Challenges And Opportunities For Toyota While Doing Business In Europe

On completion of this module the student should be able to:

1. Demonstrate an awareness of the current issues in the European business environment;
2. Analyse the economic, political, social and infrastructural similarities and differences between countries and the opportunities for EU Business;
3. Recognise the role, institutional framework and policies of the EU, related organisations and their impact on business in Europe

Stating the reasons to select EU for the manufacturing plant

The study is based on doing business in Europe. The purpose is being served through a comparative discussion on the three chosen European countries Germany, Sweden and Finland. The comparative discussion is being constructed in reference to the chosen industry and the business that is assumed as intending to enter the European market. Business in European countries is a result of globalisation which promoted the flow of goods, services, technologies and lot more between countries in different regions. Globalisation in Europe is both proactive and reactive. European countries seek new markets and also that it face an increasingly growing competition due to the entrance of new businesses (Pain et al. 2016). Factors that set up the business environment for foreign companies include such as easier process for a business startup and access to credit (Korhonen et al. 2015). The United States of America is the biggest beneficiary of EU funds and also the biggest investor (Ahl and Nelson 2015). These all validates a point that Europe is highly influenced from the globalised economy.

The study is, therefore, aimed at identifying the possible challenges and opportunities that Toyota may have while doing business in Europe. In course of the purpose, the study also examines the three chosen countries and identifies the best of the selected locations for Toyota. 

It is very engaging and time consuming also to shortlist the one foreign location for a business expansion. Being engaged to the import-export trading is a different thing than entering a new location and also establishing the manufacturing & distribution facilities. A number of factors in the target foreign country do really test the business intelligence of the company in concern. Business intelligence is required to understand the best countries to enter. Best countries are those that have more opportunities than the barriers to the business. Opportunities can include the list of thing like the technological advancement, easier policies for business set up, static government policies, potential consumer base, skilled & cost-effective labour market, favourable external environment and a fairer competition policies. These factors can also act as barriers to foreign business if not being supported with effective policies for a foreign business (Vahlne and Johanson 2017).

In a likewise manner, Europe offers a bunch of opportunities and challenges as well to foreign companies. Companies intending to enter Europe get an access to the single biggest market. Drivers of internationalisation are market drivers, government drivers, cost drivers and the competitive drivers (Chetty, Ojala and Leppäaho 2015). These drivers are the biggest opportunities for the foreign companies. In context to market drivers, companies get the similar kind of customers in the different states of Europe. It means that customers are global in nature and also that the similar or same marketing strategies are transferrable to different states. Cost drivers include economies of scale, favourable logistics and the country-specific dissimilarities. Trade policies, policies of host government and the technical standards are all the government based drivers. European countries are interdependent between each other which are also one of the elements of competitive drivers. Interdependency is good for a flow or exchange of goods and services between the European countries. Competitors follow or adopt the global strategies which enhance the level of competition in among the businesses (Surugiu and Surugiu 2015).

Institutional and policy challenges and advantages within the EU

The list of opportunities as listed above is an enough evidence of why foreign companies prefer entering the European market. The listed opportunities are very hard to get in other parts of world. Notably, European firms are widely recognised for their efficiency to play at the global level; however, those firms have declining importance for manufacturing (Bailey and De Propris 2014). Foreign companies with its intention to set up manufacturing facilities in Europe will certainly be welcomed and rather face a minimal competition from the competitors.   

Toyota can face the institutional and policy based challenges while operating in Europe. European integration was a result of political, economic and security reasons. Countries were economically integrated to avoid any possible conflict and to discourage the repetition of thing that had happened post World War II (Kesternich et al. 2014). Economic integration was done to create the peace and include the defeated Germany in the post-war reconstruction (Wagner 2015). An open economy for supporting the interdependent trades was a result of protectionism which was identified as the root cause behind economic instability in 1920s and 1930s (Mitchener and Wandschneider 2015).

Economic reconstruction: Rectification of economic destruction caused during the wartime. Protectionism had badly affected the European economy during 1920s and 1930s (Mitchener and Wandschneider 2015).

Political/security in Europe post World War II: It has resolved the ideological differences in political and economic states of France and Germany. Those had emerged as the two superpowers in Europe (Kesternich et al. 2014).

A single market: The integration had also facilitated the flow of services, goods and technologies between 28 member states in the European nation. There are no restrictions over the citizens as they can freely move to and settle in any of the member state (Polyakova and Fligstein 2016).

The existence of single currency: The Euro is the single currency which is spread across the different member states in the European nation. The Euro is now also one of the major currencies of world (Ito and Kawai 2016).

The economic integration has also helped Europe to become the world’s largest supplier of aid programmes for humanitarian and development. Europe now holds a powerful status in finance and the world trade. It is also the major destination for and source of FDI (Webber 2014).  

Migration crisis in EU is growing which puts the challenge to freedom of movement in the region (Perkowski 2016). This may not be a point to worry for the foreign business; however, it really proves such claims fake which had supported the freedom of movement for citizens. Brexit may expectedly affect the political and economic state of the member states of the European nation. The biggest impact would be experienced by countries closest to the UK such as the Netherlands and Belgium. This will also affect the countries with high trade volumes such as France and Germany (Politico.eu 2018). Ireland will perhaps be highly affected of due to its broad and profound economic links with the UK. Expectedly, there can be huge losses to jobs in Belgium. France is worried particularly for the automotive sector. Trade flows between the ports of Dover and Calais may be negatively impacted from the Brexit impact. The migration of people will be a great challenge. Dealing with list of issues such as migration of people, citizens returning to their home countries from the UK and the reduced tourism will test the member states in the European nation (Politico.eu 2018). 

Key achievements of European Integration

SWOT of Toyota

Strengths	· Toyota has very intense focus on Research & Development (R&D) · It is according to many the most valuable car makers in the world · Toyota production system is its USP which is follows the just-in time strategy · Toyota’s competence in the production of hybrid vehicle is unmatched and is also very difficult to replicate by others
Weaknesses	· Less competent in the production of autonomous vehicles · Large vehicle recalls and the subsequent negative publicity · Unimpressive brand portfolio
Opportunities	· Fuel prices are expected to rise further which means hybrid vehicles would be in high demands · Demand for autonomous vehicles is expected to pick up
Threats	· The automotive industry in particular is set to face a various government regulations · Huge competition between number of car makers in the world

Table 1: SWOT of Toyota

(Source: Sisson and Elshennawy 2015)

The production system of Toyota and its capability to invest more on R&D will probably be the supporting factors for the company in Europe. However, government policies for automotive industry and the increasing competition between the numbers of car brands are the factors to look for.  

PESTLE of Germany, Finland and Sweden

	Germany	Finland	Sweden
Political	· Germany has better relationships with approximately around 200 countries · Member of OECD, NATO, the International Monetary Fund (IMF) and the World Bank	· World leader in regards to business and trade freedoms · Member of NATO	· Very safe and politically stable country · Corruption is protected through suitable laws
Economic	· Germany is the largest economy in Europe · Trading partnerships with France, the USA, Great Britain and the Netherlands · Very high reputation in car manufacturing · Very poor in raw materials · Germany spends much than the average spending of Europe on R&D	· Finland is open to FDI · High government spending · Rigidity of labour market	· Prevention strategies to avoid the long-term unemployment · Unbiased behaviour with foreign investors in terms of providing the credits
Social	· German consumers give high values to quality · Business deal focuses the mutual benefits as the central attention is just the task	· Counted as one of the modern countries · Consumers in Finland are very educated · Corruption does not exist	· Consumers are very specific with price · Quality is the secondary concern
Technological	· Highly reputed for innovation and engineering excellence · Germany gives high regards to new technologies · The country is an international leader in regards to capacity for innovation · Internationally recognised for R&D spending and scientific research institutions · Germany promotes the innovative companies	· Keen to develop its innovating capability · R&D improvement is also in progress	· Sweden ranks the 1st  in the ICT development index (IDI) · One of the most innovative countries in the world · The technological sector is booming · R&D spending from Swedish firms is nearly double the rate of those in Britain
Environmental	· Largest carbon emitter in Europe · Heading towards the use of renewable energy resources	· Manufacturing plants contribute to the air pollution   · Water pollution from industrial wastes	· Water pollution due to the wastes · Set goals for no greenhouse gas emissions by 2050
Legal	· Legal system is distributed in three patterns like Federal, State and Local · According to foreign investors Germany is second only to Britain in terms of legal and political stability · FDI is highly welcomed	· Trade policy is in the line of other member states in the European union · Being a small country legal terms are easily manageable	· Profits earned by a foreign  business in Sweden is imposed with just the normal corporate income tax · Low rent industrialized parks are offered

Table 2: PESTLE of Germany, Finland and Sweden

(Source: Giuliani et al. 2014) 

Porter’s five forces

	Bargaining power of buyers	Suppliers’ bargaining power	Industry rivalry	Threat of new entrants	Threat of substitutes
Germany	High	Low	High	Low	Moderate
Finland	High	Moderate	Moderate	High	Moderate
Sweden	High	Moderate	High	High	Moderate

Table 3: Porter’s five forces of Germany, Finland and Sweden

(Source: Kräussl and Krause 2014)

Entry barriers are very high in the German automotive industry. Entry barriers are quite low in Finland. The market is now saturated for Swedish automotive industry.  

Germany would be the highly preferred country for Toyota. Germany is politically and legally more stable than Finland and Sweden. It means various policies governing the trades and others would be very favourable. Industry rivalry though being very high in Germany should not create a lot of trouble to the internationally acclaimed Toyota. Barriers to entry s very high in Germany which means Toyota can depend upon the long-term competitive strategies. German government does support firms those spend huge in R&D and innovation. 

EU institutions and policy frameworks can produce both challenges and advantages to Toyota. It is important for Toyota to understand the number of policies which will be required to company for its operations. Additionally, Toyota must also seek information and assistance from the key institutional bodies in EU. Following are the list of factors needed to be considered while setting up the production and distribution facility (Surugiu and Surugiu 2015):

Type approval

It is essential to start with service of vehicles and its parts in Germany. It is also required for registration and the selling rights.

Supply chain management

This follows a purchase order business format usually within the contract structure implemented by the automotive OEMs. This flows down similarly through the supply chain covering the tier 1 suppliers and so on.

Distribution system

There are two levels of distribution system usually followed to sale the cars. One of the two levels is the authorised dealers. The last level of the two involves the brand itself in marketing and selling of cars.

Incentives for investment

No, however, indirect general incentives are applied to the purchase and use of EVs (electric vehicles) under the German Motor Vehicle Tax Act (Vdik.de 2018).

Compliance safety

Product compliance safety: The product safety related aspects are governed by the German Product Safety Act (ProdSG).

Environmental regulations: A non-compliance with environmental regulations in Germany will lead to a withdrawal of relevant licences, administrative fines and mandatory corrective measures.

Emissions: A non-compliance with emissions regulations will attract administrative fines, prohibitions on introducing the concerned vehicles in the market, type approval withdrawal and also the recalls.

Carbon dioxide: On violating the maximum permissible limit, manufacturers will be asked to pay a higher emissions premium.

Waste: A non-compliance with the related regulation will attract the administrative fines.

Challenges

Intellectual property disputes

Germany is the venue for enforcing the intellectual property rights against the varied types of infringement. German IP courts are very reliable in this context. IP rights include but are not limited to like patents, designs or trademark.

Legal developments relating to automated vehicles

UNECE Regulation 79 is still under discussion. Even if automated vehicles are permitted to operate, it will still have the drivers to monitor the progress and take the seat in case of a technological failure. Automated vehicles have been tested on quite a several occasions on German roads.

Following is the list of strategies needed for business in the EU market (Radosevic and Stancova 2018):

Profit strategies

It is a combination of sources of profit in compatible proportions. Sources of profits in general are diverse offerings, economies of scale, innovation, quality assurance, permanent cost reduction and productive flexibility. Each of the profit strategies need to satisfy certain requirements of executives, banks, shareholders, labour unions, employees, suppliers etc.

Volume and diversity strategy

It governs the production of a diverse range of vehicles. However, this is possible only if there are not kept any huge social and economic differentiation among the several social categories.  The strategy needs a moderately hierarchical market and also a polyvalent, plentiful and promotable workforce.

Luxury car making strategies

Very few reputed care makers in Germany are specialised with offering the luxury cars. Such cars are targeted to customers who pay high prices just to show their social status. These customers seek the quality products; however, quality for them is not just limited to quality specs but it goes much above than this. They actually want the attractive designs, so that, their social status gets verbal with the very first view on the car. However, this is a much more difficult strategy as customer preferences gets change quite rapidly. It also varies a lot depending on the geographic location.

Flexible and innovation strategy

It is about a massive production of cars meeting the emerging trends and a quick shuffling between changes of demands. This requires a highly capable forecast capability.

There are quite a few types of entry strategy like Multidomestic Strategy, Global Strategy and Translational Strategy. Translational strategy will be the suggested strategy for Toyota as it governs a balanced path between the other two types of entry strategy. Translational strategy means acquiring the efficiency while also fiddling with the local preferences.

Conclusion 

In summary, doing business in Europe is full of opportunities and the challenges. Germany was found as the most suitable country to enter for Toyota. However, it is mandatory for Toyota to understand and follow the policies attached with the running and setting of production and distribution facilities. It is also important that Toyota follows the translational strategy to enter and operate in the German automotive industry.  

References 

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