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Actes du GERPISA n° 26 37

TOYOTA MOTOR MANUFACTURING AUSTRALIAIN 1995: AN EMERGENT GLOBAL STRATEGY

Takahiro FUJIMOTO

The purpose of this paper is to describe andanalyze the manufacturing operations of ToyotaMotor Manufacturing Australia Ltd., an Australiansubsidiary of Toyota Motor Corporation, from thepoint of view of “emergent global strategy”. It isbased on an exploratory case study.

In the field of strategic management, the notionof “strategy as plan” has been a prevalent idea formany years, in which strategic intent precedesstrategic implementation (Andrews, 1980, Hoferand Schendel, 1978, etc.). There has been anotherconcept of strategy concepts, “strategy as pattern”,which assumes the possibility that competitivestrategy may be formed even without a priorintention to be competitively rational (Mintzbergand Waters, 1985). Mintzberg and his colleaguescall a strategy that was unintended but realized“emergent strategy”1.

Such arguments for emergent strategies can beapplied to global operations. There has been, ofcourse, a mountain of literature on global strategies

1 For a related concept in sociology, «latent function», whichrefers to when a function turned out to contributed to asystem’s survival but was out motivated by prior intention, seeMerton, 1968.

of manufacturing firms in the field of internationalmanagement. The transnational strategy (Bartlettand Ghoshal, 1989), which tries to linkinternational operations with distinctive resourcesand capabilities by a network of people, materials,money, technology, and knowledge, for example,has attracted much attention. International MotorVehicle Program of MIT (Womack, et al., 1990)also advocated a similar global network. Theexisting works on global strategic management,however, tend to be explained by the “strategy asplan” concept, driven by a prior grand design anddeliberate decision making at the headquarters.Rational decisions do more or less guideinternational operations of manufacturing firms,but it is also possible that the global network mayevolve into what the original intention did notpredict. This paper pays a special attention to telatter aspect, or “emergent global strategies” thatresult from a series of crises and responses.

As a case study, this paper describes andanalyzes Toyota Motor Manufacturing AustraliaLtd. (TMCA). In this company, a strategy ofoverseas manufacturing capability-building andglobal networking of managerial resources has

38 Actes du GERPISA n°26

emerged as a result of inevitable responses tointensifying local competition in Australia.TMCA, originally established as a local-market-oriented operation that fit the Australiangovernment’s import substitution policies and theprotected domestic market, evolved into animportant node of Toyota’s global manufacturingnetwork as it struggled to survive in a series ofcrises. This process may be seen as an interestingexample of an emergent strategy, in which day-to-day local manufacturing operations for survival andglobal strategy formation are virtually inseparable,unlike deliberate strategies based only onarticulated global visions.

Before analyzing the case, let me explain thebackground - the Australian automobile industryand its transformation. In the 1980s, the Australiangovernment abandoned its protectionist automobileindustry policy that it had supported for manyyears. This can be regarded as a pioneering case ofa government’s effort to rationalize an inefficientlocal industry created by protectionism.

From the Australian local makers’ point ofview, however, such a drastic change of industrialpolicy inevitably created a serious crisis. Facingfierce competition from imported vehicles, onelocal auto maker has already closed down itsAustralian manufacturing operation. The survivinglocal makers are set to continue to face very severecompetitive environments.

In the middle of this crisis, TMCA has exploredits way toward a relatively autonomous overseasoperation with a mid-size manufacturing facility.In fact, it appears to have accumulated capabilitiesas an important node of Toyota’s globalmanufacturing network through rather aggressivecapital investments, the consolidation of localmanufacturing facilities, the rationalization ofproduction systems, improvements in humanresource management, the formation of vehicle-parts complementary networks, strategic allianceswith other makers and so on. This paper describesthe above process as a kind of emergent globalstrategy formation.

Compared with the overseas operations ofJapanese auto firms in Asean and other Asiancountries, the Australian operations may be muchless known to the public. However, the case ofTMCA may be regarded as a pioneering exampleof how an internationalized manufacturing firmstrengthens its overseas operations vis-a-vis a flood

of imports into the host market after theprotectionist policy of a local government is lifted.

It is also important to note that a crisis situationtends to reveal inter-firm differences in interpretingenvironments and forming strategies. It is thuspossible that the intensifying competition in theAustralian auto market may reveal “Toyota-ness”,or a distinctive competence of this high-performingmanufacturer. Against this background, let’sinvestigate Toyota’s Australian operations.

AUTOMOBILE MARKET, INDUSTRY ANDINDUSTRIAL POLICIES IN AUSTRALIA

Market TrendFor various economic and geographical reasons,

the car ownership ratio in Australia is quite high.As of the mid 1990s, there were about 10 millioncars and trucks in operation while its populationwas only 18 million (60 million vehicles and 130million people in Japan). The ownership ratioitself has been almost saturated, however. Averageage of the vehicles (about 10 years) and averagelife expectancy (about 20 years) are both quitelong. People tend to keep old cars. As a result, thedomestic market (mostly replacement demand) israther small and saturated at around half a millionunits per year. (see table 1)

The market structure is somewhat similar to thatof the U. K. in that about half of the passenger cardemand in Australia is for so called “companycars”, which companies own and lend to theiremployees as a part of their fringe benefits. Sincethe companies also pay for gasoline, the drivers(?employees) do not care much about fuelefficiency. Thus, company cars occupy 80% of thelarge car market in Australia. By contrast,individuals tend to buy inexpensive small cars orused cars.

Car leases have begun rather recently, but arerapidly expanding. There may be volume discountson the lease fee. Lease periods are typically threeyears, after which ex-lease vehicles are sold to usedcar markets. People in Australia, a former Britishcolony, tend to regard themselves as European-style car users. The fraction of cars equipped withautomatic transmissions (AT), for example, is 60%in the case of the Toyota Corolla, which is muchlower than the level in the US market, if not inEurope.


Table 1: Outline of the Australian Automobile Industry

Production Production Import In Use

Passenger Commercial Passenger Commercial Passenger Commercial Total

'60 259340 66910 244818 65541 7807 692 2813300

'70 391946 81844 413061 88537 42362 16255 4783300

'80 318048 47179 453378 121486 150218 102759 7263100

'87 309962 20279 369335 81469 9022600

'88 317367 29661 418699 118238 108289 101204 9221100

'89 356898 28786 464322 131946 174692 132632 9489500

'90 360919 22737 486947 127793 170338 110291 9776600

'91 278423 15372 416783 81322 176260 87467 9814741

'92 270170 14932 453214 138499 189421 102254 9954500

'93 285076 20093 455911 91859 199824 102254 10139800

'94 285900 13800 502011 106359 10407400

'95 293631 25405 527132 106351 10638200

Source: JAMA, Nikkan Jidosha Shinbun (Automobile Daily News), etc.Since the government’s protectionist policy was

relaxed, complete vehicles have been importedfrom various countries. Imports from Korean andSpanish-built vehicles were growing particularlyrapidly as of the mid 1990s.

Transformation of the AutomobileIndustrial Policy

From the 1930s through the 1980s, Australia’sautomobile industrial policies had consistentlybeen projectionist in nature, with such import-substitution measures as high import tariffs, importquotas for complete vehicles, local contentregulations, and so on.

Behind such a policy was, apparently, thedoctrine of so-called “infant industry protection”,which insists on temporary protection of adomestic industry in order to buy time for its take-off in terms of international competitiveness.Typical examples include the Japanese and Koreanauto industries, which followed the path ofprotection - establishment of internationalcompetitiveness - relaxation of the protection,although the net effects of the industrial policy arenot clear.

The Australian auto industry, however, wasapparently suffering from the vicious cycle ofchronic protectionism and retention of inefficientsectors, a typical trap of import substitutionpolicies. The fact that the Australian domestic

market is small and saturated amplified thisproblem through the chronic high-cost structure ofsmall volume producers.

This industrial policy changed completely in1988, however, when the trade minister Buttonannounced a drastic conversion of the policytoward the relaxation of protectionism and thepromotion of exports--the so-called “Button plan”.The new policy, targeting passenger car producersand specialist component producers (but excludingcommercial vehicle producers and replacementparts suppliers) consisted of the followingelements:• Gradual reduction of tariffs for complete

vehicles (see figure1: 15% in 2000)• Abolishment of import quotas (1988)• Penalties against small volume production

models (regulation of minimum annualproduction volumes by models)

• Export promotion measures• Imported parts concession

The above policy aimed at promotingcompetition by trade liberalization and therebyrationalizing the product mixes and productionsystems of local producers, as well as improvingquality and productivity and lowering prices. Inorder to alleviate the damages to the localproducers, however, such measures would be


introduced gradually with micro-level supports forthe local makers.

It is rather generally observed that a countrywith import-substitution policies shifts its emphasisto export promotion while keeping some forms ofprotectionism in place. The present Australiancase, however, is characterized by a morecompressed schedule of shifting to exportpromotion and lifting protection (although step-by-step) simultaneously. Such a drastic policy changeis rather rare in the world auto industry.

Note also that the new policy virtually restrictsthe number of domestically produced models(consolidation of product mix), which is differentfrom restriction of new entrants (historicallyobserved in Korea, for example). This policy tendsto result in exchanges of models and other tie-upsbetween firms aiming at product-level economiesof scale.

The Automobile Industry in AustraliaThe Australian automobile industry has a fairly

long history, originating back in 1925, when bothFord and GM started local assembly operations.

Both firms also started local knock-down assemblyin Japan at roughly the same period.

After World War II, domestic demands of theautomobile continued to grow until the 1960s, andthis, together with protectionist-localizationpolicies by the government, induced new entry ofsuch foreign auto makers as VW (newlyestablishing MPL in 1957), Toyota (startingconsign production at Australian Motor; 10%capital participation in 1968; 50% in 1970; 100%in 1988), and Chrysler (acquisition of RootsMotors in 1965). Then Nissan purchased the VWsubsidiary in 1976, and Mitsubishi bought outChrysler’s position in 1979, creating a fivecompany regime with two American and threeJapanese auto makers.(see table 2 and figure 2).

In 1992, Nissan divested from Australia,leaving four local passenger car producers, Ford,GM (Holden), Mitsubishi, and Toyota as of the late1990s.

Local production facilities are concentrated inSouth Australia State (near Adelaide; GM andMitsubishi) and in Victoria State (Melbourne; Fordand Toyota).

Table 2. Australian Motor Vehicle Production (Incluging Export)

Ford GM-Holden Mistubishi Nissan Toyota total

1987 129,899 99,060 45,691 36,730 46,221 357,601

1988 130,049 87,753 53,220 46,851 55,134 373,007

1989 157,578 110,831 50,754 52,357 59,474 430,994

1990 156,686 103,918 36,547 57,918 72,131 427,200

1991 123,634 78,640 30,948 35,359 59,244 327,825

1992 112,801 90,845 39,024 20,231 50,021 312,922

1993 126,409 97,543 52,350 nil 67,400 343,702

1994 130,058 122,046 48,063 nil 77,741 377,908

Source : TMCA


Competition against imports has intensified inrecent years. As of 1995, for example, when thetariff on imported vehicles was 27.5%, the share ofimport vehicles had already reached 40% (seefigure 3). The tariff will further decrease to 15% inthe year 2000, which should further push up theimport share. Accordingly, the variety ofdomestically sold vehicles increased dramaticallyfrom 200 in 1978 to 550 in 1995-good news forAustralian consumers, but a bad news for localproducers.

US Makers: Annual production of the two USmakers has been fluctuating at level of roughly100K~150K each since the late 1980s. Both firmshave autonomous operations with productdevelopment, production and sales functions, aswell as Australia-specific models in the large carsegment. Both GM and Ford are estimated to have600 to 700 people in their respective productdevelopment groups.

Although the US makers develop and produceunique models (GM Comodore and Ford Falcon),they are more like derivative models which madeuse of the companies’ global networks. Forexample, the Comodore, a large car of GM-Holden,has a unique floor panel design, but its door designwas derived from a vehicle from Opel, GM’sEuropean subsidiary, and many other componentdesigns were carried over from those of GM in theUS.

Because of the small volume of local productionper model (less than 100K units annually), the twoUS makers have tried to lower depreciation costsby making their chassis-platform change cyclesquite long. Body exteriors receive minor

modifications year by year, as in the traditionalannual model change policy of the American automakers, but the platforms themselves haveremained unchanged for as long as 20 years. As aresult, some component technologies of the GMand Ford models have become quite obsolete. Asof 1995, for example, the Ford Falcon was stillusing rigid suspension, and the GM Comodore waspropelled by an overhead valve (OHV) engine,when independent suspensions and overheadcamshaft (OHC) engines were the prevalent modeworldwide. Down-sizing of the large cars has notmade significant progress. Thus, the large modelsby the US auto makers tended to be good only forthe Australian domestic market.

Figure 3 Share of Car Imports in Australia

19%

38%

46%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1988 1994 1-4 1995


By 1995, GM had decided to concentrate onlyon the large Comodore in local production, andreceived the OEM-supply of Corolla (Nova) andCamry (Apollo) from Toyota (TMCA), as well asreceiving Opel’s compact car, Corsa, from itsSpanish factory, creating a “patch-work” full lineproduct mix. The Nova and Apollo shared theirchassis and exteriors with the Corolla and Camryrespectively, but they had modified front grilles,head lamps, and rear combination lamps forsuperficial product differentiation.

Ford was reconsidering its strategy in Australiain 1996, taking into account the Australiangovernment’s industrial policies after the year2000. As of 1995, no budget for new capitalinvestment in Australia had been approved byFord’s US headquarters.

Mitsubishi: Mitsubishi’s Australian subsidiary(MMAL), was formed in 1979 through thepurchased of Chrysler’s Australian subsidiary. Itsannual production volume has remained between30K to 50K units in the late 1980s and the early1990s. The facility has produced the “Magna”, afairly large sedan, which was originally an enlargedderivative model of Mitsubishi’s Japanese model“Gallant”. The 1995 Magna was a modification ofMitsubishi’s larger model in Japan, “Diamante”(previous generation) with its “B-pillar” designchanged. Although it is generally difficult for automakers to change models simultaneously in Japanand Australia, it is true that Mitsubishi wasrenewing its locally produced models much morefrequently than the US-based makers.

Auto Parts Industry in Australia: TheAustralian auto parts industry consists mostly oflocal subcontractors producing non-functional partsand the Australian operations of large US andEuropean parts suppliers making functional parts.There are only a few Japanese parts suppliersoperating in Australia1. In other words, unlike UStransplants, Japanese transplants in Australia areunable to rely much upon local facilities ofJapanese parts suppliers.

1 Exceptions include Denso (locally producing radiator, airconditioner and meter), Toyo Rubber (instrument panel pad),and Bridgestone (tire and steering wheel).

The Impact of Industrial Policy Changeson the Companies’ Strategies

The strategic responses of the local auto makersto the new industrial policy that relaxedprotectionism can be summarized as a combinationof the following four measures: (i) consolidation ofmodels and factories; (ii) inter-firm coalitionbuilding; (iii) improvements of competitiveperformance at the plant level; (iv) divestmentmoves.

Consolidation of models: Due mostly to theButton plan, the number of domestically producedmodels decreased from 13 in 1984 to only 5 in1994, while the number of assembly plants andassembly firms decreased from 7 to 4 and from 5 to4 respectively (see table 3). Thus, therationalization of the local model line-up wasrather significant.

The model consolidation was particularlydrastic in the case of the US makers. GM, forexample, reduced its number of models from 4 to 1between 1984 and 1994, and Ford from 3 to 1during the same period. Thus, the Button planmade the U.S. makers virtually single-model-firms.This was a direct response to the new policy ofimposing prohibitive tariffs on import parts when amodel’s annual production fails to reach 30K units.Among the Japanese firms, Nissan closed down itsassembly transplant, and Mitsubishi reduced itsnumber of models from 2 to 1, while Toyota haskept its two-model line-up (Camry and Corolla) asof the mid 1990s. The contrast between Toyotaand US makers may come from theirmanufacturing strategies: the US makersapparently follow their traditional mass-productionstrategy for cost competitiveness; Toyota is moreoriented to flexible production system by which ittries to enhance competitiveness of medium-sizeoverseas operations.

Alliance among Local Subsidiaries : In order tomaintain the full-line policy in the show roomwhile consolidating locally produced models, theauto makers have to either import cars from theirother factories outside of Australia, or buycomplete vehicles from domestic competitors. Infact, since the announcement of Button plan in1988, local auto assemblers in Australia havebegun to form alliances with each other bymutually adjusting local models, commonizingparts and vehicle designs between them, andexchanging OEM supplies of complimentary


Table 3 : Reduction of Production Models in Australia

1984 1994

GM-Holden

Ford

Toyota

Mitsubishi

Nissan

WB (Statesman/Caprice)

Commodore

Camira

Gemini

Falcon

Telstar

Lase/Meteor

Corona

Corolla

Sigma

Colt

Bluebird

Pulsar/Astra

Commodore

Falcon

Camry

Corolla

Magna

Model

Total Maker

Plant

13

5

7

5

4

4

Source : TMCA

models. GM and Nissan originally had such a tie-up relationship, but Nissan switched to an alliancewith Ford when Toyota and GM set up a jointventure.

Improvements of Productivity and Quality: Oneof the major objectives of the Button plan was toimprove competitiveness of domestic auto makers.Indeed, according to the data of AIA (thegovernment authority), manufacturing quality ofAustralian models has steadily increased since1988 (see Figure 4). Among the local models,those of Japanese firms tended to enjoy higherquality during this period, but GM and Fordmodels were also improving. Overall, local modelswere narrowing quality gaps vis-a-vis imports.

The improvements in assembly productivity(person-hours per vehicle) was not as obvious as inthe above case of quality, but it did improve from40 person-hours per vehicle in 1988 to about 35 in1993 (see Figure 5). This level is still far behindthe world class assembly plants (less than 20person-hours per vehicle, according to MIT’s

International Motor Vehicle Program), butnevertheless it is clear that significant progress hasbeen made on this point.

To sum up, Australian assemblers were stilllagging behind world class players in terms ofmanufacturing quality, design quality and assemblyproductivity, but they were steadily getting better,from which the government was convinced that itsnew industrial policy was successful as of the mid1990s.

Strategic Differences Across Firms: The drasticgovernment policy change inevitably had a majorimpact on the strategies of the local auto makerswhich had formerly been protected. They wereforced to choose between exiting from Australianmanufacturing operations or managing to surviveby enhancing their products’ competitivenessagainst imports. The government obviously triedto induce local makers to the latter solution, butthere was also the risk of a total collapse ofAustralian car making. The Button plan, in thissense, was dangerous shock treatment.


In fact, the local producers responded to thenew policy differently. Nissan gave up localproduction and closed its plant in 1992. GM andFord were trying to survive mainly by suchdefensive measures as model consolidation andplant consolidation, but they had not launched anysignificant strategies to renew their models in aneffort to dramatically improve competitiveperformance.

By contrast, Toyota (TMCA) was the only localproducer that was obviously making major effortsto upgrade competitive performance of its localoperations. This is obvious from the fact that, aslate as 1994, Toyota built its new Altona assemblyplant with its state-of-the-art production systemdesigns when the competition against imports had

already been intensified. Although one cannot beoverly optimistic about the future of TMCA as ofthe mid 1990s, it should be noted that Toyota wasthe only company that expressed its clear strategicintent to build up a core manufacturing capabilityin Australia as an important node of the company’sglobal vehicle-parts network, rather than simplyhave an inward-looking local operation.

Mitsubishi was also trying to make itsAustralian plant an export center of the Diamantewagon and V-6 engines, but it was trying to do sothrough rather defensive measures: consolidatingmodels and rationalizing production without muchadditional investment.

Figure 4 AIA Quality Index

0

0,51

1,52

2,53

3,54

4,5

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

Year

De

fec

ts p

er

ve

hic

le

Ford Laser

Toyota Corolla

Toyota Camry

MMC Magna

Ford Falcon

GM Commodore

1988

1989

1990

1991

1992

1993

40,4 41,4

52,544,1

3934,5

0

10

20

30

40

50

60

1988

1989

1990

1991

1992

1993

Figure 5 Assembly Productivity of Australian Plants ( Average)


TOYOTA MOTOR MANUFACTURINGAUSTRALIA (TMCA): OUTLINE

Basic Strategies of TMCAToward a Middle-Size Center for the Southern

Hemisphere: The overall vision of PresidentNakagawa and VP Sakaue, as of 1995, was tomake TMCA one of the mid-size hubs in Toyota’sglobal manufacturing network. Compared withToyota’s large-size facilities in Japan and US, amedium-volume production lines such as TMCAmay add significant flexibility to its globaloperations in terms of knockdown exports andproduction of Asian models. TMCA, in this sense,is meant to be a center of Camry production,covering not only Oceania but also South-East Asiaand South Africa as export markets.

President Nakagawa has had a unique career,beginning with inspection duties and thenparticipating in various overseas manufacturingoperations such as Nummi in the US andIndonesia. VP Sakaue is a veteran expert ofmanufacturing engineering. Coordinator Shimizuhas worked in the overseas planning division at thecorporate headquarters, designing Toyota’s globalparts-vehicle network. Toyota might haveappointed these three talents deliberately, takinginto account TMCA’s strategic role as a semi-autonomous hub in its global network.

The Profile of TMCA: Although TMCA is arelatively small overseas facility compared with thelarge operations in the US (e.g., Kentucky plant =TMM), it is a uniquely self-sufficient unit, unlikeits US counterparts, with all the main functionsincluding production, sales, product development,finance, and general administration. It is one ofToyota’s oldest overseas operations, having startedin the early 1960s. As mentioned above, TMCA’smanagers have a vision of growing it into one ofthe core production centers for the Camry withmedium volume capacity, coordinating it’soperations on an international scale with the twoother Camry factories, the Tsutsumi plant in Japanand TMM in Kentucky, US.

Another distinctive feature of TMCA is its highdegree of localization of managers. There wereonly three Japanese expatriates in TMCA itself:President (Nakagawa), Vice President inManufacturing and Technology (Sakaue), and VicePresident in finance; the other managers, engineers

and workers were all Australians in principle. Ingeneral, President Nakagawa highly evaluates theAustralian managers. Although they may not be asgood at teamwork as their counterparts at theJapanese headquarters, the Australian managerstend to be capable as individuals, dealing withwider task assignment than their Japanesemanagers, and did an excellent job during the1994-95 new plant construction, according toNakagawa. Note, however that there are alsoJapanese “coordinators” dispatched from theToyota headquarters, who are stationed at TMCAas long-term expatriates. Mr. Shimizu, ChiefCoordinating Executive, for example, was notcounted as an employee of TMCA. There wereabout 20 such coordinators (including 10executives), linking TMCA and Toyotaheadquarters in accounting, finance, sales,purchasing, personnel, service, parts, technology,and production.

Besides TMCA, there is a separate ToyotaMotor Corporation’s Australia Office, a branchunit of the Product Technology group at the Toyotaheadquarters. President Nakagawa of TMCA isalso head of this TMC Australia Office. There areabout 10 expatriates working at this office,conducting such jobs as engineering adminis-tration, product design, testing, and coordination.Toyota is trying to balance centralization and localdecentralization through this dual structure of localsubsidiary (TMCA) and the headquarters’ branchoffice. In this way, such decisions as the selectionof local content parts can be made at TMCAwithout intervention from the headquarters, butcertain technically sensitive issues can also bedecided quickly through close collaboration withToyota headquarters.

TMCA had about 4000 employees as of 1995,of which about 3000 were in production (2000direct workers and 1000 indirect workers), 800 insales, and 400 in general administration. It has triedto size down administration and indirect units inorder to survive in the increasingly competitiveenvironments.

Outline of Production and TechnologicalOperations

Production: There were 2875 employees in theproduction group of TMCA as of 1995, of which2221 belonged to the Altona and Port Melbourne


factories, 316 were in production control, 171 inquality control, 83 in production engineering, and84 in product development. There were 1925direct and 950 indirect employees (Figure 6,Table 4). TMCA produces two basic models:Camry and Corolla. The other models that Toyotasells in Australia are either imported from Japan orbought from GM Holden on OEM basis (soldunder the Toyota brand). Production in 1994 was52K for the Camry and 25K for the Corolla-78K alltold, which includes OEM supply to GM (10K) andthe exported Camry’s (5K) (see Table 5).• There used to be three production facilities in

TMCA: Port Melbourne plant (Assembly andparts production for Camry), Altona Plant(press and engine), and Dandenon (Assemblyfor Corolla). Dandenon and Port MelborunePlants were closed in 1994 and 1995respectively, however, which resulted in theconcentration of TMCA’s press, welding,painting and final assembly processes inAltona.

• Port Melbourne Plant was an old facility builtin the 1950s and was first owned by AMC andthen by Mercedes Benz. It had assembled andmanufactured Toyota products since 1963.Since this plant is located only 10km fromAltona, 80% of the workers at Port Melbournemoved to the Altona Plant rather than quitTMCA. After the shut down of the assemblyshop, the parts production shops (small presses,seat frame, door trim, fuel tank, etc. 559workers as of 1995) remained as the largestsource of components for Altona AssemblyPlant. Some parts are exported to other Toyotafactories (e.g., bumpers and air cleaners for theCorolla to Toyota’s Turkish plant.

• Dandenon Plant was owned by GM, but it shutdown operation in 1988 in response to thegovernment’s new policy. Toyota thenborrowed this facility between 1989 and 1994for the assembly of Corolla. Since Dandenonis 50 km away from Altona, only 20% of itsworkers stayed in TMCA and moved to theAltona plant when Dandenon was shut down.

• Altona Plant is a relatively new facility: Enginemachining / assembling and aluminum castingoperations began in 1979; press operationsfollowed in 1981. Altona’s assembly plant didnot open until 1994, though. In the newassembly plant, the Camry and Corolla welding

lines are separate, but they share one line inmetal finishing, painting, and final assemblyprocesses. There are 440 employees (230direct workers) in press, engine and aluminumcasting; 1222 in assembly including welding,painting and final assembly (980 directworkers). There is also an administrationbuilding containing production control,purchasing, finance, personnel, etc., as well asquality test trucks, a shopping yard, and CKDcontainer yard. There was no plan to expandAltona’s capacity as of 1996.

Engineering: Both product and processengineers are included in the production area.Roughly speaking, there are 100 product engineersand 100 process engineers. The productengineering department includes product planning,engineering design, prototyping, testing, andengineering administration. Process engineeringconsists of facility engineering, tool & jigengineering, and process & equipment engineering.Part of TMCA’s prototyping and styling is doneusing GM facilities.

Outline of Sales & MarketingProduct Line-up: TMCA’s line-up centers

around the two locally produced models, Camryand Corolla, which are supplemented bycommercial vehicles, minivans and sports utilityvehicles imported from Japan, as well as a largemodel OEM-supplied by GM Australia. Theproblem was that after the appreciation of yen inthe mid 1990s no models at the low end could beimported at an economically justifiable cost.

Therefore, the Corolla was the lowest pricedpassenger model of TMCA (24000 Australiandollars as of 1995, when 1 dollar equaled 70 yen).In other words, Toyota’s weakness at that pointwas that there was no overseas facilities whichcould export the low end passenger cars to theAustralian market at economically feasible cost,which created a big hole at the lower part ofToyota’s price offering range.

Sales: Although about 70% of Toyota dealerswere dedicated solely to Toyota, the fraction ofmultiple franchise dealers were increasing, partlybecause TMCA’s product line-up lacked low priceproducts at the entry level. Thus, Toyota dealerstended also to sell such economy models asDaihatsu, Suzuki, or Hyundai and Daewoo of


Korea (the market for micro-mini cars is notpopular yet).

Table 4. Employees

1991 1992 1993 1994 1995

Manufacturing Total 3036 2940 3120 3166 2875

Direct

Indirect

1708

1328

1634

1306

1778

1342

2035

1121

1925

950

Sales 894 846 789 794 755

Finances Admin 607 607 556 459 445

Total 4537 4407 4465 4419 4075

Table 5 Production results

1992 1993 1994

Corolla 22213 23990 21731

Nova (GM) 3697 3016 3581

Sub Total 25910 27006 25312

Camry 25621 31999 42164

Export 2745 4746

Apollo (GM) 4490 5314 5519

Sub Total 30111 40058 52429

Total 56021 67064 77741


Alliance With GM

In 1989, GM and Toyota set up a joint venturein Australia, UAAI, in order to mutually adjusttheir local production models. TMCA supplied theCorolla-based “Nova” (3600 units in 1994) and theCamry-based “Apollo” (5500 units in 1994) toGM. All told, about 10K units out of TMCA’s80K production volume were supplied to GM on anOEM basis. These GM brand models sharedplatforms and exterior body panels with theoriginal Toyota Models, with only minor changesin front grilles, head lamps, and rear lamps. On theother hand, GM supplied its Commodore-basedlarge model to TMCA.

As of 1995, TMCA was expecting the Toyota-GM Cooperation in 1995 to be continued, in theform of cross-utilization of each other’s platforms,and the creation of derivative models with cosmeticexterior changes for each brand. In addition,TMCA is renting GM’s styling facilities andprototype shop in order to save costs.

By contrast, the GM-Toyota alliance inproduction, production technology, purchasing, andlogistics was expected to be limited. For example,once the GM-Holden had already introduced theKanban system, there were not many things onwhich Toyota could cooperate with GM. Thus, theGM-Toyota alliance was expected to be limited tomutual OEM-supplies of derivative models.

OPERATIONS MANAGEMENT IN ALTONAPLANT

EngineThe Altona engine shop, built in 1979, is the

oldest factory at this site (Figure 7). The plantmachines and assembles two types of engines, fourcylinder 2.2 liter for the Camry and another fourcylinder engine for the Corolla. There are twomachining lines each dedicated to one of the twoengines, but they are merged into one assemblyline with randomized mixed production. There are94 direct workers in two shifts for both machiningand assembly. There is a multi-skilled trainingprogram, using a skill profile table (a matrixindicating who has mastered which jobs).

Engine casts for the two types of engine blocksare purchased from Holden Engine, a subsidiary ofGM. However, the 6 cylinder engine, or about

15% of the Camry engines are imported fromToyota in Japan.

On the other hand, some of the completeengines are exported, as knock-down kits inwooden boxes, to Malaysia, South Africa and NewZealand. As of 1995, TMCA is the only overseasfacility at Toyota which engages in knock -downexports to other countries- -a pioneering case ofToyota’s global network of complementary partsproduction. (For example, Toyota’s South Africanplant producing the Camry imports 2 liter 4cylinder and 3 liter 6 cylinder engines from Japan,and 2.2 liter 4 cylinder engines from TMCA.)

Aluminum Casting ShopLocated inside the engine shop, this foundary

produces cylinder heads, intake manifolds andother aluminum parts for engines.

Unfinished aluminum cylinder heads areexported from here to Toyota’s South Africanfacility. Some parts are also shipped to Japan formachining, and then re-exported to Toyota’sIndonesian plant.

Press ShopTMCA’s press shop, located next to the engineshop, started up in 1981. There are 147 directworkers (two shifts), 31 press machines, and 448dies (i.e., over 10 dies per machine), producing 330vehicle-equivalent press parts per day as of 1995,with a vehicle-equivalent production capacity of400. About 90% of the body panels for TMCA aremade here. The speed of the press machines (e.g.,250strokes per hour in the case of 1000 plus tonmachines) is already as high as that of the Japanesepress shops, but the average die set-up times havenot reached the typical Japanese level (i.e., withinten minutes.)

There are six press lines (2 large, 1 medium,and 3 small), all of which are tandem lines with 4to 5 machines per line. There are no transfer presslines, the latest press technology. The two largepress lines use Japanese (Komatsu) press machines;the other lines consist of second-hand pressmachines, made in Japan or Germany, that weremoved from Toyota’s domestic plants (Australianmachines are not used).


Automation levels of the press lines are asfollows.

Material feeding panel ejectionlarge line automation automationMedium line manual automationSmall 1 line manual automationSmall 2 line automation automationSmall 3 line automation automation

Panel ejection is done automatically in all thepress lines, but material feeding is done manuallyin two lines (panel transfer between the machines iscarried out by conveyers). For example, themedium-size press line has manual feedingoperation because its workload is still low, and itdoes not need to speed up its strokes per hour(automatic feeders are often adopted for thepurpose of speed increase.) In the case of small-size presses, manual feeding tends to bring abouthigher production speed than does automaticfeeding. Generally speaking, a relatively low wagerate compared with equipment cost tends to makeautomation less attractive, which is one of thereasons why the press automation ratio is lower atTMCA than at Toyota’s Japanese plants.

60% of the sheet steel purchased is made inJapan; 40% in Australia as of 1995. Toyota isplanning to increase the fraction of Australian steel,including such high grade materials as high tensionsteel and anti-corrosion steel.

As for set-up change operations, dies are firstmoved to the line side by crane (external set-up);moving bolsters then push the dies into the pressline automatically. Interestingly enough, many ofthe set-up workers are female employees. UnlikeJapan, where late night work by female workerswas strictly prohibited by law as of 1995, femaleworkers play an important part in the Australianplants, where there is no such regulatoryrestriction.Body Welding Shop

Body, paint, and final assembly shops (threeseparate buildings) were newly built in July 1994.There are two body welding lines one eachdedicated to the Corolla and Camry respectively.The two lines are merged into one mixed modelline for metal finishing, painting, and the finalassembly process.

Complementary Production in Body Shops:Body parts are complementarily produced throughToyota’s international plant network. For example,

because the production volume of the Camrystation wagon (about 20% of overall Camry salesin Australia) is not large enough for efficient in-house press operations, TMCA imports panels (rearside, roof, lift gate, etc.) for the Camry wagon fromToyota’s Kentucky plant in the U.S. (TMM), whichproduces the same model in large volumes.

On the other hand, TMCA exports welded sidepanels and other panel assemblies of the Camry toToyota’s Malaysian plant, where this model isassembled on a knock-down basis in small volume.In this way the Malaysian plant only needs toinvest in the downstream welding processes suchas the body framing process.

Equipment and Automation: Spot weldingautomation ratios are lower than the typicalJapanese levels (over 90%) as of 1995.

Table 6 : exemple of equipment & automation

Nber

of

spots

Nber

of

robots

automa

tion

ratio

Cycle

time

Camry

Welding line

4000 35 38% 3’20’’

Corolla

Welding Line

3500 36 65% 6’50’’

The automation ratio of the Camry welding linewas also increased to over 60% by 1997 in order toimprove welding quality and to flexibly deal withdifferent

sheet steel for different markets. Consideringthe fact that the automation ratios at the old plantused to be around 5%, the current levels of over60% means that there have been significantinvestments in welding robots. TMCA has made alot of effort to train its maintenance workers inorder to deal with the automated equipment.

The welding robots and the body parts transferdevices were made in Japan, but the other jigs andequipment for welding were made in Australia.Overall, 75 to 80% of welding tools andequipment, as well as over 90% of the weldingshop facilities, were made locally in Australia.

Choice of Body Frame Equip: TMCA’s mainbomentdy framing process for the Corolla andCamry have adopted the so called Flexible BodyLine (FBL), a robotized system originallydeveloped by Toyota’s production engineers.However, unlike the full-scale version with


automated jig-pallets for side body transfer andalignment, TMCA introduced a simplified versionof FBL without such mechanisms, yet which canstill deal with two different under bodies and threedifferent upper bodies with one set up change time.This equipment was made locally. Interestinglyenough, TMCA decided to get technical assistancenot from Toyota headquarter but from Central,another Japanese company that assembles Toyotaproducts under a consignment agreement. Thischoice was based on the judgment that Central’sequipment, designed for smaller volumeproduction, would better fit TMCA’s typicalproduction volume (i.e., 30,000 to 40,000 annually)than Toyota’s own FBL system designed for largevolume production. This example shows howproduction technologies of consigned assemblersfor Toyota Japan are sometimes applied effectivelyto certain overseas operations with relatively smallproduction volume such as TMCA.

Work Organization: A work group, eachspecialized in a particular module or function, atthe body shop consists of 17 to 18 workers. Thisgroup size is smaller than the case of the finalassembly shop, which is more labor-intensive.There is a formal training program for multi-skilling, which aims at creating workers who caneach handle three different jobs, as well as trainingat least three workers who can carry out a givenjob.

Metal Finish Line: After the main body respitewelding process, the Camry line (3’20” cycle) andthe Corolla line (6’50” cycle) are merged into onemixed-model metal finish line (2’30” cycle). Inthis merged line, the bodies go through furtherinspection, rework, respot welding, attachment ofdoors, hood and lid, as well as surface finishing.The automation ratio of this line is lower than thatof the Japanese plants.

Two Types of Andon Sign Boards: The basicdesign of the Andon boards are the same as that atToyota plants in Japan, in that the lightrepresenting a particular work station blinks whena problem occurs there. Because the TMCA bodyshop is less automated (i.e., less equipment) thanthe Japanese high-volume plants, however, theAndon here tends to be simple and more compact.

There are two types of Andon boards. In themetal finish lines (8 teams per shift), for example,there is a “team Andon board” for each team, and

then an “overall Andon” that group leaders, generalforemen, and maintenance workers monitor.

For example, the Andon board for the right-hand-side hemming team consists of nine lampseach representing a particular work station, whilethe overall Andon board has lamps eachrepresenting a team (e.g., hemming team, respotteam, etc). The overall Andon is also equippedwith lamps which indicate the type of trouble (e.g.,conveyer break down, body shortage, downstreamjamming), so that the group leaders, generalforemen and maintenance staff can get real-timeinformation as to what kind of trouble happenedand when.

Quality Control: There is an audit system at thewelding shop, in which a welded component issampled once every two hours and thoroughlychecked. This audit is rotated between the weldingsection and the quality control department. Theaudit results are displayed on the shop floor.

Paint ShopThere is only one painting line, which is able to

deal with both the Camry and Corolla in a randomorder. In order to improve the work environmentand paint quality, the shop has adopted robots forthe under body sealing and anti-corrosion plasticapplication processes, and mini-bell electrostaticpaint for the primer and top coating process. Thesurface finish quality of the Altona paint shop isnow said to be as good as Toyota’s main factoriesin Japan. The sealer process is the most labor-intensive. The underbody water polishing processis also automated in order to alleviate the problemof the demanding work posture.

All of the seven metallic paints, which arepopular in the Australian market, have already beenswitched to water-based for environmentalprotection, while the remaining two solid paintswere still solvent-based as of 1995.

Final Assembly ShopThere is only one final assembly line, where

450 people work in two shifts. There are sevenwork groups per shift (i.e., about 30 workers pergroup), each of which consists of five teams (i.e.,6workers per team).

Process Design: The main assembly line isdivided into seven line segments (3 trim - 2 chassis- 2 final line segments), which go back and forth in


a zigzag way. Each line segment corresponds toone work group. In addition, there are some sub-assembly lines for instrument panels, seats and soon. There are small body buffer storage areasbetween the main line segments, each of which cancarry up to five to seven unfinished bodies. Thesebuffers give each line segment (i.e., work group) acertain level of autonomy; even if one of the linesegments stops due to some trouble, the othersegments do not have to stop immediately. Thebuffers also enable group leaders to stop his orderline briefly, to conduct small experiments on theshop floor. Besides, a set of functionally relatedtasks are assigned to each work group, so thatworkers can grasp the meaning of their work moreeasily in the context of overall automobileproduction. That is, each of the segments, or workgroups, tends to be functionally autonomous orcomlete.

This kind of functionally segmented assemblyline can also improve the process for building inquality; By setting up a quality assurance station atthe end of each segment, each work group candetect problems and defects for themselves andautonomously implement corrective actions beforethe bodies reach the final inspection area at the endof the assembly process. On the trim segment, forexample, workers assemble wire harnesses,instrument panels, lamps, and so on, and thencheck the functionality of these parts by gettingelectric power from a separate source(batteries arenot yet installed at this stage). The work groupfeeds back the inspection results whenever theydetect problems, seeks to find their root causes, andtries to solve the problems for themselves. In thepast, such inspections were done only in the finalinspection area, but this practice tended to createtime-consuming reworks, and even secondarydefects in the rework process. Workers also tendedto regard these defects as “their prblem”,--not“ours”. Thus, the new in-line inspection systemnot only improved quality but also enhancedmorale and the sense of ownership among theworkers, according to Sakaue.

The above findings indicate that the new Altonaassembly line had already adopted Toyota’s newassembly line concept that had emerged in the early1990s and materialized at Toyota Kyushu Miyataplant (1993) and Toyota Motomachi plant (1994).That is, even though TMCA adopted automationand other hardware production technologies only

partially from Toyota Motor Corporation, itabsorbed the latest concepts of Toyota’s assemblyprocess design and work organization. In fact, bothNakagawa and Sakaue said that they learned fromToyota Kyushu when they built the Altonaassembly line.

As for the hardware equipment, there is nothingnew in the Altona assembly line, except the bodybuffer zones between the segments. It is aconventional conveyer line; the floor does notmove together with overhead hangers; there are notilted hangers for ergonomic purposes; there is nomajor robot assembly system.

There are, however, various low cost devices,such as power assist mechanisms for heavy parts,synchronized wagon carts carrying parts and jigs,improvements of body hangers, and so on, whichcan improve work posture and work environmentswithout major capital investments. These simpleand low-cost measures reflect Toyota’s latestassembly concept that tries to balance cost-competitiveness and worker-friendliness, asopposed to heavy high-tech automation that createsa heavy fixed cost burden to the assembly factories.

Final Inspection and Defect Prevention: Thereis a buffer zone for rework in the final inspectionarea, similar to Toyota’s plants in Japan. Therework zone is designed to carry a maximum of100 cars. As of the mid 1995, however, becausethe assembly shop had started up only recently,there were still about 160 cars in the rework area.The lighting system on the inspection line wasmuch improved compared with the previous plant.

Instructions to the workers showing productspecifications are printed out from the assemblyline computer file and are attached to the hood orfront grille of each car. Color labels are used toprevent mistakes in assembly (i.e., “managementby visualization”), but little investment had beenmade in special tools and equipment for thispurpose. The managers did not want to rely toomuch on hardware for defect prevention.

Positive Effect of Line Segmentation onProblem Recognition : The division of the assemblyline into seven segments created a positive effecton the recognition mechanism built into the Andonline-stop system.

Generally speaking, the rule that workers canstop the line whenever they find defects andproblems is based on the Toyota ProductionSystem’s philosophy of revealing problems on the


spot. The basic rule of Andon line-stop was asfollows:• Workers pull the Andon cord (switch) located

at each work station whenever they findproblems. This action turns the Andon lampon and flashing, as well as a music tape,indicating that an abnormality has happened.

• The team leader comes to the troubling stationas soon as he or she sees the lamp, identifiesthe problem, and tries to solve it within thecycle time. If the problem is solved in time,the leader turns the Andon lamp off, and theline does not stop.

• If the problem is not solved within the cycletime, then the entire assembly line stopsautomatically, with the Andon lamp pointing tothe troubled station.

• In this case the group leader supervising thisteam comes to the station concerned andtackles the problem. Plant engineers andmaintenance workers may also be dispatchedwhen necessary. In any case, the line stopsuntil the problem is solved.

• If the lamp of the same work station is turnedon frequently, causing many line stops, thenthe section head or general foremansupervising that station needs to find afundamental solution to the problem, becausethe root cause of the trouble has not yet beenremoved.

In principle, the above rule is consistent withthe philosophy of so called “jidoka”, or automaticproblem detection and machine-stops, in that theline-stop dramatically reveals and visualizes themanufacturing problems and thereby forcesemployees to face the problems and solve themquickly. So, in theory, this is an important elementof Toyota Production System. In practice,however, there are tremendous psychologicalpressures for the workers not to stop the entireassembly line (1 km or longer), so they tend tohesitate to turn on the Andon switches when theyshould do so. This was the case even though therewas only 5 to 10% chance that the assembly lineactually stopped when a worker turned on one ofthe Andon switches.

In fact, the frequency of both Andon switch-onand subsequent assembly line-stops significantlyincreased since the segmented-buffered assemblyline was introduced to Altona plant, according to

Brown, director of TMCA in manufacturing andengineering. This implies that workers were morewilling to turn on the Andon switches and therebyreveal manufacturing problems when they only hadto stop their own line segment (i.e., work group).

Component Material Handling: The level ofpart inventories beside the assembly line was keptreasonably low. The Altona plant also adopted theso-called “door-less” method (i.e., removing doorsat the beginning of the line and re-attaching them atthe end) to create extra space in the assembly lineside.

In-coming parts for the final assembly line arereceived from both ends of the assembly shopbuilding. Sophisticated material handlingequipment such as AGV (automatic guidedvehicles) were not used as of 1995.

Large trucks were used as a primary mode forinbound parts transportation. About a half of thesetrucks were chartered by the parts suppliers; therest, chartered by TMCA, circulated from supplierto supplier, picking up parts like a “milk run”.

TMCA’s Port Melbourne plant, producing floorsub-frames, colored bunpers, fuel tanks, seatframes, and seat covers, is the largest parts supplierfor the Altona assembly plant. Seat and instrumentpanel subassembly are conducted in-house. Asequential delivery system, in which componentsare delivered from the suppliers in the samesequence as that of the car bodies, is applied tosuch bulky and variant-specific parts as bumpersand door trims (from TMCA Port Melbourneplant), radiators and oil cleaners (from Denso’sAustralian plant), and window glasses (from a localsupplier).

The other parts from local suppliers are alldelivered through the Kanban system, whichcontributed to a reduction of inventories. Also, therecent consolidation of the TMCA plants resultedin increases of parts order volume per supplier, andthus increases in the frequency of parts delivery peritem, which also contributed to inventoryreduction.

Production plans are managed on a monthlybasis. TMCA determines the aggregated productionvolume and orders the necessary amount of CKDparts three months prior to production (month N-3).The mix of body types and options are fixed twomonths prior to production (month N-2), afterwhich changes of the production plan is limitedonly to exterior body colors.


Environment and CommunityBecause Altona plant is located next to a

residential area in the suburb of Melbourne, TMCAcarefully dealt with potential environmentalproblems. It created large banks around theboarder of the plant site, and planted trees in orderto alleviate noise problems for the surroundingcommunity; most of the paint materials wereswitched to water-based; a dedicated watertreatment facility was built at the paint shop; andTMCA’s training center at the Altona site wasopened to the community on weekends for variouspurposes.

HUMAN RESOURCE MANAGEMENT ANDSUPPLIER MANAGEMENT

Human Resource Management at TMCATMCA's turn-over ratio has normally been

stable at around 6 to 7 % per year, which is notparticularly high even compared with that of atypical Toyota plant in Japan, although it didexperience an increase due to the transition to thenew Altona plant in 1994. TMCA's absenteeismratio is 5 to 6%, and Kaizen suggestions numberaround 10,000 per year (Table 7).

Table 7 Human Relations

1991

Actual

1992

Actual

1993

Actual

1994

Actual

Turnover (%) 6.0 3.2 7.4 32.27

Absenteeism (%) 5.1 5.3 5.8 6.4

Suggestions 8661 9982 13480 10794

Industrial Action (%) 0.6 0.7 0.2 0.2

Safety (LTI) 217 191 102 161

Quality Circles 71 108 114 53

Source : TMCA

Blue collar jobs, such as automobile productionhave typically been done by immigrant workers.Their image and compensation have been relativelylow. For example, the average wage of assemblyworkers has been about 10% lower than averagewage, which contrasts the case of Americanautomobile workers (UAW participants) who haveenjoyed roughly double the average wage rate.

Workers of 50 different races and cultures wereworking at TMCA. Its standard operatingprocedures are written in English, but the shopfloor management is based on the assumption thatthere are many who do not understand English. Forexample, workers can make kaizen suggestionswithout using verbal language (e.g., by usingpictures). The training canter at Altona providesEnglish education courses. Surveys for the workersare written in five different languages.

Since Toyota's Australian factories has been inoperation for over 30 years, racial backgroundshave become increasingly diversified not only for

workers but also at the supervisor level. There aregroup leaders who are originally from Vietnam andCambodia, for example.

The plant is normally operated in two shifts(three shift operations exists in some busysections). The shift assignment is fixed, unlikeJapanese plants where workers periodically rotatebetween day and night shifts.

As for work rules, TMCA has established a newsystem that is different from typical practices inAustralia which are as follows:• Multiple labor unions for each company.

(Although labor agreements are madeseparately with each company, the bargainingpower of the labor unions is not as strong asthat of the American auto worker union, orUAW.)

• Overtime is allowed only on voluntary basis.(The ratio of overtime compensation is 50% forup to 3 hours, which is significantly higherthan the Japanese counterpart.)


• There are 219 work days per year and 38 workhours per week, or about 5% less than in theJapanese case.

However, the new TMCA system consists of:• A single labor union.• 229 work days per year and 38 hours per

week1.• The company being able to order compulsory

overtime for up to 20 hours per month (TableX).

TMCA's shop floor organization consists of thefollowing 5 layers:

Manager• General Foreman (head of about 90 workers =

team members)• Group Leader (head of about 30 workers =

team members)• Team Leader (head of 5 ~ 7 workers = team

members)• Team Member

Similar to Toyota's factories in Japan, generalforemen, group leaders, team leaders and teammembers are all union members.

Standard Operating Procedures (SOPs) tend tobe written more simply than their Japanesecounterparts. Revisions of the SOPs are madeprimarily by group leaders and plant engineers, justas in the case of Toyota's factories in Japan.

Strengthening the Competitiveness ofTMCA's Supplier System

As of 1995, TMCA was trying to rationalize itsparts supplier system to lower costs and improvequality in response to the liberalization of vehicleimports. For example, TMCA decided to reducethe number of its first-tier suppliers from 230 to amere 100. Because many of those first-tiersuppliers which were screened out becameTMCA's second-tier suppliers, this consolidation ofsupplier base also meant the emergence of taller(i.e., multi-layered) hierarchies of suppliers. Theconsolidation, or concentration of parts orders to asmaller number of larger suppliers, also broughtabout the delivery of sub-assembled modules, aswell as single sourcing (one supplier for a

1 Workers actually work 8 hours per day and 5 dsays a week.In order to fill the gap between 40 and 38 hours per week,workers take a day off (minus 8 hours) every four weeks.

particular component variant). In Japan, this kindof consolidation of the supplier base was observedmostly during the 1960s, when the liberalization ofautomobile trade was thought to be imminent. Inthe Australian auto industry, a somewhat similarresponse was observed in the 1990s.

While consolidating its first-tier supplier base,TMCA also strengthened both its evaluation andassistance support for the surviving first-tier partsmakers. As for evaluation, TMCA introduced aformal system called T.S.A (Toyota SupplierAssessment), which enabled the auto company toevaluate its suppliers from multiple perspectivesincluding cost, quality, delivery, and so on. Thefinal evaluation results were mad only after bothTMCA and the suppliers discussed the tentativeevaluation results. TMCA also gave annual awardsto its best suppliers according to this criterion (e.g.,the quality award). TMCA also created bestpractice standards for the suppliers and let thesuppliers compete for achieving the target.

On the assistance side, TMCA also strengthenedits supplier development system. For example,TMCA classified its first tier suppliers into fourlevels and a "specialist" category based upon thecompany’s assessment of the suppliers'capabilities, and then provided different trainingfor each category. TMCA also created its regionalsupplier network, which held Toyota ProductionSystem seminars and other study groups. TMCAand Toyota Motor Corporation also selected andgrew some "show-case suppliers," as model casesfor other suppliers. TMCA also createdInternational Competitiveness Indicators, whichbecame targets for each supplier. Necessary fundsfor such supplier development programs came bothfrom TMCA's internal funds and from Australiangovernment subsidies.

As for the suppliers' product developmentcapabilities, it should be noted that most of thefunctional parts specialists in Australia were ofAmerican and European capital whilesubcontractors were of local capital as of the mid1990s. This means that, unlike the case of NorthAmerica, where more than 200 Japanese suppliers


Table 8 Human Relations

Japan (TMC) Australia (TMCA)

Industrial RelationsUnions (N0/Type)AgreementsWage Fixing

Single/EnterpriseEnterpriseEnterprise

Multi/IndustryEnterpriseCentral +Enterprise

ProfileManufacturing ImageEmployee QualityCompensation/Benefits (Manuf) (Supplier)

HighMed è High

HighMedium

LowLow è Med

Low (0.9 Awe)Low (0.85 Awe)

Employee RelationsEmployee ProfileEmployee ParticipationSafetyTenure

HomogeniousHigh

High Priority30 YRS

MulticulturalLow è MediumMedium Priority

5-6 YRSWorking ConditionsBasic conditionEmployee Work Days (Plant)Working Time (Mins/Shift)AttendanceOvertimeShifts

40 HRS Week

232 + (244)460

No Sick Leave(98+%)

MandatoryRotating

38 HRS Week

219 (229)454

Sick Leave (95 - %)Voluntary

Fixed

had built up their transplants by the end of the1980s, Toyota in Australia could not rely much onthe Japan-based suppliers which tend to possesshigher component development capabilities (see,for example, Clark and Fujimoto, 1991). Amongthe 100 first tier suppliers that would survive, only15 to 20 functional parts specialists would likelypossess sufficient organizational capabilities tocope with "design-in" or so called "black box partstransactions." Thus, it will take significant time,compared with the case of North America, for theAustralian auto makers to diffuse the black boxparts practice, or to increase the suppliers'involvement in product development.

Localization and Globalization ofProduction

Parts Production: Local content ratios (i.e.,ratios of locally added value per wholesale price)were 69% for the Corolla and 66% for the Camryas of 1995. In response to the extreme appreciationof yen between 1993 and 1995, TMCA wasreducing yen-based procurement of parts fromJapan. Some of these Japanese parts were switched

to locally produced parts: TMCA was planning tolocalize 130 parts as it predicted the yen to furtherappreciate from 85 yen per Australian dollar to 75yen.

At the same time, TMCA was increasinglyrelying on its global network of parts procurement.For example, body panels for the Camry Wagonwere imported from Toyota’s Kentucky plant(TMM) to TMCA; Its steering gears were boughtfrom GM’s Saginaugh(?) division in the U.S.;Some of its audio components were procured fromThailand and Malaysia (See Figure 8). Toyota wasplanning to strengthen its global procurementnetwork by increasing imports of variouscomponents from Toyota’s U. S., and U. K. plantsand their suppliers. On the other hand, componentexports from TMCA, using the global network,were also expanding. It was, for instance,exporting some components for the Corolla (e.g.,bumpers and air cleaners) to Toyota’s assemblyplants in Turky and


New Zealand; Camry’s body panelsubassemblies to its Malaysian plant; 2.2 literengines for the Camry to South Africa andMalaysia. In fact, to Toyota’s Malaysian plant,TMCA was exporting a full package of CKD parts,including not only body panels and engines butalso other inhouse components and those partspurchased from local suppliers in Australia. Also,casted cylinder heads were exported from TMCAto Toyota’s engine plant in Japan, which re-exported them to Indonesia after machiningoperations there.

Complete Vehicles: Toyota’s global network ofimports / exports expanded not only forcomponents but also complete vehicles. TMCAhad already started to export about 5000 Camryssince 1994 (about 9% of Camry production atTMCA) to Thailand, Malaysia, New Zealand,Fissy(?), Papua New Guinia(?), Brunei(?), etc. ToMalaysia, TMCA exported CKD kits for 4-cylinderengine models, and complete vehicles for 6-cylinder models. Besides this, the origin of Camryexports to Gulf countries (e.g., Saudi Arabia) wasswitched from Japan to TMCA in 1996, a movewhich contributed to the latter’s profit. Thus,TMCA’s basic strategy of becoming one of theCamry export centers was gradually materializingas of the mid 1990s.

To sum up, the expansion of Toyota’s globalnetwork, as well as enhancement of local suppliersin Australia, resulted in increases in both importsand exports of vehicles and components betweenAustralia (TMCA) and other non-Japanesecountries.

TECHNOLOGY TRANSFER ANDCOMPETITIVE PERFORMANCE

Technology Transfers From ToyotaHeadquarters

While technology transfers from Toyota’sheadquarters (TMC) are carried out selectively,TMCA was gradually increasing its technologicalautonomy (Table 9). Let’s briefly examine thesituation as of 1995 at three separate stages:product development, production preparation andcommercial production.

• Product Development: Although design anddevelopment of basic models will continue tobe carried out at Toyota’s central vehicledevelopment centers in Japan, designmodification for local regulation complianceand product differentiation for local needs is tobe increasingly decentralized to TMCA’sproduct development division (about 100engineers and technicians as of 1995). That is,Australian local models would be developedbased on global platforms. Testing functionsfor locally produced parts are also to betransferred to TMCA.

• Value analysis and value engineering for costreduction were jointly conducted by productdevelopment units at both headquarters andTMCA. Toyota was planning to set up aninternational CAD (computer-aided design)network between TMCA and the headquarters,although as of 1995, information on designswas still being delivered in the form ofdrawings between the two organizations.

• Production Preparation: the manufacturingcapabilities of TMCA’s production engineeringand tooling departments, as well as those oflocal tool and equipment makers in Australia,were relatively high. For example, 70% of thepress dies for large body panels used to bemade in Japan, but the composition had shiftedto 40% Japanese, 40% Australian and 20%others by 1995. Dies not only for innerstructural panels, but also for surface panelssuch as fenders, roofs and hoods were madelocally. Production of welding jigs andfixtures was also switched to TMCA’sproduction engineering unit (about 100employees). A larger portion of process designhas been carried out by TMCA in recent years.Most of TMCA’s production equipment(except large press machines by Komatsu,welding robots by Kawasaki, etc.) were madein Australia.

• Launching and Training: Training for bluecollar workers is jointly conducted by Toyotaheadquarters (TMC) and TMCA. The samearrangement applies for managers and staff.The basic techniques of the Toyota ProductionSystem and Kaizen system had already beentransferred to TMCA, although supplementaryassistance may be made from the headquartersfor refresher purposes when necessary.


Table 9 : Technology Transfer

Past Present (1995) Future

Product Design

Basic Product

Regulations Compliance

Product Differentiation

VA/VE

Drawing

TMC

TMC

TMC

TMC

Paper

TMC

TMC/TMCA

TMCA

TMC/TMCA

Paper

TMC

TMCA

TMCA

TMC/TMCA

CAD

Production Preparation

Local Parts Testing

Component Tooling

Example: Large Press Tools

($M 30/Model) Japan

Local

Other

Jigs/Fixture Tooling

Equipment

Process Design

Training

TMC

TMC/Local

70%

20%

10%

TMC/TMCA

TMC/Local

TMC/TMCA

TMC

TMC/TMCA

Local

40%

40%

20%

TMCA

Local

TMCA

TMC/TMCA

TMCA

Local

25%

45%

30%

TMCA

Local

TMCA

TMC/TMCA

Production Operations

A. Training TPS

Kaizen

Management

Specialist

TMCA çè TMC

é

é

é

TMC èTMCA

(Refresh)

é

TMCAçèTMC

ç

ç

To sum up as of the mid 1990s, a significantamount of technologies had already beentransferred from Japan as TMCA increased itsautonomy. At the detailed operational level,however, coordination and task divisions betweenTMC and TMCA were carefully designated. Thepattern of recent transition was never as simple asthat of unilateral decentralization to a autonomouslocal unit.

Quality and ProductivityManufacturing Quality: TMCA’s average

manufacturing quality of its products is among thebest in the Australian auto industry as of the mid1990s. Its pace of quality improvements had alsobeen remarkable: The numbers of defects pervehicle, for both the Camry and Corolla,

dramatically decreased from the level of about 20-defects in 1990 to about 2 in 1994.1 According toTMCA, practices employed for quality control andimprovements include the reinforcement of qualityassurance organizations for building in quality andon-the-spot inspections; the use of QualityAssurance Matrices (tables for checking degrees ofquality assurance by part, by process, and bycritical check points) involving parts suppliers; thereinforcement of a system for customer feed back;capability building of the local parts suppliers;company-wide Kaizen (continuous improvements)

1 The definition of manufacturing quality follows that ofToyota headquarter (TMC). Usually local quality assurancestaff, trained at TMC, check TMCA’s manufacturing quality.Also, quality management staff from TMC visit TMCA once ayear.


activities, and so on. Although temporary drops ofquality levels are inevitable in this industry whennew products or plants are introduced, the leadtimes needed for recovery had gotten shorter inrecent years (Figure 9).

Assembly Productivity: Physical productivity atthe TMCA assembly plant had also been increasingin the early 1990s. TMCA’s assembly productivity(welding, painting and final assembly processes)was about 35 person-hours per vehicle in 1990, butit had improved to about 25 person-hours pervehicle (i.e., near the level of American assemblyplants of U.S. makers) by 1994. It should be notedthat this remarkable productivity increase wasachieved primarily at the old plant. Incidentally,average assembly productivity of the Australianauto makers in general remained to be about 35person-hours per vehicle as of 1993.

TMCA’s staff point out that this remarkableimprovement was caused mainly by (i) a reductionof rectification work, (ii) a higher automation ratio,(iii) plant-level monthly plans for productivityimprovements, (iv) and enhanced line balancing.

At the new Altona assembly plant, TMCA’stentative goal was 21 person-hours per vehicle forthe Camry and 18 person-hours per vehicle for theCorolla. This would still be far behind the level ofthe most productive Toyota plants in Japan,estimated to be roughly at 13-person-hours pervehicle, but was close to the average of Japanesetransplants in North America (see Womack, et al.,1990). Considering the fact that Altona is a mixed-model plant with annual production of less than100,000 vehicles, this goal still seemed to be ratherambitious.

SUMMARY AND FUTURE PROSPECTS

Toyota Australia (TMCA), a medium-sizedoverseas operation for Toyota, and as such hasseldom attracted the attention of researchers andjournalists worldwide, however it seems to deserveclose investigation as one of Toyota’s oldestoverseas operations, as well as one of the most self-sufficient with production, development, sales,finance, and personal functions all delegated as apackage to the local subsidiary, and where the localmanagers enjoy significant autonomy. TMCA,despite its relatively small size, seems to provide uswith a valuable precedent case in the era of global

complementary networks, where relativelyautonomous overseas subsidiaries of various sizesplay important roles as critical modes in a firm’snetwork.

Interestingly enough, TMCA’s capability-building toward a production center of the Camrymodel has so far been driven partly by the localgovernment’s policy changes away from traditionalimport substitution and protectionism. For localoperations of multi-national auto makers which hadexisted under import substitution policy, tradeliberalization and the surge of import vehiclesmeans intensifying domestic competition - a toughsituation in the mature Australian auto market.Considering the worldwide trend toward tradeliberalization under the WTO, the experiment ofthe Australian government deserves carefulanalysis as one of the pioneering cases of a move insuch a direction.

Moreover, it should be noted that drastic policychange often reveals inter-firm differences ininternational strategies, a situation which applies tothe case in Australia since 1988. That is, onecompany (Nissan) quit assembly operations inAustralia; others (US firms) tried to survive byconsolidation of local models (i.e., pursuit of scaleeconomy) and strategic alliances; still others try tomaintain their facility as a production center of aparticular model in Australia by either rationalizingproduction and minimizing investment (Mitsubishi)or by investing on new facilities, intra-firminternational logistic networks, and buildingorganizational capabilities for high flexibility,productivity and quality (Toyota).

These strategic choices are, to be sure,deliberate to some extent, but they are alsoemergent, influenced by each firm’s history,environmental imperatives, as well as a firm’sexisting organizational culture and capabilities.

In this context, Toyota’s strategic decisions inAustralia may be interpreted as an emergent patternwhich resulted from a series of cumulativeresponses to the competitive crisis rather than adeliberately planned one as a part of wellarticulated grand design of Toyota’s globalstrategy.

That is, although Toyota’s global network ofcomplementary production and logistics look as ifit were deliberately planned and implementedbased on an articulated grand strategy at theheadquarters, it is more likely to be a result of


emergent interactions between local officesdesperately seeking their own survival on the onehand, and the head office trying to continuouslyadjust its strategy to unexpected environmentalchanges. Thus, the case of TMCA provides richinsight for researchers studying strategy formationand the role of dynamic organizational capabilities.

For future research, we need a more detailedinvestigation of TMCA’s operations, as well assome international comparative studies of Toyota’sproduction facilities, including Tsutsumi in Japan,Kentucky in the US, and TMCA, all of whichproduce the Camry. It should be noted here that inthe context of the global complementaryproduction network, each of the overseas

operations not only compete with other producersbut also compete with other overseas plants withinthe same company for distinctive capabilitybuilding. The combination of such competition inthe building of capabilities between the overseasoperations within the same company on the onehand, and the creation of a global complementarynetwork on the other hand, enhances the world-wide competitiveness of a company.

We also need further empirical research onemergent global strategies, the central conceptproposed in this paper. The present case study is apreliminary attempt toward a more systematic anddynamic approach to global strategy formation inmanufacturing.

Takahiro FUJIMOTO

Université de Tokyo

REFERENCE

Andrews, Kenneth R. (1980) The Concept of Corporate

Strategy. Homewood, Illinois: Richard D. Irwin, New

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Bartlett, C.A., and Ghoshal, S. (1989) Managing Across

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Hofer, C. W. and Schendel, D. (1978) Strategy

Formation: Analytical Concepts. West Publishing, St.

Paul, Minn.

Merton, R. (1968) Social Theory and Social Structure.

Free Press, New York.

Mintzberg, H., and Waters, J.A. (1985) “Of Strategies,

Deliberate and Emergent.” Strategic ManagementJournal , Vol. 6, No. 3, 257-272.

Womack, J., Jones, D.T. & Roos, D. (1990) The

Machine that Changed the World. Rawson Associates,

New York.

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