Best in France Project – Toyota Case Study

25th January 2005 TOYOTA Case - HEC MBA Group ES2A page 1

TMMFBest in France Project – Toyota Case Study

http://www.toyota.fr/index.html


TMMF

By HEC MBA Sept’04 participants :- Eric JUILLET de SAINT LAGER- Saurabh KUMAR- Steven OPIO- Kihyeon PAK

With the special participation of :- Henri MAS, former Valenciennes Sous-Préfet- Yves LOUZE, current Director of Valenciennes Chamber of Commerce and Industry- Jean-Luc LEGAREZ, current Vice Director of Valenciennes Métropole Community- Vincent BOUVIER, current Valenciennes Sous-Préfet- Christiane HENNEAUX, current Project Assessor at Valenciennes Sous-Préfecture- Didier LEROY, current Senior Vice President of Toyota Motor Manufacturing France- Nicolas FAYOL, current External Relation Manager at Toyota Motor Manufacturing France- Shingo KATO, current Toyota France Secretary-General- Laurent FISCUS, former Sous-Préfet in Mission fully dedicated to the Toyota project

Best in France Project – Toyota Case Study



TMMF

1. Key features on the case ……………….….………..……….…. p. 42. Toyota and the European market ............................................ p. 63. Objectives of the players ……………………...…………………. p. 8

3.1. for Toyota .…………………..……………………..……….……… p. 93.2. for France .…………………..……………………..………….…… p.10

4. Decisional criteria ……………………………………………..….. p.114.1 in favor of the French candidacy ………………...……………..… p.124.2 not in favor of the French candidacy …..………………………… p.144.3 first list and short list decision matrix ……..…………………...… p.16

5. Actions developed by the players ………………………..…..… p.185.1 by France, prior to and during the project ….............................. p.195.2 by Toyota ………………………………..…………………..….….. p.21

6. Key factors of success in this project ………………….....……. p.227. Sustainable development post-project ………………..…..…… p.248. Appendix & exhibits ………………………………………..…….. p.26

Table of Contents



TMMF

Key features

on the case

Part 1



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Clear initiative taken by one French region

Strong commitment of Toyota on the long run

Two players both took a huge risk in the project

Fundamentally different cultures understood each other

Human dimension continuously present along the project

1. The 5 key ideas of the Toyota Onnaing project



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Toyota and the

European market

Part 2



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Boost car sales outside Japan (appendix #15)

Europe becomes the most profitable market after the US

Design and produce the cars close to the final market

Small cars is the biggest segment in Western Europe

Opportunity in 1999 with suppression of quota on imported cars

2. Toyota strategic & tactical approach



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Objectives for the

two players

Part 3



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A new and modern plant in Europe located as close as possible to customers and suppliers (appendix #12)

Develop the leanest auto plant ever with the obsession of cost reduction and management efficiency (appendix #14)

Operate the plant within 2 years as opposed to usually 3

Achieve an ambitious level of productivity mainly by optimizing the management of Human Capital

Establish a strong brand image as a local & European producer

3.1 Toyota objectives



TMMF

Attract investment to generate business for local supply companies (appendix #0)

Create jobs to fight regional unemployment

Indirectly accelerate the modernization of the French automotive industry

Promote French technological notoriety abroad

Boost exports to bolster the country’s balance-of-payments

3.2 France objectives



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Decisional criteria

for Toyota

Part 4



TMMF

4.1.1 Economical factors

Proximity with Western European customers and auto part suppliers

Location in the Euro zone (money, customs and economy influence)

Employment reservoir providing both available and skilled industrial work-force

Modern infrastructure with roads, rail-ways, fluvial network, airports and maritime harbours (appendix #13)

Country offering a strong potential for the growth of commercial market share

4.1 Criteria in favour of the French candidacy



TMMF

4.1.2 Human factors

International prestigious image of France (arts, luxury, culture)

Proximity with Brussels European HQ (makes communication easier and accelerates decisions)

Good quality of life offered to the Japanese and their families

Capacity to take into account the protection of the environment

France is perceived as a “complicated” country which provides a challenge to overcome

4.1 Criteria in favour of the French candidacy



TMMF

4.2.1 Economical factors

Non competitive labour cost (appendix #1&2)

Non productive 35 hours law (appendix #20)

Expensive fiscal burden (appendix #3&4)

Constraining labour regulation

Restricted subsidies for foreign investment

4.2 Criteria not in favour of the French candidacy



TMMF

4.2.2 Human factors

Non English speaking country (appendix #16)

Latin culture never experienced before by Toyota

Very complex French administration organization (appendix #7&8)

Bad image of French professionalism abroad

Individualistic relationship to labour values (appendix #5&6)

Poor infrastructure in the French province for foreign expatriates

4.2 Criteria not in favour of the French candidacy



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4.3.1 First short list of 40 possible sites

4.3 Location decisional matrix

Eco. criteria France UK Germany Belgium Poland Turkey

Proximity + + + + + + - -

Euro zone + + - + + + + - -

Economy + + + + + + + + + -

Labour cost - - - - - + ++

Lab. quality + + + - + +

Infrastructure + + + + + + + - - -

Subsidies + + + + + + -



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4.3.2 Second short list of 4 possible sites

4.3 Location decisional matrix

Mainly France France UKHR criteria Nord Alsace Lorraine Derbyshire

Anticipation + + - - -

Trust inspired + + + + +

Local pro-activity + + + + +

Huge challenge + + + + + + +

HQ proximity + + + + + + -

Environment + + + + + -



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Actions developed

by the two players

Part 5



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5.1.1 Before the project

Prospect investment projects very early (appendix #9&10)

Adopt basic psychological behaviour during the negotiation

Seek the national optimum before the regional optimum

Build trust to show long term commitment

5.1 Actions developed by France



TMMF5.1 Actions developed by France

5.1.2 During the project

Organize the French administrations in team

Appoint a sous-préfet in mission fully dedicated to the project

Set administrative procedures in project management

Adapt the type of communication to Toyota corporate structure

Prove the 35 hours law is no constraint for a new company

Assist the investor in recruiting & training its work-force

Create adequate infrastructures for expatriates



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Develop a new format of plant enabling the most cost-effective management of human capital

Evaluate each options including all human factors & audit them concretely on the floor

Understand the French regulation and abide by it (appendix #19)

Identify corporate values and share them with local employees

Establish the right management system before recruiting the right talents accordingly (appendix #17)

5.2 Actions developed by Toyota



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Key factors

of success

Part 6



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Each player sought to identify the expectations and constraints of the other player

French administrations involvement in speeding up usual heavy procedures (appendix #11)

Respect and compatibility between cultures (appendix #21&22)

Mutual trust in human relationships

Transparency in the working relationships

6. What led the project to a genuine success



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Sustainable

development

Part 7



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Car manufacturing industry is both labour and capital intensive, so any capital investment is made for the long run (appendix #18)

Reach of full plant capacity

Increase of production capacity

Continuous process improvements

Vertical integration of strategic components

Increase the network of suppliers around the plant

Launch of new product lines … ?

7. Further investments after the 1st project



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Appendix

& exhibits

Part 8



TMMF#0 – Annual French foreign investments

Direct foreign investment abroad in M€Direct foreign investment in France in M€



TMMF#1 – Hourly labour cost across Europe in 2004

0

5

10

15

20

25

30

Portug

al

Greece

Spain

Irland

Finland

Holland

Austria UK

Luxe

mbourg

France

German

y

Danem

ark

Sweden

Hourly labour cost in Euro

UE average labour cost



TMMF#2 – Social charges across Europe in 2004

0%

5%

10%

15%

20%

25%

30%

Danem

ark Irland

Luxe

mbourg UK

Portug

al

Holland

Finland

German

yAus

triaSpa

in

Greece

France

Sweden

Social charges in % of total labour cost

UE average social charges



TMMF#3 – Total fiscal weight across Europe in 1998

0%

10%

20%

30%

40%

50%

60%

Irland

Spain

Portug

al UK

German

yGree

ce

Holland

Austria

Luxe

mbourg

France

Finland

Danem

ark

Sweden

Fiscal pressure in % of gross profit

Average fiscal pressure in EU



TMMF#4 – Value added tax across Europe in 1998

0%

5%

10%

15%

20%

25%

30%

Luxe

mbourg

German

ySpa

in

Portug

al

Holland UK

Greece

Austria

France

Irland

Finland

Danem

ark

Sweden

VAT in % of retail price

Average Vat in EU



TMMF#5 – Unionization rate across Europe in 1995

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sweden

Danem

ark

Finland

Irland

Austria UK

Portug

al

German

yHolla

nd

Greece

Spain

France

Luxe

mbourg

Unionization rate in % of workers

Average unionization rate in EU



TMMF#6 – French unionization rate

Evolution of the French unionization rate in % of the active population



TMMF#7 – French administration structure

levels … Frenchstate

Public establishment

Territorialcorporation

Consularorganization

Publiccompany

National1 president of rep.

2 parliaments1 government

state organizations (national research, social council…)

league of mayors and of council

presidents

chamber of commerce, indus.and professions

EDF, SNCF,La Poste,

France Telecom

Regionalregional préfet

+ ministries representatives

frequent representation

22 regionalcouncil

presidents

regional chamber of commerce, ind. and professions

operational representation

Departmentaldepartmental prefet


unusualrepresentation

95 generalcouncil

presidents

departmental chamber of ind.

commerce & prof.

District districtsous-prefet

Agglomerationinter-municipal

unions and communities

Municipality36,000 mayorswith each one

municipal council



TMMF#8 – French administration involved with Toyota

levels … Frenchstate

Public establishment

Territorialcorporation

Consularorganization

Publiccompany

National1 president of rep.

2 parliaments1 government

state organizations (national research, social council…)

league of mayors and of council

presidents

chamber of commerce, indus.and professions

EDF, SNCF,La Poste,

France Telecom

Regionalregional préfet


frequent representation

22 regionalcouncil

presidents

regional chamber of commerce, ind. and professions

operational representation

Departmentaldepartmental prefet


unusualrepresentation

95 generalcouncil

presidents

departmental chamber of ind.

commerce & prof.

District districtsous-prefet

Agglomerationinter-municipal

unions and communities

Municipality36,000 mayorswith each one

municipal council



TMMF#9 – Plant construction schedule

1996 1997 1998 1999 2000 2001

launch in production

early prospecting by Chamber of Commerce and Industry

1st meeting with Toyota at Valenciennes2nd meeting with Toyota at the Paris Motor Show

Toyota launch an official European tender for their projectbeginning of the site selection process

public announcement of the selected sitesite officially handed out

plant constructionlabour training

machinery implementationpre-production

approach

study

selection

preparation

construction & training



TMMF#10 – Plant production schedule



TMMF#11 – Zoom on the “preparation” phase

In only 9 months instead of usually 2 years France had to : gain 82 votes in the Community of Municipalities to agree on the project

acquire 250 hectares of terrain with uncertain legal dispossession procedures

conduct urbanization and environmental authorization procedures

pilot clearing works (archaeological search, OTAN pipeline deviation, 2nd world war blockhaus destruction …)

pilot servicing works (road, rail, water supply, electricity & gas network upgrading)

carry out 8 public surveys related to the territory development planning perform various administrative tasks to obtain residence permits and

working authorizations



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300km

#12 – Toyota locations across Europe

Research & D

Final assembly

European HQ

Engine plant



TMMF#13 – Importance of local infrastructures



TMMF#14 – Compact plant layout



TMMF#15 – Toyota market shares evolution

1994 1997 1999 2004 2010*Toyota market share in the US 10% 11%

Toyota market share in Japan 40% 45%

Toyota market share in Europe 3% 5%

Toyota volume sold in Europe 800,000 1,200,000

Trade regulation across Europe

End of import sales quotas

Production sold in Japan 90% 50%

Production sold in the US 40%



TMMF#16 – Communication theory in non-native language

100% 100%

= 100%

100% 50%

= 50%

50% 50%

= 25%

Two people of the same tongue speaking

their language

One different interlocutor listening to

a native speaker

Two people speaking in a third non-native

language



TMMF#17 – Toyota philosophy, management & recruitment

TOYOTA WAY

TOYOTA PRODUC. SYST.

TECHNICAL SOLUTIONS

1st = define the right values (management system)

2nd = recruit the right talents and personalities

3rd = define the short term goals to be achieved

2 values = Respect andContinuous improvement

Indicates the rightmanagement priorities

Indicates the bestpossible solutions

TMMF management team had to guess in1997 that Proximity Communication and

Continuous Improvement would be two suitable pillars

From 40,000 applications Toyota identified through psychologicaltesting and confirming interview 3,300 employees with suitableprofiles (according to 10 dimensions representing the 2 pillars)

day-to-day shop floor management andmanagement by yearly objective

Toyota Philosophy Toyota Recruitment Strategy



TMMF#18 – Sustainable development

2001 2002 2003 2004 2005 …

Production launch – 1st shift600 M€ and +1,500 people

Production increase – 2nd shift+1,500 people

New engine assembly line100 M€ and +300 people

Production increase – 3rd shift+500 people

New logistic platform80 M€ and +140 people

New spare-part Toyota supplier60 M€ and +120 people

Press-tool capacity increase20 M€ and +30 people



TMMF#19 – Typical French agreement protocol

Items specified in the agreement protocol of this project : amount of the total capital investment quantity of positions created targeted date of launch final sale price of the serviced terrain ending date for all related clearing & servicing works

delay for the final delivery of all urbanization, environmental and working authorizations

average amount of all types of capital investment subsidy assistance for labour recruitment and training



TMMF#20 – Average yearly activity per person

Nb of hours worked per year / person

1 400 1 450 1 500 1 550 1 600 1 650 1 700 1 750 1 800 1 850

France

Germany

Finland

Greece

Luxembourg

Irland

Portugal



TMMF#21 – Cultural final quote on the project

Extracts of the inauguration speech of Mr Hiroaki WATANABE, President of TMMF, on the 6th of January 2001 :

« Before accepting to undertake this project, I had many prejudices about France and the French. But since I moved here I’ve been realising that the French and the Japanese are obviously different, but that they have also many things in common, among which a very strong culture. Let’s consider gastronomy : the delicacy for taste and aesthetics are a real passion for the French and the Japanese, because they express a strong cultural identity. (…) Similarly the Japanese and the French are capable to adapt and work together while remaining loyal to their culture. This is how our employees are now getting progressively used to our corporate culture while TMMF is taking progressively place in the Nord-Pas-de-Calais landscape. And I remain convinced that soon the direction of TMMF could be transferred to a French »



TMMF#22 – Monochronic & polychronic cultures

Monochronic People (American)

Do one thing at a time

Concentrate on the job

Take time commitments

Low-context + need information

Committed to the job

Abide by the plans

Great respect for private property

Used to short-term relationships

Polychronic People (French)

Do many things at once

Manage interruptions well

Objectives can be possibly achieved

High-context + already have information

Committed to people and relationships

Chang plans often and easily

Borrow and lend easily

Build lifetime relationships


Best in France Project – Toyota Case Study

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