{"id":21595,"date":"2017-11-15T16:16:23","date_gmt":"2017-11-15T21:16:23","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/navigating-tricky-terrain-toyota-in-an-isolationist-world\/"},"modified":"2017-11-15T16:16:23","modified_gmt":"2017-11-15T21:16:23","slug":"navigating-tricky-terrain-toyota-in-an-isolationist-world","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/navigating-tricky-terrain-toyota-in-an-isolationist-world\/","title":{"rendered":"Navigating Tricky Terrain: Toyota In An Isolationist World"},"content":{"rendered":"

Isolationism: A Trend\u00a0in\u00a0Solitary Confinement?<\/strong><\/p>\n

Oh no.<\/p>\n

\"\"<\/a>
Globalisation has lifted millions out of poverty, sometimes at the cost of the existing middle class<\/figcaption><\/figure>\n

Britain chose to exit the EU,\u00a0Donald Trump was elected\u00a0US President\u00a0&\u00a0Marine Le Pen\u2019s loss let\u00a0down 44% of the French electorate. These\u00a0results\u00a0were a result of a large\u00a0cross-section of\u00a0society\u00a0feeling\u00a0left out of the mainstream of economic progress and capital formation.\u00a0An anti-establishment\u00a0sentiment\u00a0was triggered, and\u00a0populist political\u00a0figures rose to the fore.<\/p>\n

Globalization and its Discontents\u00a0<\/strong>[1]<\/p>\n

Globalisation has had a transformational effect on the\u00a0world\u00a0economy by creating jobs, lifting millions out of poverty and providing consumers better goods at lower prices.<\/p>\n

But the picture\u00a0is not all rosy. The biggest problem for developed countries is the loss of jobs that are transferred to low-cost economies. According to Robert Scott of the Economic Policy Institute, for the US, China\u2019s most favored nation\u00a0status drained 3.2 million jobs,\u00a0and the\u00a0trade deficits with Japan and Mexico\u00a0cost\u00a0896,000 jobs and\u00a0682,900 jobs\u00a0respectively. [2]<\/p>\n

Political\u00a0Bosses\u00a0Push\u00a0the Brakes<\/strong><\/p>\n

\"\"<\/a>
One tweet by President-elect Trump was all it took to send Toyota’s stock price tumbling<\/figcaption><\/figure>\n

On 5th<\/sup>\u00a0January 2017,\u00a0President-elect\u00a0Trump\u00a0threatened Toyota with a mega-border tax if they built a new plant in Mexico to manufacture cars for the\u00a0US.\u00a0The tweet sent Toyota\u2019s stock crashing, losing 5% ($1.5\u00a0bn) of value in under 24 hours. While the stock has since recovered, there\u2019s a larger lesson in the\u00a0exercise.<\/p>\n

With\u00a0governments\u00a0pushing for greater investment and job creation in their own country, global corporations like Toyota\u00a0face the prospect of having their businesses hit\u00a0by economic tools like trade tariffs and barriers.<\/p>\n

Additionally, once-impoverished nations like India, China and Indonesia\u00a0\u2013 now economic powers – expect\u00a0corporations like Toyota to build locally, teach local workers new skills and share technological know-how. [3]<\/p>\n

Toyota has manufacturing operations in 28 countries, while its vehicles are sold in over 170 countries [4]. It is commercially and technically unviable for it to manufacture locally for every market. Setting up shop in a new location is complex, requiring facilities to build plants, cheap labor, seamless flow of raw materials and\u00a0output, and favorable tax conditions.<\/p>\n

 <\/p>\n

Not Pulling\u00a0The\u00a0Andon Cord Yet<\/strong><\/p>\n

Toyota\u2019s manufacturing process is well known for immediately addressing\u00a0assembly line challenges, but its management\u00a0is yet to\u00a0push\u00a0the panic button. The Japanese automaker issued a statement stating that the new Mexican plant would have no impact on US production or employment, and that the company\u00a0would continue investing in the US.\u00a0[5]<\/p>\n

Recognizing the enormity of the threat,\u00a0Toyota\u00a0has\u00a0gone\u00a0out of\u00a0its\u00a0way to win favor with the new administration.\u00a0Toyota President Akio Toyoda went on record to say that he looked forward to working with the Trump administration, following up with a meeting with VP-elect Mike Pence.<\/p>\n

The Japanese government too\u00a0has stepped\u00a0in. Prime Minister Shinzo Abe\u2019s cabinet secretary was quoted saying, \u201cToyota has tried to be a good corporate citizen in the US\u201d. Mr,\u00a0Abe also had a one-on-one meeting with the\u00a0Mr. Toyoda\u00a0prior to his official visit to the White House.<\/p>\n

Clearly, Toyota is focused on\u00a0strengthening\u00a0its\u00a0relationships with governments\u00a0in\u00a0key markets.\u00a0 Mr. Toyoda has been in dialogue\u00a0with other heads of state, like\u00a0Indian Prime Minister\u00a0Modi, whom he met earlier this year to commit to the \u2018Make\u00a0In India\u2019 program through a Toyota-Suzuki business partnership.<\/p>\n

\"\"<\/a>
“Make In India”, an initiative launched by Prime Minister Modi to encourage multi-national companies to manufacture their products in India<\/figcaption><\/figure>\n

Toyota is undertaking a wise strategy. By deepening its ties with key governments, it betters its odds of minimizing the loss of short-term investments already underway.\u00a0Simultaneously,\u00a0Toyota\u00a0can bolster future partnerships and negotiate sweet deals in return for enabling political leaders fulfill their economic agenda.<\/p>\n

This is easier said than done. Building trusting\u00a0relationships with governments requires sustained dialogue. Mr. Toyoda would need to regularly engage with them, but also empower local management to work closely with the government and take critical decisions that align stakeholder interests when possible. This will ensure\u00a0that the relationship is not confined to the annual prodigal meeting. We have seen this strategy used by CEOs of large tech companies (Apple, Microsoft, Oracle) as they look to tap high-potential markets.<\/p>\n

Elections today are won on the plank of job creation and economic growth. Political leaders need the private sector to deliver on this, and this is where the opportunity for Toyota arises. If it can find ways to boost\u00a0production\u00a0in high-growth economies, Toyota will be in a position to\u00a0negotiate\u00a0profitable exemptions and tax holidays. It would also provide a cushion against\u00a0volatility in smaller markets.<\/p>\n

Up\u00a0for\u00a0Debate:\u00a0Quick Zip or a Long Drive?<\/strong><\/p>\n

Unlike climate change or digitalization, trade barriers are created and reversed by the stroke of a pen. This begs\u00a0a couple of key strategic\u00a0decisions:<\/p>\n

    \n
  1. Populist leaders will find it hard to go back on their election manifestos and return to free trade. How does Toyota\u2019s strategy change if isolationism does indeed become the new normal?<\/li>\n<\/ol>\n

    2. How can\u00a0Toyota use its global influence to turn the current political\u00a0atmosphere\u00a0into an opportunity, negotiating manufacturing terms that are\u00a0 \u00a0 \u00a0 \u00a0 \u00a0even more profitable than the status quo?<\/p>\n

    (Word count: 798, without titles and references)<\/p>\n

    References\u00a0<\/strong><\/p>\n

    [1]\u00a0Title of book by Joseph Stiglitz.\u00a0The book, however,\u00a0focuses\u00a0on the harm\u00a0globalization\u00a0does in\u00a0developing<\/em>\u00a0countries<\/p>\n

    [2]\u00a0http:\/\/www.providencejournal.com\/article\/20150328\/OPINION\/150329282<\/a><\/p>\n

    [3]\u00a0https:\/\/www.wsj.com\/articles\/ge-the-ultimate-global-player-is-turning-local-1498748430<\/a><\/p>\n

    [4]\u00a0http:\/\/newsroom.toyota.co.jp\/en\/corporate\/companyinformation\/worldwide<\/a><\/p>\n

    [5]\u00a0http:\/\/pressroom.toyota.com\/article_display.cfm?article_id=5882&sf49616414=1&sf49623541=1<\/a><\/u><\/p>\n

     <\/p>\n","protected":false},"excerpt":{"rendered":"

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