Green Vehicles as an Alternative for Advanced Vehicles
Nowadays, the appliance of green cars has gained a wide popularity among consumers all over the world.
There are many factors that lead to the quick usage of the green automobiles
- The first and the most important one is the low price of the cars. Being smaller, they demand less service as well as less expensive equipment.
- The second factor is connected with the ecological benefit of these vehicles. They are designed to emit less harmful substances into the air providing the healthy future for the humanity.
- The third factor is the convenience. Being smaller than common cars, green cars enable their owners to drive faster in traffic jams or during the rush hours.
Analyzing the mentioned factors, many countries started using green cars. Australia is not an exception. Nevertheless, there exist some peculiarities concerning the Australian green car market.
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Toyota Electric Cars
Basically, Toyota’s decision to set up a green car market was not accidental. The reason was connected with the default of automobile industry in Australia. Consequently, the government had to take some actions in order to save a car industry. Another factor was the refusal of Mitsubishi to continue working in Australian. The government noticing the possible collapse of the car industry decided to commence new programs connected with green vehicles. Toyota has been a leader in the field of producing green cars (“Toyota Sells 50000th Hybrid Car in Australia,” 2013). That is why the government was assured that this brand would assist in introducing the green cars in Australian. In fact, Toyota was interested in providing the program of environmentally friendly cars in the country. The reason was connected with the fact that the company wanted to broaden its brand throughout the world. Japan was only one point; so, they needed other destinations in order to get profit and recognition.
Moreover, Toyota understood that Australia would be a perfect place for marketing green cars:
- Firstly, a green car industry was a new one; consequently, people got interested in this kind of industry.
- Secondly, people started thinking about the protection of the environment.
- Accordingly, Toyota realized the importance of the new benefits of the production of green cars in Australia.
Despite being ready to start cooperation with the Australian market, Toyota decided to adapt the existing plant in Melbourne instead of building a new one. There are a couple of reasons concerning this issue. On the one hand, Toyota realized that the existing plant is much better than a new one; that is to say that the building had been already equipped and only required some investments. Moreover, the location is perfect for producing new cars. The size of the existing plant met all the required standards. On the other hand, Toyota’s main objective was to enhance the sale of green cars, and it could be achieved only with the help of qualified workers. The employees of the Melbourne plant possessed excellent skills in producing automobiles (Hammerton, 2014). One may admit that before starting engaging into the Australian car market, Toyota took into consideration all possible benefits and drawbacks of the existing car manufacturing. In fact, it turned out to be a good idea to adapt the existing plant and reopen it. Consequently, the reputation of the existing manufacturing will only increase. The reason is that the more places around the world are adapted by Toyota, the more prosperous it becomes. Moreover, most of the customers do not pay attention to the location of the brand. Initially, the establishment of a new plant at a new place enhances the reputation of the plant. Customers notice that the favorite brand starts becoming more and more popular. It means that its products are of high quality and importance respectively (“Sales Landmarks for Toyota’s Aussie-Built Cars,” 2014). Nevertheless, there are some international customers who are interested in the information concerning the place of the car assemblage. They want to be sure in the quality of the plants. Although the customers are worried about the place of the car assemblage, when they notice Toyota brand, they know that the quality of the car will be perfect no matter where the car has been fitted up.
Analyzing the Toyota car industry in Australia, there are some advantages and disadvantages of the company’s car strategy. The possible advantages are the appliance of the new car brand on a new territory. Moreover, a new car plant brought working places for a great number of employees. They got a possibility to show their professional skills as well as improve them. Another important advantage of the Toyota plant in Australia is the improvement of the environment. Producing green cars, the government helps reduce the level of carbon emission into the atmosphere. It is important to mention the price of the cars (Toyota, 2010). They are considered to be cheaper than common cars. Consequently, Australians can afford buying them. Moreover, customers will spend less on fuel saving more money for pleasure. Speaking about disadvantages of the Toyota industry in Australia, the main one is connected with the staff. It would be better to hire new employees who have experience in working with Toyota brand. Consequently, it would bring enormous benefits to the company. One more disadvantage is the lack of the original plant. It would be much better for the company to build a new plant from scratch as it will enhance its reputation.
Foreign Direct Investment (FDI)
Toyota decides to undertake foreign direct investment in Australia to increase the production capacity of its plant. It could alternatively build hybrids in Japan and sell them in Australia.
There are certain reasons that persuaded Toyota to make the decision of FDI:
- The first reason was the funding of the government, which covered almost one-third of the total cost of the project. Toyota decided to invest an additional $300 million in its production plant in Melbourne. Australia provided $63 million for the project under Green Car innovation project. Apart from that, Victoria government also contributed a significant amount to the project. Such cash flow injections were an incentive for Toyota to undertake the option of FDI. If Toyota had gone for the option of producing in Japan then it would have effectively lost almost $100 million and that was too big opportunity cost to let go by. Therefore, Toyota made the financially sane decisions of investing in its Australian plant.
- Secondly, undertaking FDI was the strategy of Toyota to sell engines manufactured in Australia in other countries. Toyota plants in Japan, the USA and China are producing Toyota Camry hybrid. These plants require engines for the production of the hybrid Camry. The plant in Australia will not only produce engines for the use of Australia but also for the Toyota’s plants in the three above-mentioned countries. Therefore, it is a tactical decision by Toyota that it would take advantage of the investment friendly environment in Australia to increase its capacity of producing engines. After the additional engines produced in Australia will be exported to Toyota plants in Japan, China and the USA. Such move saves costs because of Toyota increase sites production capacity in the USA then it would have to make greater investment. Therefore, the realization that investment in Australia can be beneficial for Toyota’s plants in foreign countries was also a chief reason or undertaking FDI in Australia.
- Thirdly, it would have been financially unsound to relocate production back to Japan. Toyota was a settled company in Australia. It invested a greater deal of resources there. As a result, Toyota was able to develop a goodwill and brand image of itself. At such a juncture if Toyota had left Australia, it would have resulted in a large financial loss. Ceasing operation in a country results in heavy costs such as severance pay for employees, transfer and shifting of machinery etc. So, in case of exit from Australia, Toyota would not only lose its goodwill in Australian market but it would bear costs of relocation. In order to avoid incurring both of these costs Toyota made the decision to go for the option of undertaking FDI that was financially more beneficial in such a scenario. Strength of Australian dollar means that the parent company of Toyota based in Japan would not be making loss in case of foreign currency exchange. All these factors together affected the decision of Toyota to undertake FDI.
- The fourth reason is the upgrade of Toyota plant in western Melbourne. It was after months of discussion that Toyota announced the $300 million upgrade. Toyota was aiming to produce 100000-hybrid engines and four cylinders new generation engines annually. Through this upgrade, there would be more production of the hybrid engine and thus meeting its goals to supply one million hybrid engines by the start on the second decade would become possible. Consequently, it was made possible through the Victorian administration support in all fields that include funding. The plan was that the hybrid engines manufactured in Australia would be imported to other countries that manufacture Toyota Camry and hybrid Camry. Toyota’s plants in Japan, the USA and China are producing Toyota Camry hybrid. The plant in Australia would also help produce engines for the rest of the Toyotas manufacturing countries like China, Japan and the USA.
A Review of Toyota’s Decision to Adapt the Existing Plant in Melbourne
Till 2006, Toyota Motor Corporation had factories situated in both Port Melbourne and Altona, Victoria. However, all manufacturing processes today take place in Altona (Wild & Wild 229). The company decided to take over the operating plant in Melbourne rather than build a new one. The reason for this is the fact that the plant was operating as expected. It was meeting the company’s production and quality expectations. For example, in this branch alone, Toyota produced over 100,000 vehicles annually (Chambers, 2008). In 2008, the automobile company exported approximately 101,668 cars. The value of this batch stood at $1,900 million. The management realised that building a new plant would not have significantly changed the financial standing of the company. In addition, Toyota had already fully established itself in the country. It had become one of the largest automotive manufacturers in Australia. It attained the top spot position in spite of stiff competition from other companies, such as Ford and Holden. According to Wimmer and Muni (2012), Toyota succeeded so much to the extent that the Australian market turned out to be too small for all its products. As a result, it shifted its attention to the Middle Eastern markets. All of these developments took place while the company operated the Melbourne plant. As such, there was no economic sense in opening another plant.
Another reason that prompted Toyota Corporation to adapt the existing plant was the need to avoid incurring huge losses in case the company suffered major setbacks in the market. A collapse in one plant would automatically lead to the fall of others. It is important to note that in spite of its dominance in the Australian market, the automobile company suffered from various challenges. For example, 2011 marked a tough market for its products because the market had become extremely competitive. The number of its exports during this period dropped to 59,949 from 101, 668 units. In addition, the value of the company’s operations reduced to $1,004 million (Marksberry, 2013). In addition, the Australian dollar was strong at that time. The issue led to a significant rise in the cost of manufacturing, resulting in low economies of scale. The current and future free trade agreements also posed great risks for the business. As such, it would have been unviable to operate more than one plant in Australia.
Maintaining the plant in Melbourne was easier than establishing a new one. Reason for establishing a new plant required huge resources compared to maintaining the existing one in Melbourne. Toyota was working on its business plan to reach a target of selling one million hybrid engines by the early part of the next decade. To reach this goal, it needed to double production of the vehicles. Through maintaining the plant in Melbourne, it ensured that fewer funds were needed compared to establishing a new plant. As a result, fewer loses were incurred. In order to meet the corporation goal it had to minimise on the losses whenever possible and thus needed to avoid incurring large losses in case the company suffered major setbacks in the market. Therefore, the company aimed at maximising its profits to meet the goal of selling one million hybrid cars by the early part of the next decade. As a result, Toyota was able to develop a goodwill and brand image of itself. Australia stands to benefit a lot from the move by Toyota to engage in FDI and at the same time, the corporation meeting its goals.
Toyota had already established its brand name in Melbourne by establishing a new plant. It would be a huge setback for the corporation damages incurred that would affect the rest of the manufacturing plants in other countries, including the one in Melbourne. One single mistake committed by one plant would affect the rest of the plants. For example, in 2010, the corporation was forced to call back a total of 750,000 cars in North America. In addition, the move affected 600,000 units in Japan, 50,000 in Europe, and 30,000 in Australia (Wimmer & Muni, 2012). Therefore, by maintaining the plant in Melbourne the corporation would avoid such inconveniences whatsoever. Furthermore, each manufacturing plant has its own reputation based on the quality of its products (Meyer, 2010). Due to the numerous challenges, Toyota Company declared its plan to bring to an end all its manufacturing operations in Australia by the end of 2017. The announcement was made on the 10th of February 2014. If implemented, the move will be similar to that employed by Ford and Holden car manufacturers, who entered and left the market. However, the company promised that it will continue exporting its vehicles to Australia.
The fifth reason is the import of engines to Australia from its Kamigo plant in Japan. It had been an alternative plan. The decision to manufacture green cars in Australia, rather than at the Japanese plants, will not affect negatively on the reputation of the company, since Toyota had been well established there. Instead of importing engines to Australia from Japan alternatively, it would import engines from Australia to the rest of its manufacturing countries such as Japan and China. Such good established corporation initiated a plant at Australia, Atlonto, in 1959 (Chambers, 2008). It was very successful and consequently it is one of the best manufacturers’ cooperation known in automobile industry. Through importing, the corporation would be able to establish and maintain their name in Japan and other markets globally. By working in Australia, it does not mean that Toyota neglected Japan as it gets some of its components from Japan.
Impacts of Toyota’s Decision to Produce in Australia
The decision to manufacture green cars in Australia, rather than at the Japanese plants, will not impact negatively on the company’s reputation. It is important to note that Toyota has been producing in this country for some time. The well-established corporation opened a plant in Atlonto, Australia, in 1959 (Chambers, 2008). In addition, the decision by Toyota to produce in Australia has many financial impacts. Toyota will incur less production costs. It has succeeded in the market and it is still the leading automobile manufacturer. Its inventions, which include the Camry Hybrid and the Aurion, will help sustain the company’s reputation in Japan and other global markets. For this reason, it will be possible to enhance its global reputation. Since the plant’s opening, the company has continued to be viewed positively in Japan. The reason is because carrying out its green car manufacturing operations in Australia is considered as a form of the firm’s expansion (Wild & Wild 229). It is in tandem with the Toyota’s intention to invest abroad. It is not regarded as a way of neglecting the home factories and their services in Japan. Furthermore, some of the components used in the Australian plant are sourced from Japan.
One of the reasons why the company can be regarded negatively is when the automobiles produced have mechanical faults. Low quality cars result in recalls, leading to a decline in the volume of sales. Over the years, Toyota has made a number of recalls for particular models of its products. For example, in 2010, the corporation was forced to call back 750,000 cars in North America. In addition, the move affected 600,000 units in Japan, 50,000 in Europe, and 30,000 in Australia (Wimmer & Muni, 2012). International customers pay a lot of attention to the countries within which their automobiles are assembled. Every manufacturing plant has its own reputation based on the quality of its products (Meyer, 2010). As a result, no consumer would willingly agree to purchase a car assembled in a plant known to produce faulty machines. In addition, customers make rational decisions when it comes to their safety. It is important for Toyota to standardize its products to ensure that its customers have the best possible quality. The decision by Toyota to produce in Australia has innumerable spill over effects. Job creation is the biggest advantage for Australians. It has many multiplier effects such as increasing the disposable incomes of workers. Notably, this increases their purchasing power and improves their standards of life. Moreover, the Australian government will be in a position to rake millions of dollars from Toyota in a form of taxes. In addition, Toyota’s decision to produce in Australia will drive the green car market industry. Inevitably, this will reduce the costs of motor vehicles in Australia.
Pros and Cons of Toyota’s Approach to the Management of the FDI
There has been an unprecedented expansion of Multinational Corporations (MNCs) due to globalization. According to Meyer (2010), FDI is the process where a company establishes a plant in another country. It can also involve entering into a joint venture with a corporation in its local market. Organisations have resulted to using FDI to expand abroad. Companies who invest in foreign markets have an access to managerial skills, technology and capital. The total value of foreign investment flows in the 21st century has surpassed the $1 trillion mark (Kieser 53). In addition, Toyota’s FDI in Australia in relation to the manufacture of the green car has its strengths and weaknesses. Australia stands to benefit a lot from the move by Toyota to engage in FDI. For example, it will acquire new technologies, management skills, capital, and business opportunities. The Melbourne plant will require key supplies from local businesses. The supplies include equipments and accessories. In addition, employment opportunities will be created. Currently, Toyota has over 3,900 employees in Australia. Finally, as a result of the FDI, the prominence of the brand will increase, leading to financial benefits for the firm. The balance of payments improves through a surplus in the current account. FDI also enhances competition amongst producers. It leads to production of high quality products.
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FDI can stimulate economic growth through enhancing competitive advantage. More specifically, it leads to new technological transfers when organisations bring equipment, marketing and production processes to the host company. Toyota will bring technology transfers to Australia. Towards this end, Australians will learn about Toyota’s new technologies. Moreover, Toyota will enhance capital formation by investing in properties and machinery. Additional employment opportunities will arise. Toyota engages in personnel development by training local employees with the intent of output/employee and more importantly, increase profitability. Australians with no stable jobs will have an opportunity to join the Toyota’s workforce. The government will also benefit from increased tax payments from Toyota. Companies must pay taxes. In addition, it will be possible for Toyota to have an expanded global market.
In spite of various benefits associated with FDI, it is important to note that it has its share of disadvantages. For example, it increases competition in relation to the local industries. As a result, native businesses are forced to re-adjust their prices to remain in the market. The locals may also lose their customers to the foreigners (Blaine, 2008). In addition, the existing relationships with domestic companies may be impacted on negatively as they start engaging with the foreign investors. Toyota can be negatively affected by the move to engage in FDI if the local market suffers from disasters such as wars and natural calamities. The company may collapse as its shares drop drastically in such times. In addition, there can be intense competition leading to the closure of the plant (Meyer 33). Companies can also produce higher quality products at a cheaper cost. It makes local products uncompetitive. Lastly, FDI can lead to job losses especially in low-skill sectors.
It is important for the Australian government to ensure that Toyota does not cause environmental pollution. By pursuing environmental-friendly policies, it will be possible for Toyota to avert considerable pressure from government. Slipshod and lenient environmental standards may prompt foreign companies to assume the set standards and regulations. In pursuance of a green car market, Toyota must be ready to adhere to the existing environmental policies in Australia. Moreover, most companies are known for exploiting local workers. Improving working conditions is an imperative for Toyota. Atrocious, detrimental and harsh working conditions pose serious health risks to workers. Moreover, it is important for the Australian government to protect from competition such companies like Toyota.
In conclusion, the existing Australian car market faced collapse after the shutdown of the Mitsubishi plant. Nevertheless, the car industry was saved because of the establishment of a new Toyota car brand. The government realized that Australia needs a new type of car industry that could not only bring profit but also improve the state of the environment. The perfect solution was Toyota’s green cars. Consequently, after the reopening of the Melbourne plant, the Australian car industry started booming and becoming prosperous.