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Toyota European Operating Exposure Essay

1. Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe? Toyota, like most manufacturers, wished to continue to enjoy the benefits of scale and scope economies in manufacturing as long as possible, and had resisted the movement of more and more of its manufacturing into the local and regional markets.

2. If the British pound were to join the European Monetary Union would the problem be resolved? How likely do you think this is? I could see how the British joining the EMU would eliminate the currency risk between the UK and Europe, but not between Japan and Europe because joining the EMU would eliminate the deviations in currency value between the British pound and the euro only. Although there has been continuing and heated debate over the possibility of Britain joining the EMU, there is at present no specific plan to do so. In many ways the UK believes itself to be somewhat the beneficiary of being the single large “European” country which is not euro-based.

3. If you were Mr. Shuhei, how would you categorize your problems and solutions? What was a shortterm and what was a long-term problem? The problems on the basis of the data presented, appear to be primarily exchange rate induced pricing problems. The fall in the value of the euro against the yen throughout 1999 and early 2000 was significant. For some unknown reason most of Toyota’s North American operations had moved to manufacturing bases in North America, while Toyota had continued to try and service European sales via exports from Japan. The recent decision to manufacture a new European-targeted product, the Yaris, from production in Japan was in the continuing strategy.

It did not appear to be a good strategy given the recent direction of exchange rate movements. The primary short-term solution was to continue to absorb yen-based cost increases in lower margins on European sales—assuming that the market would not bear passing-through the exchange rate changes. In the medium-to-long-term, Toyota must inevitably move more of the automobile’s content into manufacturing operations within the EMU (and not the United Kingdom).

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