Harvard Case - Toyota and Its Labor Union in Argentina (A)
"Toyota and Its Labor Union in Argentina (A)" Harvard business case study is written by Jorge Tamayo, Erik Snowberg, Jenyfeer Martinez Buitrago. It deals with the challenges in the field of Strategy. The case study is 29 page(s) long and it was first published on : Jan 20, 2021
At Fern Fort University, we recommend Toyota Argentina adopt a multi-pronged strategy to address the challenges presented by the strong labor union presence and evolving global automotive landscape. This strategy focuses on building a collaborative relationship with the union, driving innovation and efficiency through technology and process improvements, and adapting to the changing market demands through product diversification and strategic partnerships.
2. Background
This case study examines the complex relationship between Toyota Argentina and its powerful labor union, SUTIA. The company faces challenges in maintaining profitability and competitiveness due to high labor costs, rigid work rules, and a changing global automotive market. The main protagonists are Toyota Argentina's management team, led by CEO Daniel Herrero, and the SUTIA leadership, represented by its Secretary General, Oscar De Battista.
3. Analysis of the Case Study
Strategic Analysis:
- Porter's Five Forces: The automotive industry in Argentina is characterized by high bargaining power of buyers (due to limited choices and price sensitivity), moderate bargaining power of suppliers (due to local sourcing), high threat of new entrants (due to government incentives), high threat of substitutes (due to the availability of cheaper alternatives), and moderate rivalry among existing competitors (due to the limited market size).
- SWOT Analysis:
- Strengths: Toyota's strong brand reputation, established manufacturing infrastructure, and skilled workforce.
- Weaknesses: High labor costs, inflexible work rules, and limited product portfolio.
- Opportunities: Growing demand for SUVs and pickups, potential for export markets, and government incentives for electric vehicle production.
- Threats: Economic instability, competition from global players, and changing customer preferences.
- Value Chain Analysis: Toyota Argentina's value chain is characterized by a strong focus on manufacturing, with limited involvement in design and marketing. The company needs to expand its value chain to include more upstream and downstream activities to enhance its competitiveness.
- Business Model Innovation: Toyota can explore new business models such as subscription services or shared mobility to cater to the evolving needs of customers.
Financial Analysis:
- Profitability: Toyota Argentina's profitability is under pressure due to high labor costs and limited scale. The company needs to improve its operational efficiency and explore cost-saving measures.
- Investment: Toyota Argentina needs to invest in new technologies and product development to stay competitive in the long term.
Marketing Analysis:
- Market Segmentation: The company needs to identify new market segments and develop targeted marketing campaigns to reach a wider customer base.
- Brand Management: Toyota Argentina needs to strengthen its brand image and differentiate its products in the local market.
Operational Analysis:
- Manufacturing Processes: Toyota Argentina needs to optimize its manufacturing processes by implementing lean manufacturing principles and automation technologies.
- Supply Chain Management: The company needs to strengthen its supply chain by diversifying its suppliers and improving its logistics operations.
4. Recommendations
1. Build a Collaborative Relationship with the Union:
- Open Communication: Establish a regular dialogue with SUTIA leaders to understand their concerns and explore mutually beneficial solutions.
- Joint Training and Development: Invest in joint training programs for workers to improve their skills and enhance their productivity.
- Profit-Sharing Schemes: Introduce profit-sharing schemes to align the interests of workers with the company's success.
2. Drive Innovation and Efficiency:
- Technology Adoption: Implement advanced manufacturing technologies such as robotics, AI, and data analytics to improve efficiency and reduce labor costs.
- Process Optimization: Implement lean manufacturing principles and continuous improvement programs to streamline operations and reduce waste.
- Product Development: Invest in new product development to cater to emerging market trends and expand the company's product portfolio.
3. Adapt to Changing Market Demands:
- Product Diversification: Introduce new vehicle models such as SUVs, pickups, and electric vehicles to cater to evolving customer preferences.
- Strategic Partnerships: Explore strategic partnerships with other companies in the automotive industry to leverage their expertise and expand into new markets.
- Export Expansion: Develop a robust export strategy to access new markets and mitigate the risks of the domestic market.
5. Basis of Recommendations
Core Competencies and Mission: These recommendations are aligned with Toyota's core competencies in manufacturing and engineering, as well as its mission to provide high-quality vehicles that meet customer needs.
External Customers and Internal Clients: The recommendations address the needs of both external customers (through product diversification and innovation) and internal clients (through improved working conditions and career development opportunities).
Competitors: The recommendations aim to enhance Toyota Argentina's competitiveness by addressing its weaknesses and leveraging its strengths in relation to its competitors.
Attractiveness: The recommendations are expected to improve Toyota Argentina's profitability and market share, leading to increased value creation for all stakeholders.
Assumptions: These recommendations are based on the assumption that Toyota Argentina can secure the necessary resources and expertise to implement these initiatives.
6. Conclusion
By embracing a collaborative approach with the union, driving innovation and efficiency, and adapting to the changing market demands, Toyota Argentina can overcome its current challenges and achieve sustainable growth in the long term. This strategy will enable the company to maintain its competitive advantage in the Argentinian automotive market and expand its presence in the global market.
7. Discussion
Alternatives:
- Outsourcing: Outsourcing some manufacturing operations could reduce labor costs but could also lead to quality control issues and potential job losses.
- Relocation: Relocating production to a country with lower labor costs could be a cost-effective solution but would require significant investment and could face political and social challenges.
Risks:
- Union Resistance: The union may resist changes to work rules and labor agreements, leading to potential strikes and disruptions.
- Technological Challenges: Implementing new technologies may require significant investment and expertise, and may face challenges in adapting to the local context.
- Market Volatility: The Argentinian automotive market is subject to economic instability and fluctuating demand, which could impact the success of the strategy.
Key Assumptions:
- The government will continue to support the automotive industry with incentives and policies.
- Toyota Argentina will be able to secure the necessary resources and expertise to implement the recommended initiatives.
- The union will be willing to engage in constructive dialogue and collaborate on finding mutually beneficial solutions.
8. Next Steps
- Develop a detailed implementation plan outlining the specific steps, timelines, and resources required for each initiative.
- Establish a dedicated team to oversee the implementation of the strategy and monitor its progress.
- Engage in ongoing communication with the union to ensure transparency and build trust.
- Continuously evaluate and adapt the strategy based on market conditions and feedback from stakeholders.
By taking these steps, Toyota Argentina can position itself for success in the challenging but dynamic automotive market.
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Case Description
In 2011, Daniel Herrero, CEO of Toyota Argentina (TASA) since 2010, was about to meet with the Secretary-General of the union representing automotive industry workers in the country. The company produced vehicles in Argentina since 1997 at their plant at Zárate, and, in 2005, Argentina became one of the four countries selected by Toyota Motor Corporation to assemble models using the Innovative Multipurpose Vehicle (IMV) platform. However, Toyota's manufacturing plant in Zárate (Argentina) had been performing poorly compared to similar plants, affecting its competitiveness, and TASA's management held the union responsible for most of the plant's inefficiencies. Anything was possible as a result of the meeting, from shutting down production at TASA and focusing on their distribution business, to complete capitulation to all the union's demands.
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