week 8 final project

Week 6: MNC Section V Entry Modes

Entry Mode for Toyota in the USA market

Part a

1. Which entry mode was used?

Toyota used wholly-owned subsidiaries to enter the U.S. market. It did not want to use any other entry method that would lead to it losing its core competencies and thus it wanted to be in control of its business operations. Therefore, Toyota used a wholly owned subsidiary entry mode but presented itself as an American company with a Japanese origin. Toyota then entered the market by building its manufacturing plants in America and hired American managers to manage the plants.

2. What are the advantages and disadvantages of the entry mode chosen, in your opinion?

Wholly owned subsidiary entry mode allows a company to have full control over its business operations in a foreign nation. In addition, wholly owned subsidiaries allow vertical integration of supply chain and diversification since the company is able to manage its operations in a foreign market. On the other hand, wholly owned subsidiary has its share of disadvantages. For example, Toyota had to present itself as an American company to enter into the American market. This would present confusion in strategies and operations between subsidiaries and parent company. Also, by apply wholly owned subsidiary entry mode, a compony opens itself for multiple taxation.

3. Would you have chosen a different entry mode and if so which one and why?

A different method that would be viable for Toyota to enter American market would be through export. Toyota could have also directly exported its cars and services to the American market. Exporting is regarded as a low-risk entry method and also less costly compared to wholly owned subsidiaries. In addition, the method would align well with Toyota’s lean manufacturing.

Part B

Toyota has been successful in the USA market and sold millions of cars in the USA market. Through its transnational international strategy, Toyota has been able to succeed in the USA market by offering products and services that customers can relate with. United States is on of the leading countries with a strong economy and thus Toyota had to leverage the purchasing power of customers to boost its sales. However, Toyota had to employ a strategy that would help the automaker to produce products that the target market can resonate with and thus it employed Americans as its managers because they understood the U.S. well. Therefore, to meet the growing demand for Toyota cars in the U.S. market Toyota had to establish manufacturing plant in the U.S. to eliminate delays and costs associated with exporting cars to the U.S. market from its parent manufacturing plant in Japan. Furthermore, Toyota entered the U.S. market by branding itself as an American company. Toyota abandoned its cooperative competition doctrine and presented itself as an American company. According to Don Jackson, “Toyota is seen more as an American-based company year after year” (Reed & Nakamoto, 2007). As part of its expansion strategy, Toyota targets consumers looking for high quality cars at a relatively reasonable price. Unlike Mercedes and Volkswagen which target consumers looking for luxury cars, Toyota targets the largest market segment looking to average priced cars. In addition, to keep up with the growth rate of 5 percent per year, Toyota invests heavily on training and development of its staff.

One of the opportunities by Toyota in the U.S. market is that the company has an access to a vast market segment. With the huge population and a strong economy, the U.S. represents one of the biggest market segments for Toyota. Toyota has over time expanded its manufacturing plants in the U.S. to meet the growing automobile industry. According to the Maximize Market Research, the U.S. automotive market was valued at US $ 15.9 million in 2021, the market is projected to grow by 13.17 percent by 2029 (MMR, 2021). Therefore, with the projected market growth, there lies an opportunity for Toyota as the market for automobiles is expected to grow.

The entry mode for Toyota in the U.S market was through a wholly owned subsidiary. Toyota established its manufacturing plants in the U.S. because it did not want to use control over its core competencies as well as its business strategy. The strategy gave Toyota a firm control over the U.S. automobile market. Despite the fact that wholly owned subsidiaries are costly, Toyota is one of the automakers with strong financial statements and thus it was easy for the company to use a wholly owned subsidiary entry mode into the American market. Despite the fact that Toyota used wholly owned subsidiary entry mode, it presented itself as an American manufacturer with a Japanese origin. The strategy aimed at easing the penetration of the company into the U.S. market and to avoid political rejection and restrictions.

References

Reed, J. & Nakamoto, M. (2007). How Toyota went native in America. Retrieved from https://www.ft.com/content/de008ce4-4447-11dc-90ca-0000779fd2ac

MMR. (2021). Automotive market in US: Global industry analysis and forecast (2022-2029). Retrieved from https://www.maximizemarketresearch.com/market-report/automotive- market-in-us/86405/