Toyota started facing trade barriers
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- Word count: 1233
- Category: Toyota
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In the early ‘80s Toyota started facing trade barriers from governments’ policy both in Europe and in USA. This happened because trade conflicts and the substitution of imports by localized production pushed the European and American firms to make pressure on the governments. Consequently, Toyota exports volume to Europe and United States had to be limited and thus it was growing slowly (Katzner, Nikomarvo, 2005).
Already before the first oil crisis the United States car market was facing several problems: firstly the overall work productivity was low relating directly to foreign workers; secondly the American goods started to result less competitive in comparison of the imported products, that were cheaper; the third factor was the pursuit of the policy by the American government to promote world free trade as a mean for world prosperity: this of course led foreign manufacturers concentrate the export to the biggest and wealthiest economy in the world.
The result was that United States had an enormous trade deficit and the American car manufacturers at the end of 60’s started to seek for political aid to have some relieve in the domestic market competition. While USA’s car makers where suffering losses and a decrease in overall profits, Japanese car manufacturers were doing well. Japanese domestic market was well protected by high tariffs of 30%-40% on imported cars, plus a domestic commodity tax imposed both on domestic and foreign cars between the 14% and 40% (Katzner, Nikomarvo, 2005).
The last tax was hitting harder large cars; the American cars were usually bigger than their Japanese compact counterpart. These tariffs were justified by Japanese pointing out that they were necessary to defend and foster the growth of their industry, and by the fact that they considered “large cars” as luxury goods, and consequently subject to higher taxes in a country characterized by narrow streets.
Furthermore, the American industry was characterized by three big producers (Chrysler, General Motors and Ford) while the Japanese industry was organized in many small automakers (Mazda, Nissan, Toyota, Daihatsu, Isuzu, Mitsubishi, Honda, Suzuki, etc. ) and Japan considered unfair a competition of the fragmented Japanese industry in a free market against the “big three”.
After the suspension of the Bretton Woods system and the adoption of free floating currencies in 1971, the American requests and pressure on Japan to increase the value of the yen induced Tokyo to self-impose a regime of export limitation on automobiles, trucks, and motorcycles. However, the Japanese internal market in the mid-70s was already saturated and the national car manufacturers decided to exploit exports for growth (Journal of the Graduate School of International Cultural Studies, Tohoku University, 1999).
The situation for the USA did not improve, thus, the pressure on Japan continued and in 1977 lifted some of the tariffs on American cars. But still the Americans were not able to make significant profits with their cars in Japan. One of the main problems for the American car manufacturers was that, notwithstanding the increased oil prices, they still were producing fuel inefficient cars and they were not adapting their models to Japanese left-hand drive. Instead the consumers preferred to buy Japanese compact and fuel-efficient cars.
So, the USA’s car producer came with the idea that if was not possible to increase the sales of American automobiles in Japan, then they would enter the market of Japan’s automobile parts. But the cultural differences in business relations between the two countries was an obstacle: in fact, Japanese business culture contemplate long term business relationship and, even if the government removed tariffs on American auto-parts, the habit was too strong for Japanese manufacturers to substitute their Japanese suppliers with long term established relation.
For this reason, even if American auto parts were not worse than the Japanese they had not the opportunity to be tested on Japanese cars (Journal of the Graduate School of International Cultural Studies, Tohoku University, 1999). In 1981, facing the threat of high tariffs imports on Japanese cars, Japan was requested from the USA’s government for a new voluntary export limit of 1. 6 million cars per year in order to give the time to American car producer to develop new smaller and fuel-efficient cars and recover from the crisis.
But the new export restraints, touching only the number of cars, had a non-indifferent side effect, i. e. the Japanese car producers concentrated on the export of more expensive cars, increasing the value of their export but staying inside the export limit. This was a new threat in a sector where the American producers have been always profitable. The export limit was extended for the year 1984, and the Japanese announced an increase in the maximum quota from 1. 6 million to 1. 8 million units.
Finally, in 1985 the USA’s government announced that they would not request a prolongation of the export limit of Japan. This decision was taken for different reasons: the first one was that the American automobile industry had recovered; secondly the export limits were increasing the prices for both Japanese and American cars and finally, the import restraints led the Japanese automobile manufacturers to start the production on USA’s soil in forms of joint ventures. Toyota in fact in 1984 Toyota established a joint venture with GM, the New United Motor Manufacturing, Inc.
(NUMMI), that will be the first production in USA. The Japanese government, in contrast of car manufacturers, decided to keep the self-imposed limitations because it was concerned of an excessive competition among the national car manufacturers for market shares in the USA. The annual quota was raised to 2. 3 million units but it was never fulfilled after 1987 because the production on American soil steadily grew from that moment. The self-imposed export restrains will be abolished only in 1994 under the World Trade Organization agreement (Katzner, Nikomarvo, 2005).
In these years Toyota keep expanding starting production in North America opening production plants both in Canada and US. So, in this case the localization was driven by the necessity to bypass the export limits both in US and in Europe, in fact in 1987 Toyota open in Belgium a Technical Center in Belgium that included a R&D department, marketing department and Production engineering activity for subsequent localized production operations. The first Toyota plant in Europe will be open in UK in 1992 (Toyota Global Site, 75 years of Toyota, 2017). 2. 1. 3 The New Global Business plan: from 1995
Following the collapse of the bubble economy in 1991 in Japan and the subsequent stagnation Toyota was obliged to develop a new strategy that would allow the firm to face that crisis. The answer of Toyota was the establishment of a global production network, which major was organized in the UK, USA, Australia, South Africa and ASEAN countries. This strategy will be described in Toyota’s “New Global Business Plan” in 1995 (Toyota Global Site, 75 years of Toyota, 2017). The plan included an increase of localization of production and imports over a three-year period.
A major objective of this plan was to increase Toyota\’s offshore production capacity to 2 million units by 1998. Consequently, Toyota focused on increasing overseas production by establishing new plants and expanding the capacity of the existing plants. In addition to this short-term global business plan, Toyota also announced a long-term global business vision in 1996, named the \’Global Vision 2005, that aimed at keeping competitive edge in technology, accelerating globalization, sustaining market leadership in Japan and recovering market share of over 40%.