Toyota- Labor Cost and Competitiveness Problems
Introduction
The high competitiveness in the auto industry has led most auto companies to seek options that would offer them more efficiency in production whist maintaining the quality of automobiles. In the 80’s the auto-makers adopted the global production systems model. Through this system they anticipated to take advantage of local adaptations to the local markets, price competitiveness while avoiding losses in foreign exchange dealings as well as inter-national trade barriers. Thus, auto-makers in the United States of America either relocated their production plants or opened other plants in various parts of the world. Japanese auto-makers such as Toyota also followed suit and raised the level of their foreign domestic investment. As time went by the model of global production also showed problems. The expansion of the production base and increase in diversity of the chains of supply, made it difficult to transfer technological and business knowledge to overseas production sites to ensure quality control and efficiency is attained. This was further worsened by the possibility of technology leakage. Despite, the efforts to transfer this knowledge to over seas plants, quality control still proved problematic (Minhyung, 2010).
Along with this problem as overseas production was being increased, Toyota decided to pursue extreme cost cuts, which only further worsened the quality control issues already existent. Watanabe, the former president of Toyota initiated a Construction of Cost Competitiveness 2001 (CCC1) plan meant to cut the costs at Toyota and enhance its competitiveness (Inoue et al. 2010). His aim had been to reduce the costs at Toyota by 30%. As the company expanded its overseas programs it also cut the number of employees in its local plants. This impractical pursuit of cutting costs, whilst; simultaneously expanding overseas plants’ production acted as a barrier for Toyota in it efforts towards the implementation of a thorough Toyota production system in all overseas plants. This system had been the core of its competitiveness-quality control and maintenance-and its failure is what led to the massive recalls and law suits that threaten the company’s profitability at the moment. Thus the cost cutting effort finally, became the cost escalating factor. From this experience Toyota must have learned that efforts of cutting labor costs may indeed lead to a drop in quality, due to poor quality control, and thus increase costs and reduce competitiveness (Inoue et al. 2010).
This problem is not only distinct for Toyota, but it is rife for the whole of the auto-industry in America. Companies such as Chrysler LLC and General Motors are faced with similar problems, where they have to cut costs and reach wage parity with other auto-makers especially, in the Japanese industry in order to get government funding-failure of which may lead to withdrawal of federal funds and subsequent bankruptcy. The insistence of the government on their cost cuts lies in enhancing their competitiveness internationally, so as to befit government funding. So, most U.S auto-makers are pretty much in the same shoes as Toyota-in trying to cut costs so as to enhance competitiveness. Therefore, it is a common trends and challenge in the auto industry (Naughton & Green, 2010). The objectives in a plan that would solve this problem would be: to attain low labor cost levels, and cut total operational costs so as to increase competitiveness and efficiency of production, without compromising the quality of auto-products made. The best approaches in this case should be those that cannot compromise quality of production. The rapid expansion in the 2000 prompted by low profitability as a result of a strong Yen and trade conflicts was too rapid.
This may be the reason why overseas production was not well quality controlled. Therefore, any further expansion should be gradually initiated with proper training at the main plants to ensure the work force out there is fit to deliver the best quality possible. Outsourcing of overseas manufacturers for parts may also be cited as a problem, because with such a scenario it is hard to impart quality control. The brighter news is that information indicates that the auto-maker has not lost on its global sales despite the decline in the sales at the local level. Therefore, there needs to be a quick turn around if the company wishes to still hold its position as a quality auto-maker. The company had and still has a competitive edge because of its reputation in quality that has been high before the recent recalls. The fact that it holds the number one slot as the first auto-maker and the one with the biggest share of the market it has to work extra harder (Naughton & Green, 2010). Toyota has two options, to cut close overseas plants and initiate proper quality control before they can continue or continue with the overseas plant’s production, whilst; conducting a thorough initiation and training of the quality control teams in the overseas plants cited as the cause of the losses from the poor quality autos that brought about the recalls.
References
Inoue, K., Green, J. and Ohnsman, A. (2010), Toyota Recall Crisis Said to Lie in Cost Cuts, Growth Ambitions, retrieved on 20th October, 2010 fromhttp://www.bloomberg.com/apps/news?pid=newsarchive&sid=aF0aX8t0Q6lk
Minhyung, K. (2010), Risks of Global Production Systems-Lessons from Toyota’s Mass Recalls, retrieved on 20th October, 2010 from http://www.faqs.org/periodicals/201007/2089147441.html
Naughton, K. and Green, J. (2010), U.S Auto-makers on Path Towards Labor-cost Parity with Toyota, retrieved on 20th October, 2010 from http://www.bloomberg.com/apps/news?pid=newsarchive&refer=transportation&sid=aIXCyJCo4vq8
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