Sample Assignment for the course of International

Business

Question 1: Assess the extent of industry globalization for the world automobile manufacturing
industry in terms of both product and market presence

Question 2: Identify the key players in this industry and compare and contrast the development
paths of Toyota and one other industry leader of your choice over the last ten years. Critically
analyse the internationalisation triggers and methods used by them in their development. What
were the benefits to each firm? Where do you expect these companies to invest next and why?

Question 3: To what extent has Toyotas national environment contributed towards its success as
a world-class company?

1. Answer to question 1
Globalization is defined by Ellis and Williams (1995), meaning that developments at the level of
the industry are tending to convergence on a worldwide basis (p. 105). This implies that an
international firm can offer a single product in the worldwide basis (market presence), using a
very uniform way of organizing, producing and marketing based on standardized technology and
common strategy. However, there are usually diverse demands being made by local or national
customers. Therefore, the extent to which an industry is going globalising or localizing, should
be different in terms of product and market presence, particularly in the world automobile
industry, which will be discussed as follows.

1.1 Product
Yip and Coundouriots (1991) suggest that the 4C Drivers model is useful for evaluating the
extent to which automobile industry is globalising in terms of product.
In terms of customer drivers, since customers preferences are quiet different, many
automakers offer different models to customers in order to meet each markets dominant
requirements. For example, the U.S. customers requirements are obviously different from those
of Chinese customers. According to U.S. Department of Energy, American customers most value
safety and dependability (30 percent), followed by quality (22 percent), fuel economy (11
percent) and low price vehicles (8 percent). The increasing popularity of light trucks (vans,
pickups, sport-utility vehicles, crossovers), which rose to 51% of U.S light vehicle market in
2001 up from 19% in 1987, indicates that customers increasingly require larger, more powerful
vehicles1[1]. Conversely, Demand in China is highly price sensitive and demand for a small car
is increasing in recent years (Refik, 2002). Moreover, automakers have always faced with local
constraints. For example, local traffic rule differences across the world may also enable car
products localizing. Most European customers require right wheel vehicles, whereas left wheel
vehicles are requested in the U.S and Chinese market.
In the aspect of cost drivers, the escalating cost of research and development places huge
resource demands on the automakers. The popular R&D strategy being employed in many
automakers is to share vehicle architectures, technologies and components among various
models, and re-use or re-programme them from one generation of a vehicle model to the next.
For example, Ford recently announced that 85% (by value) of Ford Five Hundred and Mercury
Montego car models are common, whereas 65% of the components used in those aforementioned
models are shared in the Ford Freestyle cross-over model 2[2]. Meanwhile, automotive industry
R&D alliances appear to be growing. The alliances are helping the automakers combine their
R&D resources and conduct their research. GM, for example, has had an important strategies
alliance with Opel on fuel cell development and with Suzuki on the integration of fuel cell
systems in compact and small cars 3[3]. In doing so, the huge investment on R&D facilities may
be recouped.

1[1] Office of technology policy technology administration, US Department of Commerce,

January 2003

2[2] Source: http://www.ford.com/en/company

3[3] Source: Office of technology policy technology administration, US Department of

Commerce, January 2003
In addition, technical standards are one of country drivers to facilitate product globalizing.
Increasingly international standards are converging following the Uruguay Round of the GATT
talks and the work of the international standard-setting bodies (Ellis and Williams, 1995:111). As
mentioned above, the increasing tendency of automobile R&D alliance may also help global
automakers set the uniform industry standard. Under these circumstances, the vehicles
globalization is encouraged.
Finally, in terms of competitive drivers, as the largest car market4[4]and the largest automaker
cluster in the world5[5], the U.S.A is the most attracted market in which the multinational
automakers has entered or are attempting to enter the U.S market. Those entrants, which enjoy
lower cost structures, may have a profound effect on the existing U.S. automakers. For example,
at the beginning of 1995, Kia motors of South Korea entered the North American car market. In
order to establish its presence in an already highly competitive market, it focused on low-price
level car model which are of similar quality to its competitors. Kia Motors was the most direct
competitor which would replace Japanese models in the low price segments of the US car
market. So far, the U.S. Big-3 has been becoming the Big-6, as Toyota, Nissan and Honda
continue to expand their assembly and power operations in North American 6[6]. Most recently,
Toyota even surpassed Ford, taking the second place in the world car market7[7].
In summary, the worlds automobile manufacturing industry is being highly globalizing in terms
of product (see Figure 1.1).

4[4] According to the alliance of automotive manufacturers of USA, the U.S. automotive
industry is once again the largest automotive industry in the world. To a certain extent,
the international position of the industry can be directly related to the size of the U.S.
market for light vehicles. In 1999, the U.S. market was almost three times larger than
the next largest market in Japan in terms of light vehicle sales and the U.S. industry
produced 30 percent more vehicles. Source:
http://www.autoalliance.org/economic/economic_impact_study.php

5[5] US automakers highly clustered in Nagoya, Detroit and Stuttgart (Clair, et la, 1996)

6[6] In 2002 total production by Japanese-affiliated automakers in the USA increased

6.6% to 2,600,503 units, reflecting an expansion in production facilities ( Source: http: //
www.jama.org )

7[7] BBC, (2005) Ford suffers from profit worries http://bbc.co.uk

Figure 1.1: the overall evaluation of the globalization extent of car products and markets

Globalization Industry drivers localization

high Medium low High Medium low

Customer drivers

Customer requirement

Distribution

Marketing

Cost drivers

New product development

Scale economics

Transport costs

Country drivers

Trade policies

Technical standards
 Cultural / regulatory barriers

Competitive drivers

Competitive interdependence

Entry of new competitors

Overall

1.2 Market presence

Firstly, geographically, the automobile industry worldwide is concentrated as the top-ten players
and their affiliates are clustered in the triad nations8[8] . Toyota, for example, the biggest
automaker in Japan and the second biggest player in the world, headquartered in Japan and has
operations (affiliates) in the U.S and Europe.
Secondly, an obvious tendency in the worldwide car market is the continuing consolidation of
vehicles producers and major automotive suppliers, through purchase, joint venture and alliance.
Some of the biggest consolidation so far include (1) Daimler-Benz, Chrysler, and Mitsubishi; (2)
Ford, Volvo, Mazda, and Rover; (3) Nissan and Renault; and (4) General Motors, Fiat, and Saab.
Figure 1.2 shows the Japanese vehicles companies current investment relationship the
strongest form of alliance. Those alliances or joint ventures may give significant contributions to
the automobile industry in the following ways:
Figure 1.2: Japanese vehicle company investment relationships

Japan
Europe
United States
GM
Isuzu
Suzuki
FHI
49%

8[8] The triad nations are the United States, the EU countries and Japan, which are the major
trading and investment blocs in the international arena (Rugman and Hodgetts, 2003).
20%
20%
Toyota
Honda
Hino
Dalihatsu
50.1%
51.2%
FORD
Mazda
33.4%
Mitsubishi
DCX
37.3%
Renault
Nissan
Nissan Diesel
36.8%
22.5%
Source: Japanese Ministry of Economy, Trade, and Industry
1. They increase the FDI and trade activities in the worldwide basis. For example, the
Japanese automakers investment U.S auto and auto parts manufacturing plants grew
from $11 billion in 1993 to nearly $26 billion in 2005, a 133% increase. The number of
plants grew from 11 in 1993 to 20 in 2005 and will grow to 23 by 2006 (JAMA, 2004).
2. They may help multinational automakers enter the potential target market and avoid trade
barriers. For example, the joint-venture of Volkswagen and Shanghai Automobile
Industry Corporation (SAIC) has contributed to the increase in automobile production
in Chinas domestic market and gained a high portion of market share9[9].
3. They drive the urge to interlink national markets. The acquisition of Volvo, for example,
Ford may link its home market to European market and therefore this made both
markets become interdependent.
Thirdly, the world automobile industry is dominated by the key players which account for over
70 percent market share in the world. These automakers and their respective market share were
the following10[10]: General Motors (24.7%), Ford (13.2%), Toyota (9.8%), Volkswagen (9.1%),
DaimlerChrysler (8.6%), Renault / Nissan (8.4%)

9[9] Source: http://www.loc.gov/rr/business/BERA/issue2/industry.html, accessed in

March 2005

10[10] Source: Rugman and Hodgetts, 2003:85

As a result, the extent to which the automobile industry is globalizing is clearly high in terms of
market present.
1.3 Conclusion
Generally speaking, it is obvious that the world automobile industry is highly globalizing in
terms of product and market presence. As analyzed above, the world automobile industry are
dominated by triad nations. In recent years, automobile markets in Asia, Africa and Central and
South America have been on a steady growth track. Taking China as an example, 4.5 million
vehicles were sold in its market in 200311[11]. Consequently, while the market in the triad nations
is becoming mature, there is room for growth in developing countries.

2. Answer to question 2
2.1 Identifying the key players in automobile industry
There are a number of manufacturers in the worldwide automobile industry. The principal
players in this industry include General Motors (GM), Ford and DaimlerChrysler (used to be
Chrysler) from the U.S.A; Honda, Toyota, Nissan from Japan; Volkswagen and BMW from
Germany; Renault and Peugeot-Citroen from France; Fiat from Italy; Saab (owned by GM now)
and Volvo (owned by Ford) from Sweden; and Hyundai and Kia from South Korea. Those
players account for a large proportion of production profile and sales in the world. For example,
GM, Ford and DaimlerChrysler are known as the Big Three in the U.S. market. GM, Ford,
respectively sold about 8 million and 7 million units worldwide in 2001, while Chrysler Group
sold 2.3 million units in USA and 500,000 units overseas 12[12]. Moreover, Volkswagen stands as
the market leader in the European market, whereas Japanese automakers are dominating in the
Asian market (Taylor, 1997). Figure 1.3 lists the key vehicle manufacturer in the world in terms
of total assets, total employment and rank among the top 100 global companies in assets.
2.2 Compare and contrast the development paths of Toyota and Ford
Both Toyota and Ford are multinational motor vehicle companies, raking 5 and 6 respectively
among the top 100 global companies in terms of assets. In 2004, they achieved similar
11[11] Toyota, (2004),Annual report 2004: to new frontiers, http: // www.toyota.co.jp.
Accessed in March 2005

12[12] Source: Office of technology policy technology administration, US Department of

Commerce, January 2003
worldwide vehicles unit sales on a consolidated basis 13[13] . So far, Ford owns eight famous
automotive brands consisting of Ford, Lincoln, Mercury, Mazda, Jaguar, Land Rover, Aston
Martin, and Volvo, whereas Toyota has 51 manufacturing companies in 26 countries / locations
(excluding Japan), which produce Lexus and Toyota brand vehicles and components. Obviously,
both companies see similarities and differentiation in the course of international business
developments. Their internationalization processes are influenced by external triggers and
internal triggers.
Figure 1.3: Worlds largest multinational motor vehicle companies, 1999
(billions of U.S. dollars and number of employees)

Name Rank Assets Sales

GM 4 274.7 176.6
Ford 5 273.4 162.6

Toyota 6 154.9 119.7

DaimlerChrysler 7 175.9 151.0
Volkswagen 12 64.3 70.6
BMW 20 39.2 36.7
Renault SA 28 46.1 37.6
Honda 29 41.8 51.7
Source: United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2001,
Geneva, Switzerland, 2001

2.2.1 External triggers

The PEST framework14[14] can be used to analyze external trigger to business
internationalization. In terms of social change, for example, consumer spending trends can be
recognized as a critical external trigger for automakers. Having knowledge of American
consumer propensity to purchase over time higher-end, more expensive vehicles and /or vehicles

13[13] According to their company report 2004, it reveals that Toyota sold 6.71 million
vehicles in 2004, 1.4 times more than in fiscal 1999, while the worldwide vehicle unit
sales of Ford were 6.79 million in 2004, up 62,000 from 2003 ( Source:
http://www.toyota.co.jp, & http://www.ford.com )

14[14] PEST framework includes three headings, namely political and economic drivers,
social (lifestyle) change and technological developments (Ellis and Williams, 1995 p.97)
with more features, Ford introduced F-150 pick-up truck model in 2004 which utilized more than
130 patented inventions related to performance, utility and styling. This model helped establish a
sales record for F-Series pick-up truck in 2004 with nearly one million units sold. Similarly, in
response to these consumer trends, Toyota began to produce its luxury model Lexus RX 330 in
Canada plant in 2003. This was the first time that Lexus-brand vehicles have been built overseas.
In 2004, Lexus-brand vehicles captured the number one position in the luxury automobile
category in terms of sales15[15].
Moreover, fuel cell technology16[16] has garnered great support and interest around the world in
the past decade because of its large market potential, positive impact on air quality and radically
different nature than currently available power sources. Under these external triggers, Ford
invested huge resources to advance and demonstrate hydrogen technology, whereas Toyota
regarded environmental technology as one of its core strengths and further bolstered the
dominance of its industry-leading hybrid vehicles. Consequently, fuel cell technology
development represented an opportunity for both automakers to differentiate themselves and
maintain their world competitive position.
2.2.2 Internal triggers
Corporate vision is the major internal trigger to their internationalization processes. As a
company with more than 100 years history, Fords initial vision, which has been delivered so far,
was to provide affordable transportation for the world. This vision required Ford produce low
price, economical cars to customers. As of 1908, Ford Model T was born based on mass scale
and low-cost. Demand for the T-Ford grew rapidly, sparked by the low prices and economic
growth in the U.S.A. In 1921, Fords Model T sold 845,000 units for a U.S. market share of 55%
(Mol, 2002). On the other hand, Toyota has different vision, aiming at enrich society through car
making. Under this vision, Toyota kept practicing openness and fairness in the company to
achieve high commitment from its employees and striving for cleaner and safer car making in
15[15] According to 2004 Vehicle Dependability Study conducted by J.D. Power, Lexus
was rewarded as the best band for long-term dependability. Source:
http://www.toyota.co.jp

16[16] Fuel cells can power cars, trucks and buses without emitting harmful tailpipe
emissions. Such vehicles will be cleaner and more energy-efficient than those powered
by an internal combustion engine. Fuel cells also may provide energy to factories and
homes without creating smokestack pollution ( source: U.S. Department of Energy)
order to put forward friendly environmentally vehicles development. This vision helped Toyota
win the trust and respect in international community and establish high brand reputation, which
in turn enhance its worldwide sales performance. As a result, even though both companies have
different visions and goals, it is obvious that these visions are of critically value in their paths to
going internationalizing because the visions link together the affiliates and business partners.
In conclusion, even though both companies developed different strategies in response to the
external and internal triggers, their purposes for going internationalizing are quite similar. That
is: to tap the growing world market using their leading technology (external trigger); to keep
pace with the market change by setting up operations close to the foreign customer (external
trigger); to increase competences by differentiate themselves from the competitors (internal
trigger).
2.3 Recommendation for further investment
So far, both companies have their projects in China. It is strongly recommended that they should
further expand their projects in China. The justifications for this proposal are described as
followings:
Firstly, China will be the largest potential car market in the world. With the largest population in
the world, for example, China occupy the first position in terms of the number of people per
vehicles, indicating 149 persons per vehicle compared to 2.2 of the USA (Bhattasali, et al, 2004).
Moreover, the number of Chinas middle class is growing rapidly (Leggett, 2000), meaning that
China would be a huge potential market for affordable car.
Secondly, Chinas application for membership in WTO was accepted in 2001.This acceptance of
international rules made China more attractive for Ford and Toyota.
Thirdly, Chinas Five Year Plan regarded automobile industry as one of pillars of economic
growth17[17], implying that the government of China will allocate more resources and give more
support to develop this industry.
Last but not at least, the number of skilled workers in China is gradually increasing 18[18],
indicating that China is taking advantages of both knowledge-based and cost-based labour,
because the salary of skilled worker is still lower than those in the triad countries. This also
provides a crucial opportunity to Ford and Toyota to enhance their R&D strength in China.

17[17] Source: Chinas Tenth Five Year Plan (1999 -2004)

3. Answer to question 3
Porters National Diamond Model (Porter, 1990) is required to analyze Toyotas success of being
a world-class company. National contributions towards its success are analyzed below:
1. Japan possessed a large pool of literate, educated, and increasingly skilled human
resources. Japanese are disciplined, hardworking and will to cooperate with the group
(Porter, 1990:395). Moreover, Japanese workers are very committed to their companies
(Rugman & Hodgetts, 2003:141). Such factor conditions give support to attain national
competitive advantages (factor conditions)
2. As of year-end 2002, the number of motor vehicles (excluding two-wheels) in use on
road rose 0.8% to 73,992,953 units19[19], indicating that the demand for vehicles is
gradually increasing (demand condition).
3. The small and mini model sector combined accounted for 84.8% of the market in 2002.
This enabled a significant sale of Toyotas Voxy (small car model) increased 760% to
77.958 units (demand condition).
4. A great deal of suppliers and affiliates, manufacturing auto parts and components,
transmissions, driver-train parts, aluminium wheels, mechanical and electronic parts,
are located in and around Toyota city and other areas of Aichi Prefecture 20[20]. This
allows Toyota to operate more productively in sourcing inputs and accessing
information and technology (related and supporting industries).
5. During the 1950s and 1960s, the Japanese government widely use tax-free reserves,
expanded accelerated depreciation and foreign exchange control to promote industry
development in special industry, including vehicles and automotive parts. This
encouraged Toyota to put forward its internationalization development ( the role of
government)
18[18] According to China Statistical Yearbook (2003), the numbers of university and
college students have been increasing from 439,000 in 2000 to 703,000 in 2002.
Simultaneously, the numbers of scientist and engineers in R&D see growth dramatically
from 350.8 per million people in 1985 to 545.1 in 2002 with proportion of R&D expense
to GDP going up to 1.23% in 2002.

19[19] Source: Http://jama.org.

20[20] Source: http://www.toyota.co.jp.

 6. According to Coon (2002), Japan was largely tied together by a web of the Keiretsu. Each
Keiretsua joined together to help the members acquire and maintain market share and
recognized one another as competitors (Firm strategy, structure and rivalry).
7. Japan was a nation with higher power distance. The nemawashi meeting process was a
good example. Under these circumstances, the organization structures tend to be tall and
close control of operations can be achieved (culture dimensions, firm strategy, structure
and rivalry).
8. Japanese automakers faced extremely high land cost, as it is an island nation. To
circumvent these difficulties, they created just-in-time (JIT) and total quality
management (TQM) techniques that dramatically reduced needed inventory and
improve the product quality, leading Japanese manufactures to attain competitive
advantages over the last two decades (Firm strategy, structure and rivalry)
9. In Toyota, target to be achieved included specific costs saving from learning, measurable
shifts in employee attitude, employee self-development and career motivation, manager
to act as qualified coaches as opposed to cops, and large scale external accreditation.
All this are set within the lean management framework (Womake et al, 1990). This
helped Toyota stood out from its competitors (firm strategy)
(Word count: 2,610)

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