Chinese Market, Japanese Company, American Methods

In the past, I posted on the China logistics frontier and how Japanese models have been used, or at least highly referenced, in the establishment of supply chains in China. However, highly global companies in particular have the opportunity to create more hybrid systems based on the best practices established in operations across the world. The need for these hybrid systems typically reflects the market variety faced in a particular country or region. As explained in my recent post on resilience, valuing variety is essential for a country to overcome the challenges of a market such as China. Repeating from that post, "extremely diverse environments require an equally diverse set of strategies and tactics towards becoming resilient; "if the range of strategic alternatives your company is exploring is significantly narrower than the breadth of change in the environment, your business is going to be a victim of turbulence.""

Thus, the logistics professional must consider whether the supply chain architectures in use for a particular market comprise of the modules best suited for resilience. In other words, can a base set of architectures from the US be implemented in whole in China? Or, should a new base set of architectures be composed from systems established worldwide? The sign of supply chain resiliency is being able to quickly recognize the right answer to the above questions.

A really excellent example of this concept is covered in this weeks Wall Street Journal via the article, "In Chinese Market, Toyota's Strategy Is Made in U.S.A.," written by journalist Norihiko Shirouzu. Toyota's position in the Chinese automotive market is relatively weak when compared with its global operations, a situation originating both in its slow start and inability to adapt to China's market conditions. But as this article points out, that is changing and I believe it can be attributed to tapping Toyota's global resilience.

Although not necessarily at the point of requiring a "turnaround," the author explains the backdrop behind Toyota's lack of success so far:

"Toyota got a late start in China. It took until 2002 for it to start building cars in a joint venture with China's First Auto Works Group. (China requires foreign companies to team up with a local company in making cars.) GM, Volkswagen AG, Honda Motor Co. and other global companies had already been manufacturing in China for years by that point. FAW-Toyota's first big offering, a family sedan called Vios, got off to a slow start. It was three times the price of Chinese rivals without offering any obvious styling or design advantages."

Having explained the "power of people" before, Toyota turned to its global portfolio of experience managers to attack its problems in China:

"To turn the performance around, Toyota called on Mr. Inaba, a 60-year-old graduate of Northwestern University's business school. He is a native of Japan but has served many stints overseas in his 38-year career at Toyota.

"The day after he took over Toyota Motor Corp.'s struggling China business last year, Yoshi Inaba decided to visit some dealers here. He learned that Chinese car salespeople earn most of their income from commissions -- just like in the U.S., but unlike in Japan.

"It planted the seed of a key insight: Toyota couldn't treat China like its home market of Japan. But it could draw on its success in the U.S., where Mr. Inaba oversaw a doubling of profits between 1999 and 2003. "I had an inkling right from the start that Japanese experience was irrelevant in China," says Mr. Inaba.

"To retool Toyota's China strategy, Mr. Inaba has called on some unlikely lieutenants: two Americans who used to work for him in California. Today, the Americans are bringing a U.S.-style dealer organization to China and helping Toyota seem less Japanese in a country with bad memories of World War II.

These Americans, Ed Ohlin and Bob Maling, quickly recognized that Toyota was trying to tackle market variety with a one-size-fits-all approach:

"One of the first things that caught Mr. Ohlin's eye at FAW-Toyota was a sometimes incoherent advertising strategy. To illustrate a sport-utility vehicle's rugged all-wheel-drive capabilities, the company was running national print advertisements showing the vehicle fighting steep stairs. The ads were fine for inland parts of China where roads are rough, and the country's snowy northeast. But they were out of place in developed southern cities.

""It was like advertising big, workhorse pickup trucks in New York City," Mr. Ohlin says.

"The root of the problem was obvious to Mr. Ohlin: FAW-Toyota didn't have regional dealer associations, which in the U.S. pool resources to plan advertising and marketing events tailored to local tastes. Toyota-FAW was handling all its advertising from its national office in Beijing. In effect, Toyota treated China, a culturally diverse continental market, as if it were Japan, an island nation the size of California where consumer tastes are relatively uniform."

The rest of the article goes on to detail the approaches and methods employed to retune Toyota's dealer networks in China, but for this post, the point is made: being able to respond to variety with variety is a trait of a resilient system. Toyota's weakpoint in this case is the speed at which it deployed its resiliency tools, suggesting that it has yet to advance far enough in the integration of best practice sharing and global benchmarking into the process of market entry. If one considers the five supply chain architectures I have discussed before, what we are really discussing here is the innovational architecture that Toyota deploys to reinvent itself when the market environment demands reinvention.

Reversely, domestic firms in China, Japan, and even the USA are facing the difficult task of becoming resilient in the face of globalization. Why? Because these firms lack the resiliency tools to respond to the variety of competition and systems being faced. These firms will respond in different ways, for example by hiring foreign nationals, adopting new management tools, and reinventing their strategies and processes. However, if unsuccessful, they will fall victim to acquisition by a firm that has the resiliency tools or simply die via bankruptcy. Even international firms unable to utilize global resources and best practices to build resiliency tools (General Motors, for example) will face difficulties.

The domestic, middle-market layer of the Japanese logistics industry is in a similar position, facing the question of how to build resiliency in a traditionally homogenous market that is rapidly being influenced by globalization's variety, or hybridization--either via changes in a client's competitive landscape or via changes in a logistics firm's own competitive landscape. Those who have the will to change and adapt will be able to weather the most adverse conditions.