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

1. Pallav Chatterjee
Toyota
Globalization through Strategic
Alliances

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. Case Background
Toyota President Mr. Fujio Cho concludes following strategies
a) Technical Alliances with Panasonic for EV and battery technology
etc.
b) Alliance with Exxon for fuel technologies
c) Collaboration with VW on global sourcing
d) 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. 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. 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. 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 Challenge
Capability acquisitions, maintaining global leadership, preparedness
for future challenges – electrical vehicles, new customer preferences

7. Competitive Strategy Levers For
Adaptation
Focus on
regional
markets to
Reduction 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. Toyota Strategy
Adaptation through Alliances
Technology, N
ew Market Entry
Competencies alliances – JVs
Ford e.g., Kirloskar
, Panasonic (India), Indus
(Pakistan)
Component
Sourcing
Alliance - VW

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. 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.