Toyota- localisation of production in SouthEast Asia [case study]

Question 1: Why did Toyota establish a regional production network in Southeast Asia? Identify and justify three key drivers. Once you have identified these drivers, consider what managerial and operational challenges a regional production network presents. Identify and justify three key issues.The three key drivers of Toyota establishing a regional production network in Southeast Asia are as follows:1.“Sales of Hilux pickup truck had been steadily declining in Japan”, soToyota decided to “design affordable yet high quality pickup trucks and MPVs for growth markets, mainly in emerging economies including East Asia”. The decline of sales in the domestic market was one of the drivers for Toyota to expand the East Asia market.2.The decision mentioned above was “further compatible with theoverall strategy of increasing Toyota’s global market share of auto production and sales”. Also as mentioned in the case that “Toyota was (and remains) committed to increasing overseas production”, so when facing sales pressure in domestic market, the commitment and overall strategy of capturing global market was the second driver of its establishment of regional production network in Southeast Asia.3.The Asian Financial Crisis forced “a critical re-revaluation of Toyota’straditional st rategy of local assembly by using components… from Japan”. Toyota’s manufacturing model is dependent on close suppliernetworks. To relocate its production overseas, it needed to establish production network as well.So in conclusion, the declining sales of Hilux pickup truck, the compatible overall strategy and the Asian Financial Crisis were the three key drivers. When the sales decrease domestically, Toyota decided to boost it by expanding overseas market in emerging economies, which is compatible with its overall strategy. The Asian Financial Crisis made them change their strategy from local assembly using components from Japan, to relocate its production network to Southeast Asia.The challenges in this case were much because of the manufacturing model of Toyota.1.The leitmotif of Toyota is kaizen and consistent quality so manychallenges would associate with replicating the Japanese model overseas and they are magnified in developing countries such as in Southeast Asia.2.The application of lean manufacturing is dependent on closelycoordinated supplier networks but the Asian Financial Crisis presented an urgent economic rationale to increase localisation of component sourcing especially with depreciation of Thai Baht.3.The pressure from competitors were twofold. Toyota need to offerattractive models utilising the latest technology instead of oldermodels in developing countries but also maintaining a competitive price.Question 2: Critically analyse the concept of localization. Use this case as an example.For analysing the concept of localisation, I assume that the question is askingwhat localisation means in the case and whether itis good or bad for the business.Localisation in this case means customising the fir m’s products to match the needs in a different region, replicating the manufacture model to a different region to produce standard components and assemble locally to reduce the costs and also localisation of staff and management.There are two strategies involving localisation of the first meaning: multi-domestic strategy and transnational strategy. In the case of Toyota, I believe they are using the transnational strategy because they have both high cost pressure from competitors and high pressure to respond to the market.Toyota specifically chose five models with three body styles to meet the needs of the market. The models share a common platform to reduce the design and production costs so that Toyota can be competitive in price while maintain high quality. The platform is designed for the challengingdriving environment, and the various models are to satisfy the diverse demand of Southeast Asian consumers, considering their different level of income and tastes. There is also R&D centre which can handle the localisation of design. The localisation of model design both lowers the costs and better meets the needs of the customers.Localisation in this case also reflects on production. Toyota centred the production of IMV vehicles in Thailand and Indonesia.All production occurs outside Japan and the localisation rate is reported as 97% in Thailand. The localisation of production network is necessary sincethe depreciated Thai Baht made the using of components produced in Japan expensive. The localised production greatly reduces costs and allows Toyota to compete both on price and quality. ASEAN gives Toyota advantages of supplier networks in the region, which helps replicating its lean manufacturing model. The IMV production bases of Toyota in Southeast Asia is producing a growing units of products, comprising almost 10% of its total production and some of the products are even exported.To better manage the localisation, Toyota also adjusted its organisation structure. It established RHQ in Singapore to manage human resources and supply chains for regional management.。