TOYOTAMANAGING RECALL CRISIS WITH NEW STRATEGIES IN EMERGING
MARKETSINTRODUCTION TO THE CASEThe case is about Toyota Motor
Corporation (TMC), a global automobile manufacturing company which
is serving the market since 1937. The case throws light on the
problems faced by the company recently and the different strategies
devised by it to tackle the problems and expanding the sales into
different emerging markets.
ABOUT THE INDUSTRYToyota Motor Corporation is the part of Global
Automotive Industry whichis a wide range of companies and
organizations involved in
thedesign,development,manufacture,marketing, andsellingofmotor
vehicles.This industry is one of the world's most importanteconomic
sectorsbyrevenue. The automotive industry does not include
industries dedicated to the maintenance of automobiles such
asautomobile repair shopsandmotor fuelfilling stations which are
provided to the end users. The automotive industry began in the
1890s with hundreds of manufacturers started manufacturing
thehorseless carriage. For many decades, theUnited Statesled the
world in total automobile production. In 1929 before the Great
Depression, the world had 32,028,500 automobiles in use and the
U.S. automobile industry produced over 90% of them. At that time,
U.S. had one car per 4.87 persons and afterWorld War II, U.S. had
produced about 75 percent of world's total automobile production.
In 1980, U.S. was overtaken by Japan but regained its top position
in 1994. In 2006, Japan narrowly passed the U.S. in production and
held this rank until 2009 when China took the top spot with 13.8
million units. With 19.3 million units manufactured in 2012, China
almost doubled the U.S. production with 10.3 million units while
Japan was in third place with 9.9 million units. Along with China,
the United States is considered among the largest automobile
markets worldwide both in terms of production and sales. About7.24
million passenger carswere sold to U.S. customers in 2012 and
around4.11 million cars were producedthere in the same year. The
United States became a key automotive market when Ford introduced
assembly line car production in the early 1900s to mass-manufacture
its Model T. In terms of revenue,Toyota, Volkswagen and General
Motors top the listof major automobile makers while theautomotive
supplier industryis dominated by Bosch, Continental, Denso and
Bridgestone. Overall, the global automotive industry is in better
shape than it was five years ago, especially in the US where
profits and sales have recovered from the recent economic crisis of
2008 and in China, where growth remains strong. By 2020, global
profits for automotive OEMs (Overall Equipment Manufacturer) are
expected to rise by almost 50 percent. The new profits will come
mainly from growth in emerging markets and to a lesser extent, the
US, Europe, Japan, and South Korea.ABOUT THE COMPANYToyota Motor
Corporation (TMC)is a Japaneseautomotivemanufacturer headquartered
inToyota, Aichi, Japan. In 2013, themultinational
corporationconsisted of 333,498 employees worldwideand as of
January 2014, is the14th largest company in the world by revenue.
Toyota is the largestautomobile manufacturer by production. Toyota
is the world's first automobile manufacturer to produce more than
10 million vehicles per year.As of July 2014, Toyota is the largest
listed company in Japan bymarket capitalization(worth more than
twice as much as Soft Bank which stands second)and by revenue. The
company was founded byKiichiro Toyoda in 1937 as a spinoff fromhis
father'scompanyToyota Industries to create automobiles. When it was
still a department of Toyota Industries, it created its first
product, theType A engine in 1934 and in 1936, its first passenger
car, theToyota AA. Toyota Motor Corporation produces vehicles under
5 brands including the Toyota brand,Hino,Lexus,Ranz, andScion. It
also holds a 51.2% stake inDaihatsu, a 16.66% stake inFuji Heavy
Industries, a 5.9% stake inIsuzu and a 0.27% stake inTesla as well
as joint-ventures with two in China (GAC Toyota andSichuan FAW
Toyota Motor), one in India (Toyota Kirloskar), one in the Czech
Republic (TPCA) along with several nonautomotive companies. TMC is
the part ofToyota Group, one of the largest conglomerates in the
world. Toyota conducts its business worldwide with 50 overseas
manufacturing companies in 26 countries and regions. Toyota's
vehicles are sold in more than 170 countries and regions. The top
ten original equipment manufacturers (OEMs) dominates the global
market share which is accounted to 81% of the global automotive
industrys annual sales. Toyota Motor Corporation (TMC) is the
largest with a global 11.8% market share in 2013.TOYOTAS GLOBAL
VISIONToyota will lead the way to future of mobility, enriching
lives around the world with the safest and most responsible ways of
moving people. Through our commitment to quality, constant
innovation and respect for the planet, we aim to exceed
expectations and be rewarded with a smile. We will meet our
challenging goals by engaging the talent and passion of people, who
believe there is always a better way.TOYOTAS MISSION
To provide safe & sound journey. Toyota is developing
various new technologies from the perspective of energy saving and
diversifying energy sources. Environment has been first and most
important issue in priorities of Toyota and working toward creating
a prosperous society and clean world.
GLOBAL MARKET SHARE OF AUTOMOBILE MANUFACTURERS IN 2013 Source:
BloombergREASON FOR SELECTING TOYOTA FOR THE CASEI have selected
Toyota because a global company was required to write the case and
Toyota is a multi-national company. Another reason is that Toyota
is the worlds largest automaker in terms of production of
automobiles.
RECENT PROBLEMS FACED BY TOYOTA The main and the biggest problem
that Toyota is facing is of recalls. Recently, the company has
called back 1.75 million vehicles including 759,000 Toyota and
Lexus sedans made between 2005 and 2010 to repair fuel pipes that
could leak and raise fire risks. The fuel pipe fix involves Toyota
Crown, Crown Majesta and Mark X cars and LexusIS, GS and LS sedans
built from January 2005 to September 2010. Toyota may accrue
hundreds of millions of dollars to pay for the recall expenses but
the risk associated with cash is less and more for the brand image
as customers see Toyota vehicle as quality vehicle. It is Toyotas
fourth global recall as the worlds largest automaker started
operating under stricter supervision from U.S. regulators. The
pressure on automakers is increasing to speed up their recall
process and justify the delay between learning about potential
flaws and calling the cars back for repairs because sometime the
time lag is as long as of a decade which is evidenced from the case
of General Motors Co. (GM) thattook more than a decade to start
replacing deadly ignition switches in some of the record 30 million
cars and trucks the company has recalled in North America this
year. Toyota Auris compact hatchback is among the 1.05 million
vehicles called back in Japan.
Earlier this year, Toyota announced recall for about 6.4 million
vehicles globally for variety of problems. Toyota announced that it
was recalling nearly 1.8 million vehicles in the U.S. to fix the
problems including air bags that might not inflate. It was the part
of worldwide recall of 6.4 million cars and trucks. Toyota's U.S.
recall announced includes 1.3 million vehicles with faulty
electrical connections that could cause air bags to deactivate. If
the air bags are deactivated, they could fail to deploy after a
crash. The recall was one of Toyota's largest since 2009 and 2010
when the company issued a series of recalls totaling more than 10
million vehicles for various problems including faulty brakes,
sticky gas pedals and ill-fitting floor mats. So far this year,
automakers have recalled about 9 million vehicles in the U.S. If
that pace continues, the nation would break the record of 30.8
million recalled vehicles set in 2004. Most of the recalls are from
Toyota and General Motors, the two automakers who are under
government scrutiny and facing bad publicity and allegations that
they concealed safety issues. In Japan,Chinaand other markets in
Asia, Toyota has announced to recall about 802,000 Crown, Crown
Majesta, Noah and Voxy models made between June 2007 and June 2012.
The company will replace a rubber seal in the brake system that
could crack and cause fluid to leak leading to reduced performance.
Toyota has also recalled about 190,000 Rumion and Auris cars in
Japan to replace emission-control units that could cause fuel leaks
and lead to greater fire risk.In 2009-2010, it was forced to issue
a pair following revelations that certain models were at risk of
unintended acceleration. In the years after its
unintended-acceleration recalls, Toyota focused to repair its
reputation about quality that helped it become the worlds
top-selling automaker. Toyota has lost its no. 1 title toGMin 2011
but it regained its position back in first half of 2014 through its
lead over Volkswagen AG. Toyota expanded a 14-month-old recall of
more than 2 million vehicles for faulty air bags in June 2014 after
the supplierTakata Corp. (7312)told customers that further fixes
may be needed. Earlier this year, Toyota agreed to pay a $1.2
billion fine, the largest of its kind to settle a criminal probe
into its conduct during its unintended acceleration recall of more
than 10 million cars four years ago. Auto recalls have captured the
public's attention this year especially in the U.S. where General
Motors has come under fire for its handling of an ignition switch
flaw tied to at least 23 deaths. GM has recalled more than 30
million vehicles so far in 2014.
Some analysts say that the companies start recalling the
vehicles after bad publicity but the numbers drops as the bad
publicity fades away. But this time, this may be different because
of the Justice Department's investigation of Toyota. The high
number of recalls could also be attributed to the use of common
parts across an automaker's entire vehicle lineup and because of
that when something goes wrong, more parts have to be replaced.
The recall problem is not the only problem that Toyota is
facing. The political circumstances in China are beyond its control
as the company is suffering from steep declines in one of its most
important markets i.e. China. Presently in China, anything related
to Japan and the products it produces and exports is out of favor.
The reason behind this situation is the dispute between the two
countries over the possession of a set of small, uninhabited,
privately owned islands in the East China Sea (called Senkaku by
the Japanese and Diaoyu by their rivals). Japan has decided to buy
these strategically placed but uninteresting chunks of land thereby
hurting nationalist sentiments of the country where it has been
doing very well from centuries. This anger and ill will has taken
the form of vandalism and sporadic acts of violence against
high-profile, ubiquitous products for the country like its cars
(and in one unfortunate case, a driver of same). No one wants to
get attacked for driving the wrong vehicle and at the same time,
there are many who do not consider buying a product from the
country which is stealing pieces of their nation. Toyota's China
sales have dropped drastically by 49% for the month of September
this year. Toyota is not the only Japanese manufacturer that is
suffering for its origin, Honda's (HMC) sales are also declined by
41% in the same month. This thing has affected Toyota's results. In
2011, the company delivered around 883,000 cars in China which
constituted about 44% of its total Asian unit sales (excluding its
home market of Japan) and more distantly, this number was around
12% of total worldwide unit sales. China, in short, is a country
that matters a lot to Toyota. Toyota's decline of sales in China
comes after the recovery from the brutal earthquake and tsunami
that hit Japan in March 2011 badly affecting deliveries from local
suppliers and thus affecting output from the company's 17 factories
in the country. As if that weren't bad enough, the flooding in
Thailand later in the year also create the hurdle in
operations.
TOYOTAS RECENT STRATEGIES IN EMERGING MARKETSLOCALIZATION
INITIATIVESToyotas main focus is on emerging markets and it is
doing many efforts in these markets aiming at producing even better
cars through new strategies. With the lessons learned from past
recalls in North America, Toyota is continuously showing the
attitude of proactively recalling the vehicles and have everything
under control before any serious accident happens. It doesnt
believe that these recalls would damage the brand image or cause
the shares to decrease as there were no injuries, fatalities or
crashes. Toyota appears to be finding defects and acting faster to
fix parts thereby limiting the impact of the problem. Toyota is
following a strategy of conducting business that is strongly rooted
in the countries in which it operates by adapting to local needs
and pushing for 100% localization. Toyotas emerging market sales
ratio reached 45% in 2011, an increase of 10% in the three years
since it achieved 35% in 2008. The Toyota Global Vision calls for
an emerging-market sales ratio of 50% by 2015 and it is striving to
achieve the target before the schedule by strengthening its global
supply system in emerging markets and increasing localization with
Asia as an important base. In addition to this, it will actively
release compact vehicles specifically designed for emerging
markets. The main strategy is thorough localized procurement and
ensured and enhanced cost competitiveness because Toyota believes
that ensuring cost competitiveness by achieving thorough
localization is necessary in making further progress in intra- and
extra regional exports. It therefore is maximizing local R&D
functions and seek to achieve local/ regional procurement rates of
100% at the earliest possible stage. In the past, Toyota introduced
the IMV Project which constituted an important sales strategy in
emerging markets. It was launched in 2004 consisting of five
vehicles - three pickup trucks, a minivan and an SUV specially
developed for introduction in over 140 countries. Currently, the
IMV series is manufactured in 11 locations with sales of locally
manufactured vehicles underway in approximately 170 countries.
Toyota applied the genchi genbutsu (onsite, hands-on experience)
approach to observing and analyzing the kinds of vehicles used in
various parts of the world, and developed and introduced IMVs to
meet the needs of each region.EXPANDING THE PRODUCTIONToyotas
global expansion policy on operations in emerging markets is to be
contributive to the development and welfare of the country. It is
doing so by contributing to the development of the economy,
employment, transportation, infrastructure, etc. of the countries
in which it operates through cultivating and developing the
supporting industries and engaging in operations that are based
locally. Toyota believes that setting up operations in a country is
becoming a corporate citizen there and through the auto industry it
contributes to society via foundational activities like
environmental conservation and human resource training. It
emphasizes communication with local communities for sustainable
growth in every country in which it does business. For instance,
Toyota has planned to contribute to the growth of the Russian auto
industry by increasing production of the Camry by Toyota Motors
Manufacturing Russia (TMMR) and also by starting local assembly of
the Land Cruiser Prado in Russia. Also in the Republic of South
Africa, Toyota is looking forward to build a vehicle supply system
that can meet the special characteristics of each African nation.
Toyota aims to open and penetrate new markets through sales
measures closely aligned to each region. Toyota's overseas business
has evolved through three stages, from making in Japan and
exporting, to producing in regions where demand exists and then to
the current stage whereby Toyota has an efficient global production
system and global supply chain. Global production and supply are
supported in the emerging markets where it has been increasing
investment so as to boost production capacity. It began production
of the Fortuner in India in 2009 followed by the diesel Corolla and
the Etios in 2010 and expanded investment in factories accordingly.
In Brazil, production of the Corolla FFV began in 2007 and sales
have steadily increased since then. NEW COMPACT VEHICLE STRATEGYThe
automobile market in emerging markets is growing each year in
tandem with the economic growth of each country. Within those
markets, the growth has been remarkable in terms of sales of
compact vehicles and so Toyota is promoting a new compact vehicle
strategy that emphasizes the compact vehicle lineup and seeks to
meet the needs of consumers in emerging markets. The efforts of
Toyota includes the launch of eight compact vehicle models
specifically designed for emerging markets starting with the Etios
in India in December 2012. Toyota is planning to produce compact
vehicles in emerging markets and deliver a total of more than 1
million vehicles in one year to customers in over 100 countries. In
lieu of this, delivery of the compact Etios sedan and Etios Liva
hatchback models to South Africa via Toyota Kirloskar Motors (TKM)
of India began in April 2012.EVALUATIONIf we talk about the
strategies of Toyota, we can say that it has been proactive always
to the changing environment. It continuously adapted to the dynamic
environment by devising new strategies for increasing the sales.
There is a belief in the minds of the people that Toyota vehicle is
a quality vehicle but when it comes to recalls, they are unable to
understand the reason behind these huge recalls. The biggest
challenge for Toyota is to make people keep believing in its
quality vehicles. It is also doing so by proactively recalling and
fixing it for free. It should put more focus on this area as this
can create problems for Toyota. It should communicate to the people
about the reasons behind these recalls. Toyota is very good in
emerging markets and following a wonderful strategy of localization
and development of the nation economy. It became the largest
automaker in the world who is producing the maximum no. of
vehicles. The biggest question arises now is how to achieve zero
defect target so that the recall ratio is zero.ReferencesCompany,
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