Page 274 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes competition. The combined losses of the three major US companies in 1991 alone were
US$7.5 billions. The US car manufacturers were only saved by three changes:
1. The launch of specialist vehicles – like sports utility vehicles, minivans and pickups;

2. A severe economic recession in Japan, which made Toyota’s Japanese home base
difficult;
3. A substantial rise in the Japanese yen, which made Japanese exports to the US less
profitable.
GM has been enormously successful in the light truck business and the secular market
share losses have occurred in the passenger car business, where the Europeans and Japanese
have been the strongest. Nevertheless by 2003, Toyota was selling the most popular single
car model – the Camry – in North America. Toyota also now produces many of its basic
models in North America so it is unlikely to be affected again by changes in the Japanese
yen. Toyota now has six manufacturing plants in North America that produce over
1.2 millions units per year. It has announced plans for Mexican and Texan plants in the
years 2005 and 2006. The company has now become a major employer in North America
and is not merely outsourcing work to Japan.
In the 1990s, Toyota decided to attack the Western European market, which is the next
largest market in the world. They had been selling vehicles in Europe for many years but
decided to build their first factory – at Burnaston in the UK – in 1995. This was then
followed by other factories and a design facility in France in the late 1990s. Toyota was
cautious about Europe for many years for two reasons: first, because the European vehicle
industry was protected by trade barriers; and, second, by a voluntary agreement by the
Japanese car companies to restrict their European sales. However, the EU removed such
barriers in the mid-1990s and Toyota responded by a major drive into the region. Much of
Toyota’s world growth has come from this European expansion. According to one
commentator, “The main reason for the success is the decision by Toyota to be a major
player in Europe.” Before that, Toyota focused on America and gave second priority to
Europe.
In earlier years, Toyota based its European strategy on selling cars that were reliable but
were not perhaps the most attractively designed – arguably even dull. However, European
car manufacturers like Volks-wagen were rapidly able to replicate any competitive
advantage based on quality. More recently, Toyota has begun to design cars specifically
for EU markets: In Europe, styling and performance is generally high. European people
enjoy driving their cars more than, for example, Americans. In 1999, Toyota introduced
the Yaris. That is a vehicle designed specifically for Europe. Until then, although Toyota
tried to develop a vehicle that would suit Europe, the main target was not Europe.
But all is not completely satisfactory with Toyota Europe’s strategy. Its factories are still
not as efficient as Nissan. Its customers do not recognise Toyota quality as being the
highest, reserving that accolade for Volkswagen. Moreover, profit margins on its European
operations are small – but it built a new plant jointly with PSA Citroen in the Czech
Republic, where labour costs are lower, to make the Yaris.
Toyota has enjoyed substantial growth in both sales and profits over the period 1999-2003.
Its market share, its assets and its worldwide influence have impacted on other companies
and, at the same time, delivered real growth. Apart from some production co-operation
with competitors – it shared a manufacturing plant with GM in North America and built
a manufacturing plant with PSA Peugeot Citroen in the Czech Republic – Toyota never

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