Term Paper

Research on Toyota Kirloskar Motor Private

Limited

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Introduction

Toyota Kirloskar Motor Private Limited (TKM) is an Indian joint

venture between Kirloskar Group and world’s largest automobile
company by volume Toyota Motor Corporation.

TKM's growth since inception can be attributed to one simple, yet

important aspect of its business philosophy - "Putting Customer
First". While managing growth, TKM has maintained its commitment
to provide quality products at a reasonable price and has made every
effort to meet changes in customer needs.

TKM firmly believes that the success of this venture depends on

providing high quality products and services to all valued customers
through the efforts of its team members.

TKM, along with its dedicated dealers and suppliers, has adopted the
"Growing Together" philosophy of its parent company Toyota
Motor Corporation (TMC) to create long-term business growth. In
this way, TKM aims to further contribute to the progress in the Indian
automotive industry, realize greater employment opportunities for
local citizens, improve the quality of life of the team members and
promote robust economic activity in India.

All Toyota employees are expected to embody these values in their

daily work, including environmental protection activities. To "respect"
the environment, we go to the source to identify and analyze problems
("Genchi Genbutsu"), move forward to "challenge" conventional ideas
and old habits, to improve further ("kaizen") through "teamwork."

The framework provided by The Toyota Way enables our company to

respond to, among other things, the environmental challenges at
various stages of the life-cycle of a vehicle. These include greenhouse
gas emissions, waste reduction, increased recycling and the banning of
hazardous substance use in parts and components. These challenges
will have inevitable consequences for Toyota's organization and
employees, and we must balance them with our desire for future
growth. In 1992, the Toyota Guiding Principles were established in
direct response to the international initiatives agreed to at the Rio
'Earth Summit.' This summit focused on the potential for a clash
between trade and environmental rules, and resulted in a statement of
principles about forest management, conservation and sustainable
development. The Toyota Guiding Principles are a cornerstone of
Toyota’s corporate management philosophy. These principles were

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updated in 1997, to ensure they continue to provide Toyota with a
clear path towards achieving sustainable development.

These principles have been explored and developed in Toyota's Global

Vision 2010, adopted in April 2002, which proposes a series of long-
term policies on the theme of "Innovation into the Future." Toyota's
Global Vision 2010 guides management in its response to long-term
social changes, combining consideration for the environment, the
benefit to its customers of value-added products and the
encouragement of its employees through shared prosperity and social
involvement.

Based on the Guiding Principles, which codify Toyota's business spirit,

the Toyota Earth Charter (adopted in 1992 and revised in 1997)
embodies a comprehensive approach to global environmental issues. It
outlines Toyota's basic policy and action guidelines towards effective
environmental management and improvements. The Toyota Earth
Charter underlines a commitment to environmental excellence, not
only through broad principles, but in concrete examples of what can be
done through action guidelines. In connection with the Toyota Guiding
Principles and the Toyota Earth Charter, a European Environmental
Policy was developed as a means of linking principles, goals, targets
and action plans with management structures and systems.

Empowering Employees.... To Achieve Perfection

TKM firmly believes that employees are the main source of strength for
the organization. The human resources management in Toyota seeks
to create a corporate culture where values such as "Continuous
Improvement" and "Respect for People" are fully reflected in all actual
corporate and individual activities. The company takes maximum care
to ensure stability of employment and strives to improve working
conditions.

To develop human resources and improve the technical skills of its

employees, TKM's young team members are regularly sent to Japan,
Indonesia and Taiwan for training programs. More than 425 team
members have benefited from such programs at various Toyota plants
worldwide. TKM also believes in continuously improving its products
and practices. Every team member is encouraged to give suggestions
to improve the product, efficiency of processes or working conditions.
They are also appropriately rewarded for the same. Thus TKM seeks to
progress by empowering its employees.

Recognition

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At TKM, they look to continuously improve not only products but also
processes and service. Their obsession with perfection has been
recognized by various institutions such as JD Power and TNS
Automotive, as well as automotive publications like Overdrive, as the
reason for the success of Toyota products in India and across the
globe.

Local Community Development

At TKM, every effort is made to contribute to society. A residential

school at Bidadi, reconstructed by Toyota, now houses 75 students,
mainly belonging to backward communities. In the aftermath of the
tragic earthquake in Gujarat, TKM and its dealers played a major role in
distributing food, clothing and relief in remote affected area. TKM also
takes a lead role in contributing to the community, distributing books
and bags in local school etc.
Competitors

The Indian car market is divided into various segments from Segment
A to E(with A being small car segment and E being the big luxury car
segment).Below graphs provide the category wise breakup of the
market share in each segment where Toyota is present based on the
sales data of Jan-June 2010.

Fig. 1: Segment B Sedan

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Fig. 2: Segment C

Fig. 3: Premium D

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Fig. 4: Multipurpose vehicle

Fig. 5: SUV Medium

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 Fig. 6: SUV Premium

Factors that affect the Industry

Michael Porter identified five forces that influence an industry. These

forces are: (1) Degree of rivalry; (2) Threat of substitutes; (3) Barriers
to entry; (4) Buyer power; and (5) Supplier power.

Like other industries operating under free market, capitalistic systems,

viewing the automotive industry through the lens of Porter’s Five
Forces can be helpful in understanding the forces at play.

Degree of Rivalry

Global companies today compete in the Indian market, while INDIAN

companies have globalized themselves. In the 1990s, after the opening
up of Indian economy, many Global players entered INDIA and have
been very focused in growing their shares of the market. The great
diversity of rivals in terms of cultures and associated philosophies has
intensified rivalry in the industry.
The degree of rivalry in the automotive industry is further heightened
by high fixed costs associated with manufacturing cars and trucks and
the low switching costs for consumers when buying different makes
and models.
The rivalry is especially very intense in the small car segment where
INDIA is emerging as a global manufacturing hub.

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Threat of Substitutes

The threat of substitutes to the automotive industry is fairly mild.

Numerous other forms of transportation are available, but none offer
the utility, convenience, independence, and value afforded by
automobiles.
The switching costs associated with using a different mode of
transportation, such as train, may be high in terms of personal time
(i.e., independence), convenience, and utility (e.g., luggage capacity),
but not necessarily monetarily (e.g., round trip train fare would most
likely be less expensive than
the cost of fuel consumed on a similar round trip, daily parking, car
insurance, and maintenance).
The exception to this statement occurs in the global urban areas with
high population densities. In these areas, the substitutes available
(e.g., walking, mass transit, bicycles, etc.) can be less costly or less
time consuming than automobiles and thus alternative modes of
transportation are often preferred.
The threat of substitutes is greater in individual segments of the
industry such as SUV’s due to ever increasing fuel prices and
consumers preferring fuel efficient cars.

Barriers to Entry

The barriers to enter the automotive industry are substantial. For a

new company, the start-up capital required to establish manufacturing
capacity to achieve minimum efficient scale is prohibitive. An
automotive manufacturing facility is quite specialized and in the event
of failure could not be easily retooled. Although the barriers to new
companies are substantial, government push to increase FDI in
automobile sector is attracting Global automobile majors in INDIA.

Buyer and Supplier Power

In the relationship between the automotive industry and its suppliers,

the power axis is substantially tipped in the industry’s favor. The
automotive industry is comprised of powerful buyers who are generally
able to dictate their terms to their suppliers. There are specific
characteristics that make members of the automotive industry
powerful buyers: (1) there is not a grand proliferation of companies
manufacturing automotive, and the four largest automotive companies
in the INDIA have roughly 90% of the value of shipments and value
added in the INDIA (2) automotive parts (e.g., oil filters, mufflers, belts,

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etc.) are standardized commodities and these parts are only used on
automobiles; and (3) backward integration can and does occur very
often in the industry.

In the relationship between the automotive industry and its ultimate

consumers, purchasers of finished vehicles, the power axis is tipped in
the consumers’ favour. Consumers wield the greatest power in this
relationship due to the fairly standardized nature of the automotive
commodity (a vehicle) and the low switching costs associated with
selecting from among competing brands. Also the Indian consumer is
very price sensitive and thus companies can’t take liberties in pricing
beyond a point. However, the automotive industry remains marginally
powerful due to the large customer to producer ratio.
The automotive industry is a dynamic place. With the forces above at
play, and with history as a guide, it is safe to say that the automotive
industry will continue to change, evolve, and adapt.

The Macro economic factors affecting the Industry

Demographic:

With rising disposable incomes in the average Indian household, the

market potential for automobiles is huge. There is a growing concept of
second vehicle and people are graduating from 2 wheelers to 4
wheelers.

Political:

With the opening up of Indian economy in 1991-92, there is constant

push from the government to the automobile sector by encouraging
R&D, allowing FDI and granting of Special economic zones for
automobile sector.

Economic:

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The Indian economy is growing at a rapid pace with it being the second
fastest growing economy only after china. The average GDP for 5 years
before recession was 8.8% and post-recession also the economy has
bounced back. The demand for automobiles by individuals as well as
by industry is growing very fast and is attracting huge investments.

Technological:

The Indian automobile industry has come a long way from the era of
Ambassadors cars with no technological enhancements over years.
Today with so many players in the market, technology and innovation
is becoming the deciding factor in the competitiveness of the
companies. The introduction of the world’s cheapest car Tata Nano is a
shining example of technological innovation in Indian Automobile
industry.

The product lineup

Product Key Point

Innova Created new segment named MPV – Multi Purpose Vehicle
Revamped the segment completely. Today it defines the
Fortuner segment trend in industry. Fortuner’s today’s sales volume
is more than that of entire segment before its launch.
Land Cruiser Has seen strong growth of % yoy in volume after launch of
Prado diesel version
Land Cruiser Flagship Land Cruiser brand across the world.
Corolla Altis World’s highest sold car till date.
Camry
Toyota’s flagship hybrid brand is also world’s highest
Prius
selling hybrid car.

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 Product Segment

Innova Multi Purpose Vehicle

Fortuner Sports Utility Vehicle (Mid)
Land Cruiser Prado Sports Utility Vehicle (Premium)
Land Cruiser Sports Utility Vehicle (Premium)
Corolla Altis C Segment
Camry E Segment
Prius E Segment

Product Key Product Competition Current positioning

Innova M&M Scorpio, Xylo Multi Pleasure Vehicle
Ford Endeavour, Mitsubishi
Fortuner The Art of Power
Outlander
Land Cruiser
Audi Q5, BMW X5 All Terrain Luxury
Prado
Land Cruiser Audi Q7, BMW X7 The Pride of the World
Chevrolet Cruze, Honda Civic, Designed to Inspire
Corolla Altis
Skoda Laura Envy
Camry Skoda Superb, Honda Accord Beyond Excellence
Planet's Favorite
Prius
Hybrid Car

The corporate and business level strategy

Entering into a small car segment

With the unveiling of Etios in Delhi Auto Expo 2010, Toyota announced
its foray into small car segment i.e. A and B Segment. This segment is
already cluttered and also a stronghold of Maruti Suzuki. Apart from
Maruti, Hyundai and Tata are dominating this segment. However, the
keen interest shown by multinational players like General Motors, Ford,
Volkswagen, Nissan and Honda makes this segment very competitive.
This market commands

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New plant

Second plant is coming up next to existing one, in Bidadi near

Bangalore. The investment for this plant is estimated at INR 3,200
crore. Production capacity of 70,000 in first year and to be ramped up
to 2 lac subsequently.

Localization

Small car market is much cost driven. To keep cost under control, TKM
has plan to increase localization of components. For launch of small car
TKM will have around 60% of local content. (60% of cost of the
vehicle). And it also plan to manufacture engine and chassis locally to
take localization level to 95%. This is significantly higher than 20 to
30% of localization in current range of Innova, Altis & Fortuner.

Dealer network

India is geographically vast country. And being close to customer is

one of the most important determinants of purchase decision. Maruti,
for example, has more than 600 outlets across India. TKM is set to
increase number of outlets from 102 (as on June ’10) to 150 by end of
the year.

Connecting with TG – Toyota Q Promise and ATL

In India, Toyota is still perceived as a premium, high end and very

luxury car brand. This has led to “NOT FOR ME” imagery among small
car buyers in India. To pacify this perception, Toyota rolled our big
corporate campaign named – Toyota Q Promise. Q stands for Quality.
This campaign followed the huge BTL event – Toyota Q World. In Q
World Toyota displayed its complete range including Etios (small car)
to customers in 25 A & B cities. Whereas, Q Promise was ATL campaign
promoted heavily across array of media including Dailies, TV, Internet,
OOH, Cinem Halls, SMS, Magazine etc.

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