Toyota Motors: A Japanese Multinational Automaker in China
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Case Code: BSTR465 Case Length: 15 Pages Period: 2005 - 2014 Pub Date: 2015 Teaching Note: Not Available |
Price: Rs.400 Organization: Toyota Motors Industry: Automotive Countries: China Themes: International Management, Emerging Markets, Geo-political Tensions |
![Toyota Motors: A Japanese Multinational Automaker in China](../../../images20/line-png-16800.png)
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Chinese Automobile Industry
The automobile industry in China had grown to become the largest in the world measured by automobile unit production since 2008. 9 In 2012, China overtook the US as the world's biggest car market with sales of 19.3 million vehicles compared to 14.5 million in the US. China's dominance was expected to continue with its low vehicle penetration rate of 85 vehicles per 1000 people, compared to 797 vehicles in the US. 10 According to the China Association of Automobile Manufacturers (CAAM), in 2013, the total sales of cars, buses, and trucks in China increased by 14 percent to 21.98 million units and was expected to surpass 24 million in 2014. 11 By 2030, China's annual sales were expected to reach 39 million, which would be 28% of global sales. "We believe clearly for anybody working in the automobile industry, if there's one place to be, it's China. If things continue well, there's a good chance that the automobile market in China will grow again double-digit this year," said Hubertus Troska, Head of Daimler AG's Greater China operations....
Toyota In China
Toyota's history in China dated back to the 1930s when it built plants in Tianjin and Shanghai and carried out local assembly in China. In 1964, it started exporting the Crown, a luxury sedan, to China as completely built units. Historically, relations between China and Japan had been strained due to the World War II legacy when the two countries fought on different sides. Many Chinese did not like Japan as Japanese troops had occupied large swathes of China and committed atrocities during World War II. This also affected the business of Japanese companies in China. After the China-Japan relations were normalized during the early 1970s, Toyota not only worked toward developing the auto parts industry in China, but also trained personnel in order to contribute to the development of the Chinese automobile industry. In an effort to improve the after-sales service of the vehicles that it exported to China,....
Toyota's Strategies in China
Before Toyota started full-scale passenger car production in China, it used to export completely built vehicles from Japan. In 1993, Toyota Motor (China) Ltd. (TMCL) was established in cooperation with Toyota Tsusho as the first distributor in China. TASS and Toyota Authorized Parts Dealers were put under TMCL. In the initial years, TMCL laid emphasis on developing sales networks before full-scale car production commenced in China.
In 2001, Toyota Motor (China) Investment Co., Ltd. (TMCI) was established in Beijing to manage sales operations. Later, TMCI started taking care of the marketing functions for vehicles produced by TFTM. In 2005, when the Automobile Brand Sales Implementation Management Law came into effect in China, TMCI received approval to carry out trade and wholesale operations in the automotive business. It subsequently became a distributor for the imported Lexus and Toyota brand vehicles. Accordingly, TMCL concluded its operations at the end of 2005 and all of Toyota's businesses in China were transferred to TMCI...
Geo-Political Tensions
Industry experts opined that as a Japanese company in China, Toyota had been facing troubles, a fallout of the Japanese occupation of China during World War II. The political tensions between Japan and China flared up into riots in 2005. In 2005, when the then Japanese Prime Minister Junichiro Koizumi visited a Tokyo shrine where war criminals were among those honoured, the Chinese people and politicians protested. In 2010, there was tension between the two countries over eight uninhabited islands in the South China Sea. Moreover, cross-cultural issues, including maintaining labor relations, also affected the company's fortunes in China. During the labor unrest in China in 2010, workers at two Toyota parts plants in Tianjin, both operated by a Chinese subsidiary Toyoda Gosei, went on strike. Toyota even had to suspend production at one of its assembly plant due to the labor strike....
A Failure in China?
Analysts claimed that the root of Toyota's troubles in China went deeper than the anti-Japanese sentiments prevailing in China. Industry experts blamed the company for misreading the evolution of China's auto market. Although Toyota started exporting to China in 1964, it did not focus on the Chinese market. In fact, it concentrated on developed markets like the US and Europe until 2002 when it rolled out its first locally produced, Toyota-brand car in China. Analysts were of the opinion that Toyota's conservative strategy in China did not help it win the market. Adopting such a strategy resulted in the company missing the trend toward affordable compact cars since price conscious Chinese consumers sought better fuel economy. While the company had many successful car models, Toyota chose to only introduce models that were successful in other markets and paid no heed to local preferences. The effect was evident and reflected in Toyota's sales figures. Toyota generated around 12 percent of its global sales from China...
The Road Ahead
In January 2014, Toyota sold 85,600 vehicles in China, an 18% increase from the previous year. In February 2014, Toyota announced that it would launch the Toyota Avalon sedan in China in 2015. The Toyota Avalon, which was only available in North America, the Middle East, and South Korea, would be manufactured in China by the Guangzhou-Toyota joint venture.
In February 2014, Toyota recalled nearly 9,400 Highlander vehicles in China due to defective airbags. It also recalled 3,210 Prius cars in China due to problems in the control software. In February 2014, Toyota recalled 295,000 Lexus and Toyota brand vehicles worldwide due to faults in various safety systems including stability control and anti-lock brakes. Although most of these recalls were in the US, there were apprehensions that Toyota could lose customers to the competition in the premium car segment in China. Analysts were worried that this spate of recalls could hurt Toyota's brand image in China and even lead to market share losses....
Exhibits
Exhibit I: Toyota's Consolidated Vehicle Production and Sales (2008-2014)
Exhibit II: Toyota's Consolidated Financial Performance (US GAAP) (2008-2013)
Exhibit III:Toyota's Sales in China (2012-13)
Exhibit IV:Toyota's Journey in China
Exhibit V:Market Share of Leading Automobile Companies in China
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