TOYOTAMANAGING RECALL CRISIS WITH NEW STRATEGIES IN EMERGING MARKETSINTRODUCTION TO THE CASEThe case is about Toyota Motor Corporation (TMC), a global automobile manufacturing company which is serving the market since 1937. The case throws light on the problems faced by the company recently and the different strategies devised by it to tackle the problems and expanding the sales into different emerging markets.

ABOUT THE INDUSTRYToyota Motor Corporation is the part of Global Automotive Industry whichis a wide range of companies and organizations involved in thedesign,development,manufacture,marketing, andsellingofmotor vehicles.This industry is one of the world's most importanteconomic sectorsbyrevenue. The automotive industry does not include industries dedicated to the maintenance of automobiles such asautomobile repair shopsandmotor fuelfilling stations which are provided to the end users. The automotive industry began in the 1890s with hundreds of manufacturers started manufacturing thehorseless carriage. For many decades, theUnited Statesled the world in total automobile production. In 1929 before the Great Depression, the world had 32,028,500 automobiles in use and the U.S. automobile industry produced over 90% of them. At that time, U.S. had one car per 4.87 persons and afterWorld War II, U.S. had produced about 75 percent of world's total automobile production. In 1980, U.S. was overtaken by Japan but regained its top position in 1994. In 2006, Japan narrowly passed the U.S. in production and held this rank until 2009 when China took the top spot with 13.8 million units. With 19.3 million units manufactured in 2012, China almost doubled the U.S. production with 10.3 million units while Japan was in third place with 9.9 million units. Along with China, the United States is considered among the largest automobile markets worldwide both in terms of production and sales. About7.24 million passenger carswere sold to U.S. customers in 2012 and around4.11 million cars were producedthere in the same year. The United States became a key automotive market when Ford introduced assembly line car production in the early 1900s to mass-manufacture its Model T. In terms of revenue,Toyota, Volkswagen and General Motors top the listof major automobile makers while theautomotive supplier industryis dominated by Bosch, Continental, Denso and Bridgestone. Overall, the global automotive industry is in better shape than it was five years ago, especially in the US where profits and sales have recovered from the recent economic crisis of 2008 and in China, where growth remains strong. By 2020, global profits for automotive OEMs (Overall Equipment Manufacturer) are expected to rise by almost 50 percent. The new profits will come mainly from growth in emerging markets and to a lesser extent, the US, Europe, Japan, and South Korea.ABOUT THE COMPANYToyota Motor Corporation (TMC)is a Japaneseautomotivemanufacturer headquartered inToyota, Aichi, Japan. In 2013, themultinational corporationconsisted of 333,498 employees worldwideand as of January 2014, is the14th largest company in the world by revenue. Toyota is the largestautomobile manufacturer by production. Toyota is the world's first automobile manufacturer to produce more than 10 million vehicles per year.As of July 2014, Toyota is the largest listed company in Japan bymarket capitalization(worth more than twice as much as Soft Bank which stands second)and by revenue. The company was founded byKiichiro Toyoda in 1937 as a spinoff fromhis father'scompanyToyota Industries to create automobiles. When it was still a department of Toyota Industries, it created its first product, theType A engine in 1934 and in 1936, its first passenger car, theToyota AA. Toyota Motor Corporation produces vehicles under 5 brands including the Toyota brand,Hino,Lexus,Ranz, andScion. It also holds a 51.2% stake inDaihatsu, a 16.66% stake inFuji Heavy Industries, a 5.9% stake inIsuzu and a 0.27% stake inTesla as well as joint-ventures with two in China (GAC Toyota andSichuan FAW Toyota Motor), one in India (Toyota Kirloskar), one in the Czech Republic (TPCA) along with several nonautomotive companies. TMC is the part ofToyota Group, one of the largest conglomerates in the world. Toyota conducts its business worldwide with 50 overseas manufacturing companies in 26 countries and regions. Toyota's vehicles are sold in more than 170 countries and regions. The top ten original equipment manufacturers (OEMs) dominates the global market share which is accounted to 81% of the global automotive industrys annual sales. Toyota Motor Corporation (TMC) is the largest with a global 11.8% market share in 2013.TOYOTAS GLOBAL VISIONToyota will lead the way to future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile. We will meet our challenging goals by engaging the talent and passion of people, who believe there is always a better way.TOYOTAS MISSION

To provide safe & sound journey. Toyota is developing various new technologies from the perspective of energy saving and diversifying energy sources. Environment has been first and most important issue in priorities of Toyota and working toward creating a prosperous society and clean world.

GLOBAL MARKET SHARE OF AUTOMOBILE MANUFACTURERS IN 2013 Source: BloombergREASON FOR SELECTING TOYOTA FOR THE CASEI have selected Toyota because a global company was required to write the case and Toyota is a multi-national company. Another reason is that Toyota is the worlds largest automaker in terms of production of automobiles.

RECENT PROBLEMS FACED BY TOYOTA The main and the biggest problem that Toyota is facing is of recalls. Recently, the company has called back 1.75 million vehicles including 759,000 Toyota and Lexus sedans made between 2005 and 2010 to repair fuel pipes that could leak and raise fire risks. The fuel pipe fix involves Toyota Crown, Crown Majesta and Mark X cars and LexusIS, GS and LS sedans built from January 2005 to September 2010. Toyota may accrue hundreds of millions of dollars to pay for the recall expenses but the risk associated with cash is less and more for the brand image as customers see Toyota vehicle as quality vehicle. It is Toyotas fourth global recall as the worlds largest automaker started operating under stricter supervision from U.S. regulators. The pressure on automakers is increasing to speed up their recall process and justify the delay between learning about potential flaws and calling the cars back for repairs because sometime the time lag is as long as of a decade which is evidenced from the case of General Motors Co. (GM) thattook more than a decade to start replacing deadly ignition switches in some of the record 30 million cars and trucks the company has recalled in North America this year. Toyota Auris compact hatchback is among the 1.05 million vehicles called back in Japan.

Earlier this year, Toyota announced recall for about 6.4 million vehicles globally for variety of problems. Toyota announced that it was recalling nearly 1.8 million vehicles in the U.S. to fix the problems including air bags that might not inflate. It was the part of worldwide recall of 6.4 million cars and trucks. Toyota's U.S. recall announced includes 1.3 million vehicles with faulty electrical connections that could cause air bags to deactivate. If the air bags are deactivated, they could fail to deploy after a crash. The recall was one of Toyota's largest since 2009 and 2010 when the company issued a series of recalls totaling more than 10 million vehicles for various problems including faulty brakes, sticky gas pedals and ill-fitting floor mats. So far this year, automakers have recalled about 9 million vehicles in the U.S. If that pace continues, the nation would break the record of 30.8 million recalled vehicles set in 2004. Most of the recalls are from Toyota and General Motors, the two automakers who are under government scrutiny and facing bad publicity and allegations that they concealed safety issues. In Japan,Chinaand other markets in Asia, Toyota has announced to recall about 802,000 Crown, Crown Majesta, Noah and Voxy models made between June 2007 and June 2012. The company will replace a rubber seal in the brake system that could crack and cause fluid to leak leading to reduced performance. Toyota has also recalled about 190,000 Rumion and Auris cars in Japan to replace emission-control units that could cause fuel leaks and lead to greater fire risk.In 2009-2010, it was forced to issue a pair following revelations that certain models were at risk of unintended acceleration. In the years after its unintended-acceleration recalls, Toyota focused to repair its reputation about quality that helped it become the worlds top-selling automaker. Toyota has lost its no. 1 title toGMin 2011 but it regained its position back in first half of 2014 through its lead over Volkswagen AG. Toyota expanded a 14-month-old recall of more than 2 million vehicles for faulty air bags in June 2014 after the supplierTakata Corp. (7312)told customers that further fixes may be needed. Earlier this year, Toyota agreed to pay a $1.2 billion fine, the largest of its kind to settle a criminal probe into its conduct during its unintended acceleration recall of more than 10 million cars four years ago. Auto recalls have captured the public's attention this year especially in the U.S. where General Motors has come under fire for its handling of an ignition switch flaw tied to at least 23 deaths. GM has recalled more than 30 million vehicles so far in 2014.

Some analysts say that the companies start recalling the vehicles after bad publicity but the numbers drops as the bad publicity fades away. But this time, this may be different because of the Justice Department's investigation of Toyota. The high number of recalls could also be attributed to the use of common parts across an automaker's entire vehicle lineup and because of that when something goes wrong, more parts have to be replaced.

The recall problem is not the only problem that Toyota is facing. The political circumstances in China are beyond its control as the company is suffering from steep declines in one of its most important markets i.e. China. Presently in China, anything related to Japan and the products it produces and exports is out of favor. The reason behind this situation is the dispute between the two countries over the possession of a set of small, uninhabited, privately owned islands in the East China Sea (called Senkaku by the Japanese and Diaoyu by their rivals). Japan has decided to buy these strategically placed but uninteresting chunks of land thereby hurting nationalist sentiments of the country where it has been doing very well from centuries. This anger and ill will has taken the form of vandalism and sporadic acts of violence against high-profile, ubiquitous products for the country like its cars (and in one unfortunate case, a driver of same). No one wants to get attacked for driving the wrong vehicle and at the same time, there are many who do not consider buying a product from the country which is stealing pieces of their nation. Toyota's China sales have dropped drastically by 49% for the month of September this year. Toyota is not the only Japanese manufacturer that is suffering for its origin, Honda's (HMC) sales are also declined by 41% in the same month. This thing has affected Toyota's results. In 2011, the company delivered around 883,000 cars in China which constituted about 44% of its total Asian unit sales (excluding its home market of Japan) and more distantly, this number was around 12% of total worldwide unit sales. China, in short, is a country that matters a lot to Toyota. Toyota's decline of sales in China comes after the recovery from the brutal earthquake and tsunami that hit Japan in March 2011 badly affecting deliveries from local suppliers and thus affecting output from the company's 17 factories in the country. As if that weren't bad enough, the flooding in Thailand later in the year also create the hurdle in operations.

TOYOTAS RECENT STRATEGIES IN EMERGING MARKETSLOCALIZATION INITIATIVESToyotas main focus is on emerging markets and it is doing many efforts in these markets aiming at producing even better cars through new strategies. With the lessons learned from past recalls in North America, Toyota is continuously showing the attitude of proactively recalling the vehicles and have everything under control before any serious accident happens. It doesnt believe that these recalls would damage the brand image or cause the shares to decrease as there were no injuries, fatalities or crashes. Toyota appears to be finding defects and acting faster to fix parts thereby limiting the impact of the problem. Toyota is following a strategy of conducting business that is strongly rooted in the countries in which it operates by adapting to local needs and pushing for 100% localization. Toyotas emerging market sales ratio reached 45% in 2011, an increase of 10% in the three years since it achieved 35% in 2008. The Toyota Global Vision calls for an emerging-market sales ratio of 50% by 2015 and it is striving to achieve the target before the schedule by strengthening its global supply system in emerging markets and increasing localization with Asia as an important base. In addition to this, it will actively release compact vehicles specifically designed for emerging markets. The main strategy is thorough localized procurement and ensured and enhanced cost competitiveness because Toyota believes that ensuring cost competitiveness by achieving thorough localization is necessary in making further progress in intra- and extra regional exports. It therefore is maximizing local R&D functions and seek to achieve local/ regional procurement rates of 100% at the earliest possible stage. In the past, Toyota introduced the IMV Project which constituted an important sales strategy in emerging markets. It was launched in 2004 consisting of five vehicles - three pickup trucks, a minivan and an SUV specially developed for introduction in over 140 countries. Currently, the IMV series is manufactured in 11 locations with sales of locally manufactured vehicles underway in approximately 170 countries. Toyota applied the genchi genbutsu (onsite, hands-on experience) approach to observing and analyzing the kinds of vehicles used in various parts of the world, and developed and introduced IMVs to meet the needs of each region.EXPANDING THE PRODUCTIONToyotas global expansion policy on operations in emerging markets is to be contributive to the development and welfare of the country. It is doing so by contributing to the development of the economy, employment, transportation, infrastructure, etc. of the countries in which it operates through cultivating and developing the supporting industries and engaging in operations that are based locally. Toyota believes that setting up operations in a country is becoming a corporate citizen there and through the auto industry it contributes to society via foundational activities like environmental conservation and human resource training. It emphasizes communication with local communities for sustainable growth in every country in which it does business. For instance, Toyota has planned to contribute to the growth of the Russian auto industry by increasing production of the Camry by Toyota Motors Manufacturing Russia (TMMR) and also by starting local assembly of the Land Cruiser Prado in Russia. Also in the Republic of South Africa, Toyota is looking forward to build a vehicle supply system that can meet the special characteristics of each African nation. Toyota aims to open and penetrate new markets through sales measures closely aligned to each region. Toyota's overseas business has evolved through three stages, from making in Japan and exporting, to producing in regions where demand exists and then to the current stage whereby Toyota has an efficient global production system and global supply chain. Global production and supply are supported in the emerging markets where it has been increasing investment so as to boost production capacity. It began production of the Fortuner in India in 2009 followed by the diesel Corolla and the Etios in 2010 and expanded investment in factories accordingly. In Brazil, production of the Corolla FFV began in 2007 and sales have steadily increased since then. NEW COMPACT VEHICLE STRATEGYThe automobile market in emerging markets is growing each year in tandem with the economic growth of each country. Within those markets, the growth has been remarkable in terms of sales of compact vehicles and so Toyota is promoting a new compact vehicle strategy that emphasizes the compact vehicle lineup and seeks to meet the needs of consumers in emerging markets. The efforts of Toyota includes the launch of eight compact vehicle models specifically designed for emerging markets starting with the Etios in India in December 2012. Toyota is planning to produce compact vehicles in emerging markets and deliver a total of more than 1 million vehicles in one year to customers in over 100 countries. In lieu of this, delivery of the compact Etios sedan and Etios Liva hatchback models to South Africa via Toyota Kirloskar Motors (TKM) of India began in April 2012.EVALUATIONIf we talk about the strategies of Toyota, we can say that it has been proactive always to the changing environment. It continuously adapted to the dynamic environment by devising new strategies for increasing the sales. There is a belief in the minds of the people that Toyota vehicle is a quality vehicle but when it comes to recalls, they are unable to understand the reason behind these huge recalls. The biggest challenge for Toyota is to make people keep believing in its quality vehicles. It is also doing so by proactively recalling and fixing it for free. It should put more focus on this area as this can create problems for Toyota. It should communicate to the people about the reasons behind these recalls. Toyota is very good in emerging markets and following a wonderful strategy of localization and development of the nation economy. It became the largest automaker in the world who is producing the maximum no. of vehicles. The biggest question arises now is how to achieve zero defect target so that the recall ratio is zero.ReferencesCompany, M. &. (2014). The road to 2020 and beyond : Whats driving the global automotive industry? Mckinsey&Company.

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