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Toyota Case(2)

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Critical analysis of the decision of Toyota to internationalize through strategic alliances (at the time of ex-president Mr. Fujio Cho)

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Toyota Case(2)

  1. 1. Pallav Chatterjee Toyota Globalization through Strategic Alliances
  2. 2. Global Automotive Industry• Increasing geographical spread of sales in industry• Concentration (top 10 OEMs -77% market share)• Increasing investments in developing countries• New concepts – Global sourcing networks, regional production systems, Follow sourcing, Follow design• Regionalism – new trade blocs• Elusive Ideal Standardization but advantages through shared platforms, designs and component systems• Emergence of global tier-I suppliers – Bosch, Delphi, Magneti Marelli• Wider variations – high forces of localization• Emergence of new customer segments, new shifts in preferences
  3. 3. Case BackgroundToyota President Mr. Fujio Cho concludes following strategiesa) Technical Alliances with Panasonic for EV and battery technology etc.b) Alliance with Exxon for fuel technologiesc) Collaboration with VW on global sourcingd) Alliance with Ford for consumer services (finance, lease etc)e) Looking for an alliance partner for Diesel, hybrid technologies Essentially strategy of growth through collaborations and alliances!
  4. 4. Strategic Forces : Toyota Context• TOYOTA among only 3 OEMs with less than 50% dependence on home country sales.• High extent of global sales, high extent of dependence on domestic production (73%)• Rising need of entry in rest of world for further growth – stagnant growth in triad countries (US, Japan, Europe)• Wide variance in industry contexts in non triad countries (income differences, driving conditions, customer tastes, taxation, govt regulations etc) – High forces of adaptation• New emerging segments, acquisition of new technologies required (green technologies, hybrid technologies, intelligent transport etc)• Higher cost of adaptation, higher risk in geo diversification – need to optimize risk at the same time focus on global value creation
  5. 5. Strategic Issues – Creating Economic Value & Competitive Advantage• Adding volumes Seeking new markets for growth - access to new markets• Decrease costs – global sourcing, new resources• Differentiation – seeking new global segments, adapt to new regional segments• Changing Industry attractiveness – improving cost structures of competitors (higher future rivalry), emergence of supplier networks, standardization & sharing of platforms (competition collaboration)• Risk optimization – new markets, new products, segments ~ enhanced risks• Learning & Capability enhancement – future sustainability ; importance of green technologies, customer services businesses (adding customer value)
  6. 6. Interlinked Challenges Growth & Profitability Challenge (Stagnant key markets) New market entries – developing markets, new product requirements Adaptation Challenge Adapt to new market needs, regional market needs at optimum costs, lowest incurred risks Capability & Learning ChallengeCapability acquisitions, maintaining global leadership, preparednessfor future challenges – electrical vehicles, new customer preferences
  7. 7. Competitive Strategy Levers For Adaptation Focus on regional markets toReduction of costs / Improving effectiveness reduce variation Externalize to reduce Toyota Complete cost / Strategy Localization burden of variation Variation Design to Complete reduce cost standardiza of variation tion Innovation to increase effectivene ss of variation
  8. 8. Toyota Strategy Adaptation through AlliancesTechnology, N ew Market EntryCompetencies alliances – JVs Ford e.g., Kirloskar , Panasonic (India), Indus (Pakistan) Component Sourcing Alliance - VW
  9. 9. Alliance Risk• More than 1/3rd of alliances fail due to - Choice of wrong alliance partners - Moral issues (mistrust, exploitation etc) - Hold-up (Hostage situation)• Alliances have higher risk specially when the benefits are intangible and its difficult to assess benefits / hazards. •As in case of Toyota, all the alliances have intangible benefits and difficult to estimate costs / benefits therefore on implication failure risks are high. •In order to mitigate such risks Toyota decided as a principle to look for NON EQUITY Alliances
  10. 10. Possible Alliances For Toyota• Market Entry Alliances – in developing countries (like Kirloskar in India, Indus of Habib Group in Pakistan)• For acquiring Diesel technology know-how, Robert Bosch (injection technologies), FPT (Fiat Powertrain for small efficient diesel engines), Volkswagen for higher range diesel engines• Component sourcing alliances like they have with DENSO, sourcing collaboration with General Motors & VW for NAFTA region & Europe.

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