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Why do you think Toyota had waited so long to move much of its manufacturing
for European sales to Europe?
The automobile manufacturing industry is very complex and requires
high capital or intensive capital investment. The aim of the companies in the
industry just like any other business is to increase profits and reduce the
cost of operation. Immediate opening of Toyota’s operations in Europe meant
that the company would have to incur costs associated with acquiring new
manufacturing facilities, employees and much more at once. Therefore, this
means that the viable choice for the company was to grow into the process
rather than an immediate decision. Additionally, Toyota like many other
manufacturers wished to continue enjoying the benefits of scope and scale in
manufacturing for as long as they could. As a result, the company resisted the
movement of manufacturing into the regional and local markets (Toyota’s
European Exposure 8).
If the British pound were
to join the European Monetary Union would the problem be resolved? How likely
do you think this is?
The UK prides itself to be the beneficiary of being the only major
European country that is not euro based. There joining the European Monetary
Union would eliminate the currency risk between Europe and UK but will not
eliminate that between Japan and Europe. It would also remove the deviations in
currency value between the euro and the UK pound which would not be of much
influence. Therefore, this means that the change would not be of so much help
to the Toyota company predicament (Toyota’s European Exposure 8).
If you were Mr. Shuhei, how
would you categorize your problems and solutions? What was a short-term
problem? What was a long-term problem?
According to what I have summed up from the case study, the
problems in Toyota seem to be exchange rate induced pricing problems. The fall
in the value of the euro against the Japanese yen between 1999 and early 2000
was the most significant and affected the company significantly. Most
manufacturing operations had moved to North America while the company still
tried to continue the services in Europe through exporting from Japan. The
continuing strategy was introducing a European-targeted product which was the
Yaris Toyota model. It was however not a good strategy putting into
consideration the directions of movements in exchange rates that took place
during the time. It was advisable to continue absorbing yen-based cost
increases, through lowering margins on European sales and assuming the market
would not bear a going through the exchange rate changes to solve the
short-term problem. In the long run, a solution would be to move the company’s
operations the European Monetary Union ("Toyota's European Operating
What measures would you
recommend Toyota Europe take to resolve the continuing operating losses?
One of the many options that the Toyota company had was to
continue incurring the operating losses and putting market share objects above
profit making by keeping the current pricing and operating policies. As a
result, the euro would regain its weakness against the Japanese yen. The
continued operations of Toyota in the UK as the UK stayed out of the European
Monetary Union would continue being a part of the problems the company was
experiencing; therefore, it would mean that the company withdraws its UK
operations or the UK joins in the European Monetary Union. The later had been
in the considerations by the country. The other solution would be to move more
of the company’s cost structure and manufacturing operations within the EMU
just like other multinational corporations. The activities would take place in any
location in Europe that is not the UK (Toyota’s European Exposure 9).