Toyota’s Strength Derives from Sense of Crisis

Toyota is top everywhere-

From January through March this year, Toyota sold 2.35 million cars in the global market, surpassing General Motors (GM), the U.S. carmaker that has been the “world’s No.1” for the last 74 years, for the first time.

“That’s a figure for just three months,” said Toyota President Katsuaki Watanabe. “You never know what the number will be on a yearly basis.” Projecting next year’s sales revenues and number of cars sold to be 25 trillion yen and 8.89 million units, respectively, he made it clear at the same time that the company will do its best to further outperform its strongest competitor.

Toyota’s rival, GM, made a de facto “declaration of surrender” in its annual report submitted to the U.S. Securities Exchange Commission in March by noting, “It no longer is confident that it can maintain the No.1 share in the global automobile market.” Against this backdrop, industry experts have already considered it a given that the U.S. car manufacturer will have to relinquish its throne in the world auto industry.

Toyota recently realized its long-cherished dream in the domestic market, too, as its affiliate, Daihatsu, succeeded—for the first time in 34 years—in outstripping Suzuki in small car sales in 2006. A company with an extremely different management style from Toyota’s, Suzuki has so far been regarded in Japan as a clear illustration that there is “a rival that even Toyota cannot do anything about.”

“Toyota DNA” spreading to the public sector-

With Toyota’s impressive success, its management style has rapidly spread not only to enterprises but also to the public sector.

The Japanese government recently appointed former Toyota Italy chairman Kitamura Norio as the first chairman of a postal company to be launched in October 2007 as the result of the Koizumi Junichiro administration’s effort to privatize the state-run Japan Post.

The nominee is well known for his “Miracle of Italy,” increasing Toyota’s car sales in Italy tenfold under his 10-year leadership.

Former Toyota vice president Inaba Yoshimi took office as president of Chubu Centrair International Airport in June. The company’s former managing director, Hasegawa Koji, became the first chairman of the Metropolitan Express Company Ltd., which was established in October 2005 following the privatization of four road-related, state-owned corporations.

Dramatically losing public confidence after a series of embezzlement scandals by its employees, the Japanese state-funded broadcaster NHK invited Kanada Shin, a former Toyota managing director and public relations expert, to be one of its directors.

Highly efficient production system and excellent sales force-

The biggest reason for Toyota’s strength, experts say, is the Toyota Production System (TPS), which maximizes efficiency.

The effects of the TPS have been fully proven in businesses other than the company itself.

After introducing the TPS in its domestic maintenance bases, Japanese Airlines (JAL) reduced its repair schedule by 35 percent. The Japan Post also saw its productivity highly enhanced after the introduction of the system.

This, however, is only one example of Toyota’s many strengths. The carmaker’s sales force is also outstanding, as proven by its successful global marketing of Lexus.

Though indicated by some as the “dark side of Toyota,” its labor structure guarantees it an upper hand in wage competition, too. About one third of its production workers are irregular ones; for many of its subcontractors, around a half of their employees are low-wage immigrant workers.

A case in point is the Homi Housing Complex in the city of Toyota. Of the 10,000 residents of the complex, approximately a half of them are foreigners, including Brazilian-Japanese.

No wage increases even when the company performs wonderfully-

Cited as another source of the “Toyota Power” is its perpetual sense of crisis.

The company’s labor union gave up demanding a raise during their spring collective wage negotiations for three consecutive years (2003-2005) when the company kept hitting record-highs in profits. It was widely believed in early 2005 that its net profits would exceed one trillion yen for two years in a row, but the labor union made such a move on the grounds that with Korean and European rivals rapidly catching up Toyota, the prospect for future performance was not bright.

In this year’s spring negotiations, held as the Japanese government encouraged a wage increase in an endeavor to promote consumption, the Toyota labor union made a relatively modest request of raising basic wages by 1,500 yen (around 12,000 won).

Concerns were prevalent, however, among the company’s top management that if they “keep increasing wages this way, [Toyota] will face the same problems as GM in 10-20 years.”

Consequently, the labor union made a compromise, and the two sides agreed on a 1,000-yen increase as in the previous year.

“Let us not become the second GM”-

As Japanese society highly praises Toyota nowadays, some members of the company have become wary. “In 1952, when GM was enjoying its heyday, its downward spiral began when its president Charles Irwin Wilson was nominated as defense secretary.”

Japanese society is also making endeavors to prevent the carmaker from indulging in self-complacence.

In its latest edition, the economic weekly Nikkei Business published an interview with Toyota President Watanabe to deliver messages from various sectors of society criticizing the company’s signs of “large-business syndrome.”

A former Toyota executive who once served as head of the company’s production survey team expressed his worries about its future by saying, “These days in Toyota factories, I see the paint peeled away on some parking-lot iron fences or toilet pipes. In the past, such things were unimaginable.”

Professor Itami Hiroyuki of the Hitotsubashi University Department of Business Administration stated in the magazine, “Given Toyota’s performance, it is no wonder there are some employees becoming arrogant. The fact that its management perceives this situation as a problem is a sign that Toyota’s still all right.”