Actes du GERPISA n° 26 37

TOYOTA MOTOR MANUFACTURING AUSTRALIA IN 1995: AN EMERGENT GLOBAL STRATEGY

Takahiro FUJIMOTO

The purpose of this paper is to describe and of manufacturing firms in the field of international analyze the manufacturing operations of management. The transnational strategy (Bartlett Motor Manufacturing Australia Ltd., an Australian and Ghoshal, 1989), which tries to link subsidiary of Toyota Motor Corporation, from the international operations with distinctive resources point of view of “emergent global strategy”. It is and capabilities by a network of people, materials, based on an exploratory case study. money, technology, and knowledge, for example, In the field of strategic management, the notion has attracted much attention. International Motor of “strategy as plan” has been a prevalent idea for Vehicle Program of MIT (Womack, et al., 1990) many years, in which strategic intent precedes also advocated a similar global network. The strategic implementation (Andrews, 1980, Hofer existing works on global strategic management, and Schendel, 1978, etc.). There has been another however, tend to be explained by the “strategy as concept of strategy concepts, “strategy as pattern”, plan” concept, driven by a prior grand design and which assumes the possibility that competitive deliberate decision making at the headquarters. strategy may be formed even without a prior Rational decisions do more or less guide intention to be competitively rational (Mintzberg international operations of manufacturing firms, and Waters, 1985). Mintzberg and his colleagues but it is also possible that the global network may call a strategy that was unintended but realized evolve into what the original intention did not “emergent strategy”1. predict. This paper pays a special attention to te Such arguments for emergent strategies can be latter aspect, or “emergent global strategies” that applied to global operations. There has been, of result from a series of crises and responses. course, a mountain of literature on global strategies As a case study, this paper describes and analyzes Toyota Motor Manufacturing Australia 1 For a related concept in sociology, «latent function», which Ltd. (TMCA). In this company, a strategy of refers to when a function turned out to contributed to a overseas manufacturing capability-building and system’s survival but was out motivated by prior intention, see Merton, 1968. global networking of managerial resources has 38 Actes du GERPISA n°26 emerged as a result of inevitable responses to of imports into the host market after the intensifying local competition in Australia. protectionist policy of a local government is lifted. TMCA, originally established as a local-market- It is also important to note that a crisis situation oriented operation that fit the Australian tends to reveal inter-firm differences in interpreting government’s import substitution policies and the environments and forming strategies. It is thus protected domestic market, evolved into an possible that the intensifying competition in the important node of Toyota’s global manufacturing Australian auto market may reveal “Toyota-ness”, network as it struggled to survive in a series of or a distinctive competence of this high-performing crises. This process may be seen as an interesting manufacturer. Against this background, let’s example of an emergent strategy, in which day-to- investigate Toyota’s Australian operations. day local manufacturing operations for survival and global strategy formation are virtually inseparable, unlike deliberate strategies based only on AUTOMOBILE MARKET, INDUSTRY AND articulated global visions. INDUSTRIAL POLICIES IN AUSTRALIA Before analyzing the case, let me explain the background - the Australian automobile industry Market Trend and its transformation. In the 1980s, the Australian For various economic and geographical reasons, government abandoned its protectionist automobile the car ownership ratio in Australia is quite high. industry policy that it had supported for many As of the mid 1990s, there were about 10 million years. This can be regarded as a pioneering case of cars and trucks in operation while its population a government’s effort to rationalize an inefficient was only 18 million (60 million vehicles and 130 local industry created by protectionism. million people in Japan). The ownership ratio From the Australian local makers’ point of itself has been almost saturated, however. Average view, however, such a drastic change of industrial age of the vehicles (about 10 years) and average policy inevitably created a serious crisis. Facing life expectancy (about 20 years) are both quite fierce competition from imported vehicles, one long. People tend to keep old cars. As a result, the local auto maker has already closed down its domestic market (mostly replacement demand) is Australian manufacturing operation. The surviving rather small and saturated at around half a million local makers are set to continue to face very severe units per year. (see table 1) competitive environments. The market structure is somewhat similar to that In the middle of this crisis, TMCA has explored of the U. K. in that about half of the passenger car its way toward a relatively autonomous overseas demand in Australia is for so called “company operation with a mid-size manufacturing facility. cars”, which companies own and lend to their In fact, it appears to have accumulated capabilities employees as a part of their fringe benefits. Since as an important node of Toyota’s global the companies also pay for gasoline, the drivers manufacturing network through rather aggressive (?employees) do not care much about fuel capital investments, the consolidation of local efficiency. Thus, company cars occupy 80% of the manufacturing facilities, the rationalization of large car market in Australia. By contrast, production systems, improvements in human individuals tend to buy inexpensive small cars or resource management, the formation of vehicle- used cars. parts complementary networks, strategic alliances Car leases have begun rather recently, but are with other makers and so on. This paper describes rapidly expanding. There may be volume discounts the above process as a kind of emergent global on the lease fee. Lease periods are typically three strategy formation. years, after which ex-lease vehicles are sold to used Compared with the overseas operations of car markets. People in Australia, a former British Japanese auto firms in Asean and other Asian colony, tend to regard themselves as European- countries, the Australian operations may be much style car users. The fraction of cars equipped with less known to the public. However, the case of automatic transmissions (AT), for example, is 60% TMCA may be regarded as a pioneering example in the case of the , which is much of how an internationalized manufacturing firm lower than the level in the US market, if not in strengthens its overseas operations vis-a-vis a flood Europe. Actes du GERPISA n° 26 39

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 market is small and saturated amplified this relaxed, complete vehicles have been imported problem through the chronic high-cost structure of from various countries. Imports from Korean and small volume producers. Spanish-built vehicles were growing particularly This industrial policy changed completely in rapidly as of the mid 1990s. 1988, however, when the trade minister Button announced a drastic conversion of the policy Transformation of the Automobile toward the relaxation of protectionism and the Industrial Policy promotion of exports--the so-called “Button plan”. From the 1930s through the 1980s, Australia’s The new policy, targeting passenger car producers automobile industrial policies had consistently and specialist component producers (but excluding been projectionist in nature, with such import- commercial vehicle producers and replacement substitution measures as high import tariffs, import parts suppliers) consisted of the following quotas for complete vehicles, local content elements: regulations, and so on. · Gradual reduction of tariffs for complete Behind such a policy was, apparently, the vehicles (see figure1: 15% in 2000) doctrine of so-called “infant industry protection”, · Abolishment of import quotas (1988) which insists on temporary protection of a · Penalties against small volume production domestic industry in order to buy time for its take- models (regulation of minimum annual off in terms of international competitiveness. production volumes by models) Typical examples include the Japanese and Korean · Export promotion measures auto industries, which followed the path of · Imported parts concession protection - establishment of international competitiveness - relaxation of the protection, The above policy aimed at promoting although the net effects of the industrial policy are competition by trade liberalization and thereby not clear. rationalizing the product mixes and production The Australian auto industry, however, was systems of local producers, as well as improving apparently suffering from the vicious cycle of quality and productivity and lowering prices. In chronic protectionism and retention of inefficient order to alleviate the damages to the local sectors, a typical trap of import substitution producers, however, such measures would be policies. The fact that the Australian domestic 40 Actes du GERPISA n°26 Actes du GERPISA n° 26 41 introduced gradually with micro-level supports for Both firms also started local knock-down assembly the local makers. in Japan at roughly the same period. It is rather generally observed that a country After World War II, domestic demands of the with import-substitution policies shifts its emphasis automobile continued to grow until the 1960s, and to export promotion while keeping some forms of this, together with protectionist-localization protectionism in place. The present Australian policies by the government, induced new entry of case, however, is characterized by a more such foreign auto makers as VW (newly compressed schedule of shifting to export establishing MPL in 1957), Toyota (starting promotion and lifting protection (although step-by- consign production at Australian Motor; 10% step) simultaneously. Such a drastic policy change capital participation in 1968; 50% in 1970; 100% is rather rare in the world auto industry. in 1988), and Chrysler (acquisition of Roots Note also that the new policy virtually restricts Motors in 1965). Then Nissan purchased the VW the number of domestically produced models subsidiary in 1976, and Mitsubishi bought out (consolidation of product mix), which is different Chrysler’s position in 1979, creating a five from restriction of new entrants (historically company regime with two American and three observed in Korea, for example). This policy tends Japanese auto makers.(see table 2 and figure 2). to result in exchanges of models and other tie-ups In 1992, Nissan divested from Australia, between firms aiming at product-level economies leaving four local passenger car producers, Ford, of scale. GM (), Mitsubishi, and Toyota as of the late 1990s. The Automobile Industry in Australia Local production facilities are concentrated in The Australian automobile industry has a fairly South Australia State (near ; GM and long history, originating back in 1925, when both Mitsubishi) and in State (Melbourne; Ford Ford and GM started local assembly operations. and 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 42 Actes du GERPISA n°26 Actes du GERPISA n° 26 43

Competition against imports has intensified in US Makers: Annual production of the two US recent years. As of 1995, for example, when the makers has been fluctuating at level of roughly tariff on imported vehicles was 27.5%, the share of 100K~150K each since the late 1980s. Both firms import vehicles had already reached 40% (see have autonomous operations with product figure 3). The tariff further decrease to 15% in development, production and sales functions, as the year 2000, which should further push up the well as Australia-specific models in the large car import share. Accordingly, the variety of segment. Both GM and Ford are estimated to have domestically sold vehicles increased dramatically 600 to 700 people in their respective product from 200 in 1978 to 550 in 1995-good news for development groups. Australian consumers, but a bad news for local producers.

Figure 3 Share of Car Imports in Australia

50% 46% 45%

40% 38%

35%

30%

25%

20% 19%

15%

10%

5%

0% 1988 1994 1-4 1995

Although the US makers develop and produce modifications year by year, as in the traditional unique models (GM Comodore and Ford Falcon), annual model change policy of the American auto they are more like derivative models which made makers, but the platforms themselves have use of the companies’ global networks. For remained unchanged for as long as 20 years. As a example, the Comodore, a large car of GM-Holden, result, some component technologies of the GM has a unique floor panel design, but its door design and Ford models have become quite obsolete. As was derived from a vehicle from Opel, GM’s of 1995, for example, the Ford Falcon was still European subsidiary, and many other component using rigid suspension, and the GM Comodore was designs were carried over from those of GM in the propelled by an overhead valve (OHV) engine, US. when independent suspensions and overhead Because of the small volume of local production camshaft (OHC) engines were the prevalent mode per model (less than 100K units annually), the two worldwide. Down-sizing of the large cars has not US makers have tried to lower depreciation costs made significant progress. Thus, the large models by making their chassis-platform change cycles by the US auto makers tended to be good only for quite long. Body exteriors receive minor the Australian domestic market. 44 Actes du GERPISA n°26 By 1995, GM had decided to concentrate only The Impact of Industrial Policy Changes on the large Comodore in local production, and on the Companies’ Strategies received the OEM-supply of Corolla (Nova) and The strategic responses of the local auto makers Camry (Apollo) from Toyota (TMCA), as well as to the new industrial policy that relaxed receiving Opel’s , Corsa, from its protectionism can be summarized as a combination Spanish factory, creating a “patch-work” full line of the following four measures: (i) consolidation of product mix. The Nova and Apollo shared their models and factories; (ii) inter-firm coalition chassis and exteriors with the Corolla and Camry building; (iii) improvements of competitive respectively, but they had modified front grilles, performance at the plant level; (iv) divestment head lamps, and rear combination lamps for moves. superficial product differentiation. Consolidation of models: Due mostly to the Ford was reconsidering its strategy in Australia Button plan, the number of domestically produced in 1996, taking into account the Australian models decreased from 13 in 1984 to only 5 in government’s industrial policies after the year 1994, while the number of assembly plants and 2000. As of 1995, no budget for new capital assembly firms decreased from 7 to 4 and from 5 to investment in Australia had been approved by 4 respectively (see table 3). Thus, the Ford’s US headquarters. rationalization of the local model line-up was Mitsubishi: Mitsubishi’s Australian subsidiary rather significant. (MMAL), was formed in 1979 through the The model consolidation was particularly purchased of Chrysler’s Australian subsidiary. Its drastic in the case of the US makers. GM, for annual production volume has remained between example, reduced its number of models from 4 to 1 30K to 50K units in the late 1980s and the early between 1984 and 1994, and Ford from 3 to 1 1990s. The facility has produced the “Magna”, a during the same period. Thus, the Button plan fairly large sedan, which was originally an enlarged made the U.S. makers virtually single-model-firms. derivative model of Mitsubishi’s Japanese model This was a direct response to the new policy of “Gallant”. The 1995 Magna was a modification of imposing prohibitive tariffs on import parts when a Mitsubishi’s larger model in Japan, “Diamante” model’s annual production fails to reach 30K units. (previous generation) with its “B-pillar” design Among the Japanese firms, Nissan closed down its changed. Although it is generally difficult for auto assembly transplant, and Mitsubishi reduced its makers to change models simultaneously in Japan number of models from 2 to 1, while Toyota has and Australia, it is true that Mitsubishi was kept its two-model line-up (Camry and Corolla) as renewing its locally produced models much more of the mid 1990s. The contrast between Toyota frequently than the US-based makers. and US makers may come from their Auto Parts Industry in Australia: The manufacturing strategies: the US makers Australian auto parts industry consists mostly of apparently follow their traditional mass-production local subcontractors producing non-functional parts strategy for cost competitiveness; Toyota is more and the Australian operations of large US and oriented to flexible production system by which it European parts suppliers making functional parts. tries to enhance competitiveness of medium-size There are only a few Japanese parts suppliers overseas operations. operating in Australia1. In other words, unlike US Alliance among Local Subsidiaries : In order to transplants, Japanese transplants in Australia are maintain the full-line policy in the show room unable to rely much upon local facilities of while consolidating locally produced models, the Japanese parts suppliers. auto makers have to either import cars from their other factories outside of Australia, or buy complete vehicles from domestic competitors. In fact, since the announcement of Button plan in 1988, local auto assemblers in Australia have begun to form alliances with each other by mutually adjusting local models, commonizing parts and vehicle designs between them, and 1 Exceptions include Denso (locally producing radiator, air conditioner and meter), Toyo Rubber (instrument panel pad), exchanging OEM supplies of complimentary and Bridgestone (tire and steering wheel). Actes du GERPISA n° 26 45

Table 3 : Reduction of Production Models in Australia

1984 1994 GM-Holden WB (Statesman/Caprice) Commodore Commodore Camira Gemini

Ford Falcon Falcon Telstar Lase/Meteor

Toyota Corona Camry Corolla Corolla

Sigma Magna Mitsubishi Colt

Nissan Bluebird Pulsar/Astra

Model 13 5 Total Maker 5 4 Plant 7 4 Source : TMCA models. GM and Nissan originally had such a tie- International Motor Vehicle Program), but up relationship, but Nissan switched to an alliance nevertheless it is clear that significant progress has with Ford when Toyota and GM set up a joint been made on this point. venture. To sum up, Australian assemblers were still Improvements of Productivity and Quality: One lagging behind world class players in terms of of the major objectives of the Button plan was to manufacturing quality, design quality and assembly improve competitiveness of domestic auto makers. productivity, but they were steadily getting better, Indeed, according to the data of AIA (the from which the government was convinced that its government authority), manufacturing quality of new industrial policy was successful as of the mid Australian models has steadily increased since 1990s. 1988 (see Figure 4). Among the local models, Strategic Differences Across Firms: The drastic those of Japanese firms tended to enjoy higher government policy change inevitably had a major quality during this period, but GM and Ford impact on the strategies of the local auto makers models were also improving. Overall, local models which had formerly been protected. They were were narrowing quality gaps vis-a-vis imports. forced to choose between exiting from Australian The improvements in assembly productivity manufacturing operations or managing to survive (person-hours per vehicle) was not as obvious as in by enhancing their products’ competitiveness the above case of quality, but it did improve from against imports. The government obviously tried 40 person-hours per vehicle in 1988 to about 35 in to induce local makers to the latter solution, but 1993 (see Figure 5). This level is still far behind there was also the risk of a total collapse of the world class assembly plants (less than 20 Australian car making. The Button plan, in this person-hours per vehicle, according to MIT’s sense, was dangerous shock treatment. 46 Actes du GERPISA n°26

Figure 4 AIA Quality Index Ford Laser

4,5 Toyota Corolla 4 3,5 3 MMC Magna 2,5 2 Ford Falcon 1,5 1 GM Commodore Defects per vehicle 0,5 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 Year

Figure 5 Assembly Productivity of Australian Plants ( Average)

60 52,5 50 44,1 40,4 41,4 39 40 34,5 30 20 10 0 1988 1989 1990 1991 1992 1993

In fact, the local producers responded to the already been intensified. Although one cannot be new policy differently. Nissan gave up local overly optimistic about the future of TMCA as of production and closed its plant in 1992. GM and the mid 1990s, it should be noted that Toyota was Ford were trying to survive mainly by such the only company that expressed its clear strategic defensive measures as model consolidation and intent to build up a core manufacturing capability plant consolidation, but they had not launched any in Australia as an important node of the company’s significant strategies to renew their models in an global vehicle-parts network, rather than simply effort to dramatically improve competitive have an inward-looking local operation. performance. Mitsubishi was also trying to make its By contrast, Toyota (TMCA) was the only local Australian plant an export center of the Diamante producer that was obviously making major efforts wagon and V-6 engines, but it was trying to do so to upgrade competitive performance of its local through rather defensive measures: consolidating operations. This is obvious from the fact that, as models and rationalizing production without much late as 1994, Toyota built its new Altona assembly additional investment. plant with its state-of-the-art production system designs when the competition against imports had Actes du GERPISA n° 26 47

TOYOTA MOTOR MANUFACTURING and workers were all Australians in principle. In AUSTRALIA (TMCA): OUTLINE general, President Nakagawa highly evaluates the Australian managers. Although they may not be as Basic Strategies of TMCA good at teamwork as their counterparts at the Toward a Middle-Size Center for the Southern Japanese headquarters, the Australian managers Hemisphere: The overall vision of President tend to be capable as individuals, dealing with Nakagawa and VP Sakaue, as of 1995, was to wider task assignment than their Japanese make TMCA one of the mid-size hubs in Toyota’s managers, and did an excellent job during the global manufacturing network. Compared with 1994-95 new plant construction, according to Toyota’s large-size facilities in Japan and US, a Nakagawa. Note, however that there are also medium-volume production lines such as TMCA Japanese “coordinators” dispatched from the may add significant flexibility to its global Toyota headquarters, who are stationed at TMCA operations in terms of knockdown exports and as long-term expatriates. Mr. Shimizu, Chief production of Asian models. TMCA, in this sense, Coordinating Executive, for example, was not is meant to be a center of Camry production, counted as an employee of TMCA. There were covering not only Oceania but also South-East Asia about 20 such coordinators (including 10 and South Africa as export markets. executives), linking TMCA and Toyota President Nakagawa has had a unique career, headquarters in accounting, finance, sales, beginning with inspection duties and then purchasing, personnel, service, parts, technology, participating in various overseas manufacturing and production. operations such as Nummi in the US and Besides TMCA, there is a separate Toyota Indonesia. VP Sakaue is a veteran expert of Motor Corporation’s Australia Office, a branch manufacturing engineering. Coordinator Shimizu unit of the Product Technology group at the Toyota has worked in the overseas planning division at the headquarters. President Nakagawa of TMCA is corporate headquarters, designing Toyota’s global also head of this TMC Australia Office. There are parts-vehicle network. Toyota might have about 10 expatriates working at this office, appointed these three talents deliberately, taking conducting such jobs as engineering adminis- into account TMCA’s strategic role as a semi- tration, product design, testing, and coordination. autonomous hub in its global network. Toyota is trying to balance centralization and local The Profile of TMCA: Although TMCA is a decentralization through this dual structure of local relatively small overseas facility compared with the subsidiary (TMCA) and the headquarters’ branch large operations in the US (e.g., Kentucky plant = office. In this way, such decisions as the selection TMM), it is a uniquely self-sufficient unit, unlike of local content parts can be made at TMCA its US counterparts, with all the main functions without intervention from the headquarters, but including production, sales, product development, certain technically sensitive issues can also be finance, and general administration. It is one of decided quickly through close collaboration with Toyota’s oldest overseas operations, having started Toyota headquarters. in the early 1960s. As mentioned above, TMCA’s TMCA had about 4000 employees as of 1995, managers have a vision of growing it into one of of which about 3000 were in production (2000 the core production centers for the Camry with direct workers and 1000 indirect workers), 800 in medium volume capacity, coordinating it’s sales, and 400 in general administration. It has tried operations on an international scale with the two to size down administration and indirect units in other Camry factories, the Tsutsumi plant in Japan order to survive in the increasingly competitive and TMM in Kentucky, US. environments. Another distinctive feature of TMCA is its high degree of localization of managers. There were Outline of Production and Technological only three Japanese expatriates in TMCA itself: Operations President (Nakagawa), Vice President in Production: There were 2875 employees in the Manufacturing and Technology (Sakaue), and Vice production group of TMCA as of 1995, of which President in finance; the other managers, engineers 2221 belonged to the Altona and Port Melbourne 48 Actes du GERPISA n°26 factories, 316 were in production control, 171 in lines are separate, but they share one line in quality control, 83 in production engineering, and metal finishing, painting, and final assembly 84 in product development. There were 1925 processes. There are 440 employees (230 direct and 950 indirect employees (Figure 6, direct workers) in press, engine and aluminum Table 4). TMCA produces two basic models: casting; 1222 in assembly including welding, Camry and Corolla. The other models that Toyota painting and final assembly (980 direct sells in Australia are either imported from Japan or workers). There is also an administration bought from GM Holden on OEM basis (sold building containing production control, under the Toyota brand). Production in 1994 was purchasing, finance, personnel, etc., as well as 52K for the Camry and 25K for the Corolla-78K all quality test trucks, a shopping yard, and CKD told, which includes OEM supply to GM (10K) and container yard. There was no plan to expand the exported Camry’s (5K) (see Table 5). Altona’s capacity as of 1996. · There used to be three production facilities in TMCA: Port Melbourne plant (Assembly and Engineering: Both product and process parts production for Camry), Altona Plant engineers are included in the production area. (press and engine), and Dandenon (Assembly Roughly speaking, there are 100 product engineers for Corolla). Dandenon and Port Melborune and 100 process engineers. The product Plants were closed in 1994 and 1995 engineering department includes product planning, respectively, however, which resulted in the engineering design, prototyping, testing, and concentration of TMCA’s press, welding, engineering administration. Process engineering painting and final assembly processes in consists of facility engineering, tool & jig Altona. engineering, and process & equipment engineering. · Port Melbourne Plant was an old facility built Part of TMCA’s prototyping and styling is done in the 1950s and was first owned by AMC and using GM facilities. then by Mercedes Benz. It had assembled and manufactured Toyota products since 1963. Outline of Sales & Marketing Since this plant is located only 10km from Product Line-up: TMCA’s line-up centers Altona, 80% of the workers at Port Melbourne around the two locally produced models, Camry moved to the Altona Plant rather than quit and Corolla, which are supplemented by TMCA. After the shut down of the assembly commercial vehicles, and sports utility shop, the parts production shops (small presses, vehicles imported from Japan, as well as a large seat frame, door trim, fuel tank, etc. 559 model OEM-supplied by GM Australia. The workers as of 1995) remained as the largest problem was that after the appreciation of yen in source of components for Altona Assembly the mid 1990s no models at the low end could be Plant. Some parts are exported to other Toyota imported at an economically justifiable cost. factories (e.g., bumpers and air cleaners for the Therefore, the Corolla was the lowest priced Corolla to Toyota’s Turkish plant. passenger model of TMCA (24000 Australian · Dandenon Plant was owned by GM, but it shut dollars as of 1995, when 1 dollar equaled 70 yen). down operation in 1988 in response to the In other words, Toyota’s weakness at that point government’s new policy. Toyota then was that there was no overseas facilities which borrowed this facility between 1989 and 1994 could export the low end passenger cars to the for the assembly of Corolla. Since Dandenon Australian market at economically feasible cost, is 50 km away from Altona, only 20% of its which created a big hole at the lower part of workers stayed in TMCA and moved to the Toyota’s price offering range. Altona plant when Dandenon was shut down. Sales: Although about 70% of Toyota dealers · Altona Plant is a relatively new facility: Engine were dedicated solely to Toyota, the fraction of machining / assembling and aluminum casting multiple franchise dealers were increasing, partly operations began in 1979; press operations because TMCA’s product line-up lacked low price followed in 1981. Altona’s assembly plant did products at the entry level. Thus, Toyota dealers not open until 1994, though. In the new tended also to sell such economy models as assembly plant, the Camry and Corolla welding , , or Hyundai and Daewoo of Actes du GERPISA n° 26 49

Korea (the market for micro-mini cars is not popular yet).

Table 4. Employees

1991 1992 1993 1994 1995

Manufacturing Total 3036 2940 3120 3166 2875

Direct 1708 1634 1778 2035 1925 Indirect 1328 1306 1342 1121 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 50 Actes du GERPISA n°26 Actes du GERPISA n° 26 51

Alliance With GM 15% of the Camry engines are imported from Toyota in Japan. In 1989, GM and Toyota set up a joint venture On the other hand, some of the complete in Australia, UAAI, in order to mutually adjust engines are exported, as knock-down kits in their local production models. TMCA supplied the wooden boxes, to Malaysia, South Africa and New Corolla-based “Nova” (3600 units in 1994) and the Zealand. As of 1995, TMCA is the only overseas Camry-based “Apollo” (5500 units in 1994) to facility at Toyota which engages in knock -down GM. All told, about 10K units out of TMCA’s exports to other countries- -a pioneering case of 80K production volume were supplied to GM on an Toyota’s global network of complementary parts OEM basis. These GM brand models shared production. (For example, Toyota’s South African platforms and exterior body panels with the plant producing the Camry imports 2 liter 4 original Toyota Models, with only minor changes cylinder and 3 liter 6 cylinder engines from Japan, in front grilles, head lamps, and rear lamps. On the and 2.2 liter 4 cylinder engines from TMCA.) other hand, GM supplied its Commodore-based large model to TMCA. Aluminum Casting Shop As of 1995, TMCA was expecting the Toyota- Located inside the engine shop, this foundary GM Cooperation in 1995 to be continued, in the produces cylinder heads, intake manifolds and form of cross-utilization of each other’s platforms, other aluminum parts for engines. and the creation of derivative models with cosmetic Unfinished aluminum cylinder heads are exterior changes for each brand. In addition, exported from here to Toyota’s South African TMCA is renting GM’s styling facilities and facility. Some parts are also shipped to Japan for prototype shop in order to save costs. machining, and then re-exported to Toyota’s By contrast, the GM-Toyota alliance in Indonesian plant. production, production technology, purchasing, and logistics was expected to be limited. For example, Press Shop once the GM-Holden had already introduced the TMCA’s press shop, located next to the engine Kanban system, there were not many things on shop, started up in 1981. There are 147 direct which Toyota could cooperate with GM. Thus, the workers (two shifts), 31 press machines, and 448 GM-Toyota alliance was expected to be limited to dies (i.e., over 10 dies per machine), producing 330 mutual OEM-supplies of derivative models. vehicle-equivalent press parts per day as of 1995, with a vehicle-equivalent production capacity of OPERATIONS MANAGEMENT IN ALTONA 400. About 90% of the body panels for TMCA are PLANT made here. The speed of the press machines (e.g., 250strokes per hour in the case of 1000 plus ton Engine machines) is already as high as that of the Japanese The Altona engine shop, built in 1979, is the press shops, but the average die set-up times have oldest factory at this site (Figure 7). The plant not reached the typical Japanese level (i.e., within machines and assembles two types of engines, four ten minutes.) cylinder 2.2 liter for the Camry and another four There are six press lines (2 large, 1 medium, cylinder engine for the Corolla. There are two and 3 small), all of which are tandem lines with 4 machining lines each dedicated to one of the two to 5 machines per line. There are no transfer press engines, but they are merged into one assembly lines, the latest press technology. The two large line with randomized mixed production. There are press lines use Japanese (Komatsu) press machines; 94 direct workers in two shifts for both machining the other lines consist of second-hand press and assembly. There is a multi-skilled training machines, made in Japan or Germany, that were program, using a skill profile table (a matrix moved from Toyota’s domestic plants (Australian indicating who has mastered which jobs). machines are not used). Engine casts for the two types of engine blocks are purchased from Holden Engine, a subsidiary of GM. However, the 6 cylinder engine, or about 52 Actes du GERPISA n°26 Automation levels of the press lines are as because the production volume of the Camry follows. station wagon (about 20% of overall Camry sales Material feeding panel ejection in Australia) is not large enough for efficient in- large line automation automation house press operations, TMCA imports panels (rear Medium line manual automation side, roof, lift gate, etc.) for the Camry wagon from Small 1 line manual automation Toyota’s Kentucky plant in the U.S. (TMM), which Small 2 line automation automation produces the same model in large volumes. On the other hand, TMCA exports welded side Small 3 line automation automation panels and other panel assemblies of the Camry to Toyota’s Malaysian plant, where this model is Panel ejection is done automatically in all the assembled on a knock-down basis in small volume. press lines, but material feeding is done manually In this way the Malaysian plant only needs to in two lines (panel transfer between the machines is invest in the downstream welding processes such carried out by conveyers). For example, the as the body framing process. medium-size press line has manual feeding Equipment and Automation: Spot welding operation because its workload is still low, and it automation ratios are lower than the typical does not need to speed up its strokes per hour Japanese levels (over 90%) as of 1995. (automatic feeders are often adopted for the purpose of speed increase.) In the case of small- Table 6 : exemple of equipment & automation size presses, manual feeding tends to bring about Nber Nber automa Cycle higher production speed than does automatic of of tion time feeding. Generally speaking, a relatively low wage spots robots ratio rate compared with equipment cost tends to make automation less attractive, which is one of the Camry 4000 35 38% 3’20’’ reasons why the press automation ratio is lower at Welding line TMCA than at Toyota’s Japanese plants. 60% of the sheet steel purchased is made in Corolla 3500 36 65% 6’50’’ Japan; 40% in Australia as of 1995. Toyota is Welding Line planning to increase the fraction of Australian steel, including such high grade materials as high tension The automation ratio of the Camry welding line steel and anti-corrosion steel. was also increased to over 60% by 1997 in order to As for set-up change operations, dies are first improve welding quality and to flexibly deal with moved to the line side by crane (external set-up); different moving bolsters then push the dies into the press sheet steel for different markets. Considering line automatically. Interestingly enough, many of the fact that the automation ratios at the old plant the set-up workers are female employees. Unlike used to be around 5%, the current levels of over Japan, where late night work by female workers 60% means that there have been significant was strictly prohibited by law as of 1995, female investments in welding robots. TMCA has made a workers play an important part in the Australian lot of effort to train its maintenance workers in plants, where there is no such regulatory order to deal with the automated equipment. restriction. The welding robots and the body parts transfer Body Welding Shop devices were made in Japan, but the other jigs and Body, paint, and final assembly shops (three equipment for welding were made in Australia. separate buildings) were newly built in July 1994. Overall, 75 to 80% of welding tools and There are two body welding lines one each equipment, as well as over 90% of the welding dedicated to the Corolla and Camry respectively. shop facilities, were made locally in Australia. The two lines are merged into one mixed model Choice of Body Frame Equip: TMCA’s main line for metal finishing, painting, and the final bomentdy framing process for the Corolla and assembly process. Camry have adopted the so called Flexible Body Complementary Production in Body Shops: Line (FBL), a robotized system originally Body parts are complementarily produced through developed by Toyota’s production engineers. Toyota’s international plant network. For example, However, unlike the full-scale version with Actes du GERPISA n° 26 53 automated jig-pallets for side body transfer and then an “overall Andon” that group leaders, general alignment, TMCA introduced a simplified version foremen, and maintenance workers monitor. of FBL without such mechanisms, yet which can For example, the Andon board for the right- still deal with two different under bodies and three hand-side hemming team consists of nine lamps different upper bodies with one set up change time. each representing a particular work station, while This equipment was made locally. Interestingly the overall Andon board has lamps each enough, TMCA decided to get technical assistance representing a team (e.g., hemming team, respot not from Toyota headquarter but from Central, team, etc). The overall Andon is also equipped another Japanese company that assembles Toyota with lamps which indicate the type of trouble (e.g., products under a consignment agreement. This conveyer break down, body shortage, downstream choice was based on the judgment that Central’s jamming), so that the group leaders, general equipment, designed for smaller volume foremen and maintenance staff can get real-time production, would better fit TMCA’s typical information as to what kind of trouble happened production volume (i.e., 30,000 to 40,000 annually) and when. than Toyota’s own FBL system designed for large Quality Control: There is an audit system at the volume production. This example shows how welding shop, in which a welded component is production technologies of consigned assemblers sampled once every two hours and thoroughly for Toyota Japan are sometimes applied effectively checked. This audit is rotated between the welding to certain overseas operations with relatively small section and the quality control department. The production volume such as TMCA. audit results are displayed on the shop floor. Work Organization: A work group, each specialized in a particular module or function, at Paint Shop the body shop consists of 17 to 18 workers. This There is only one painting line, which is able to group size is smaller than the case of the final deal with both the Camry and Corolla in a random assembly shop, which is more labor-intensive. order. In order to improve the work environment There is a formal training program for multi- and paint quality, the shop has adopted robots for skilling, which aims at creating workers who can the under body sealing and anti-corrosion plastic each handle three different jobs, as well as training application processes, and mini-bell electrostatic at least three workers who can carry out a given paint for the primer and top coating process. The job. surface finish quality of the Altona paint shop is Metal Finish Line: After the main body respite now said to be as good as Toyota’s main factories welding process, the Camry line (3’20” cycle) and in Japan. The sealer process is the most labor- the Corolla line (6’50” cycle) are merged into one intensive. The underbody water polishing process mixed-model metal finish line (2’30” cycle). In is also automated in order to alleviate the problem this merged line, the bodies go through further of the demanding work posture. inspection, rework, respot welding, attachment of All of the seven metallic paints, which are doors, hood and lid, as well as surface finishing. popular in the Australian market, have already been The automation ratio of this line is lower than that switched to water-based for environmental of the Japanese plants. protection, while the remaining two solid paints Two Types of Andon Sign Boards: The basic were still solvent-based as of 1995. design of the Andon boards are the same as that at Final Assembly Shop Toyota plants in Japan, in that the light There is only one final assembly line, where representing a particular work station blinks when 450 people work in two shifts. There are seven a problem occurs there. Because the TMCA body work groups per shift (i.e., about 30 workers per shop is less automated (i.e., less equipment) than group), each of which consists of five teams (i.e.,6 the Japanese high-volume plants, however, the workers per team). Andon here tends to be simple and more compact. Process Design: The main assembly line is There are two types of Andon boards. In the divided into seven line segments (3 trim - 2 chassis metal finish lines (8 teams per shift), for example, - 2 final line segments), which go back and forth in there is a “team Andon board” for each team, and 54 Actes du GERPISA n°26 a zigzag way. Each line segment corresponds to partially from Toyota Motor Corporation, it one work group. In addition, there are some sub- absorbed the latest concepts of Toyota’s assembly assembly lines for instrument panels, seats and so process design and work organization. In fact, both on. There are small body buffer storage areas Nakagawa and Sakaue said that they learned from between the main line segments, each of which can Toyota Kyushu when they built the Altona carry up to five to seven unfinished bodies. These assembly line. buffers give each line segment (i.e., work group) a As for the hardware equipment, there is nothing certain level of autonomy; even if one of the line new in the Altona assembly line, except the body segments stops due to some trouble, the other buffer zones between the segments. It is a segments do not have to stop immediately. The conventional conveyer line; the floor does not buffers also enable group leaders to stop his order move together with overhead hangers; there are no line briefly, to conduct small experiments on the tilted hangers for ergonomic purposes; there is no shop floor. Besides, a set of functionally related major robot assembly system. tasks are assigned to each work group, so that There are, however, various low cost devices, workers can grasp the meaning of their work more such as power assist mechanisms for heavy parts, easily in the context of overall automobile synchronized wagon carts carrying parts and jigs, production. That is, each of the segments, or work improvements of body hangers, and so on, which groups, tends to be functionally autonomous or can improve work posture and work environments comlete. without major capital investments. These simple This kind of functionally segmented assembly and low-cost measures reflect Toyota’s latest line can also improve the process for building in assembly concept that tries to balance cost- quality; By setting up a quality assurance station at competitiveness and worker-friendliness, as the end of each segment, each work group can opposed to heavy high-tech automation that creates detect problems and defects for themselves and a heavy fixed cost burden to the assembly factories. autonomously implement corrective actions before Final Inspection and Defect Prevention: There the bodies reach the final inspection area at the end is a buffer zone for rework in the final inspection of the assembly process. On the trim segment, for area, similar to Toyota’s plants in Japan. The example, workers assemble wire harnesses, rework zone is designed to carry a maximum of instrument panels, lamps, and so on, and then 100 cars. As of the mid 1995, however, because check the functionality of these parts by getting the assembly shop had started up only recently, electric power from a separate source(batteries are there were still about 160 cars in the rework area. not yet installed at this stage). The work group The lighting system on the inspection line was feeds back the inspection results whenever they much improved compared with the previous plant. detect problems, seeks to find their root causes, and Instructions to the workers showing product tries to solve the problems for themselves. In the specifications are printed out from the assembly past, such inspections were done only in the final line computer file and are attached to the hood or inspection area, but this practice tended to create front grille of each car. Color labels are used to time-consuming reworks, and even secondary prevent mistakes in assembly (i.e., “management defects in the rework process. Workers also tended by visualization”), but little investment had been to regard these defects as “their prblem”,--not made in special tools and equipment for this “ours”. Thus, the new in-line inspection system purpose. The managers did not want to rely too not only improved quality but also enhanced much on hardware for defect prevention. morale and the sense of ownership among the Positive Effect of Line Segmentation on workers, according to Sakaue. Problem Recognition: The division of the assembly The above findings indicate that the new Altona line into seven segments created a positive effect assembly line had already adopted Toyota’s new on the recognition mechanism built into the Andon assembly line concept that had emerged in the early line-stop system. 1990s and materialized at Toyota Kyushu Miyata Generally speaking, the rule that workers can plant (1993) and Toyota Motomachi plant (1994). stop the line whenever they find defects and That is, even though TMCA adopted automation problems is based on the Toyota Production and other hardware production technologies only System’s philosophy of revealing problems on the Actes du GERPISA n° 26 55 spot. The basic rule of Andon line-stop was as Brown, director of TMCA in manufacturing and follows: engineering. This implies that workers were more · Workers pull the Andon cord (switch) located willing to turn on the Andon switches and thereby at each work station whenever they find reveal manufacturing problems when they only had problems. This action turns the Andon lamp to stop their own line segment (i.e., work group). on and flashing, as well as a music tape, Component Material Handling: The level of indicating that an abnormality has happened. part inventories beside the assembly line was kept · The team leader comes to the troubling station reasonably low. The Altona plant also adopted the as soon as he or she sees the lamp, identifies so-called “door-less” method (i.e., removing doors the problem, and tries to solve it within the at the beginning of the line and re-attaching them at cycle time. If the problem is solved in time, the end) to create extra space in the assembly line the leader turns the Andon lamp off, and the side. line does not stop. In-coming parts for the final assembly line are · If the problem is not solved within the cycle received from both ends of the assembly shop time, then the entire assembly line stops building. Sophisticated material handling automatically, with the Andon lamp pointing to equipment such as AGV (automatic guided the troubled station. vehicles) were not used as of 1995. · In this case the group leader supervising this Large trucks were used as a primary mode for team comes to the station concerned and inbound parts transportation. About a half of these tackles the problem. Plant engineers and trucks were chartered by the parts suppliers; the maintenance workers may also be dispatched rest, chartered by TMCA, circulated from supplier when necessary. In any case, the line stops to supplier, picking up parts like a “milk run”. until the problem is solved. TMCA’s Port Melbourne plant, producing floor · If the lamp of the same work station is turned sub-frames, colored bunpers, fuel tanks, seat on frequently, causing many line stops, then frames, and seat covers, is the largest parts supplier the section head or general foreman for the Altona assembly plant. Seat and instrument supervising that station needs to find a panel subassembly are conducted in-house. A fundamental solution to the problem, because sequential delivery system, in which components the root cause of the trouble has not yet been are delivered from the suppliers in the same removed. sequence as that of the car bodies, is applied to such bulky and variant-specific parts as bumpers In principle, the above rule is consistent with and door trims (from TMCA Port Melbourne the philosophy of so called “jidoka”, or automatic plant), radiators and oil cleaners (from Denso’s problem detection and machine-stops, in that the Australian plant), and window glasses (from a local line-stop dramatically reveals and visualizes the supplier). manufacturing problems and thereby forces The other parts from local suppliers are all employees to face the problems and solve them delivered through the Kanban system, which quickly. So, in theory, this is an important element contributed to a reduction of inventories. Also, the of Toyota Production System. In practice, recent consolidation of the TMCA plants resulted however, there are tremendous psychological in increases of parts order volume per supplier, and pressures for the workers not to stop the entire thus increases in the frequency of parts delivery per assembly line (1 km or longer), so they tend to item, which also contributed to inventory hesitate to turn on the Andon switches when they reduction. should do so. This was the case even though there Production plans are managed on a monthly was only 5 to 10% chance that the assembly line basis. TMCA determines the aggregated production actually stopped when a worker turned on one of volume and orders the necessary amount of CKD the Andon switches. parts three months prior to production (month N-3). In fact, the frequency of both Andon switch-on The mix of body types and options are fixed two and subsequent assembly line-stops significantly months prior to production (month N-2), after increased since the segmented-buffered assembly which changes of the production plan is limited line was introduced to Altona plant, according to only to exterior body colors. 56 Actes du GERPISA n°26 Environment and Community HUMAN RESOURCE MANAGEMENT AND Because Altona plant is located next to a SUPPLIER MANAGEMENT residential area in the suburb of Melbourne, TMCA carefully dealt with potential environmental Human Resource Management at TMCA problems. It created large banks around the TMCA's turn-over ratio has normally been boarder of the plant site, and planted trees in order stable at around 6 to 7 % per year, which is not to alleviate noise problems for the surrounding particularly high even compared with that of a community; most of the paint materials were typical Toyota plant in Japan, although it did switched to water-based; a dedicated water experience an increase due to the transition to the treatment facility was built at the paint shop; and new Altona plant in 1994. TMCA's absenteeism TMCA’s training center at the Altona site was ratio is 5 to 6%, and Kaizen suggestions number opened to the community on weekends for various around 10,000 per year (Table 7). purposes.

Table 7 Human Relations

1991 1992 1993 1994 Actual Actual Actual 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 production workers but also at the supervisor level. There are have typically been done by immigrant workers. group leaders who are originally from Vietnam and Their image and compensation have been relatively Cambodia, for example. low. For example, the average wage of assembly The plant is normally operated in two shifts workers has been about 10% lower than average (three shift operations exists in some busy wage, which contrasts the case of American sections). The shift assignment is fixed, unlike automobile workers (UAW participants) who have Japanese plants where workers periodically rotate enjoyed roughly double the average wage rate. between day and night shifts. Workers of 50 different races and cultures were As for work rules, TMCA has established a new working at TMCA. Its standard operating system that is different from typical practices in procedures are written in English, but the shop Australia which are as follows: floor management is based on the assumption that · Multiple labor unions for each company. there are many who do not understand English. For (Although labor agreements are made example, workers can make kaizen suggestions separately with each company, the bargaining without using verbal language (e.g., by using power of the labor unions is not as strong as pictures). The training canter at Altona provides that of the American auto worker union, or English education courses. Surveys for the workers UAW.) are written in five different languages. · Overtime is allowed only on voluntary basis. Since Toyota's Australian factories has been in (The ratio of overtime compensation is 50% for operation for over 30 years, racial backgrounds up to 3 hours, which is significantly higher have become increasingly diversified not only for than the Japanese counterpart.) Actes du GERPISA n° 26 57

· There are 219 work days per year and 38 work particular component variant). In Japan, this kind hours per week, or about 5% less than in the of consolidation of the supplier base was observed Japanese case. mostly during the 1960s, when the liberalization of automobile trade was thought to be imminent. In However, the new TMCA system consists of: the Australian auto industry, a somewhat similar · A single labor union. response was observed in the 1990s. · 229 work days per year and 38 hours per While consolidating its first-tier supplier base, week1. TMCA also strengthened both its evaluation and · The company being able to order compulsory assistance support for the surviving first-tier parts overtime for up to 20 hours per month (Table makers. As for evaluation, TMCA introduced a X). formal system called T.S.A (Toyota Supplier TMCA's shop floor organization consists of the Assessment), which enabled the auto company to following 5 layers: evaluate its suppliers from multiple perspectives including cost, quality, delivery, and so on. The Manager final evaluation results were mad only after both · General Foreman (head of about 90 workers = TMCA and the suppliers discussed the tentative team members) evaluation results. TMCA also gave annual awards · Group Leader (head of about 30 workers = to its best suppliers according to this criterion (e.g., team members) the quality award). TMCA also created best · Team Leader (head of 5 ~ 7 workers = team practice standards for the suppliers and let the members) suppliers compete for achieving the target. · Team Member On the assistance side, TMCA also strengthened its supplier development system. For example, Similar to Toyota's factories in Japan, general TMCA classified its first tier suppliers into four foremen, group leaders, team leaders and team levels and a "specialist" category based upon the members are all union members. company’s assessment of the suppliers' Standard Operating Procedures (SOPs) tend to capabilities, and then provided different training be written more simply than their Japanese for each category. TMCA also created its regional counterparts. Revisions of the SOPs are made supplier network, which held Toyota Production primarily by group leaders and plant engineers, just System seminars and other study groups. TMCA as in the case of Toyota's factories in Japan. and Toyota Motor Corporation also selected and grew some "show-case suppliers," as model cases Strengthening the Competitiveness of for other suppliers. TMCA also created TMCA's Supplier System International Competitiveness Indicators, which As of 1995, TMCA was trying to rationalize its became targets for each supplier. Necessary funds parts supplier system to lower costs and improve for such supplier development programs came both quality in response to the liberalization of vehicle from TMCA's internal funds and from Australian imports. For example, TMCA decided to reduce government subsidies. the number of its first-tier suppliers from 230 to a As for the suppliers' product development mere 100. Because many of those first-tier capabilities, it should be noted that most of the suppliers which were screened out became functional parts specialists in Australia were of TMCA's second-tier suppliers, this consolidation of American and European capital while supplier base also meant the emergence of taller subcontractors were of local capital as of the mid (i.e., multi-layered) hierarchies of suppliers. The 1990s. This means that, unlike the case of North consolidation, or concentration of parts orders to a America, where more than 200 Japanese suppliers smaller number of larger suppliers, also brought about the delivery of sub-assembled modules, as well 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. 58 Actes du GERPISA n°26

Table 8 Human Relations

Japan (TMC) Australia (TMCA)

Industrial Relations Single/Enterprise Multi/Industry Unions (N0/Type) Enterprise Enterprise Agreements Enterprise Central + Wage Fixing Enterprise

Profile Manufacturing Image High Low Employee Quality Med è High Low è Med Compensation/Benefits (Manuf) (Supplier) High Low (0.9 Awe) Medium Low (0.85 Awe)

Employee Relations Employee Profile Homogenious Multicultural Employee Participation High Low è Medium Safety High Priority Medium Priority Tenure 30 YRS 5-6 YRS Working Conditions Basic condition 40 HRS Week 38 HRS Week Employee Work Days (Plant) Working Time (Mins/Shift) 232 + (244) 219 (229) Attendance 460 454 Overtime No Sick Leave Sick Leave (95 - %) Shifts (98+%) Voluntary Mandatory Fixed Rotating

had built up their transplants by the end of the to locally produced parts: TMCA was planning to 1980s, Toyota in Australia could not rely much on localize 130 parts as it predicted the yen to further the Japan-based suppliers which tend to possess appreciate from 85 yen per Australian dollar to 75 higher component development capabilities (see, yen. for example, Clark and Fujimoto, 1991). Among At the same time, TMCA was increasingly the 100 first tier suppliers that would survive, only relying on its global network of parts procurement. 15 to 20 functional parts specialists would likely For example, body panels for the Camry Wagon possess sufficient organizational capabilities to were imported from Toyota’s Kentucky plant cope with "design-in" or so called "black box parts (TMM) to TMCA; Its steering gears were bought transactions." Thus, it will take significant time, from GM’s Saginaugh(?) division in the U.S.; compared with the case of North America, for the Some of its audio components were procured from Australian auto makers to diffuse the black box Thailand and Malaysia (See Figure 8). Toyota was parts practice, or to increase the suppliers' planning to strengthen its global procurement involvement in product development. network by increasing imports of various components from Toyota’s U. S., and U. K. plants Localization and Globalization of and their suppliers. On the other hand, component Production exports from TMCA, using the global network, Parts Production: Local content ratios (i.e., were also expanding. It was, for instance, ratios of locally added value per wholesale price) exporting some components for the Corolla (e.g., were 69% for the Corolla and 66% for the Camry bumpers and air cleaners) to Toyota’s assembly as of 1995. In response to the extreme appreciation plants in Turky and of yen between 1993 and 1995, TMCA was reducing yen-based procurement of parts from Japan. Some of these Japanese parts were switched Actes du GERPISA n° 26 59

New Zealand; Camry’s body panel · Product Development: Although design and subassemblies to its Malaysian plant; 2.2 liter development of basic models will continue to engines for the Camry to South Africa and be carried out at Toyota’s central vehicle Malaysia. In fact, to Toyota’s Malaysian plant, development centers in Japan, design TMCA was exporting a full package of CKD parts, modification for local regulation compliance including not only body panels and engines but and product differentiation for local needs is to also other inhouse components and those parts be increasingly decentralized to TMCA’s purchased from local suppliers in Australia. Also, product development division (about 100 casted cylinder heads were exported from TMCA engineers and technicians as of 1995). That is, to Toyota’s engine plant in Japan, which re- Australian local models would be developed exported them to Indonesia after machining based on global platforms. Testing functions operations there. for locally produced parts are also to be Complete Vehicles: Toyota’s global network of transferred to TMCA. imports / exports expanded not only for · Value analysis and value engineering for cost components but also complete vehicles. TMCA reduction were jointly conducted by product had already started to export about 5000 Camrys development units at both headquarters and since 1994 (about 9% of Camry production at TMCA. Toyota was planning to set up an TMCA) to Thailand, Malaysia, New Zealand, international CAD (computer-aided design) Fissy(?), Papua New Guinia(?), Brunei(?), etc. To network between TMCA and the headquarters, Malaysia, TMCA exported CKD kits for 4-cylinder although as of 1995, information on designs engine models, and complete vehicles for 6- was still being delivered in the form of cylinder models. Besides this, the origin of Camry drawings between the two organizations. exports to Gulf countries (e.g., Saudi Arabia) was · Production Preparation: the manufacturing switched from Japan to TMCA in 1996, a move capabilities of TMCA’s production engineering which contributed to the latter’s profit. Thus, and tooling departments, as well as those of TMCA’s basic strategy of becoming one of the local tool and equipment makers in Australia, Camry export centers was gradually materializing were relatively high. For example, 70% of the as of the mid 1990s. press dies for large body panels used to be To sum up, the expansion of Toyota’s global made in Japan, but the composition had shifted network, as well as enhancement of local suppliers to 40% Japanese, 40% Australian and 20% in Australia, resulted in increases in both imports others by 1995. Dies not only for inner and exports of vehicles and components between structural panels, but also for surface panels Australia (TMCA) and other non-Japanese such as fenders, roofs and hoods were made countries. locally. Production of welding jigs and fixtures was also switched to TMCA’s production engineering unit (about 100 TECHNOLOGY TRANSFER AND employees). A larger portion of process design COMPETITIVE PERFORMANCE has been carried out by TMCA in recent years. Most of TMCA’s production equipment Technology Transfers From Toyota (except large press machines by Komatsu, Headquarters welding robots by Kawasaki, etc.) were made While technology transfers from Toyota’s in Australia. headquarters (TMC) are carried out selectively, · Launching and Training: Training for blue TMCA was gradually increasing its technological collar workers is jointly conducted by Toyota autonomy (Table 9). Let’s briefly examine the headquarters (TMC) and TMCA. The same situation as of 1995 at three separate stages: arrangement applies for managers and staff. product development, production preparation and The basic techniques of the Toyota Production commercial production. System and Kaizen system had already been transferred to TMCA, although supplementary assistance may be made from the headquarters for refresher purposes when necessary. 60 Actes du GERPISA n°26

Table 9 : Technology Transfer

Past Present (1995) Future

Product Design Basic Product TMC TMC TMC Regulations Compliance TMC TMC/TMCA TMCA Product Differentiation TMC TMCA TMCA VA/VE TMC TMC/TMCA TMC/TMCA Drawing Paper Paper CAD

Production Preparation Local Parts Testing TMC TMC/TMCA TMCA Component Tooling TMC/Local Local Local Example: Large Press Tools ($M 30/Model) Japan 70% 40% 25% Local 20% 40% 45% Other 10% 20% 30% Jigs/Fixture Tooling TMC/TMCA TMCA TMCA Equipment TMC/Local Local Local Process Design TMC/TMCA TMCA TMCA Training TMC TMC/TMCA TMC/TMCA

Production Operations A. Training TPS TMCA çè TMC TMC èTMCA (Refresh) Kaizen é é ç

Management é TMCAçèTMC Specialist é ç

To sum up as of the mid 1990s, a significant dramatically decreased from the level of about 20- amount of technologies had already been defects in 1990 to about 2 in 1994.1 According to transferred from Japan as TMCA increased its TMCA, practices employed for quality control and autonomy. At the detailed operational level, improvements include the reinforcement of quality however, coordination and task divisions between assurance organizations for building in quality and TMC and TMCA were carefully designated. The on-the-spot inspections; the use of Quality pattern of recent transition was never as simple as Assurance Matrices (tables for checking degrees of that of unilateral decentralization to a autonomous quality assurance by part, by process, and by local unit. critical check points) involving parts suppliers; the reinforcement of a system for customer feed back; Quality and Productivity capability building of the local parts suppliers; Manufacturing Quality: TMCA’s average company-wide Kaizen (continuous improvements) manufacturing quality of its products is among the best in the Australian auto industry as of the mid 1 The definition of manufacturing quality follows that of 1990s. Its pace of quality improvements had also Toyota headquarter (TMC). Usually local quality assurance been remarkable: The numbers of defects per staff, trained at TMC, check TMCA’s manufacturing quality. Also, quality management staff from TMC visit TMCA once a vehicle, for both the Camry and Corolla, year. Actes du GERPISA n° 26 61 activities, and so on. Although temporary drops of complementary networks, where relatively quality levels are inevitable in this industry when autonomous overseas subsidiaries of various sizes new products or plants are introduced, the lead play important roles as critical modes in a firm’s times needed for recovery had gotten shorter in network. recent years (Figure 9). Interestingly enough, TMCA’s capability- Assembly Productivity: Physical productivity at building toward a production center of the Camry the TMCA assembly plant had also been increasing model has so far been driven partly by the local in the early 1990s. TMCA’s assembly productivity government’s policy changes away from traditional (welding, painting and final assembly processes) import substitution and protectionism. For local was about 35 person-hours per vehicle in 1990, but operations of multi-national auto makers which had it had improved to about 25 person-hours per existed under import substitution policy, trade vehicle (i.e., near the level of American assembly liberalization and the surge of import vehicles plants of U.S. makers) by 1994. It should be noted means intensifying domestic competition - a tough that this remarkable productivity increase was situation in the mature Australian auto market. achieved primarily at the old plant. Incidentally, Considering the worldwide trend toward trade average assembly productivity of the Australian liberalization under the WTO, the experiment of auto makers in general remained to be about 35 the Australian government deserves careful person-hours per vehicle as of 1993. analysis as one of the pioneering cases of a move in TMCA’s staff point out that this remarkable such a direction. improvement was caused mainly by (i) a reduction Moreover, it should be noted that drastic policy of rectification work, (ii) a higher automation ratio, change often reveals inter-firm differences in (iii) plant-level monthly plans for productivity international strategies, a situation which applies to improvements, (iv) and enhanced line balancing. the case in Australia since 1988. That is, one At the new Altona assembly plant, TMCA’s company (Nissan) quit assembly operations in tentative goal was 21 person-hours per vehicle for Australia; others (US firms) tried to survive by the Camry and 18 person-hours per vehicle for the consolidation of local models (i.e., pursuit of scale Corolla. This would still be far behind the level of economy) and strategic alliances; still others try to the most productive Toyota plants in Japan, maintain their facility as a production center of a estimated to be roughly at 13-person-hours per particular model in Australia by either rationalizing vehicle, but was close to the average of Japanese production and minimizing investment (Mitsubishi) transplants in North America (see Womack, et al., or by investing on new facilities, intra-firm 1990). Considering the fact that Altona is a mixed- international logistic networks, and building model plant with annual production of less than organizational capabilities for high flexibility, 100,000 vehicles, this goal still seemed to be rather productivity and quality (Toyota). ambitious. These strategic choices are, to be sure, deliberate to some extent, but they are also emergent, influenced by each firm’s history, SUMMARY AND FUTURE PROSPECTS environmental imperatives, as well as a firm’s existing organizational culture and capabilities. Toyota Australia (TMCA), a medium-sized In this context, Toyota’s strategic decisions in overseas operation for Toyota, and as such has Australia may be interpreted as an emergent pattern seldom attracted the attention of researchers and which resulted from a series of cumulative journalists worldwide, however it seems to deserve responses to the competitive crisis rather than a close investigation as one of Toyota’s oldest deliberately planned one as a part of well overseas operations, as well as one of the most self- articulated grand design of Toyota’s global sufficient with production, development, sales, strategy. finance, and personal functions all delegated as a That is, although Toyota’s global network of package to the local subsidiary, and where the local complementary production and logistics look as if managers enjoy significant autonomy. TMCA, it were deliberately planned and implemented despite its relatively small size, seems to provide us based on an articulated grand strategy at the with a valuable precedent case in the era of global headquarters, it is more likely to be a result of 62 Actes du GERPISA n°26 emergent interactions between local offices operations not only compete with other producers desperately seeking their own survival on the one but also compete with other overseas plants within hand, and the head office trying to continuously the same company for distinctive capability adjust its strategy to unexpected environmental building. The combination of such competition in changes. Thus, the case of TMCA provides rich the building of capabilities between the overseas insight for researchers studying strategy formation operations within the same company on the one and the role of dynamic organizational capabilities. hand, and the creation of a global complementary For future research, we need a more detailed network on the other hand, enhances the world- investigation of TMCA’s operations, as well as wide competitiveness of a company. some international comparative studies of Toyota’s We also need further empirical research on production facilities, including Tsutsumi in Japan, emergent global strategies, the central concept Kentucky in the US, and TMCA, all of which proposed in this paper. The present case study is a produce the Camry. It should be noted here that in preliminary attempt toward a more systematic and the context of the global complementary dynamic approach to global strategy formation in production network, each of the overseas manufacturing.

Takahiro FUJIMOTO Université de Tokyo

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