CASE: TOYOTA, UK

Toyota’s origins can be traced back to the early twentieth century when the inventor of Japan’s
first automatic loom, Sakidu Toyoda, established a spinning and weaving company. By the
1930s, using funds from selling patent rights to a British machine maker, the company had begun
to invest in automotive technology research and soon produced its first prototype passenger
vehicle. In August 1937, NKiichiro Toyoda, the son of the original owner, established the Toyota
Motor Company, beginning mass production at its Koromo plant in 1938, just before the
outbreak of the Second World War.

Despite experiencing considerable difficulties in the post-war period, Toyota recommenced

production and began to build up a sales network to market its vehicles. In 1950, the company
was split into two parts – production and sales – with the Toyota Motor Company the
manufacturing arm of the organisation. Using techniques which have subsequently been
emulated by other large companies (e.g. total quality control, just-in-time), Toyota began to
increase its output and sales and was beginning to make significant inroads into overseas markets
by the mid-1960s. By 1982, when the sales and manufacturing arms of the organisation merged
to form the Toyota Motor Corporation, export sales of vehicles had exceeded domestic
registrations and Toyota had grown into a large multinational corporation with a range of
interests in various parts of the world.

For much of the early post-war period, Toyota focused its attention on the American market and
established sales facilities in California in 1957, to be followed by a design base in 1973 and a
joint production venture with General Motors in 1984. Less than two years later, the Corporation
established its first wholly owned production plant at Georgetown in Kentucky, from which the
first of many US-built Toyotas emerged in 1988.

Toyota’s development in post-war Europe proceeded along broadly similar lines, with the
company establishing local sales and distribution networks, followed by design and production
facilities. Initially, production took place under licence (e.g. in Portugal in 1968) or through joint
ventures (e.g. with Volkswagen in 1989) and was restricted to commercial vehicles and fork-lift
trucks. By the late 1980s, however, the company had signalled its intention of establishing a
passenger vehicle manufacturing facility in Europe, as part of its programme of overseas market
development.

This plant was opened in mid-1992 at Burnaston near Derby and was followed by the opening of
an engine plant at Deeside, North Wales, some months later. Toyota’s decision to establish
production facilities in Europe is best understood against the political and economic realities of
the period. Japan’s post-war success in export markets had, by the 1980s, given rise to a huge
Japanese balance of payments surplus that was bitterly resented by US and European
governments and became the focus of attention in numerous meetings of the G7 countries. As
part of this success, the Japanese car industry was under pressure from US and European car
manufacturers and their governments to restrain exports, and this ultimately culminated in a
system of agreed voluntary restraints (known as VERs) by Japanesecar producers, for fear of
more draconian measures. Since these restraints did not apply to vehicles produced by Japanese
factories overseas (‘transplants’), establishing a manufacturing presence outside Japan made
sound commercial and political sense. This was particularly true in western Europe, where the
EU’s Common External Tariff made cars imported from Japan more expensive to consumers and
hence relatively less competitive than locally produced vehicles.

The EU’s decision to establish a ‘single market’ within the Union added a further impetus to the
decision by Japanese car manufacturers (and others) to seek a European presence. The fact that
the United Kingdom was a favoured location for Toyota – and for many other Japanese
companies – is not difficult to explain. Apart from providing direct access to the largest single
market for motor vehicles in the world, the United Kingdom had a substantial market in its own
right and a developed vehicle manufacturing industry with a significant parts and component
sector. Added to this, the favourable response given to direct foreign investment by United
Kingdom national and local government – including the use of financial and other inducements –
made the United Kingdom an attractive proposition and a location of minimal risk for investing
multinational corporations.

As far as the choice of Burnaston was concerned, this seems to have been dictated by economic
and commercial rather than political factors, although Derbyshire County Council actively
lobbied the parent company and offered it a number of inducements to locate in the Midlands.
Being centrally placed in Britain and close to the M1, Burnaston offered direct access to all parts
of the country and a relatively quick route to the Continent, via the ports and the Channel
Tunnel. It also boasted a highly skilled local workforce, a developed infrastructure and a large
site with room for further expansion.

There is no doubt that the multi-million Toyota development in Derbyshire has had a
considerable impact on the local economy. Apart from the jobs created in building and operating
the car plant, further employment has been created directly among local component suppliers and
indirectly amongst those involved in providing services and materials and from the extra
spending resulting from the growth of jobs. The area has also benefited from the prestige of
having attracted a famous company to invest and this is expected to encourage investment by
other overseas organisations. How far these gains will ultimately be at the expense of the other
car-producing areas of Britain still remains to be seen, but economic analysis suggests they may
prove significant.

Case study questions

1 What is the problem in this case ? how the problem could be solved?
2. What do you think are the key factors which have made the UK an attractive location
for direct foreign investment?

2 To what extent do you think the expansion of the European Union will affect future
inward investment decisions?

Case study: Toyota UK 117