Toyota is a multinational company dealing in the manufacturing and distribution of cars, buses, robots and trucks. It has its headquarters in Japan, specifically Toyota city. Toyota boasts of its record to be the first auto producer to manufacture ten million automobiles per year, in the world that produces cars, trucks, buses and robots, with headquarters in Toyota City, Japan. Toyota as a global automotive company is looking into discovering and establishing new markets for its products.
ASEAN is an acronym that stands for Association of Southeast Asian Countries. It was established in 1967 on the 8th of August. Since the onset of the association, its membership has grown to a total of 19 countries. The major countries of ASEAN are Singapore, Thailand, Malaysia and Indonesia. The aims and objectives of ASEAN go hand in hand with the principles of cooperation and equality. These goals and purposes are responsible for the growth of the region's economy and the promotion of cultural development and social progress. The resultant goal is to establish prosperity, peace, and stability among communities in the nations represented by the Association.
Toyota Company runs by the business philosophy of stable and growth that is long term (Tomas, 2013). It aims to achieve its philosophy by engaging in activities that are keen on establishing and maintaining relationships between individuals, society, world economy and the global environment.
ASEAN offers three key benefits. These advantages are; Low rates of car ownership, a high rate of population and increasing disposable incomes (Wicaksono, 2007). Thailand and Indonesia are envisioned as countries with high potential in ASEAN. Toyota goes into the ASEAN market with what would favor its strategy. The target market in ASEAN countries shares a common vision with Toyota. On Top of the shared vision, products from Toyota are affordable, that is to mean they are within the purchasing power of the customers in the region compared to those from any European country. The increase in sales of Toyota branded vehicles is out rightly high in ASEAN countries. The cultural backgrounds and setting of most ASEAN citizens are close to those in Japan. The cultural similarities make it easy for Toyota to manage its operations in the bloc. The icing on the cake is the trade agreement that exists between Asian countries. The integration is partly responsible for the smooth operations of Toyota.
The following are the reasons for selection of ASEAN as a site for a factory;
Since the entry of Toyota into Indonesia, more than 40 years ago, the model has been the first seller. Toyota has a percentage of about 37% or more in the Indonesian market share ("1.2. Indonesia’s long-term growth performance).
ASEAN has an arrangement or policy of free market with several member countries (Wattanapruttipaisan, 2003). Some of these nations are Korea, Japan, China, Thailand, India, Australia, New Zealand among others. The presence of this free trade policy, coupled up with affordable facilities of low costs make Indonesia an attractive site for exports. To meet growing demand for its cars, Toyota could have its cars imported to Thailand from Indonesia very easily. The market in Thailand is created by the political unrest that is going on. Toyota could take the option of a cut on production.
The low rate of car ownership and the increase in disposable income.
The ASEAN region provides an opportunity for Toyota to increase its capacity of production. To meet the growing demand for its products, Toyota has to expand. This opportunity for growth provides a basis for investing in the region ("Emerging Markets of Asia,"). In Indonesia alone, Toyota grew by a margin of 10.2% per year in the sale of automotive. This percentage translates to about 1.22 million units in the year 3013.
The overall GDP of Indonesia is growing immensely. The same growth case applies to its disposable income. The two, are indicators that the Indonesian population will have more finances and possible spend on items such as new cars.
Increased Popularity of Eco-friendly Autos.
There is an increased campaign for eco-friendly vehicles that has spread its popularity across the Indonesian nation. This populace has been attributed to the tax incentive given. The government of Indonesia introduced a low-cost green car program so as to encourage production of environmentally friendly cars and also to aid in the reduction of gasoline dependency. Toyota is a big player in the green revolution investment in Indonesia. The presence of Toyota is evidenced by the launch of the Agya model. Agya impressively took over the Indonesian
Losers and Gainers
The above points seem to indicate profits towards Toyota. Inculcating this new strategy will work positively for Toyota and ensure the rising of its profit margins. The citizens in ASEAN nation are a great market for Toyota products, and their purchases will only result in high-profit margins for the automobile company.
ASEAN governments benefit from the establishment of this factory site. Toyota will have to pay the states regarding taxes and revenues. Taxes and income will increase the income earned by the ASEAN governments. The other gainers are the citizens themselves. Given their income, Toyota offers vehicles that are within their range of affordability. The citizens are gaining through affordable cars to make their lives easier.
The principal losers from the employment of the business strategy will be the competing companies. The competitors, mainly European auto companies will inevitably experience losses. European manufactured cars are quite pricey in comparison to cars produced by Toyota. A majority of the ASEAN population are of middle-level income. It goes without question that the majority of them will find Toyota more affordable and purchase their vehicle. European cars will have a deteriorating market that will be replaced slowly by slowly. Restoring European cars might take time followed by some difficulties. However, if Toyota employs some new methods and technologies, it might eventually take over completely and win the ASEAN market. The result of this replacement puts ASEAN nations as a primary contributor to Toyota's profits.
Consistence with the OLMA Model.
‘O’ for the advantages of ownership of a firm indicates the person or company that is going to invest abroad or carry out any other international activity (Dunning, 1993:142). The ability of a firm to compete in different spaces lies in its competitive advantage (ownership advantage). The profits accrued from property take the stead of additional costs that come with setting up in a foreign nation. Domestic users do not enjoy this. Toyota happens to have a strong competitive advantage in comparison to the European producers. The proximity to culture is one such factor. The other is its popularity among ASEAN citizens due to the affordability of its products.
‘L’ for location influences where to produce. (Dunning, 1993:143). MNEs, in this case, Toyota, will take the option of investing abroad when it would benefit them to take the products from their home country which are transferable and combine them with some immobile factors unique to the foreign nation. Some locational factors might be taxes and exchange rate policies, geographical factors, availability or patent system. Looking at reasons as to why Toyota chose ASEAN as a site, all the factors above come into play which points to the consistency of Toyota with the model.
‘M’ is for the mode of entry. The method of entry gives the researchers the chance to give a distinction between factors that affect the different means of entry into different nations. ‘An’ is the adaptation of the corporation’s operations to the environment that is the International business scene. Adaptations build on the institutional theory. Guisinger (2001:266) suggests that there should be a distinction that is widely compelling between a foreign entrant and the residential component of the environment. The introduction of eco-friendly affordable automobiles is that compelling factor for Toyota.
1.2. Indonesia’s long-term growth performance. (n.d.). doi:10.1787/414540160708
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