Toyota’s European Operating Exposure
Toyota’s European Operating Exposure
1. Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe?
By 2001, Toyota’s operating losses in Europe had reached 9.9 billion Yen. Much of this loss was due to Toyota’s operating exposure which was a result of the sliding value of the euro with respect to the Japanese Yen. Between early 1999 and early 2001 (2 year ~ medium-run time horizon), the euro had fallen by approximately 28% with respect to the yen and about 14% with respect to the British pound. By now, Toyota had already taken significant losses for their sales within Europe due to the sliding value of the euro. However, I believe that Toyota’s strategy at this point was to continue absorbing the exchange rate differences in order to maintain their competitiveness within the European market. This short term approach may have been a contributing factor as for why Toyota waited a bit longer than it should have to move manufacturing into Europe – and this decision continued to take a toll on their operating profits.
In 2004, Toyota made moves to expand its capacity and manufacturing capabilities within Europe - but some might argue that these attempts were too-little too-late. Another main reason why I believe Toyota waited so long to expand its manufacturing operation within Europe was due to the sheer nature of the automobile industry - where manufacturing is exceptionally multifaceted and financially demanding. Furthermore, although Toyota was only 8th in automobile sales within continental Europe, their already established manufacturing base within Japan allowed them strategic economic advantages over competitors due to economies of scale. Unlike a smaller firm, Toyota’s decision to keep the vast majority of its manufacturing within Japan was most likely due to the fact that they could increase existing production volumes on a lower cost per unit basis. As such, Toyota’s long term strategy may
1. Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe?
By 2001, Toyota’s operating losses in Europe had reached 9.9 billion Yen. Much of this loss was due to Toyota’s operating exposure which was a result of the sliding value of the euro with respect to the Japanese Yen. Between early 1999 and early 2001 (2 year ~ medium-run time horizon), the euro had fallen by approximately 28% with respect to the yen and about 14% with respect to the British pound. By now, Toyota had already taken significant losses for their sales within Europe due to the sliding value of the euro. However, I believe that Toyota’s strategy at this point was to continue absorbing the exchange rate differences in order to maintain their competitiveness within the European market. This short term approach may have been a contributing factor as for why Toyota waited a bit longer than it should have to move manufacturing into Europe – and this decision continued to take a toll on their operating profits.
In 2004, Toyota made moves to expand its capacity and manufacturing capabilities within Europe - but some might argue that these attempts were too-little too-late. Another main reason why I believe Toyota waited so long to expand its manufacturing operation within Europe was due to the sheer nature of the automobile industry - where manufacturing is exceptionally multifaceted and financially demanding. Furthermore, although Toyota was only 8th in automobile sales within continental Europe, their already established manufacturing base within Japan allowed them strategic economic advantages over competitors due to economies of scale. Unlike a smaller firm, Toyota’s decision to keep the vast majority of its manufacturing within Japan was most likely due to the fact that they could increase existing production volumes on a lower cost per unit basis. As such, Toyota’s long term strategy may