Toyota's Struggles in the Chinese Market

This assignment delves into the reasons behind Toyota's struggles in the Chinese automotive market. It examines various factors including the impact of geopolitical tensions between Japan and China, shifts in consumer preferences, and the rise of competitive domestic brands. The analysis draws upon academic research, news articles, and industry reports to provide a comprehensive understanding of the challenges facing Toyota in this crucial market.

Running head: Toyota in China
Toyota in china
Research report

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Executive summary
This report throws light on various issues faced by Toyota in china. At present, Toyota only has
a 4.93% market share in china. This performance is due to various factors including changing
demands of Chinese consumers, china japan rifts, high price of Toyota vehicles and unfavorable
tax policies in china. This report has recommended strategies that Toyota can follow in the
Chinese market that would assist the firm in gaining a larger market share and an increased
customer base.

Toyota in China 2
Contents
Executive summary.........................................................................................................................1
Introduction......................................................................................................................................2
Issues faced by Toyota in china.......................................................................................................2
Losing market share in China......................................................................................................2
Resistance for Japanese products.................................................................................................2
High price of the vehicles............................................................................................................3
China-Japan territorial rift............................................................................................................4
Preference of electric vehicles in China.......................................................................................5
Desired outcomes of Toyota in China.............................................................................................6
Recommendations for Toyota in China...........................................................................................7
Risks for Toyota in china.................................................................................................................9
Risk management strategy...............................................................................................................9
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
Toyota is a Japanese multinational automotive company headquartered in Aichi, Japan. The
automobile giant was founded back in 1937 and has since been on the trajectory of growth. It is a
leading name in the industry owing to the reputation of being the largest automobile company is
the world. Toyota is well known for its hybrid electric vehicles and the philosophy of mass
production. Toyota has adopted ‘lean manufacturing’ and ‘just in time production’ which has
helped the firm save time and reduce waste effectively leading to improved performance. These
managerial values and business methods are collectively known as ‘The Toyota way’ (Gao,
2015).
Issues faced by Toyota in china
Losing market share in China
Not just Toyota but all Japanese carmakers are losing the Chinese market. Back in 2008,
Japanese carmakers like Toyota, Nissan and Honda occupied a proud 30% of the Chinese
automotive market share. Since then until this year, the share first dwindled around 19% and
then finally crashed to 12% this September. This is also because that it has been observed that
Japanese carmakers have been slower to understand Chinese needs and demands as compared to
their European counterparts. Volkswagen and General Motors have been successful in adapting
to the Chinese needs and have thus been able to maintain their market share as well as brand
value in the price sensitive market.
Resistance for Japanese products
Another major disadvantage is the general preference of Chinese customers being biased towards
American and European designs rather than Asian. Customers in china believe that western
products have a certain cachet which is lacked by Asian counterparts. Also the perception of
Asian goods being unsafe has only added fuel to fire.

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Brand name Number of recalls in October
2017
Reason for recall
Toyota 1.4 million Faulty window switch
Honda 0.5 million Horns not working
Nissan 11000 Defective engine sensors
High price of the vehicles
As a brand Toyota has always focused on excellent quality sold at a higher price. On the other
hand, China market is occupied with price sensitive customers who have a wide variety of low
priced options to choose from.
China’s automobile market is extremely competitive and the firms cannot yet afford to perform
failed experiments. The moment Yaris was launched at an approximate price of $13900, it had
an immediate disadvantage as this price was 55% more than General Motors’ Chevy Sail and
42% more than Nissan’s Tiida (Business insider, 2015). This put Toyota at a competitive
disadvantage in a market that requires players to win. Owing to which, the company only
managed to sell 1250 a month average vehicles while GM sold 17000 Chevy Sails and Nissan
over 1200 Tiidas.
Pricing the products right is extremely crucial for any brand. It forms an important part of the
marketing mix. If the product is priced too low, it can cost the brand over its topline while on the
other hand if the product is priced too high, it will be difficult to gain customers (Armstrong,
2015). Especially in Chinese market where brand loyalty is such a rare concept, Toyota must
have priced its vehicles strategically to gain a competitive advantage.

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While entering a new product to the market it is essential that the makers of the brand think
locally and aim to fulfill the local demands of the customers (Karray, 2013). It has been argued
that, if only Toyota has built an entry level vehicle which was compact and affordable to the
Chinese audience, the picture could have been entirely different.
China-Japan territorial rift
Heightened political tensions between china and japan which are triggered by a maritime dispute
in the East China Sea have adversely impacted trade ties and corporate cooperation between the
two nations. Supply chains across the both the countries are largely at risk and are expected to
hamper international ties. The tension is no more diplomatic and the evidences of the dispute are
clearly seen in the streets of both the countries. Chinese citizens have help protests carrying anti-
japan slogans. The level of negativity for Japan in the country is at its peak and has unfavorably
impacted the automobile giant, Toyota’s sale across the republic (Samuels, 2013).
In September of the year 2012, Toyota sold 50000 cars in China which was a steep fall from
86000 in September 2011. This clearly indicates a change in the sentiment. This dramatic fall off
has actually turned out to be a boon for local as well as other non-Japanese manufacturers who
have jumped the bandwagon and put in efforts to increase sales in the country.

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Toyota motors cut productions by about 20% in the face of an economic and political unrest in
China (Reuters, 2012). Not just Toyota, about 61% of Japanese firms are experiencing a friction
with china which is hampering their business prospects in the country. Bilateral trade between
both china and japan grew 14.3% to touch a record $345 billion in the year 2011, which is one
year before the territorial rift peaked (CNBC, 2012). Therefore, it is safe to say that this unrest is
undesirable for both the countries. However, mutual economic interests have yet not been
sufficient to keep the lid on their ongoing row.
Preference of electric vehicles in China
China has been the largest market for automobiles across the world. The deceleration of the
Chinese automobile market indicates a slowing industry. However, even though the enthusiasm
for cars hasn’t substantially been affected, there has been a shift in consumer behavior and their
preferences. Chinese are consumers are now focusing more on practicality and they are no
buying their cars merely as a status symbol (McKinsey, 2016). While the new car buyers and
their rate is significantly decreasing, it has been observed that the segment of electric cars’
buyers have seen an uptrend. The number of consumers interested in buying an Electric vehicle
(EV) has tripled since 2011.

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This change in consumer behavior also impacted the sales of Toyota as the sudden U
turn towards buying electric vehicles was unanticipated for. Electric vehicle sales in the 2013
was less than 50000 whereas in just the next three years, the sales have shot up to over 300000 a
year. Understanding the changing customer needs helps businesses be prepared for a change in
the attitude of customers as it may come (Schiffman, 2013).
Desired outcomes of Toyota in China
1. Producing at least 10 low priced entry level electric vehicles custom made to suit the
Chinese demands by 2020 by collaborating with local Chinese manufacturers
As explained above, Chinese customers are shifting their preferences to electric vehicles.
Therefore, it is imperative that Toyota increase the production of its electric vehicles. By
collaborating with local manufacturers like Auto Beijing, Toyota can get firsthand
information about the ongoing demands of customers. This would also improve Toyota’s
brand image and help the firm gain customers.
2. Gaining 6% market share by selling 2 million vehicles a year by 2018.
The CEO has targeted to sell over 1.2 million vehicles in china in 2017 (Reuters, 2017).
The anticipated growth in Chinese car market is up to 30 million vehicles for 2025. If
Toyota in China performance this year (2017)
Market Share Total vehicles sold Sales growth
4.8% 84k 11.4%

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Toyota keeps pace by working on opening more manufacturing units and using the right
promotional strategies, then by the end of 2018, Toyota can hold a strong 6% market
share in China.
Recommendations for Toyota in China
1. Tying up with local manufacturers and developing new products to suit the Chinese
demands.
Collaborating with local manufacturers like Beijing auto, FAW, gunshaw etc. would help
Toyota to innovate a new product line and gain an increased market share in china.
Specific: Developing a new product line of low cost entry level vehicles by tying up with
local manufacturers will help in increasing the brand value and understand consumer
needs better.
Measurable: The idea is to make sure that the vehicles are priced low as the current
pricing of Toyota vehicles is very high.
Toyota Model Price in 1000 Yuan (bottom model- top
model)
Toyota Corolla 107.8-134.8
Toyota Corolla sedan 110-160
Toyota Corolla EX 90.8-113.8
Toyota Camry 219-227
Toyota Prius 180-193
Toyota Sienna 198-205

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Toyota Avalon 224-228
Toyota Yaris 110-116.3
Attainable: When Toyota ties up with local brands, it would easier for them to produce
low cost products because of the reduction in import taxes of Toyota parts. This would in
turn help them in a gaining a bigger market share
Realistic: By collaborating with local manufacturers, Toyota can get a firsthand picture
of the Chinese demands and hence they can introduce products to suit the same. Hiring
locally also improves brand image and trust in the brand (Yonkers, 2016)
Timely: Toyota should target to complete all formalities and tie up with a local brand by
2018 and open three company owned showrooms in collaboration with local
manufacturers by 2020 to provide efficient customer service
2. Gaining market share in china by investing 2 billion in developing centers of hybrid
vehicles and introducing 10 new electric car models by 2020.
Specific: Investing 2 billion in setting up manufacturing units in order to introduce 10
new electric car models by the year 2020 to gain market share and improve brand image.
Measurable: Toyota must set up at least 5 new manufacturing units in tier two cities of
china. Manufacturing locally would also cut down import tax on products by 25%.
Attainable: The electric car segment model is extremely competitive and hence it is
important for Toyota to differentiate itself. Toyota can enter into trucks and buses which
are different from cars.
Realistic: Realistically, the parent company should invest money in china and bring back
the reputation it once had. 10 new electric car models can increase the customers by 1.1
million annually. This is turn will lead to higher market share.
Timely: Target should be set for 2020. Introducing 10 new cars by the end of 2020 would
increase market share by 6% by 2022. This is because Toyota will be able to cater to
more number of customers.

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Goals
1. Increase the sales of electric vehicles in China by 30%: This increase in sales is
extremely crucial and imperative for Toyota in order to have an increased customer base
and recover previous losses.
2. Grab a market share of over 8% by 2020: China is the only country where the share of
Toyota is much lesser as compared to American and European counterparts. Hence it is
essential that Toyota works on increasing that market share.
3. Sell more than 1.21 mn vehicles this year in china (Reuters, 2017): This has been the
personal target set by the CEO of the company and in order to increase market share it is
essential that Toyota sells more vehicles.
4. Ensure the ratio of local staff and Japanese staff is 50:50 by 2022: Hiring locally will help
the firm get a clearer idea of the local demands and requirements of Chinese consumers
and then they can modify their products accordingly.
5. Run at least 4 marketing campaigns every year: Specifically invest in social media as it
targets the youth. Efficient promotions is required for necessary marketing of the brand.
6. Outsell Honda which has already sold 128671 vehicles in August showing a 20.6%
increase from its sale in July: over the past years, Toyota has shown a better performance
than Honda. However this year, the performance of Honda has been exceptional and it is
imperative that Toyota beats Honda in this aspect.
7. Introduce 10 low priced electric vehicles by 2020: Due to the increasing demand of
electric vehicles in china, it is essential that Toyota introduces 10 more electric vehicles
to suit the price sensitive market.
Risks for Toyota in china
1. Collaboration with local brand often take control from the hands of the parent company
and dictate functioning on their own terms. This collaboration also involves sharing of
crucial market data and marketing research with the manufacturer. Toyota’s strategies
would be well known to the local manufacturer and hence can pose risk of theft of
information.

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2. The marker is highly competitive and people are not brand loyal. The cost of shifting
from one vehicle to another is also very less and hence it is difficult to Toyota to build a
brand. Volkswagen and GM have already been gaining ground.
3. Any kind of increase in the political tensions between china and japan can adversely
impact all the efforts put by Toyota to build its brand image.
4. The cost of research, manufacturing units and promotions will be very high and the
returns would be seen only after the successful implementation of this plan.
Risk management strategy
1. Have a formal contract in place which clearly states the roles, responsibilities, rights and
power of the local manufacturer as well as Toyota.
2. Conduct timely surveys to understand the needs and demands of the local people
3. Remain up to date with the changing technology
4. Invest in loyalty and referral programs to gain more customers
5. Keep the data safe by implementing strict data violation rules
6. Make the first mover advantage in electric vehicles by moving into trucks and buses.
7. Keep a keen eye on the strategies of the competitors
8. Invest in promotions and branding to create a positive image of the brand in china
9. Hire local citizens of china to work with Toyota to build trust and sense of ownership
10. Invest on understanding how to price their products effectively. Because if they introduce
new vehicles which are very expensive then it would be of no use.
Conclusion
To conclude, Toyota has been the number 1 automobile giant in the world and the same can be
replicated for china by following strategies as mentioned in the report and promoting their
product well. Toyota should focus on introducing electric vehicles and tying up with local
manufacturers. They should aim to target a larger number of customers and gaining government
support.

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