Japanese Auto Makers and Their Competitive Place in Global Marketplaces: A Case Study of Toyota Corporation

This paper examines the competitive place of Japanese auto makers in global marketplaces, with a focus on Toyota Corporation. It analyzes Toyota's foreign direct investment, management and organization, and the role of government in stimulating FDIs. The paper uses the Eclectic Paradigm Model and Uppsala Model to understand Toyota's internationalization motivations and strategies.

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Introduction
The Japanese automobile industry has greatly grown and surpassed the United States
automobile industry. Japan has been one of the leading global being among the 3rd biggest car
producing nations since the 1960’s, safeguarding its status as a world leaders in automotive
manufacturing and technology. The automotive components and cars account around 18% of all
manufacturing shipments in Japan. Japan has emerged to be a worldwide conglomerate in the
segment of auto manufacturing (Donnelly, Mellahi & Morris, 2002, pp. 30). Thus, the Japanese
vehicles are prominent for dependability, high-class of components, low purchasing price plus
low use of fuel. In addition, the mainly famous multinational corporations (MNCs) who
manufacture automobiles or who provide automotive parts, as well as servicing include Toyota
Corporation, Honda, Nissan, Mazda, Suzuki, as well as Aisin Seiki.
Toyota Motor Corporation is a big player in the Japanese automobile industry and in the
global world. Being Japan’s primary automobile manufacturer, and one of the global biggest
automobile corporations, the company evolution, competitive position and present strategies are
integral to its global competitiveness. The company’s position in the automobile industry
represents well the several issues that face the global automobile industry. As competitive
pressures increases, several Japanese multinationals are being absorbed by global groupings, like
Ford, General Motors (GM), Renault, as well as Daimler-Chrysler. Thus, the expanding groups
are aggressively challenging the primary Japanese manufacturers, Toyota and Honda, in both the
export, as well and domestic marketplaces. It is hence important to Toyota’s long-term approach,

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which is productively sustains its competitive spot, as the global most effective auto
manufacturer, whilst controlling its designed transition to a novel competitive framework
(Gorzen &Makino, 2007, pp. 1149).
The question of the paper will be: To what extent have Japanese auto makers been able to
keep their competitive place as multinationals enterprises in global marketplaces? The paper will
examine the case of Toyota Corporation that will represent the Japanese automobile industry by
examining the Toyota’s foreign direct investment (FDI), how Toyota has succeeded as a
multinational firm, the management and organization of Toyota, and the role of the government
in stimulating FD
Foreign Direct Investment (FDI)
FDI is a procedure in which the firm of one nation (the home country) obtains ownership
of resources for the objective of managing manufacturing , distribution, as well as other
operations of a company in another nation (the host nation). In the latest decades, emerging
economies, which comprise East European nations, are expanding at a very high speed, plus
Japanese multinationals corporations look for novel marketplaces among them. Consequently,
between 2001 and 2008, the increasing pace of FDIs surpassed the export expansion. Thus, the
advancement was in regard to sales by the Japanese overseas subsidiaries that considerably
surpass the capacity of exports of Japan. Thus, these current trends are apparent amongst
economical segments, like transportation, as well as electronics, as well as amongst aggressive
industries like agriculture, clothing along with food (Wint & Williams, 2002, pp. 361). The
analysis of macroeconomic signs of Japan in the latest decades demonstrates a propensity to

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decline exports that is compensated by the preference of MNCs over the growth of foreign
operations engaging in external foreign direct investment. Japan’s evolution from a
straightforward exporter of brands to direct investor in the different economies of other nations
was because of increase of yuen plus the rise in wages of Japanese workers that resulted in the
realignment of Japanese stakeholders to nations with low-wage workforce (especially ASEAN)
(Stone & Jomini, 2002, pp. 223). Hence, the greater reliance on raw materials have stimulated
some analysts to draw consideration on the risk of de-locating investment that could have
changed Japan into a very prone nation, plus the relocate of valued-added overseas. Nonetheless,
the limitations of supplies along with the demands that acted towards growing production costs
made the Japanese corporation including Toyota to expand their operation in foreign nations,
especially in Europe and US (Hill, 2007, pp. 18).
The most widespread form of market entry for the company is FDI, in which the
corporation invests straight in facilities in an overseas nation to manufacture or marketplace their
products. In the auto sector, this is taken as the most vital and suitable technique of entry into
foreign markets. India has become a leading attraction for global automobiles like Toyota given
the huge prospect with middle-income masses aspiring to own a vehicle and plenty of raw
materials and low-cost labour. Through FDI, Toyota has been able to penetrate the Indian
marketplace plus has succeeded in controlling its manufacturing, distribution and other activities.
Capabilities and Resources
Eclectic Paradigm Model

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The eclectic paradigm model, developed by Dunning, suggests three main determinants
of foreign direct investment where each determinant relates to a benefit of carrying out direct
investment as a favourite to other techniques of satisfying the needs of overseas clients. The
three determinants of the eclectic paradigm are: ownership; location; and internationalization
(OLI). Ownership advantage (O) is an exclusive advantage that should be available that may
counteract disadvantage of rivalling with companies on their domestic market (Dunning &
Lundan, 2008, pp. 36). Location advantage (L) holds that there should be an augmented
productivity from exploiting the company’s ownership advantage in a dissimilar course other
than in its home marketplace, whereby this can result in marketplace, economic, opportunity or
cultural advantage. On the other hand, internationalization advantage (L) maintains that there
should improved advantages from having total control over overseas operations other than
utilizing an autonomous home company to undertake those obligations (Grosse, 2003, pp. 55).
The company’s ownership advantage originates from its design along with manufacture
of cars with elevated degree of excellence management. Toyota’s manufacturing practice is one
of the leading in the world. The basis of the company’s ownership advantage was originally
designed within the borders of Japanese market, with its greatly knowledgeable as well as
experienced labour force, quality mindful clients, as well as solid supply base. The company is
exceedingly capable when it comes to outsourcing production to suppliers with long-standing
commitments. Increasingly, the company has established a standing for quality, in addition to
this intangible asset offers the company with a benefit abroad and in domestic market (Grosse,
2003, pp. 57). The company has succeeded in crossing borders and has helped build defences
against competition. The company’s accomplishment is unbreakable to duplicate because their

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system propels a worldwide centre on ground-level innovation anchored on continuous
improvement. In addition, on location advantage, Toyota has greatly benefited in its location
strategies in different markets across the world, such as Thailand. Toyota is not presently
producing vehicles in each nation it sells its products. Production of Toyota’s cars in the Asian
expanse, exclusive of Japan is increasing, in addition to sales in Asian market have improved
higher than in any given market around the world (Hino, 2006, pp. 41).
When it comes to internationalization advantage (L), the company invests hugely in
research and development (R&D) to promote its technological capabilities. The technology
ownership advantages are depended on profoundly plus are utilized to make it unique from its
rivals in the market. The company does utilize its tier suppliers to offer parts for its cars;
however, the assembly is normally carried out by the company itself. Thus, through restricting
the participation of third-party contractors, the company may adequately manage the quality of
its products. Quality control is an important area that the company has invested, where
consistency is the key and does not place labels on cars on a country that it was produced. The
company may stop its ownership worth from decreasing through internalizing their ownership
advantage in addition to designing, as well as assembling their cars themselves (Hill, 2007, pp.
24).
The company’s ownership advantage is connected to its capability to internalize, as well
as there is a learning succession within Toyota that promotes the company’s general capabilities.
Therefore, the Toyota’s case better fits the OLI model.
Uppsala Model

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Uppsala model has become important framework in understanding the
internationalization motivations of different firms in global markets, especially the Japanese
automakers. The model comprises of two elements (four components): one is state element
(market knowledge, as well as market commitment) while another state is change aspect (present
activities and commitment choices). These components of the Uppsala model connect with each
other strongly (Dunning, 2002, pp. 26). The marketplace information along with market
obligation is considered to impact the commitment decisions along with the present operations;
plus those, subsequently, have impact on the marketplace obligation along with information. The
model assumes that a company lack the pertinent knowledge regarding the overseas marketplace
and that the challenge normally emerges to be the most crucial obstacle while expanding to
foreign markets (Mtigwe, 2006, pp. 23).
The internationalization process of the world well-known auto manufacturer Toyota
would be used as a case to comprehend the way a company undergo different phases and become
MNE. Thus, in 1963, the company commenced their internationalization journey by establishing
export to Denmark. Thus, after getting primary experience of European marketplace, Toyota had
established its presence in Belgium. During the 1990s, the company started its manufacturing in
Belgium while in 1993; Toyota opened its European head office in Belgium. Furthermore, in
1994, Toyota entered the Eurasian marketplace, where they founded a joint venture with
Mitsubishi in Turkey plus subsequently begun producing there from 2002 (Mtigwe, 2006, pp.
21). From here, Toyota has expanded its marketplace in France, Czech Republic, Poland, Russia,
and lastly through launching worldwide production centre in the United Kingdom, plus
ultimately becoming giant multinational enterprises. Uppsala model too claims that companies

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originally enter the adjacent place as part of internationalization presuming resemblance in terms
of culture, as well as business setting. Thus, Uppsala framework has been developed in the
modern days by stressing more in “confidence building” as well as “association” different
obligation in addition to activity of the past framework.
Toyota has greatly stressed on Just-In-Time (JIT) that entails the way to coordinate the
flow of parts within the supply chain system on everyday. The inspiration behind the adoption of
JIT is to lower stock because it causes the reduction in stock through lowering overproduction,
stock on hand, as well as work in process. Overproduction takes place in the traditional mass
production systems since firms keep surplus stock on hand to respond to fluctuations in demand,
which more often occurs. JIT affords Toyota an opportunity to be more responsive to
unpredictable demand (Petison & Johri, 2006, pp. 4).
Management and Organization
In Toyota history, it has been shown that the company develop their structure for
expansion to different markets. The company’s management establish a sale point in a foreign
country of interest as a subsidiary to sale their products. The management usually maintains a
niche market in an effort to learn and research the greater market as it attracts clients in the niche
market. The primary goal of Toyota in new markets is to distribute their products to cover the
entire market, for example, Europe as much as they may, where the structure of the company in
Europe is “Home-based MNE”, with its headquarters in Japan in which the company starts. This
organizational structure is a widespread formation, simple to manage, as well as comfortable to
make decisions while promoting FDI. During this time, the company would still gain more

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advantage from the current setting not only resource; however, understanding to rival with other
firms in automotive industry in the market, such as Europe (Head, Mayer & Ries, 2002, pp. 453).
In addition, Toyota’s management strategies towards increasing its competitive
advantage are the adoption of the hierarchical model. The hierarchical model has allowed the
company to perform different responsibilities towards supporting main operations of production
or sales. The model has allowed Toyota to develop different units that have different
responsibilities designed to generate knowledge and technology. The management believes that
the Toyota’s global position will be sustained and maintained through gaining knowledge and
technology from huge markets in Europe to boost their innovation, hence improving the quality
of their products in different markets (Jaussaud & Schaaper, 2007, pp. 224)
Role of Government
In the new international economy, the FDI by multinational firms hugely assists overall
growth in developing nations. Globalization has prompted rivalry crosswise boundaries and has
forces governments to concentrate on growth approaches for their nations. The governments
have put in place structures that are designed to attract FDI. Some of the augment in inward
foreign direct investment can be linked to MNEs, like Toyota who carry on looking for new
marketplaces to manage direct possession and the want for home companies to attain novel skills
in addition to technology. Governments function as a vehicle to boost inward foreign direct
investment, because it offers developments in technology along with competencies for a specific
nation, as well as more significantly, the government supplies the needed capital that is small
supply. Specifically, the government of Thailand has been supportive to the operations of Toyota

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because it depends of MNEs to support its economy through promoting FDI. Governments, such
as Thailand has tailored its policies to attract foreign firms like Toyota and continue to offer
incentives towards promoting FDI.
Through the strategic behaviour as a FDI theory, governments promoting FDI believe
that companies, which operate in oligopolistic sectors, tend to follow the foreign direct
investment shifts of other firm. The decision of the company to invest in a foreign market will
actually raises the competing company’s incentives to invest in similar nation. Thus, foreign
direct investment by one company into a overseas nation prompts other companies to follow the
same strategy. In this follow-the-leader behaviour, the follower is seeking to diminish the
original mover’s competitive benefit. This is where the government will come in to further
promote FDI and encourage this behaviour through friendly FDI policies along with incentives
(May, 2007, pp. 67).
Conclusions
The automotive industry is one of the biggest, as well as most global industries around
the world. Nowadays, principals of MNEs such as Toyota have a likewise profitable prospect on
a much well-built environment: an international middle-class marketplace. This global economic
experience includes a vast number of clients. In 2011, it comprises around 400 million
individuals in the established middle-classes of US, Japan and Europe in addition to another 300-
500 million individuals in emerging economies (Haiss, Mahlberg & Molling, 2009, pp. 69). The
growing globalization has availed changes to a business that used to circle in nationwide
ventures, which served their respective regions. Thus, the application of FDI in the last few

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decades has promoted internationalization of automobile manufacturing, with large
manufacturing companies, such as Toyota establishing plants across the world. Conventionally,
the automobile sector has chiefly been situated in North America, Western Europe, as well as
Asia (Head, Mayer & Ries, 2002, pp. 456). Nonetheless, growing rivalry, languishing demands,
as well as the want to reduce manufacturing expenses has compelled firms to reconsider their
approaches, opening entrance for up-and-coming marketplaces like Latin America, as well as the
Central Europe, as well as Eastern Europe emerge to be gorgeous markets for FDI’s in the
automaker sectors.

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