In a dynamic, complex, and knowledge-based economy, companies are facing unprecedented challenges. New and existing firms are increasingly being exposed to competition in local and international markets, necessitating interaction with other companies in the same industry for sustainable growth and development. An excellent example of such cooperation and competition is clusters. Porter (2000) outlined that more companies are operating in clusters to gain a competitive advantage. Specific cluster models occur in Japan, with Toyota being a dominant company in most clusters within the Japanese economy (Ohno and Bodek, 2019).
Toyota Motor profoundly impacts the Japanese economy through the production of automobiles. For example, expanding operations in North America and Europe has created clusters of manufacturers, suppliers, and other components that help the company efficiently produce products (Ohno and Bodek, 2019). The cluster is suitable for other entities that benefit from interaction with Toyota Motor Corporation. Toyota cluster significantly impacts the functioning of the Japanese economy.
Toyota Motors Corporation
Toyota has continuously challenged the impossible through innovation since its inception. The company’s vision and mission statement guide the trajectory of its global success. Founded in 1937, Toyota Motors aims to lead “the future mobility society, enriching lives around the world with the safest and most responsible ways of moving people” (Dave, 2020). With an emphasis on comprehensive approaches corresponding to market needs and innovation, Toyota’s vision challenges the future of automobiles. Kiichiro Toyoda started the corporation as an affiliate of Toyoda Automatic Loom Works, Ltd., to contribute to society through manufacturing. The company has since focused on tackling various issues that transcend the capability of making cars worldwide.
Toyota’s strategic approach is largely based on the objectives derived from implementing its corporate mission and vision. However, emerging trends in the automobile market present strategic challenges to Toyota Motor. Dave (2020) and Ito (2019) concurred that the corresponding mission and goals drive Toyota Motor toward a stronger competitive edge against Tesla, Honda, Volkswagen, General Motors, Nissan, and other automobile manufacturers. The rival companies exert strong competition forcing Toyota to lead the automotive industry through innovation that meet customer preferences and address current and emerging trends.
Toyota’s mission statement reflects its sole purpose of making ever-better cars and building an inclusive future that gives people the freedom to move. Corolla, Avalon, Land Cruiser, Highlander, Prius, Camry, RAV4, 4Runner, Venza, Tacoma, Tundra, Sienna, and Yaris include some of the car models manufactured by Toyota. Today, the company focuses on building a robust chain of electrified cars to reduce carbon emissions and establish a harmonious society with the environment (Profiroiu et al., 2020). Given this, Toyota’s corporate mission and vision guide the company toward continuously improving automobiles while benefitting society.
Porter’s Local Cluster
Capital, technology, and other resources can be efficiently sourced in the automobile market. For example, companies can access immobile inputs through corporate networks. Consequently, governments are gradually losing influence over market competition to global forces. Porter (2000) asserted that economic geography entails a paradox since changes in competition and technology increasingly diminish the traditional roles of location.
Porter developed a micro-economically based theory of local, state, and national competitiveness in the global market. In particular, clusters play a prominent role in Porter’s theory; it is a geographic concentration of service providers, interconnected companies, firms in the same industry, specialized suppliers, and associated entities, including trade associations and standards agencies that compete and cooperate. Clusters are increasingly essential to every regional, state, and national economy, especially in developed nations.
Moreover, the prevalence of clusters indicates the significance of location in gaining a competitive advantage. Although clustering has declined in importance with growing innovation and globalization, new cluster influences have gained precedence in an increasingly dynamic, complex, and knowledge-based. Porter (2000) posited that clusters necessitate new company roles for various government levels and other institutions to enhance competitiveness. Principally, a strategic approach to approach dominates most companies. However, clusters imply that competitive advantage lies outside organizations and their industries, creating new managerial agendas (Porter, 2000).
For instance, clusters suggest corporations have a tangible stake in the global business environment beyond wage rates and taxes. Therefore, a company’s sustainability and success depend on the health of a cluster. Further, clusters evolve as existing industries decline, local organizations develop, and new industries and companies emerge. Viewing economies using clusters helps capture critical complementarities and linkages regarding information, technology, customer needs, marketing, and skills.
Clusters occurring in Europe are primarily built by models for the specific market. Three model clusters exist in Europe: the Italian model, where corporations combine their initiatives; the Danish model, and the Dutch model, which leads to the importance of research and development for the needs of countries in the cluster. Likewise, different models and clusters can be identified in Asia. In particular, Japan has traditional clusters influenced by its history, culture, and geography. The clusters contributed to the country’s economic development. Some industrial clusters in Japan include jiba-sangyo, sangyo-shusek, konbinato, and just-in-time-delivery clusters (Takao, 2019).
Mixed urban, production regions, company towns, and mixed invitation clusters include other clusters in Japan. For example, jib-Sangyo are localized industrial communities, including small- and medium-sized firms that congregate close to other industrial clusters. Sangyo-shusek positions as an industrial agglomeration in a specific locality, while konbinato is a combination of industrial characteristics, geographical attitudes, and government policy, which efficiently organize resource raw-materials-based production. Conversely, just-in-time-delivery clusters occur in industries like parts-intensive manufacturing like automobiles. Toyota Motor Corporation is an example of the just- in-time-delivery cluster.
Toyota’s Cluster
Toyota Motor has a cluster in Aichi Prefecture, which is among the largest concentrations of automotive-related companies. The company provides the driving force for the cluster’s economy by being a global vehicle seller supported by competent human resources and advanced technology capabilities. In addition, Aichi’s total shipment of equipment, machinery, and transportation contributes to Japan’s net total, placing it as an automotive industry leader (Nibe, 2022).
Apart from Toyota Motor Corporation, other principal actors in the cluster include Toyota Industries Corporation, Toyota Auto Body Co., Ltd., Toyota Tsusho Corporation, Aichi Steel, Toyota Boshoku Corporation, Toyota Central Research and Development Laboratories Incorporated, Toyoda Gosei Co., Ltd., and Toyota Central R&D Labs (Profiroiu et al., 2020). Thus, Toyota is the dominating company in the Aichi Prefecture cluster, playing numerous roles as a production and service provider.
Toyota’s Strategy and Location
The influence of location on industry-based competition has often been based on competition. Porter (2000) stated that such assertions label competition as static and dependent on cost minimization in a closed economy. However, comparative advantage in the automotive industry is decisive such that increasing returns to scale is crucial. Porter (2000) postulated the competition dynamics and its reliance on innovation and strategic differences. Positive linkages between suppliers, institutions and buyers, suppliers, and other institutions are crucial for increased efficiency and innovation. Porter (2000) stated that location impacts competitive advantage by influencing productivity. Furthermore, sustainability depends on how factors are utilized and upgraded in a given location. Toyota seeks to achieve long-term success and sustainable development globally. In this respect, productivity defines competitiveness, which encompasses the efficiency with which Toyota Motor produces its units.
Toyota Motor Corporation is in the mature stage of its life cycle in the automotive industry. Porter (2000) affirmed that a firm’s prosperity and productivity of location largely rest on how companies compete. Skyrocketing fuel prices, unprecedented market change, and increasing environmental concerns are shifting consumers’ preferences. While some automakers embrace the change, other companies are reluctant to expand and diversify their production. For example, the drop in fuel prices in the 2008 financial crisis had a domino effect throughout emerging and developed economies. Industry revenue fell by approximately 15 percent but saw significant growth by 2013 (Madoh et al., 2019).
Additionally, production was moved to other countries to benefit from low-cost production and rising income in these markets, leading to increased demand for automobiles. Local and global productivity is ultimately set by the sophistication of individual skills and technology with which Toyota competes with other companies. According to Porter (2000), Toyota’s sophistication can be considered in terms of operational effectiveness and differentiation. Toyota actively pursues innovation to match driving support to driver sensitivity and tap into buyer power since they are price sensitive and are less threatened by backward integration.
Despite growing competition from other global automobile manufacturers, Toyota remains among the best sellers of hybrid vehicles and hydrogen fuel cell motors. McMillan (2019) reported that by 2017, Toyota had at least 300,000 employees globally and was the sixth-largest international corporation in terms of revenues. Toyota’s success has undoubtedly been attributed to its strategic management and market positioning. According to McMillan (2019), the company’s management focuses on three key areas: Toyota’s mission, core competency, goals, and sustainable competitive advantage. Concerning Toyota’s competitive advantage and core competency, it aims at creating a superior and sustainable economy.
The achievement primarily depends on a stable global market; thus, the company’s resource focuses on numerous empowerment procedures in its location and sets goals to remain innovative to emerging market trends and changes in global demand. Toyota continues to be productive in the automotive industry by employing sophisticated methods, embracing innovation, and offering unique products and services. Thus, a company’s presence in any industry does not guarantee its prosperity if the firm is unproductive.
Competition and Demand
According to Porter (2000), clusters affect competition by increasing current productivity and capacity for innovation and stimulating the formation of new businesses that expand the cluster. Each cluster’s influences depend on face-to-face communication, personal relationships, and institutional networks. Further, cluster makes the development of these networks and relationships more likely to become effective. Location within Toyota’s cluster can provide access to specialized inputs like machinery, personnel, and business services. Therefore, the cluster can inherently make production more efficient and effective.
Porter (2000) stated that clusters increase the demand and supply of specialized inputs. Additionally, the availability of specialized components is often greater at clusters despite increased competition. The accumulation of extensive market and other specialized information within a cluster allows companies to raise productivity, which further applies to the flow of information between departmental units.
Toyota’s flexibility in operations, effective cost control, specialization, and optimum capacity utilization have placed it in a higher competitive position. New entrants in the automotive industry require a large amount of capital and may experience high retaliation from existing companies if they bring new innovative products to the industry. Furthermore, few legal barriers protect Toyota from local and global competition.
Automotive corporations have established strong brand images by differentiating their products through engineering and design quality (Profiroiu et al., 2020). While there are several transportation alternatives, they rarely offer optimal convenience. New entrants can easily access distributors with minimal threat of forward integration but face the challenge of achieving economies of scale for small companies, giving existing companies like Toyota Motor a competitive advantage.
Apart from customer loyalty, there is a moderate threat of Toyota Motor being acquired by rival companies. Moreover, Toyota holds an extensive brand portfolio in the automotive industry. Through this, the company registers high sales in domestic and international markets annually. Toyota’s core competencies are its production of quality automobiles at the best market prices and its lean manufacturing system (Ohno and Bodek, 2019; Profiroiu et al., 2020). Quality is mainly attributed to innovative production practices through which Toyota has revolutionized the automobile industry. The distinct competencies have awarded Toyota a cost leadership strategy to build a sustainable brand name and become a market leader.
The company occupies strong market positions in different geographies globally. In 2012, the company’s market share was approximately 45 percent in Japan, and it holds a significant market share in North America and Europe (Nkomo, n.d.). With a strong market position, Toyota can expand into international markets, gaining a competitive advantage. Nkomo (n.d.) stated that Toyota’s focus on research and development (R&D) further improves its functionality and expands its product portfolio and compatibility with the environment. The company directs its R&D efforts to develop products that improve existing automobiles’ capabilities. According to Nkomo (n.d.), a strong focus on R&D helps companies incorporate new features and innovation into existing products. Toyota’s approach to R&D allows it to develop innovative products and uphold technological leadership in the automotive segments.
Conclusion
Clustering is a growing precedence in the present global economy in response to growing competition. Japan has different cluster models compared to other markets, strategically placing it as a global leader in the automobile industry. Toyota Motor is located throughout the country’s service and industrial clusters. The corporation is surrounded by key components, from suppliers to manufacturers, that interact with Toyota Motor, influencing its competitive advantage. The effect of Toyota’s position in the cluster is evident in its customer base, employee structure, and annual sales.
Through the geographic concentrations of specialized suppliers, service providers, and companies in the automotive industry, Toyota Motor has created a culture of innovation, giving access to business and non-business-related services. Additionally, within the cluster is a common corporate culture for automobile production and the type of contracts between operators, which drive research and development. Toyota should address the development of mutual collaboration, promotion, and cooperation for the cultures for sustainable growth and increased profitability.
Reference List
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Ohno, T. and Bodek, N. (2019). ‘Toyota production system: beyond large-scale production.’ Productivity press.
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Takao, Y. (2019). ‘National integration and local power in Japan.’ Routledge.
