The analysis will look into the factors that will hamper and support the growth of Toyotas drive for innovation in the hybrid car market, looking at Japans governmental policies, Japanese corporate and social culture, Toyotas own internal culture, business acumen and strength and weakness. Toyota being one of the biggest firms in Japan has become the largest car manufacturer in the world in a short span of time. Due to its size, the firm is able to leverage across many industries to maintain their competitive advantage.
Toyota grew to its size today because of government policies during the post war era, but as Japan stagnates Toyota maintains it growth via globalization. The Japanese governments acknowledgment of the problems it faces and its emphasis of FDI in the automobile industry and the need for a robust immigration policy to ensure growth innovation will serve Toyota well. Coupled with the advantages the size of Toyota brings, its business acumen, its corporate culture and the Japanese governments efforts, Toyota is well-positioned to maintain its competitive innovation edge in the hybrid car industry.
2. 0 Introduction Japan enters the 21st century in holding one of the largest foreign reserves in the world and its citizens are of exceptional social and physical health. The Japanese society is civilized its civil mindedness has played out to a rare degree even in times of difficulties as seen in the recent strings of earthquakes that have hit Japan since 11 March 2011. Post-World War II Japan has become wealthy and successful, and plays the role in the world by supplying aid and humanitarian support rather than arms and threats of wars.
Despite all these, Japan is at the same time a nation prone to self-deprecation. It has a whole generation of youths that appear to be nonchalant about success and life, and have little national pride. In the world stage, Japan also seems unsure of its place, always addressing herself humbly in the world but remains generally negatively viewed by her neighbours. 4 2. 1 Japans Macro-Environment 2. 1. 1 Economy The economy of Japan is the third largest in the world after the United States and the Peoples Republic of China.
From 1960 to 1990, Japan underwent a post-war economic miracle with average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s. Japan had established itself as the worlds second largest economy from 1968 to 2010. In the late 1980s, rising stock and real estate prices caused the Japanese asset price bubble in which Japan never fully recovered. Growth in Japan throughout the 1990s at 1. 5% was slower than growth in other major developed economies, giving use to the term Lost Decade.
Until 2006, Japan had attempted to pass major privatization and foreign-investment laws intended to help stimulate Japans economy by opening its economy to free market forces. With Japans shrinking population, Japans aging population is expected to place further strain on growth in the near future. Despite the gloomy economic outlook, Japan has maintained its industrial base and continues to possess vast capital reserves, relative to most developed countries. 2. 1. 2 Politics Japan is a constitutional monarchy where the rule of the government rests chiefly on the Prime minister of Japan and the elected members of the Diet.
The current prime minister of Japan (Naoto Kan)s public ratings were severely hit by his mishandling of a conflict with the government of China over the collision of a Chinese fishing vessel and a ship from Japans Self-Defence Forces in September 2010. Naoto Kan was ultimately forced to back down from this confrontation and this incident both made him look incompetent and alienated him from many Japanese voters. The public perception of the effectiveness of Naoto Kan and his government in managing the recent Japanese earthquake-cum-nuclear crisis continued to remain poor. 2. 1.
3 Foreign Direct Investment (FDI) and Globalization In 2003, FDI was identified by the Japanese government as a key component in boosting the growth of the nations economy. Japan needed FDI to help bring up the competitive level of Japan. Government 5 deregulation opened up the Japanese economy for foreign investment . The government had also set up the requisite legal framework to encourage mergers and acquisitions. The increased of corporate bankruptcies in Japan resulted in foreign acquisitions of Japanese firms. A global thrust on industry reorganization encouraged foreign firms to enter Japan.
Japan witnessed augmented FDI flows since the 1990s. The FDI figures for the time period 1990 to 1996 stood at around $1 billion yearly, on an average. This figure climbed to $3 billion in 1997 and further stood at $12. 7 billion for the year 1999. This FDI inflow suffered a moderate decline subsequently and hovered within the $6 billion to $9 billion range per year. Inward FDI flow for Japan recorded an increase of 86% in 2005 (within the first quarter) . The figures below provide a sense of the areas or sectors in which FDI is encouraged in Japan and the amount of FDI flows into Japan.
Figure 1: Government FDI segmentation 2003/2004  6 Figure 2: FDI inflows 2003  2. 1. 4 Innovation Japan is one of the worlds leaders in innovation. The 2nd highest number of US Patents within the top 10 economies in 2009 (38,066 patents), almost half (6 out of 15) of the top 15 companies worldwide are Japanese. The Japanese government has long recognized the need for innovation to ensure GDP growth considering its declining population and capital. Government emphasis on education is evidenced with an extremely high literacy rate of 99% and many Japanese universities recognized globally.
The high standing of Japanese universities has been observed in various survey rankings of top universities around the world. As of September 2010, Academic Ranking of World Universities 2010 Top 100 included University of Tokyo at 20th position, Kyoto University at 24th, Osaka University at 75th and Nagoya University at 79th  . The QS Asia University Rankings Top 20 included University of Tokyo at 5th position, Osaka University at 7th, Kyoto University at 8th, Tohoku University at 9th, Nagoya University at 10th, Tokyo Institute of Technology at 11th, Kyushu University at 17th and University of Tsukuba at 20th .
Recognizing the need the innovation, according to a government whitepaper government worked to identity the 2 factors which impede Japans ability to innovate: ? Rigid social structure which deters change, a side effect of Japans successful post-war economic revival  , the Japanese 7 ? Japans homogeneous society, which resents those who stand out and is at the root of an often closed and jealous mind-set A three-pronged solution was formulated to address the problem: ?
? Build an open society to new ideas Build a diverse society, in which to assimilate various groups of people, such as women and foreigners, who at present do not have much opportunity to contribute or play an active role within Japan ? Build an attractive society to have a clear and engaging goal to drive everyone towards the objective of inculcating innovation 2. 1. 5 Business Groups Japans involvement in World War II resulted in an interesting development in the nature of the business groups in Japan. Before the start of the Second World War, the Zaibatsu were the dominant monopolies.
The Zaibatsu were large family-controlled vertical monopolies consisting of a holding company on top with wholly-owned banking subsidiaries providing finance to the whole group. The business models employed were vertical in nature. At the end of World War II, the Americans broke up the Zaibatsu but the companies formed from the dismantling of the Zaibatsu were reintegrated as Keiretsu. The dispersed corporations were reinterlinked through share purchases to form horizontally-integrated alliances across many industries .
Where possible, Keiretsu companies would also supply one another, making the alliances vertically integrated as well. In this period, the official government policy promoted the creation of robust trade corporations which could withstand heavy pressures from intensified world trade competition . Toyota is one of Japans biggest Keiretsu. 2. 1. 6 Culture Japans unique corporate and social cultures have evolved from the post war miracle era to the present stagflation era. These changes have affected how the younger generation views the corporate culture of Japan which in turn will present profound implications for Japans future.
The following is a list of cultural norms and views in Japan : 8 1. Nemawashi: An informal process that seeks common consensus for change. This allows the participants to feel involved in the decision making. 2. Kaizen: A philosophy that focuses on continuous improvement throughout all aspects of life. Kaizen aims to improve processes, productivity and eliminate waste. 3. Nenko System: A system that promotes an employee in order of his or her seniority and it does not guarantee or even attempt to identify the right person for the right job.
This practice has alienated the younger generation of Japanese workers. 4. Amakudari : An institutionalized practice where Japanese senior bureaucrats retire to highprofile positions in the private and public sectors. 5. Salaryman: A derogatory (as currently perceived) term where one is seen as a wage/corporate slave. During the post war era, the salaryman was seen as a positive means of achieving a respectable life and was highly respected for the responsibility for growth of Japan post war. 6. Office lady: A term that refers to female office workers who have little opportunity for promotion.
There is a tacit expectation that they will leave their jobs once they get married. This group represents a largely untapped source of human capital for Japan. 7. Karoshi: A term that refers to death from overwork and stress. 8. Freeter: An expression for people between the age of 15 and 34 who lack full time employment or are unemployed, excluding homemakers and students. This group lives as parasite singles with their parents and gets by with low skilled and low paid jobs. 3. 0 Japans Car Industry 3. 1 Japan the worlds largest car exporter.
Applying Porters framework, the best indicators for Japans car industry is its export and investment because the presence of substantial and sustained export to a wide array of other nations and/or significant outbound foreign investment based on skills and assets created in the home country. Thus, we reviewed some cornerstones of Japan becoming the largest car producing country in the world to identify and confirm Japans national competitive advantage in car industry. The success of Japans car industry has been considered by many to be largely attributable to the substantial Japanese car exports to other parts of the world.
In 1960, the Japanese share in the world 9 car market was less than 3%. Nonetheless, just two decades after that, the world had recognized Japan as one of the most powerful players in the car manufacturing industry. Subsequent milestones achieved by Japan included the surpassing of the U. S. s market share in the world car market (26. 2%) by Japan (28. 9%) in 1989 and the attainment of Japans status as the worlds largest car production country (13 million) in 1993. By 1990, the car industry in Japan was the single most important industry in the Japanese economy.
In particular, this industrys earnings contributed 13% of the total Japanese industrial production in 1991 and became the biggest export sector, accounting for about 22% of the total value of Japanese exports in 1990 and 1992. Today, Japan is the number 2 manufacturing base in the world for the production of cars. 3. 2 Analysis of Japans competitive advantage in car industry (using Porters Diamond Model) To obtain a deeper insight into the success of Japans car industry, the Porters (National) Diamond model is applied.
According to this framework, the Diamond model evaluates 4 main attributes of Japans car industry, namely (i) factor conditions, (ii) demand conditions, (iii) related and supporting industries and (iv) firm strategy, structure, and rivalry. 3. 2. 1 Sustainable Factor Conditions: Japan has limited natural resources and does not have large amounts of suitable land for agricultural production. To overcome such limitations, the Japanese train themselves to be hardworking and disciplined so as to excel in other aspects.
In this regard, it has helped Japan create a large pool of skilled workers and professionals such as engineers. Additionally, Japan has all along placed emphasis on investment in technology level and R&D to build up its industrial and technical sectors. This is evidenced by the fact that Japan had been one of the early movers in micro-electronic automation since 1970s. Japanese companies in general are also well regarded for their established and structured production and operational systems which have contributed to high efficiency and quality standards.
3. 2. 2 Dynamic Demand Conditions: 10 Japanese cars are generally well-received and in high demand by both domestic and overseas consumers, primarily due to the fact that they are reliable, relatively less expensive (as compared to the European cars, although South Korean cars are increasingly becoming more competitive due to their quality improvements and the recent appreciation of the yen that have made Japanese cars more expensive) and more fuel efficient.
The demand for cars in Japan increased steadily from the time of post-World War II period and with Japan achieving high economic growth rates in the 1980s, it triggered even higher demand for cars within the domestic market. This period was considered the golden days for domestic car manufacturers given the lack or limited number of foreign players and car makers in Japan. Currently, in both the domestic and overseas markets, car buyers have become more sophisticated and demanding while competition in the world car market continues to rise.
These trends have pushed Japanese car manufacturers to continue to enhance and improve their quality and design as well as focus on R&D and innovation so as to create new and better models. 3. 2. 3 Related and Supporting Industries: In this dimension of the Diamond model, we will review the role of related industries and the Japanese government in supporting Japans car industry. Related and Supporting Industries One of the critical success factors of the car industry rests in the form of strong support from a myriad of parts and components suppliers as well as general material suppliers.
Further, the industry requires the existence of extensive distribution networks and support services for sales and maintenance. For Japan, the superiority in the performance of industries supplying car component parts and other raw material such as steel, rubber and plastic contributes to the overall high quality standard of Japanese cars. Moreover, the establishment of close cooperative relationship between car manufacturers and parts manufacturers has resulted in high quality and reliable outsourced component parts.
This is the Keiretsu model where interlocking business alliances and relationships exist and enable major car manufacturers in Japan to gain strong support of their production, business and operational needs. 11 Generally, the high quality of the car supporting industries in Japan raises the quality of Japanese cars and thus results in the increased likelihood of such cars to be more acceptable to the Japanese and other consumers around the world in terms of aspects such as safety, emission and energy savings (compared to Japans competitors in the world car market).
Another important supporting industry is the strong support of a number of Japanese banks of Japans car industry. The support from the Japanese banks, in general, has enabled Japanese car manufacturers to gain better access to financial sources which they require in their business expansion. Government role in developing Japan car industry The Japanese government has been supportive of the domestic car industry in Japan, providing it with tax breaks and other forms of incentives to support the growth of the industry, including boosting the exports of Japanese cars to overseas markets.
The roots of governmental support can be traced from the early days of car manufacturing in Japan in 1930s, when the Japanese relied heavily on foreign vehicles for transportation needs. However, the government realized that they could actually manufacture cars within the country to create jobs, cut cost and become more self-sustainable. This facilitated the roots of the car industry in Japan. Firm Strategy, Structure, and Rivalry: The domestic car market within Japan is relatively closed with low numbers of imported cars and Japanese tending to favour and buy their own makes.
Nonetheless, the Japanese car market by itself is no less dynamic. Competition among Japanese car manufacturers is stiff. This forces Japanese car manufacturers to react fast and be flexible and effective in adopting new technology. The competitive landscape also helps them to adapt quickly to market changes and trends. There are relatively stable labour relationships between Japanese car manufacturing companies and their employees. Further, Japanese car manufacturers place emphasis on efficiency and tend to encourage productivity innovation and improvement by staff.
Good participation in corporate management and the development of new production systems among employees are similarly wellnoted organizational features of Japanese car manufacturers. 12 While the competition among Japanese car manufacturers is stiff, there appears to be harmonious coexistences for these manufacturers in Japan. Many partnerships have been formed among the domestic players and between domestic and foreign carmakers. One example is the buyouts and merger and acquisition in the car industry in Japan which saw larger car manufacturing companies acquiring other similar companies as the case of Daihatsu (truck producer) and Toyota.
Competitions are also layered with size. At the first layer is the race among three largest competitors: Nissan, Honda and Toyota. At the second and third level of competition are the smaller players: Mazda, Mitsubishi, Suzuki and Subaru. In terms of their business strategy to enter or expand into overseas markets, Japanese car manufacturers were initially reluctant to transfer their production from Japan to overseas, largely due to reasons like the unique characteristics of Japanese process/production methods and the Japaneses unique cultural and social factors that the foreign location might not be well suited for.
Thus, at the initial stage of making Japanese cars available to overseas markets, Japan had preferred exporting over producing the cars overseas. From the 1960s, Japanese car manufacturers that exported their cars began to build their own distribution network and support services structure in the country that they had a presence. For example, Nissan built their own distribution network and after-sale service in the EEC countries (EU) from the 1960s and 1970s. After these Japanese car manufacturers reached a sizeable market share of 10% in the foreign countries, they started to build marketing centres and R&D centres in those countries.
However, these R&D centres were tasked mainly with the function of gathering local market information while the decisive research work continued to be substantially carried out in Japan. Subsequently, the Japanese carmakers decided to strengthen their expansion in the overseas markets by establishing their production facilities in those markets. This strategy has enabled them to be engaged more closely with the foreign markets and to keep up with changes in local market conditions and trends. This is important for the Japanese car manufacturers to gain some heads-up in product planning, car-body design, evaluation and research engineering.
13 Based on the analysis of all four diamond attributes, we consider that Japans car industry is doing well and expect it to continue to be able to allow Japanese car manufacturers to create and sustain their competitive advantages in both the home and overseas markets. 3. 3 Comparison of Japans National Diamond with Other Countries Diamond Having reviewed the diamond attributes of Japans car industry, we will compare, on a broad level, Japans diamond with that of other comparable countries that are developed economies with car manufacturing being a major industry sector in those countries.
DIAMOND MODEL IN CAR INDUSTRY Factor (Input) Conditions Availability of highly-skilled labor (large pools of engineers) Culture of continuous innovation and development of superior technologies Presence of established and well-regarded production/operati onal systems Demand Conditions Strong demand for cars from both domestic and Increasingly recognized for producing relatively 14 Mainly domestic demand in the U. S.
(international Sophisticated domestic consumers Significant improvements in technological advancements, processes and quality Less reliant on direct labor (more adversarial labor relations compared to Japan) Availability of skilled and high cost labor -Culture of innovation and R&D Traditionally known for automotive excellence and superior carmakers Presence of extensive R&D infrastructure Availability of skilled and high cost labor Japan South Korea US Germany international markets.
However, the strong yen in recent times has made Japanese cars more expensive than others, say, South Korean cars. inexpensive but good quality cars Growing market: strong demand from both domestic and international markets. International demand is expected to further increase with the implementation of the EU and South Koreas free trade agreement (2010) where tariffs on South Korean cars exported to the EU will be substantially reduced.
demand is not as strong as that of Japan or South Korea) demand high level of engineering performance Good demand especially from international markets, with 70% of production exported overseas Related and Supporting Industries (including role of Strong government support of the industry has fueled growth of the car Strong government Relatively strong Strong government support of the industry (the largest industry sector and one of the largest employers in Germany) support of the industry government being regarded as an important growth and export industry.
-Presence of Chaebol relationships (similar to Japaneses Keiretsu model) which help support the business and operational needs of car manufacturers in Korea support of the industry ( one of the larger employers and a significant contributor to the US economy ) Less tightly knitted interbusiness relationships with related industries 15 government) industry (especially for exports).
Presence of Keiretsu model: interlocking business alliances and relationships which enable major automakers to gain strong support of its production, business and operational needs Existence of other players such as local Japanese banks that support and facilitate financing access for car manufacturers Domestic Rivalry Relatively closed domestic market in terms of low numbers of imported cars and most Japanese consumers prefer to buy domestic cars.
Stiff competition among a number of local car manufacturers including established names like Toyota, Honda, Nissan, Mazda, Subaru, Suzuki and Mitsubishi Competition among 5 local automakers : Hyundai, Kia, GM Daewoo, Samsung Renault and Ssangyong -Local car manufacturers are somewhat protected by the governments tariff policies on imported cars. as compared to Keiretsu and Chaebol models in Japan and Korea.
Open and more competitive market with Big 3 American automakers: Ford, Chrysler and General Motors Foreign automakers such as Toyota and Honda have set up manufacturing plants in the U. S. Competition among 6 local automakers: Volkswagen, Audi, BMW, Daimler-Benz, Opel and Porsche Table 1: Country National Diamond comparison 16.
The comparison of Japans car industry with other car industries reveals that Japan is still relatively competitive and continues to have the potential to do well in the world car market, although South Korea is increasingly becoming a strong competitor to Japan. With significant quality and technological improvements being observed in South Korean cars in recent times, the reputation and acceptance of South Korean cars around the world have been on the rise. This, coupled with the rising yen which has made Japanese cars more expensive (relative to South Korean cars), can potentially pose a real threat to Japans car industry.
In this regard, Japans car industry will have to find practical solutions to overcome such issues in order to continue to stay competitive in the world arena. 4. 0 Toyota Motor Corporation (Toyota) Toyota, the biggest vertically integrated keiretsu group in the world, is also the worlds largest car maker having sold 3,564,105 units in the first half of 2009 compared to 4,815,442 units in the first half of 2008,. It is considered by many to be an unparalleled company in terms of innovation basing its success on the way of thinking that it inculcates.
Toyota is also heralded to be a philosophy, a way of looking at life, and not just a series of processes. 4. 1 Toyotas Origins Toyota today is a large automobile manufacturer with headquarters in Aichi, Japan. The company was started in 1937 by Kiichiro Toyoda as a spinoff entity from his fathers company to manufacture automobiles. To date, Toyota has manufactured about 70 different vehicle models that were sold under the Toyota brand. These vehicles include sedans, coupes, vans, trucks, and hybrids.
Many of these models are produced as passenger cars, ranging from the small/medium models such as Yaris and Corolla to larger models such as Camry and multi-purpose vehicles like Previa or Estima, amidst many others. Several small cars are also sold under a separate brand name known as Scion. 4. 2 Toyotas Management Philosophy: The Toyota Way 17 Toyotas management philosophy is largely reflected under two aspects: Lean Manufacturing and Just in Time Production. In April 2001, Toyota implemented the Toyota Way 2001, which comprises of the values and conduct guidelines that all Toyota employees are required to adopt.
Of these guidelines, two of them namely Respect for People and Continuous Improvement reflect the gist of Toyotas values under the following five principles: ? ? ? ? ? Challenge Kaizen (improvement) Genchi Genbutsu (go and see) Respect Teamwork Under the Toyota Way, the company embraced long-term thinking as a basis for management decisions. A systematic process for problem resolution was put in place. Training and staff development were given emphasis. Toyota also believed that the resolution of root problems facilitated organisational learning as a whole.
It is worthwhile mentioning that the Toyota Way incorporates the famous Toyota Production System under which every employee is expected to work intelligently to minimise inventory levels and eliminate waste in the entire manufacturing and production process. 4. 3 Toyotas Venture into Hybrid Cars Toyota is one of the few car manufacturers around the world that has extensive capabilities and experience in hybrid technology. In this regard, Toyota produces a wide range of hybrid vehicle versions such as Prius, Lexus, and other types of vehicles in the market.
For its passenger hybrid cars, Toyota has labelled the hybrid technology in Toyota cars as Hybrid Synergy Drive and in Lexus versions as Lexus Hybrid Drive. Details of Toyotas hybrid car system are given in Annex 1. Toyota introduced its first mass-produced hybrid car, Toyota Prius, in 1997 in Japan. Following the launch of the Prius in Japan, Toyota subsequently began selling in Europe, North America and other markets in 2001. The second generation of Prius was released in 2003 and the third generation in 2009.
As of 2010, the Prius was the top selling hybrid car both in America and in Japan and it accounted for 18 about 60% of all hybrid car sales worldwide. The Prius is currently sold in more than 40 countries and is generally considered to be the most fuel efficient vehicle sold by the United States EPA. Other Toyota car models in its hybrid vehicle line-up include the Highlander and Camry. There are also ambitious plans by Toyota to offer its entire line-up of cars, trucks, and SUVs with a Hybrid Synergy Drive option by 2030.
Such plans are reinforced by announcements of Toyotas ultimate goal to make a hybrid-electric system available on every vehicle it sells worldwide, including Toyotas current CEO (Akio Toyoda)s personal commitment to eventually making every car of the company a hybrid vehicle. It is therefore clear that Toyota views hybrid cars as forming a core segment of the future vehicle market. In terms of sale figures, the worldwide cumulative sales of hybrid vehicles produced by Toyota had crossed the 3 million mark by the third quarter of 2010, with such vehicles sold in more than 70 countries.
Toyotas hybrid sales are largely attributed to sales of the Prius, which alone accounted for worldwide cumulative sales of 2 million by September 2010. 4. 4 Analysis of Toyotas Overall Business Strategy The general business strategy of Toyota is to stabilize and grow steadily the companys share of the domestic market and to continue to explore and expand its overseas markets. Technological Strategy: Toyota makes substantial investments in plant and equipment to improve and enhance its manufacturing facilities.
For instance, it introduces industrial robots and computer-related components and invests significantly in R&D activities (even in economic downturns). Restoring Profit Base by Production Restructuring: Toyota aims to increase local production in emerging markets such as China and India and in developed countries with mature markets such as Japan, North America and Europe. Nonetheless, Toyota plans to review production models in response to changes in the market structure and create a flexible and efficient production system to achieve optimal global supply system and clearly positioned strategies in each market.
Future Growth Strategy: In its 2010 annual report, Toyota communicated that it would continue to make and offer high quality at affordable prices products to customers. Specifically, the future growth strategy of Toyota is set out as follows: 19 (a) Accelerating Growth in Developing Economies (such as China and India): In fast-growing China, a new plant was built by Toyota in Changchun to further expand production capacity in response to local demand, with the plants operations scheduled to commence in the first half of 2012.
(b) Focus on Next-Generation of Eco-Cars: Toyota aims to be a leader in the hybrid technology market by bringing the hybrid-electric vehicles from a niche market to the mass market by 2012. Additionally, the company plans to raise the level of hybrid technology and expanding models with two major product lines: (i) Plug-in hybrid vehicles (PHVs): pushing more aggressive efforts toward a 2012 sales launch.
(ii) Electric vehicles (EVs): setting up business partnership with Silicon Valley EV venture Tesla Motors with the aim of strengthening its next-generation eco-car development structure. 5. 0 5. 1 Hybrid Car Industry General history of hybrid car industry A hybrid car is a car that uses more than one fuel source. Generally, the term refers to cars that combine a gas-fuelled internal combustion engine with a battery-driven electric motor. Hybrid cars typically achieve grea.