Case 1: Toyota’s Global Expansion Toyota is expanding aggressively to overtake General Motor’s first position in volume. Its goal won’t be achieved if Toyota only focusing its manufacturing plant only in Japan, because as the volume increase the demand stay still in Japan, and if Toyota exporting their product it will make their cost higher and resulting uncompetitive price. So Toyota built their manufacturing overseas by considering country’s law, agreement, demand, taxes, currency and cost of their product in each country to maintain their commitment of low cost, high quality, and just-in-time inventory.
The risks were faced by Toyota in expanding its overseas manufacturing: 1. Government policies that are incompatible with the company 2. The risk of adverse changes in exchange rates 3. Lack of control over technology which can eliminate a competitive advantage 4. The pressure of global competition 5. The difference in productivity cost and each country’s resources 6. The difference of distribution and manufacturing costs 7.
Losses and high cost due to the differences in inflation, taxes and government regulations in each country From our opinion, Toyota should consider the country’s demand, law, free trade agreement, raw material and labor cost for the next manufacturing place. Mexico would be a better choice as the labor cost is cheap and Mexico, Canada and US free trade agreement is established. As an important strategic decision, internationalization became one of the most common responses, especially when facilitated by advances in technology such as internet and global distribution systems.
However, expanding overseas entails many factors not faced by purely domestic firms. There are unfavorable macro-economic conditions, fluctuations in relative values of currencies, political instability, cultural and religious differences and different tax and accounting structure, among other factors that stated before. If the internationalization process is risky, then we need to look at the important factors that can affect management’s decision on whether the company should take the step of expanding internationally.
Major accounting issues that faced by Toyota as it expands its global reach mostly focused on the differences between the using of Japanese GAAP (JP-GAAP) and American GAAP (U. S GAAP), translation of foreign currency, budgets and performance evaluation. The Pros for using US GAAP: * Universally accepted throughout the world * Lower raw material and other cost since it’s presented in US$ where ? has been a strong relative to US$.
* Clearer revenue recognition The Cons for using US GAAP: * Lower earning since when US$ translated back into Japanese ? , the US$ has its value falls down. Lower inventories value because no reversal write down is allowed * Worse performance when its currency translated in Japanese ?. From our opinion, it is important for the company to do well in North America, because it accounts for about two-thirds of the Japanese car industry’s profits on an operating level. But because there are pros and cons about using US GAAP, still there are other benefits that consider Toyota to expand its overseas manufactures. It proves to be a great decision as Toyota has become the largest auto manufacturer in the world. It has reached its goal to take General Motors first position.