contracts. In contrast Japan is a particularistic as they are based on relationships and interpersonal trust; friendship comes before the contract. Japan is also known as an ascription society where people are rewarded not on individual task, but on their background; compared with America where emphasis is placed on individual achievement. Finally, the differences in negotiating culture between Japan and America shown in Salacuses 1998 study show some surprising results. Japan and America (55% and 54%) both consider the ultimate goal of negotiation to be a contract. Both (allegedly) have a high time sensitivity (91% and 85%), and believe in top-down agreement building (45%

goals for long term rewards; comparing to America who prefer short term planning,

and 47%). Differences in the negotiating cultures include Japans indirect (high context) communication, as opposed to Americas direct (low context), Japans belief in win-win negotiation conflicts with Americas emphasis on win-lose, and Japans preference for formal negotiating styles rather than the informal approach preferred by their American counterparts.

Competition/Trends Competition
The major players in the global automotive manufacturing industry are known as the Japanese and American big three. The American big three consist of GM, Ford, and Chrysler, while the Japanese big three are Toyota, Honda and Nissan. All six companies compete in the lucrative American market, with a general trend swinging away from the American big three, towards the Japanese automakers (Garsten, 2005).

Source: Autodata 2005, Garsten.

General Motors: A long established American manufacturer with a declining share in the domestic market from 35.5% in 1999 to 27.3% in 2004. In an attempt to increase profitability, GM has fired or made redundant roughly 25,000 workers in America in recent years, and blames employee health benefits and pensions, among other things for its slump in profits (The Economist, 2005). Ford: Like GM, has been losing market share steadily, from 23.9% in 1990, to 18.3% in 2004. Strength lies in its SUVs (eg Explorer), and its F-150 Pickup, and Ford Focus (Edmunds, 2002). Chrysler: The smallest of the big three, had an American domestic market share of just 13% in 2004 with risk of soon being surpassed by Toyota (12.2% share). Their strength lies in their Four Wheel drive Jeeps and Pickups. However, of Americas big three, Chrysler is the only one to increase its market share over the past decade. Nissan: Has undergone a recent turnaround, dubbed miraculous by many. Attributed to CEO Carlos Ghosn, who took control of the company in 1999, when Nissan was on the brink of bankruptcy (CNN, 2005). Its key strength is its operating margins (the best in the world). The company is 36.8% owned by Renault, and has a 5.8% share of the U.S domestic market. Honda: Has an 8.2% share of the American market, increasing from 6.2% in 1990. The Honda Civic has lost ground to the Ford Focus recently, yet the Acura and Pilot continue to sell well (Garsten, 2005).

Industry Trends
Automotive design is increasingly geared towards the electronic components, with Multimedia systems, GPS, cental locking, thinking brakes engines controlled by powerful CPUs becoming almost standard. Vehicle electronics now account for roughly 22% of a vehicles production costs (Altera, 2001).

Currently the fortunes of the automotive industry lie with the international oil market. With numerous political threats facing the major oil producing regions (Middle-East and Africa), and the possibility of war with Iran, the price of oil per barrel has been increasing (and thus the affordability and appeal of automobiles decreasing). This has negatively affected the sales of high fuel consumption vehicles, such as SUVs and 4WDs. One relatively new trend in the automobile industry designed to combat this is the development of cars and trucks with superior fuel economy, hybrid technology, and millions of dollars of research being spent on the development of fuel cells (The Economist, 2005). There is also an increased trend towards production efficiency and the elimination of waste. This follows Toyotas success with their production method, which has increased profitability immensely. In an attempt to increase their own profitability in turn, American manufacturers GM and Ford, have in recent years, opted to layoff tens of thousands of workers, and have fought to reduce employee health benefits, which they claim adds $1,500 to the production cost per car (Levin, 2001).

ORGANISATION ANALYSIS Internal Analysis

The internal analysis identifies and develops the organisations resources, focusing on current and potential strengths and weaknesses (Wheelen & Hunger, 2004). comparison to its competitors (Deresky, 2006). This information can be used to the organisations strategic advantage, especially in This section analyses the strengths and weaknesses of the organisational structure and operations of Toyota America.

Structure
Strengths in Structure
Toyota has a global geographic structure, grouping the organisation activities; including management, by geographic regions (Deresky, 2006). concern for local customers needs (Aghazadeh, 2003). 2006). The result is relatively flat hierarchy and management tends to be decentralised, compared with Ford having a centralised structure (Fang & Kleiner, 2003). However, strong management support is crucial a centralised structure, as demonstrated by Ford, who are having industrial relations problems (Professional Engineering, 1999). As Toyota employs a bottom-up approach, employees participate in new product development, product modification and share decision making. This method is most frequently used in their Research and Development department. Toyota America personnel (whether staff or management) have the same uniform, car-park and cafeteria; whilst engaging in company songs, ceremonies and social gatherings as one (Fang & Kleiner, 2003). This builds and sustains Toyotas strong culture. America. Fang & Kleiner (2003, p.118) explains management and labour share a This wellbeing corporatism gave rise to employee empowerment, job common oneness in an effort to minimise the differences, further strengthening Toyota security, job enrichment and led to employee commitment and achievement of Toyotas overall goal (Jacobs & Herbig, 1998). Toyotas competitors GM and Ford have reduced their employee compensation benefits severely, as it reduces their production costs per car by $1,500US. In contrast, Toyota maintains a good employee relationship by sharing concerned for their total welfare and uses this to motivating employees. Benefits at Toyota include skill improvement This structure benefits the Competitive advantage may organisation by focusing on activities in local American market conditions, showing arise from the production or sale of a product adapted to a particular country (Deresky

workshops, low interest rate loans, housing subsidies, access to recreational facilities and retirement allowance (Fang & Kleiner, 2003).

Weaknesses in Structure
As mentioned above, drawbacks occur because of differences in the national and business cultures of Japan and America. The national culture of American is highly individualist, compared with the Japanese collective culture. (Aghazadeh, 2003). Toyotas top management play a key strategic role in the development of new products, however, management fail to give out specific and detailed work plans on these new products to employees (Fang & Kleiner, 2003). A level of ambiguity is considered healthy generating creative and innovative ideas, whilst leaving room for discussion by top management and staff. Thus, strong guidance from top management is necessary to avoid a potential weakness if top management and staff do not interact or work together effectively and efficiently (Jacobs & Herbig, 1998). The business culture in Toyota insists on equality, thus taking time for American employees to adapt to a Japanese organisation

Operations
This section analyses the strengths and weakness of Toyotas three main operations.

Design and R&D

The vehicle production in Toyota America meet local tastes and standards, being one of their strengths as designers and engineers are locally employed (Toyota Motor Sales USA, 2006). It also creates local jobs and fulfils their social responsibility as a multinational corporation (Taylor, 2004). Toyota is environmentally friendly; recycling as much as possible to reduce waste and harm to the environment. Toyotas Calty Design Research Inc. in California and Toyota Technical Centre (R&D) in Michigan, provide an opportunity for American employees to experience and fit into

the Toyota corporate culture (Fang & Kleiner, 2003). However, when the parent company gives autonomy to its American subsidiary it risks problems arising from the divergence of the organisations overall goals (Aghazadeh, 2003). Consequently, with Toyota America using a global geographic structure, losses in efficiency and economies of scales are experienced (Aghazadeh, 2003).

Manufacturing
Toyota America has twelve successful manufacturing plants across America, adhere to Toyota production system (TPS) which continues to be the world benchmark in quality and has less workers needed to produce each car than its competitors (Deresky, 2006). TPS efficiently utilize resources to produce materials using a repetitive and reliable system eliminating waste (Fang & Kleiner, 2003). Under TPS, the annual factory capacity increases by 260,000 vehicles. respectively (Deresky, 2006). Just-in-time (JIT) provided great opportunities for Toyota to strive above its competitors and the big three in Ford, GM and Chrysler as they had not improved their operations for some years (Strategic Direction, 2005). Toyotas JIT system improved productivity along with quality (Shimokawa, 1994). Toyota America often purchases it parts and materials from minority and women-owned businesses locally, recognising social responsibility and directly creating over 45,000 local jobs (Toyota Motor Sales, USA 2006). In addition, purchasing local materials reduces the transportation cost and overcomes the North America Free Trade Agreement (NAFTA) Barriers. Conversely, the production costs increase as the company forgoes taking advantages on bulk buying, with benefits such as significant discounts, longer payment terms and pay early discount. The time spent manufacturing each vehicle is 21.63 hours, being much more efficient than Ford and GM, taking 24.87 and 32.58 hours

Sales and Service

Toyota America creates excellent relationships with its dealers, which provide great local distribution channels for Toyota vehicles (Toyota Motor Sales USA, 2006). This constitutes an outstanding strength in sales for Toyota America, whose profit margins have been increasing every year since 1997, becoming the second largest auto manufacturer worldwide after GM (Deresky, 2006). A high emphasis on customer satisfaction is one of Toyota Americas strengths, as it continually surveys its product users to target new ideas or recognise problems (Toyota Motor Sales USA, 2006). Toyota America therefore determines customer satisfaction with its products and makes improvement based on these suggestions (Jacobs & Hergig, 1998). Toyota Financial Services (TFS) enhances sales for Toyota America, since it has several programs such as leasing vehicles, and payment schemes for customers; which encourage vehicle purchases from all levels of society (Toyota Motor Sales USA, 2006). However, using these programs, it is evident that sales profits have a longer lead time which may lead to increase bad debts, potentially affecting the credit rating of Toyota America. Also, in order to increase sales, a huge amount of capitals need to invest in training salespeople to adapt to different cultures (Taylor, 2004).

External Analysis
Toyota has a global geographic structure with subsidiaries and plants all over the world. Toyotas external environment relates to major forces outside the organisation with potential to influence significantly their products and services (Bartol, Martin, Tein and Matthews, 2001, p.64). Toyota America will be analysed in terms of the opportunities and problems they are currently facing and their likely contributing factors.

Opportunity
International management opportunities for Toyota America stem directly or indirectly from its parent company in Japan. Toyota has a decentralised global geographical structure providing diverse opportunities for the American subsidiary (Deresky, 2006). Toyotas Head Quarters in Japan delegate the final decision-making to the countries executives, in America it is President Jim Press (Herbig & Jacobs, 1998). Toyota has undergone dramatic growth spurts in global markets over the past four years, and has equity strategic alliances with suppliers, sub-assemblers and distributors, implementing the best deal in these global markets (Deresky, 2006; Shimokawa, 1994). Toyota has formed a close relationship with another large automotive manufacturer, Honda. Information is shared intensively but also selectively, to enable them to conduct Toyota can therefore expand their opportunities by obtaining The key contributing joint improvement activities and turn supplier rivalry into opportunity (Strategic Direction, 2005). relationships with other companies willing to give information.

factor is worth more than the American big three put together in terms of market capitalisation and greater than Nissan and Honda in Japan; all of which make Toyota a very attractive company to invest in (Shimokawa, 1994). Toyota operates in foreign markets bringing it many opportunities for industrial expansion into certain products or services, as well as increased efficiency of information flow between countries (Weihrich, 1999; Hartel & Lloyd, 2004). Organisations competing on a global scale (in foreign markets) are miles above the rest. Toyotas contributing factors would be pure global dominance (Hartel & Lloyd, 2004). Toyota America has grown to be the third largest auto producer and the fifth largest industrial company in the world (Fang & Kleiner, 2003). Toyota sets the standard in efficiency, productivity and quality in the auto manufacturing industry; and is the envy of rivals such as Ford, GM and Chrysler (Fang & Kleiner, 2003). Industry work has named Toyota one of the worlds 100 best managed companies. The recognition of being one of the worlds 100 best managed global companies provides a lot of positive

opportunities for Toyota, as did their joint venture internationally with GM. The joint venture yielded valuable lessons in labour-management cooperation and gave GM access to Toyotas manufacturing expertise and provided Toyota with a manufacturing base in America (Fang & Kleiner, 2003; Deresky, 2006). Companies in todays world are ever-changing, and therefore Toyota needs to change their strategies and (accordingly) their structure when necessary. Toyotas latest future plans are to expand worldwide and to engage in manufacturing overseas; enhancing growth and opportunities (Deresky, 2006). through labour. This could be done by forming operations in third-world countries with manufacturing done there, as it substantially reduces costs Toyota Japan now sells German Audis and Volkswagons in its dealership (Weihrich, 1999). Toyota America could also consider doing this with cars that would suit their consumers (Weihrich, 1999). Toyota America is committed to an open trade ideology, importing nearly thirteen times more cars than they export (Anderson, Altshuler, Jones, Roos and Womack, 1985). America should take leads from Japans 23% market share in their country, and have substantial market share in other countries to obtain opportunities from, if financially beneficial (Anderson et al, 1985). Toyota America is financially and legally separate from its parent company, being independent and able to make its own decisions (Anderson et al, 1985). Top management therefore have the opportunity to make global and national decisions to expand operations and reap benefits world-wide (Chandler, 1964). Further, Toyota America is leading the way in hybrid electrics en route to full scale fuel-cell electric cars is Toyota America (Weihrich, 1999). With high fuel prices, Toyota has driven its consumers to purchase Japanese imported Toyota cars that are high quality and fuel economic (Shimokawa, 1994).

Problems
Toyota America, being a global company are so diverse and financially viable, that their problems are limited. Problems result as a form of threat from companies or industries They also result from that Toyota deal with in terms of competition (Weihrich, 1999). geographical locations across countries (Herbig & Jacobs, 1998). Problems arise at Toyota between American Executives and Japanese Engineers. The constant tension results because America wants larger engines with more horsepower, appealing to American consumers; where as Japan wants smaller engines that consume minimal fuel, appealing to their consumers (Taylor, 2004). Japanese Engineers consider the impact of the car design on costs or manufacturability; whereas American Engineers want to know from their perspective whether it can be manufactured (Herbig & Jacobs, 1998). 1998). Another problem in Toyota America is product time and the companies vision. Japanese Toyota believes they can release new products to the market in half the time the Americans can (Herbig and Jacobs, 1998). Contributing factors to this problem are that they need to engage in overseas manufacturing to enhance their growth and opportunities, and to decrease the production time (Deresky, 2006; Herbig & Jacobs, 1998). In Japan, Toyota employees themselves take initiative to study the task at hand, rather than relying on engineers; this just does not happen in America. Jacobs, 1998). American President of Toyota, Jim Press seized 13% of the American market for Toyota automobiles. He did have a valid point, being that hybrids have more growth potential, therefore allowed space for this model in their market. Press however, should not have seized other production until he was certain hybrids would be financially successful, Toyota Japan has a vision for the next decade, in comparison to Toyota America being for the next quarter (Herbig and Americans instead of designing a product and then determining its costs, design their product on target costs based on what the market place will bear (Herbig & Jacobs,

international managements perspectives of the companies operations in different

being proactive, rather than reactive. BMWs or Audis (Halliday, 2005).

The car makers policy is slow and steady,

which displays negative publicity globally as they are not exactly a luxury car like

America also has a problem of effectiveness in their formal suggestion program. Suggestions are not mandatory for Toyota personnel, but workers who do not contribute are criticised and may receive smaller bonuses (Herbig & Jacobs, 1998, p.146). Toyota suggestion program is very effective in Japan as 65-70% of all employees submitted suggestions for increase in efficiency, reduction in costs or improving morale. On the other hand, Toyota America received 8% of employees lodging suggestions. The contributing factor is that Japanese companies accept 80% of employee suggestions, compared to only 25% adoption in America (Herbig & Jacobs, 1998). something the top management need to review and rectify. Toyota executives in America admit there is a problem with customer service, but believe they are dealing with it (Taylor, 2004). The main contributing factor is that Toyota dealers have grown too fast, as they have the highest sales per outlet in the country (Taylor, 2004). Toyota America is also known to spend minimal time planning new products, and suffers development setbacks in a larger proportion due to lack of planning (Herbig and Jacobs, 1998). They are also behind Ford and GM, as Toyota has a less structured policy dealing with integration and production (Chandler, 1964). This is

RECOMMENDATIONS
Toyota America has issues and problems that were identified in the internal and external analysis based on structure, operations and international management problems in the organisation. Toyota is a global operation, being one of the largest and most recognised automotive producers in the world, and will only benefit from realistic solutions and recommendations to the analysis of its issues and problems.

There are drawbacks due to cultural differences when comparing America to Japan. Japan (being the parent company) needs to have some sort of training in their country for American executives, so they can understand the collective culture of Japan in comparison to Americas individualistic approach according to Hofstedes study (Bond, 1986). America also needs to train the Japanese management to be aware of its culture Time devoted to educating and training and the differences between the two countries.

managers on cultural differences will be well spot. Management also need to communicate and be more specific with employees when giving out work plans on new products. production. They must ensure that employees know what new products are coming out and have specific plans on their manufacturing and Top management must also ensure they remain in close contact with employees to build their morale and achieve the most efficient and effective relationships possible (Fang & Kleiner, 2003). As Toyota is using a global geographic structure, management must ensure that efficiency and economies of scale are met. A solution to this current weakness would be to have top management/executive meet electronically with all plants globally, to ensure that common goals and targets are set. Also to set the same level of efficiency required for each stage of production and the achievement of economies of scale; to ensure all plants are expected to do the same work per worker, and to manage Toyota globally. Implementation of a transnational strategy that is locally responsive and cost effective is a consideration Toyota should be aware of. Vertical differentiation consists of a mixture of centralisation and decentralisation, which is a good structure for Toyotas massive enterprise. Perhaps the horizontal differentiation of a matrix design should be implemented to bring in more coordination at Toyota, through communication amongst head managers, division managers and employees forming relationships (Deresky, 2006).

The minority and women-owned businesses are supported by Toyota, forgoing their discount for bulk buying and early payments. This shows the public their compassion and concern, but financially costs Toyota a substantial amount. Toyota could rectify this by purchasing only from bulk buyers to increase savings on their purchases. Toyota also has programs to support customers who need financial assistance. Toyota. Whilst this service also portrays a positive message to the public, it consequently disadvantages This system needs reviewing, as the sales may have increased but the lead time of receiving money for sales has increased also. Toyota may need to put a time limit on payment to ensure they receive the money and decrease their bad debts. They also need to review each customer asking for this service to ensure they can pay it back in the near future. If they receive a negative response then they should not allow these customers such a loan. Toyota has problems externally which are limited considering their size and diversity. Again there are great differences between executives in Japan and America. They have completely different ideas when it comes to design, cost and process of manufacturing of automobiles. These problems need to be rectified if Toyota is going to maintain its strong corporate culture and common consensus across the globe (Herbig & Johns, 1998). To do this they could have electronic meetings to discuss ideas and come up with a common design, cost and process for all automobiles. They could also have Japanese engineers visit the American plant to show them their design, learn their ways, and what needs to change for Toyota to remain consistent with Japan. They need to review their production times, also as Japans production is substantially faster. Toyota may need to engage in overseas manufacturing to enhance their growth They also need to encourage employees to opportunities and decrease production time. of initiative.

show more initiative and desire towards studying the tasks, as Japan employees take a lot Toyota also need to reconsider their policy of slow and steady, as they Perhaps they should have a slogan that relates more are a medium car company in terms of quality, and are hardly producing BMWs or Porsches (Herbig & Jacobs, 1998). directly to their operations like efficient and effective.

Finally, Toyota needs to review is their suggestion program in America, as only 8% of employees lodge suggestions (Herbig & Jacobs, 1998). This could be achieved by staff Management meetings with each department and their manager, whereby employees are why they do not make recommendations and what would encourage them to do so. then need to look at implementing these recommendations, to promote them with staff.

CONCLUSION
In Conclusion, Toyota is leading the world in auto manufacturing efficiency, but still has room for improvement. A lack of adequate communication between the American and Japanese departments is not only causing friction, but affecting the development of economies of scale. With the company having a decentralised geographical-area structure, conflict between the two regions will always be a possibility. By increasing communication between parent and subsidiary, and by standardising executive training across both nations, over time a degree of consistency can be achieved across Toyotas management. By better understanding cultural norms and values, problems and misunderstandings (such as Japanese engineers not understanding the importance of horsepower to Americans) will occur less frequently. The differences in culture which have in the past served as obstacles should instead be embraced, with the ultimate aim to learn from each other, in the hope of improving both operations. If all this can be achieved, Toyotas goal of a 15% world market share could soon become a reality.

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