PEST Analysis of Toyota
The search of transnational corporations to look out for locations for their plants outside their home country is often the most important force in simulating the global economy. They look for locations as they need to be more competitive and cost effective due to growing competition in their own industry and the rising demands of the buyers. Since each country offers different opportunities in terms of regulations and investment rules, Transnational Corporations select the best country which falls within their growth plans and effective cost savings.
Toyota is one of the world’s leading car manufacturers and is the third largest in the world. Toyota has learned that it can make considerable gains by expanding it’s manufacturing operations outside its own home country making it a transnational corporation. The country / market we have chosen for Toyota is United Kingdom and we will study whether the decision of Toyota to enter European Market was for good or bad.
The opening up of European market in 1992 fuelled the decision of Toyota to set up manufacturing operations in United Kingdom, as all the quotas and tariffs protecting the domestic car manufacturers were abolished and the whole European market was created as a single entity, providing a single large market to play in for Toyota and become a European Car manufacturer. By setting up plants in UK it effectively avoided the tariffs, used the local pool of talents which were cheaper and educated, the infrastructure was developed which gave an added advantage to operations of Toyota.
Plus, the European Union provided the most stable political conditions where all the countries merged their economies to create a large market where movement of goods and labour was freely possible without any hassle.
Abolishment of trade regulations and development of steps towards an economic integration of European countries provided Toyota a big opportunity to set up its manufacturing operations and making Britain its centre of manufacturing operations for Europe. It opened up its plants in Burnaston and Deeside – North wales. It enabled Toyota to qualify for subsidies and exception from taxes and duties making its product more competitive for European market.
The decision of Toyota to setup operations in UK was a very good decision and it has paid off quite well. Being able to use the talented workforce, a well-developed infrastructure and entry into one of the biggest markets are some of the distinct benefits derived from this decision. Moreover free movement of labour and knowledge of choices and preferences of European customers provided valuable insights into development of new designs of cars specially designed as per European people tastes.
Being a Medium Developed Economy in 1992 UK provided Toyota a perfect location to invest in manufacturing operations. The technology was easily available and the educated workforce readily available to work on new technologies gave it added advantage.
Mode of Entry
Toyota took the option of FDI since being a transnational organisation it needed a full control over its all operations for smooth entry in the market. It did not go for a Joint Venture or merger since both modes requires sharing of technology and in the Car industry where there is a cut throat competition, Toyota’s decision to invest directly was the best entry mode in my view.