Mrs. Friers, in her early sixties, of Georgetown’s new Wal-Mart store
Assignment Solutions, Case study Answer sheets Project Report and Thesis contact aravind.banakar@gmail.com www.mbacasestudyanswers.com ARAVIND – 09901366442 – 09902787224 INTERNATIONAL HR MANAGEMENT Case-2 (20 Marks) Toyota Comes to Georgetown Mrs. Friers, in her early sixties, of Georgetown’s new Wal-Mart store cannot be anything but polite when she discusses Toyota. In a low voice to my companion, the doctor at the local Scott County General Hospital, Friers said, “You know Doe, Toyota did not offer that job to my daughter.†“I am sorry to hear that,†theDoctor commented casually. “Are you all glad that Toyota came to town?†I asked Mrs. Friers, somewhat to fill the void. “Yes and no ... we were all excited when they first announced it . . . it kind of sank in now, I guess.†Toyota’s labour practices was the hot topic at the local drug store too. A middle aged man, who had worked in an iron foundry for 31 years, commented, “In Toyota you have to earn every penny . . . there is never a slag . . . never the time to say hello.†His youngest son, Dwayne, is currently employed in the Toyota plant. He is extremely pleased that the company has abandoned the practice of workout in the morning. A skeptical Baptist preacher asked, “what the heck have we got because of Toyota? Most of their people come from Indiana and Ohio. I hear some of them even commute from Arkansas.†TOYOTA COMES TO GEORGETOWN Georgetown, about 25 miles south of Lexington, Kentucky is the Scott County’s heartland. The county’s population is 25,000 out of which 22,000 are white. Over 53 per cent of the household income is between $15,000 to $49,999 per year. It has 93.7 males for every 100 females. About 43 per cent of the population are between the ages of 18 to 44 years. It was a puzzle to many residents as to why Toyota selected this sleepy town for their new venture. Some of them argued that the then Governor of the State, Martha Lay Collins, charmed the Japanese so much that they lost their way and their heads too. Some others contended that the State made huge tax concessions to the company and wrote blank checks. The local paper cashed in by printing all possible undocumented stories about Toyota. However the present Mayor of Georgetown denied charges of any underhanded deal. He rationalized the process of selection thus: Toyota selected this location mainly to take advantage of the transportation network of 1-75 (North and South) and 1-64 (East and West). He added, “the topography of the land here is very similar to the land around the Toyota City in Japan. I assume the company was also attracted because of non-union focus in this State.†The original plant location was about three miles outside the Georgetown city limit. The office of the Mayor made it clear to the Toyota people that since the city was the closest municipality it would end up providing most of the infrastructural services to the plant but without any return from Toyota. Why should the taxpayers of Georgetown accept this liability without any tax revenue coming from the company? The company’s vice-president had asked the Mayor to attend a series of breakfast meeting with him andother officials to sort out this and other related problems. The Mayor described the outcome of these meetings thus: “We were aware that this was a huge economic development opportunity but was also onscious of the fact that the town people should not be shortchanged in any shape or manner.†In April 1987, Toyota confirmed the setting up of the plant in Georgetown. TOYOTA’S OPERATIONS In May 1988, the first Kentucky Camry was introduced at a plant wide celebration. And in the same year, Camry received the J.D. Power Gold Plant Quality Award. In November 1988, Toyota announced plans to double the plant size and production at the Georgetown plant. In September 1991, Toyota unveiled a major model redesign for the year 1992. In January 1992, Toyota announced plans to expand Power train Plant to add V-6 productions. By March, the production of Camry Wagon began. In September 1994, the Georgetown plant began production of the Avalon, a new large sedan aimed at the North American market. In 1988, Toyota was able to produce about 200,000 Camry Sedans of which 20 per cent were exported. In 1995, it doubled the production to 400,000 with the hope of exporting 20 per cent to Taiwan, Europe and Japan. With this tremendous pace of change, the company demanded from its workforce nothing short of total dedication. The pace became such that the workers started using “Kaizenâ€, “Kieretsuâ€, “Kanban†and few other similar Japanese phrases even in dealing with their own family members. In 1995, the employees were told that since the sales had declined by 2.5 per cent, the process had to he streamlined, using fewer model variations and increasing white-collar productivity. An assembly line worker said, “Gosh, how could any more speed be achieved without killing each other . . . but this is Toyota. Find a way to do it . . . or a way out.†THE GAINS AND THE BARGAINS Toyota’s direct employment in the U.S., as of December 1993 was 16,674. including the 1438 Toyota/Lexus dealers, the company employs over 90,000 people in the U.S. In Georgetown alone, it employs 6000 people representing all 120 counties of the State of Kentucky. What Kentucky gained from Toyota is a question that ninny people ask. For instance, the company was provided with an incentive package of $325 million. Out of this amount, $68 million was paid for job training, and $40 million went to building roads and sewers. Toyota operates under the Free Trade Zone which provides tariff exemption of $14 million a year. The company was allowed to import parts and machinery without paying any additional tariffs. The State paid $167.6 million interest costs for its warehousing distribution. The balance sheet predicts that the Camry plant could generate $673.4 million in state tax revenue including individual and sales taxes. Further, due to Toyota’s plant expansion there will be a whole host of satellite industries around the area with vast potential for job opportunities. Estimates suggest that the Camry plant and its suppliers based in the State have already created 22,000 jobs in Kentucky. OTHER STATES FOLLOW LEAD The State of Tennessee, in order to bring in Nissan, convinced the Federal Government to approve $5 million-a-year tax break on plant expansion (production expanded from 250,000 to 450,000), and allowed it to operate under the Free Trade Zone as Kentucky did for Toyota. The State of South Carolina in its effort to get BMW also had to provide $5 million in state income tax credits and an additional $3 million for employee training. The State wl1 set the BMW’s property taxes at the same rate for 5 years at a time and extend the Zone on Greenville-Spartan airport. This venture estimates 10,000 additional jobs in the region including about 2,000 at the BMW location itself. According to his estimate, the State will benefit by $28million a year in taxes. The latest in this league of getting large employers is the State of Alabama. Mercedes Benz has accepted we location to manufacture under the following conditions: the State will provide $92 million for site development, $77 million for infrastructure, $60 million for job training, and $8.6 million for sales and tax concessions on equipment. The State also made a good faith commitment to buy from the company, 2,500 8 vehicles at an estimated price of $75 million. Mercedes will employ 1,500 people and it expects a mushrooming of industries around the plant site. TOYOTA TRIES TO BE A GOOD CITIZEN From the day of inception. Toyota officials insisted that the company should be a part of the community. For instance, it cited the following contributions: $1 million for the citizens of Scott County to build a community centre, $15 million over a 20 year period to the County school system; $141,000 to develop a child care centre; $500,000 for the development of a Thoroughbred Park; $25,000 and $30,000 to the Lexington’s Children’s Museum and Philharmonic respectively. The city of Georgetown receives one per cent of the payroll tax and an additional percentage of the net profit of sales. The city’s general fund budget went up to $6.7 million in 1992 from a mere $2.2 million in earlier years. This allowed the city to extend itspolice force and add a fire station. Fire insurance rating for the city went sown from class 6 to class 4, resulting in savings of about $500,000 a year in insurance costs for the home owners. Although Toyota has never agreed to give preferential treatment in employing Kentuckians or people from Georgetown, the mix at the shop floor level suggests that over 80 per cent of them are not residents of the county. At the managerial level, the Japanese are in charge of production control,’ purchasing, finance, engineering, and quality control functions. The president is also a Japanese national. The U.S. personnel occupy the positions of senior vice-president, human resources, public affairs, and vehicle assembly production. A majority of managerial and supervisory staff live in Lexington and Louisville (Kentucky), and Cincinnati (Ohio). GEORGETOWN ON THE MAP Has Toyota not been the single mo stimportant factor to bring prominence to this area? The existence of two interstate highways 1-64 and 1-75 was what had attracted Toyota to Georgetown. Yet these two highways contributed negatively by moving people away, towards bigger cities like Lexington, Kentucky and Cincinnati, Ohio. Lexington and Cincinnati, for example, have better schools, shopping centres, cultural activities, and have legal liquor sales. The Director of Georgetown-Scott County Planning Commission notes, “the originally anticipated large increase in population has not occurred . . . and is not anticipated to rise substantially beyond the normal growth for a community of our size.†The Director agreed that traffic had dramatically increased since Toyota’s arrival and this was much to the annoyance of the local people. But on the plus side, he claims, the local schools have benefited from the company’s contributions. To Mrs. Friers and many others, the presence of Toyota has added to their frustration. They are angry and dismayed since the plant has changed their way of life. They feel that the way life was in Georgetown will never to be back, and they do not know how to fill the void they now experience. One of them aptly summarized the feeling of others thus: “we now see lots of new faces, and we don’t know where they comefrom, where they arc going. But they seem to leave us at night to guard this divided city—that’s the new city where Toyota is . . Japanese money, fancy cars, fast foods. The other city is where we folks are—still chewing our deep-fried catfish and spoon bread while recalling the long list of small mom and pop shops which used to be on the main street that are now being sucked up by the winds of the Wal-Marts and the Krogers of the new world. Do we have to destroy the yesteryears to get to the year 2000? There used to be a word called co-existen de. I guess, we don’t care what it means any more!†Questions 1. What is the difference between American production policy and Japanese production policy? 2. Where the Japanese Excel? 3. In quality control of Toyota what do you observe? 4. Can Japanese, be really leader in auto production and marketing, all over the world? Justify your moves. Assignment Solutions, Case study Answer sheets Project Report and Thesis contact aravind.banakar@gmail.com www.mbacasestudyanswers.com ARAVIND – 09901366442 – 09902787224
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