Yahoo Autos
Please enable Javascript

Javascript needs to be enabled in your browser to use Yahoo Autos.

Here’s how to turn it on:

Japan's Automakers Face New Challenges (1): Toyota in China

There is one industry in which Japan must retain its global competitiveness, and that is automobiles.  The question is how to do it.

I really don’t think the issue is in doubt.  Since the 1970s, Japanese automakers have overcome many obstacles in their march to capturing major market shares in countries around the world.   Of course they enjoyed some advantages along the way too, not least an undervalued yen in the decades before the 1985 Plaza Accord.  But what has really driven Japanese automakers’ success has been their relentless pursuit of excellence, style, economy (read: value for money), and quality, imbuing their products with something special that buyers immediately appreciate.

But, if anything, the challenge of staying competitive is today more daunting than ever.  The historically high yen—very likely to remain high for years—is one part of the challenge.  Another is the inexorably strengthening capabilities and targeted strategies of rival automakers outside Japan, especially, it seems, the Koreans and Germans.   And finally—perhaps most importantly—the increasingly inescapable requirement to design, manufacture, and sell cars inside major markets.

We can see how bedeviling this new situation is in the case of Toyota in China.   At the Shanghai motor show in April, Toyota president Akio Toyoda announced that the company was studying producing in China key components of its hybrid vehicles (HV), such as batteries and motors.   Theretofore, the company had only produced these products within Japan.

In 2010 China was the world’s largest auto market at some 18 million units sold.  For Toyota, as well as for the world’s other leading automakers, China is a “must win” strategic market.  The Chinese government continues to pressure foreign manufacturers to increase locally-manufactured content.   Cost competition is also a driver.

Market perception of the Toyota brand is a critical strategic issue for Toyota in China, as well as in India and many other important rapidly growing markets.  In China, the company has identified nurturing the perceptions of advanced HV technology, ecological friendliness and economy (again read: value to money) as strategically critical for its medium and longer term market competitiveness.

Hybrid vehicles are to be a major part, if not the dominant, part of Toyota’s China market strategy.   But to implement this strategy seems to require that the company manufacture critical components in China, risking the loss of essential technologies.   This is the dilemma, and it is a huge one.

I think loss to competitors—through theft—of technologies transferred to China-based operations is not a risk:  it is a certainty.  I would be very surprised if the management of Toyota has not also accepted this inevitability.  At best, what the company can strive and hope for is a time lag between the time when the technology is introduced and when it is lost, during which a successor technology can be developed.   In other words, to accept the requirement to manufacture advanced products locally is to accept the requirement to accelerate the pace of innovation at the company headquarters.

Or (really and/or) to transfer to local markets the requirement to develop new, proprietary technologies and products.  This is an approach which many of the auto manufacturers are pursing in China, setting up R&D facilities.   The first big one was between GM and SAIC, set up when GM won the bid for a JV in Shanghai in 1995.  But one has the sense that these are supplementary initiatives, if not a perfunctory stratagem to gain favor from government regulators and licensing officials.

Toyota is not planning to give away everything in its China strategy.  It will keep at home development and production of critical computer control systems, and much else.   But the company, as well as other Japanese automakers, will being transferring and risking more--as they are forced in China and elsewhere to compete in a new market environment.

Japan's Automakers Face New Challenges (1): Toyota in China