Toyota Company: Foreign Direct Investment

Introduction

The Toyota Motor Corporation has its headquarters in Aichi, Japan, with several international plants in countries across the globe. It is the largest vehicle manufacturer in the world with the capacity to produce more than ten million automobiles each year. This analytical treatise attempts to explicitly review how Toyota Motors Corporation has used foreign direct investment (FDI) to benefit from firm-specific advantage, location-specific advantage, and internalization advantage in line with the Dunning Eclectic Theory.

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FDI at Toyota Motors Corporation

Toyota has flourished through FDI flow; production in other counties rather than at home through its internationalization strategy. Toyota has introduced successful overseas production units in Australia. Toyota Motors Corporation views this strategy as a more efficient way to address future aspects of growth by spreading unpredicted risks and prospects.

Analysis of Toyota’s FDI through the Dunning Eclectic Theory

Ownership advantages

Production technique

Toyota has been very successful in engaging in foreign direct investment in Australia since the cost of production in this country is cheaper than the cost of producing at home and exporting.

Entrepreneurial skills

The ability of the company to replicate its business activities in Australia has increased the level of revenues generated from FDI in this country.

Return to scale

Due to FDI in Australia, the company has been able to increase the number of units being produced, thus increased returns from external investments (Cantwell & Narula 2004).

Trademark

The presence of Toyota in Australia has increased the visibility of the Toyota brand to the advantage of the mother company in Japan.

Location advantages

Existence of raw materials

The initial motive for investing in Australia has informed the existence of cheap and abundant raw materials such as steel, cost of power, and other production requirements.

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Low wages

The rate of wages charged in Australia is sustainable to the company since labor laws are very flexible and friendly to this foreign-based company.

Special taxes and tariffs

The government of Australia has single taxation laws, series of tax breaks for international companies, and negotiated taxes, which the company has taken advantage of in establishing a fully independent production plant (Cantwell & Narula 2004).

Internalization advantage

Internationalization is vital in business management and operations, especially when a company intends to localize production tools such as labor, distribution, language, ethics, and culture in the market. Since the Toyota Motors Corporation realized that its own production is more sustainable and effective as compared to joint ventures with other companies, it decided to create and exploit the primary competencies such as low-cost production budget per unit and automated production system that can be recreated in any region. For instance, in Australia, the company realized that establishing its own production plant was better than a joint venture since the company had developed a production strategy that could be replicated in the cross-border production internalization (Cantwell & Narula 2004). Through this approach, the market share leader had the discretion to reap maximum benefits ahead of its closest competitors in Australia.

Conclusion

Apparently, the Toyota Motors Corporation has successfully used FDI to reap maximum returns in the form of competitive advantage in foreign countries such as Australia, Peru, and Indonesia. This has been possible due to the fact that factors such as location advantage, ownership advantage, and internalization advantage favor its strategy of sustainable performance through foreign direct investment.

Reference List

Cantwell, J, & Narula, R 2004, International business and the Eclectic Paradigm: Developing the OLI framework, Routledge, New York. Web.

Toyota Motors Corporation 2015, About us. Web.

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StudyCorgi. (2020, December 21). Toyota Company: Foreign Direct Investment. Retrieved from https://studycorgi.com/toyota-company-foreign-direct-investment/

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StudyCorgi. (2020) 'Toyota Company: Foreign Direct Investment'. 21 December.

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