Preclusterization in emerging markets The Toyota Groups Entry Process in China

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Pre-clusterization in emerging markets -
The Toyota Groups Entry Process in China -

• Faith Hatani
• Lecturer in Strategy
• School of Management
• University of Surrey, UK

27 January 2007
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Introduction

• Internationalization process model
• The firm develops engagement in a foreign market
  by gradually increasing its commitment of
  resources and knowledge transfer.
  (Johanson Vahlne, 1977)
• First mover advantage questioned
• The concept of the internationalization process
  model needs to be developed considering an
  ever-changing world. (Johanson Vahlne, 1990)

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Theoretical background

• Evolutionary view of MNEs
• As MNEs develop new knowledge through past
  experience, they can replicate the evolutionary
  process. (Kogut Zander, 1993)
• Economies of speed (Chandler, 1977, 1980)
• The advantages of economies of speed together
  with economies of scale in production networks
  surpass those of any single firm. (Sturgeon,
  2002)

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Network-based Entry

• The whole process (of member firms entry) over
  long time periods (Axelsson Johanson, 1992)
• Clusters
• Geographic concentrations, or critical masses,
  of interconnected firms and institutions in a
  particular field. (Porter, 1998)
• Traditional entry Follow-the-leader strategy
• Japanese suppliers enter the foreign market
  where their core firm had set up its assembly
  operation.

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Strategy for Emerging Markets

• Emerging markets are markedly different in
  regime, degree of progress and development path.
  (Hoskisson et al, 2000)
• MNEs in a network can formulate entry processes
  that are more effective based on shared
  experience and by adapting their capabilities.
• (Chang, 1995 Delios Henisz, 2000)

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An ad hoc strategy for foreign entry

• Pre-clusterization
• Supplier firms in a multinational business group
  enter an emerging market and begin to cluster in
  the location that the core firm targets before
  the full entry of the core firm.

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The case The Toyota Group

• Toyotas entry into China
• Delayed entry
• Internal reason Giving priority to the US
  market (80s)
• External reason Lost the bid to GM (1994)

Absolute latecomer in the Chinese car market
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Foreign Carmakers in China (market share by sales)
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(No Transcript)
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The Entry Process of the Toyota Group
In USA
In China
Toyotas joint assembly plant
Toyotas contractual tie-up with a local firm
Pre-clusterization
Toyotas wholly owned transplant
Toyotas joint assembly plant
Suppliers entry
Follow-up FDI
Follow-up FDI
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Framework of Pre-clusterization
Pre-clusterization (around virtual assembly
plants)
Follow-up FDI
Follow-up FDI
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Propositions

• If the entry of the core firm into a targeted
  market is delayed, but

• the core firm has a strong influence on the
  network,
• key suppliers are competitive enough to lead the
  strategic collective action,
• the business network is well integrated,

pre-clusterization occurs.
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Implications

• The core firm of the network needs to encourage
  its supplier firms in effective ways.
• Supplier firms must increase their own
  international competitiveness.
• Supplier firms need to enhance the capability to
  manage complex interfirm relationships.

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Conclusion

• Strategies of MNEs should be analysed in view of
  activities of the network as a whole.
• MNEs need to design strategies for emerging
  markets by making full use of network resources
  and capabilities.
• The synergy between the core firm and suppliers
  is crucial.