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

Best in France Project Toyota Case Study

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By HEC MBA Sept04 participants :- Eric JUILLET de SAINT LAGER- Saurabh KUMAR- Steven OPIO- Kihyeon PAK

With the special participation of :- Henri MAS, former Valenciennes Sous-Prfet- Yves LOUZE, current Director of Valenciennes Chamber of Commerce and Industry- Jean-Luc LEGAREZ, current Vice Director of Valenciennes Mtropole Community- Vincent BOUVIER, current Valenciennes Sous-Prfet- Christiane HENNEAUX, current Project Assessor at Valenciennes Sous-Prfecture- 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-Prfet in Mission fully dedicated to the Toyota project

Best in France Project Toyota Case Study

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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.19

5.2 by Toyota ....... p.216. Key factors of success in this project ...... p.227. Sustainable development post-project .... p.248. Appendix & exhibits .... p.26

Table of Contents

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Key featureson the case

Part 1

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y Clear initiative taken by one French region

y Strong commitment of Toyota on the long run

y Two players both took a huge risk in the project

y Fundamentally different cultures understood each other

y Human dimension continuously present along the project

1. The 5 key ideas of the Toyota Onnaing project

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Toyota and theEuropean market

Part 2

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y Boost car sales outside Japan (appendix #15)

y Europe becomes the most profitable market after the US

y Design and produce the cars close to the final market

y Small cars is the biggest segment in Western Europe

y

Opportunity in 1999 with suppression of quota on imported cars

2. Toyota strategic & tactical approach

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Objectives for thetwo players

Part 3

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

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

y Operate the plant within 2 years as opposed to usually 3

y Achieve an ambitious level of productivity mainly by optimizingthe management of Human Capital

y Establish a strong brand image as a local & European producer

3.1 Toyota objectives

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Decisional criteriaforToyota

Part 4

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4.1.1 Economical factors

y Proximity with Western European customers and auto partsuppliers

y Location in the Euro zone (money, customs and economy

influence)

y Employment reservoir providing both available and skilledindustrial work-force

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

y Country offering a strong potential for the growth of commercialmarket share

4.1 Criteria in favour of the French candidacy

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4.1.2 Human factors

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

y Proximity with Brussels European HQ (makes communicationeasier and accelerates decisions)

y Good quality of life offered to the Japanese and their families

y Capacity to take into account the protection of the environment

y France is perceived as a complicated country which providesa challenge to overcome

4.1 Criteria in favour of the French candidacy

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4.2.1 Economical factors

y Non competitive labour cost(appendix #1&2)

y Non productive 35 hours law(appendix #20)

y Expensive fiscal burden (appendix #3&4)

y Constraining labour regulation

y Restricted subsidies for foreign investment

4.2 Criteria not in favour of the French candidacy

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4.2.2 Human factors

y Non English speaking country(appendix #16)

y Latin culture never experienced before by Toyota

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

y Bad image of French professionalism abroad

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

y 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 UK

HR criteriaNord Alsace Lorraine Derbyshire

Anticipation+ + - - -

Trust inspired + + + + +

Local pro-activity + + + + +

Huge challenge + + + + + + +

HQ proximity + + + + + + -

Environment + + + + + -

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Actions developedby the two players

Part 5

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5.1.1 Before the project

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

y Adopt basic psychological behaviour during the negotiation

y Seek the national optimum before the regional optimum

y Build trust to show long term commitment

5.1 Actions developed by France

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5.1 Actions developed by France

5.1.2 During the project

y Organize the French administrations in team

y Appoint a sous-prfet in mission fully dedicated to the project

y Set administrative procedures in project management

y Adapt the type of communication to Toyota corporate structure

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

y Assist the investor in recruiting & training its work-force

y Create adequate infrastructures for expatriates

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y Develop a new format of plant enabling the most cost-effectivemanagement of human capital

y Evaluate each options including all human factors & audit them

concretely on the floor

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

y Identify corporate values and share them with local employees

y Establish the right management system before recruiting the

right talents accordingly(appendix #17)

5.2 Actions developed by Toyota

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Key factorsof success

Part 6

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y Each player sought to identify the expectations and constraintsof the other player

y French administrations involvement in speeding up usual heavyprocedures (appendix #11)

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

y Mutual trust in human relationships

y Transparency in the working relationships

6. What led the project to a genuine success

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Sustainabledevelopment

Part 7

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

y Reach of full plant capacity

y

Increase of production capacity

y Continuous process improvements

y Vertical integration of strategic components

y Increase the network of suppliers around the plant

y Launch of new product lines ?

7. Further investments after the 1stproject

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Appendix& exhibits

Part 8

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#0 Annual French foreign investments

Direct foreign investment abroad in MDirect foreign investment in France in M

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#1 Hourly labour cost across Europe in 2004

0

5

10

15

20

25

0

ortugal

Greece

Spain rla

nFin

lanHo

llan

Austria

ue

bourg

France

Ger

any

ane

ar

Seen

Hourly labour cost in Euro

E a erage labour cost

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#2 Social charges across Europe in 2004

0%

5%

0%

5%

20%

25%

0%

ane

ar rlan

ue

ourg

ortugal

Hollan

Finlan

Ger

any

Austria

Spain

Greece

France

Seen

Social charges in % o total la our cost

E a erage social charges

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#3 Total fiscal weight across Europe in 1998

0%

10%

20%

30%

0%

50%

0%

rlan

Spain

ortugal

Ger

any

Greece

Hollan

Austria

ue

ourg

France

Finlan

ane

ar

Sween

Fiscal pressure in % of gross profit

A erage fiscal pressure in E

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#4 Value added tax across Europe in 1998

0%

5%

10%

15%

20%

25%

30%

uxe

ourg

Ger

any

Spain

ortugal

Holland

Greece

Austria

France

rland

Finlan

d

ane

ar

Seden

VAT in % o retail price

A erage Vat in E

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#5 Unionization rate across Europe in 1995

0

10

20

30

0

50

0

0

0

90

100

Seen

ane

ar

Finlan rla

nAustria U

ortugal

Ger

any

Hollan

Greece

Spain

France

ue

ourg

Unionization rate in ! o " # or$ ers

A % erage unionization rate in EU

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#6 French unionization rate

Evolution of the French unionization rate in of the active population

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#7 French administration structure

levels French

state

Public

establishment

Territorial

corporation

Consular

organization

Public

company

National1 president of rep.

2 parliaments

1 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 prfet

+ ministries

representatives

frequent

representation

22 regional

council

presidents

regional chamber

of commerce, ind.

and professions

operational

representation

Departmentaldepartmental prefet

+ ministries

representatives

unusual

representation

95 generalcouncil

presidents

departmentalchamber of ind.

commerce & prof.

Districtdistrict

sous-prefet

Agglomerationinter-municipal

unions and

communities

Municipality36,000 mayors

with each one

municipal council

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#8 French administration involved with Toyota

levels French

state

Public

establishment

Territorial

corporation

Consular

organization

Public

company

National1 president of rep.

2 parliaments

1 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 prfet

+ ministries

representatives

frequent

representation

22 regional

council

presidents

regional chamber

of commerce, ind.

and professions

operational

representation

Departmentaldepartmental prefet

+ ministries

representatives

unusual

representation

95 generalcouncil

presidents

departmentalchamber of ind.

commerce & prof.

Districtdistrict

sous-prefet

Agglomerationinter-municipal

unions and

communities

Municipality36,000 mayors

with each one

municipal council

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#9 Plant construction schedule

1996 1997 1998 1999 2000 2001

launch in production

early prospecting by Chamber of Commerce and Industry

1stmeeting with Toyota at Valenciennes2ndmeeting with Toyota at the Paris Motor Show

Toyota launch an official European tender for their project

beginning of the site selection process

public announcement of the selected site

site officially handed out

plant construction

labour training

machinery implementation

pre-production

M approach

N study

O selection

P preparation

Q construction & training

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#10 Plant production schedule

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#11 Zoom on the preparation phaseP

In only 9 months instead of usually 2 years France had to :

y gain 82 votes in the Community of Municipalities to agree on the project

y acquire 250 hectares of terrain with uncertain legal dispossession

procedures

y conduct urbanization and environmental authorization procedures

y pilot clearing works (archaeological search, OTAN pipeline deviation,

2ndworld war blockhaus destruction )

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

upgrading)

y carry out 8 public surveys related to the territory development planning

y 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

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#13 Importance of local infrastructures

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#14 Compact plant layout

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#15 Toyota market shares evolution

1994 1997 1999 2004 2010*

Toyota market

share in the US10 11

Toyota market

share in Japan40 45

Toyota market

share in Europe

3 5

Toyota volume

sold in Europe800,000 1,200,000

Trade regulation

across Europe

End of import

sales quotas

Production sold

in Japan 90 50

Production sold

in the US40

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#16 Communication theory in non-native language

100 100

= 100

100 50

= 50

50 50

= 25

Two people of thesame tongue speaking

their language

One different

interlocutor listening to

a native speaker

Two people speaking

in a third non-nativelanguage

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#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

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#18 Sustainable development

2001 2002 2003 2004 2005

Production launch 1stshift

600 M and +1,500 peopleProduction increase 2ndshift

+1,500 peopleNew engine assembly line

100 M and +300 peopleProduction increase 3rdshift

+500 peopleNew logistic platform

80 M and +140 peopleNew spare-part Toyota supplier

60 M and +120 peoplePress-tool capacity increase

20 M and +30 people

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#19 Typical French agreement protocol

Items specified in the agreement protocol of this project :

y amount of the total capital investment

y quantity of positions created

y targeted date of launch

y final sale price of the serviced terrain

y ending date for all related clearing & servicing works

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

authorizations

y average amount of all types of capital investment subsidy

y assistance for labour recruitment and training

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#20 Average yearly activity per person

Nb of hours worked per year / person

& 400 & 450 & 500 & 550 & ' 00 & ' 50 & 700 & 750 & ( 00 & ( 50

France

Ger)

any

Finlan0

Greece

1

u2

e)

3

ourg

Irlan0

4

ortugal

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#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 Ive 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. Lets consider gastronomy : the delicacy fortaste 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

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#22 Monochronic & polychronic cultures

Monochronic People (American)

y Do one thing at a time

y Concentrate on the job

y Take time commitments

y Low-context + need information

y Committed to the job

yAbide by the plans

y Great respect for private property

y Used to short-term relationships

Polychronic People (French)

y Do many things at once

y Manage interruptions well

y Objectives can be possibly achieved

y High-context + already have information

y Committed to people and relationships

y Chang plans often and easily

y Borrow and lend easily

y Build lifetime relationships

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