Submit by

Bilala Husain

To

Qaseer Fareed

Subject: - Principle of Management

Assigment # 1

University of Lahore 2010

Toyota Group in Japan:

INTRODUCTION

The history of Toyota Production System (in this paper TPS) is well known among researchers specialized in automotive sector. This system (also known as Toyotism and Lean Production) has been credited as the productive model that powered Toyota’s success. It was systematized in the1970s by Toyota based on the concepts of Just-in-Time and Jidoka (automation), and in the 1980s it was considered by many researchers to be the most efficient productive model. This paper focuses on the GERPISA’s interpretation, especially studies by Koichi Shimizu (1993, 1995, 1999), Robert Boyer and Michel Freyssenet (2000, 2001), which focuses on th highly embedded nature of productive models, from both socio-economic and institutional viewpoints. We truly believe that the aim of Toyotism is constant cost reductions through employees’ and suppliers’ commitments to Toyota’s strategy and objectives. The viability of this system highly depends on the commitments of these two parties. The aim of this paper is to question the evolution of these two compromises within Toyota Group in Japan between the 1980s and 2008.

RESEARCH METHODOLOGY

We focus on the Toyota Group in Japan and its evolution between 1986 and 2008. We especially survey the inter-firm relations and labor relations within this group in Japan. We define four main parameters: globalization, the structure of net sales (especially consolidation), the portion of a firm’s production supplied to the Toyota Group (here, the “intra-group supply ratio”), and externalization. A number of sources are examined: annual reports, factbooks, financial results of several firms from 2000 to 2008, and the Japanese Automotive Suppliers Reports (1985-2007). This study uses the definition of the Toyota Group coined by Hiromi Shioji in 1987, who distinguished four groups: the main Toyota Group (15 firms in 1986 and in 2008), the suppliers gathered in the Kyohokai grouping (217 firms in 2009), the related firms and the dealers. Before proceeding, we note that this study focuses on the main Toyota Group and the Kyohokai. We disregard Toyota Tsusho, Toyota Central Research and Development Laboratories, and Towa Real Estate (three firms belonging to the main Toyota Group), since they have no productive relations with Toyota.

PARADOX BETWEEN THE DECREASING JAPANESEAUTOMOTIVE MARKET AND JAPANESE CARMAKERS’PERFORMANCES

Whereas the worldwide crisis in automobile sector has beenspreading since last autumn, the Japanese automobile market has beendeclining since the 1990’s. In 2007, the total number of privately ownedvehicles in Japan declined for the first time in more than 40 years1 while

vehicle sales have been falling since 1990. Currently, the number of total vehicles sold in Japan is roughly equal to the 1980s figures, that is, about five million units per year (Nikkei Newspaper, ‘2008 Nevertheless, the Japanese automotive market is still the third largest one in the world2. Its characteristics include the importance of light vehicles, weakness in the import market (5~6% of the entire national market), high car prices3, low ownership of cars in big cities4, and the numerous rules imposed on car ownership (proof of garage ownership before purchase, high-cost mechanical inspections). Toyota maintains a national market share of roughly 40%. This raises an interesting question: what are the strategies and performances of the major Japanese carmakers in such a national context?

THE INTERMEDIATE POSITION OF TOYOTA

In FY2007, the head company of Toyota made 46% of total consolidated net sales, and since 1998 over 50% of its consolidated net sales has been made abroad. Compared with Honda and Nissan, this level of consolidation is less strong, meaning that the trend of externalization is weaker. Toyota’s consolidated subsidiaries have accounted for more than half of net sales only since 2005, whereas this has been the case for Honda since 1999 and for Nissan since 2002.Graphs 3 and 4 clearly show that since the end of the 1990s the curves of total net sales, unconsolidated net sales and net sales made in Japan have diverged. This means that both foreign markets and foreign or national subsidiaries have played wider roles in Toyota’s success. To summarize, with respect to international activities and consolidation, the trajectory of Toyota has been similar (though more nuanced) to those of Honda and Nissan. The main issue is to determine what effects such a trajectory has had on Toyota’s suppliers. Has Toyota changed its policy toward its Japanese suppliers? What have been the consequences of the declining Japanese market for the overall Toyota Group?

THE EVERLASTING TOYOTA GROUP

A research led by Hiromi Shioji (1987) focuses on the evolution of the Toyota Group from the 1960s through the mid 1980s. He classifies the suppliers into nine categories according to the amount of their net sales and the percentage of their production supplied to the Toyota Group.Furthermore, he asserts that the core of the group is composed of 40 firms,all of which, except for Toyotakako Co., Ltd, are large-scale enterprises. An analysis of these firms’ productive relations between 1973 and 1986 leads to three conclusions: the firms whose intra-group supply ratio had been above70% seemed to show a diminished supply of production to the Toyota Group; the firms that had an intra-group supply ratio between 30% and 70% showed an increase in their industrial relations with the Toyota Group; and, finally,there was no significantly high decline or increase in the intra-group supply ratio. Consequently, the average variation did not exceed 4.7% during this period, implying that the industrial relations within the Toyota Group were stable. Based

on this study during the period of 1960-1980, we extend the results to the timeframe of 1986-2008 to understand the ways in whichthe Toyota Group evolved during this period of major changes in theJapanese market, characterized by an increase in overseas sales and the strengthening of consolidation. Can we isolate groups of enterprises whose trajectories are similar to or different from other groups of firms?

THE KYOHOKAI

In 1986, 173 firms5 were gathered in the Kyohokai, which was then divided into three regional associations: Kanto, Chubu and Kansai. In 2009, there are 217 firms in the association, which had been unified into a single association in 1998. Table 1 shows those firms that entered the association and that left the association up to 2006.

THE CORE GROUP

What about the core group, the 40 main enterprises (37 in 2008) as defined by Shioji? When analyzing these enterprises, it seems evident that they also grew tremendously, in terms of net sales, along with Toyota.The average growth rate of unconsolidated net sales between 1986 and 2008for 24 firms was 195.9%. There was also a strong trend of strengthening inter-firm relations, when looking at the intra-group supply ratios and stock shares. Graph 5 shows the development of net sales for eleven core companies.There is no obvious increase or decrease in intra-group supply ratio, as well as no decline in stock shares, but there is steady evolution of net sales, and even strong evolution for Aisin Seiki Co., Ltd. and Denso Corporation. As for the question of heterogeneity, a difference is seen when comparing the correlations among net sales, supply structure, and consolidation. There are two groups. The first group7 is made up of firms dependent on Toyota, strongly rooted in the Japanese market, and marked with weak consolidation. These firms, whose intra-group supply ratio exceeds 70%, have an average overseas net sales beneath 10% (6 firms) and unconsolidated net sales ratio of 81.7% (7 firms) with four firms over 90%.The second group is larger and made up of companies that have development in foreign countries, large groups, and less dependence on Toyota. These firms, whose intra-group supply ratio is between 20 and 69% have an average overseas net sales of 35.5% (12 firms) and unconsolidated net sales ratio of 63.2% (13 firms).

THE END OF STABLE LABOUR RELATIONS

There is no stability when considering the labour relations. One can distinguish a trend of “controlled autonomy” in an era of flexibility, as described by the French scholar Béatrice Appay. It means that we face a paradox between growing responsibility and at the same time strengthening of control systems. Through policies of flexibility, Toyota externalizes

responsibilities, costs, workers and production. This is a typical process of precariousness building. The references to the group are threatened, which means the end of social construction of the individual identity. The main criterion to bring to light this tendency is the increaseof non-regular workers or temporary employees as a mean to adapt production levels to market shifts. The next figures show this increase for some firms belonging to the Toyota group: