Creating the GM-Toyota Joint Venture Report
1- Report summary:
The creation of Toyota and GM’s joint venture opened the door for a constant flow of distributive bargaining between the two companies. When going into this joint venture, both companies came in with a list of problems they were currently dealing with and wanted help overcoming. They both knew that a joint venture would be mutually beneficial and could help them improve in these problem areas, which helped to set the table for the use of distributive bargaining.
Toyota appears to have benefited more than General Motors from the New United Motors Manufacturing, Inc. Toyota learned how to work effectively with the American workforce and suppliers.
It used this knowledge, and the confidence it gained, in its subsequent worldwide expansion of manufacturing facilities. It has greatly increased both worldwide market share and profits, becoming the world’s second largest automobile producer and the most profitable. It did substantially reduce trade friction resulting from automobile imports by the U.S., though some concerns remain regard international trade in parts.
Toyota production System was decision making and direct worker involvement both at the policy level and the shop floor level is an important principle. In sum, mostly the Toyota production System is a combination of intensive discipline and worker commitment.
General Motors, because of internal problems and problems beyond its control, was not able to gain as much from the joint venture. Because of image and marketing problems, it could not sell the expected number of small cars produced by NUMMI. It is not clear how well GM understands the need to improve its image, or even how it can do so. Though it did learn and apply much from the Toyota production system, it was unable to replicate the system in any existing plant. Workers and managers at existing GM plants have such a long history of confrontational relations, and such a distrust of each other, that a system based on mutual trust and cooperation apparently could not be implemented.
General Motor’s attempt to create a new company based largely on cooperation and trust had some successes. But for a variety of reasons, including scale of operations and number of models offered, style and advertising at some points, and lack of adequate support at times. It is now being changed to look somewhat more like a traditional GM division.
Even if General Motors were able to gain equality in productivity and quality with Toyota, it would still likely not be as profitable because of its relatively high costs of pensions and health benefits.
Each party tries to get the best deal for themselves and still help each other. If Toyota and GM were as willing to work together and help each other out as they seemed to be, they could help further reach their goals. Some of these benefits would help Toyota to break into the U.S. market and GM with problems with production. This in turn would help both sides to increase their slice of the pie.
The negotiations started off, when GM wanted to take the Corolla and make it into a GM vehicle. The negotiations began with unilateral concessions with GM consistently giving into and settling with Toyotas counter offers.
They also had to negotiate with UAW who represented the workers who worked at the Fremont plant which had been renovated to be the plant to build GM’s new car, the Nova. This led to the former employees of the plant to be the primary source for workers to the renovated Fremont plant but their seniority rights would not be upheld. In the end the negotiations seemed to be distributed mostly in favor of Toyota since the majority of the concessions were made in their favor. However, both companies benefited from the joint venture, demonstrating the strength in unity that comes from coalitions and bargaining.
The agreement between GM and Toyota was signed in 1984 and supplemented with a Letter of
Intent between NUMMI and the UAW. In this letter both parties agreed on developing a new and
cooperative approach to relations between the union and the management.
The new plant was established in the former GM-plant in Fremont, California. This plant was closed
in 1982 due to poor productivity, poor quality and troubled labor relations. On the whole, 6000
workers were laid off. However, the majority of the new assembly line workers, the skilled workers
and team managers were re-hired former Fremont workers.
Following comparison could throw light on the difference between the two management cultures:
Toyota management culture "New supportive system at NUMMI " | General Motors management culture "Old system at GM" |
· Team based approach · 4 job classification · Stable jobs · Emphasis on quality · Participative style · Union as partner · Equality and commonality · Flexible rules · Job security, growing employment · and trust · Joint decision. · No strikes · High quality, adoption of TQM · Growing productivity | · Individualistic approach · 100 job classification · Hire and Fire · Emphasis on quantity · Authoritarian management · Union militancy · Managerial perks and elitism · Rigid rules · Insecurity, layoff, and fear · Managerial control · Strikes · Low quality · Declining productivity |
2- Comparison between the interests of both Toyota and General Motors:
General Motor's Interests | |
· Faced export restraints on units by shipping high value-added models to the US. · Toyota could gain low-cost entry to the US auto industry with the assistance of the industry leader. · Joined a US automaker for production in the US. · Restraints in other markets were compelling Toyota to build and expand foreign production facilities · Placating the US and Japanese governments · Responding to US and Japanese competition · Building or obtaining a satisfactory plant · Determining the feasibility of US car production · Developing an internal consensus regarding US plans; · Minimizing financial costs and risk · Locating a good labor pool · Finding suppliers for high-quality, cost-effective parts. · Continued producing from its massive plant and supplier complex in Toyota City. · Japan undertaken a wholly owned investment in the US | · A replacement for the aging sub-compact Chevette. · Produce high-quality, low cost subcompact · Responding to Japanese and US subcompact competition. · Minimizing and time development costs · Responding to union complaints about layoffs · Meeting fuel standards to protect profitable large cars. · Developing a broad, organizational commitment to the project. · Lowering the $1500-$2000 per car Japanese cost advantage (innovating in production and in the workplace). · Attracting customers back to GM products. · Through collaboration GM could learn production and management techniques. · GM too could benefit from "side-effects" such as learning more about its competitor and delaying Toyota's move to produce and to sell without restraints in the US. |
3- Analyzing and comparing the pre-negotiations preparations of both parties:
Although basic differences in company concepts, culture, historical perspective, and regional affairs cannot be bridged overnight, creating new procedures, rules, thought processes, etc., to apply the Japanese system is feasible. Regardless of how the transformation is accomplished, it should not be forced on the other country.
On the contrary, the approach should be mutually agreed upon and
planned by both countries. We can find this cooperative attitude in action at the NUMMI plant.
Toyota and GM agreed to make the union in the form of joint venture and any other obstacles can through easily by careful planning and seen the potential benefits for both companies.
Toyota pre-negotiations preparations:
- Toyota prepared for the negotiations by contraction with Japanese consulting firm, Nomura Research Institute, and two American firms, SRI International and Arthur D. Little, to study the feasibility of manufacturing in the US.
- Nomura Research Institute advised against a move to the US while the two American studies supported it.
- Eiji Toyoda, the President of Toyota Motor Company, and others supporting the move thus had to negotiate internally as well as externally before and during the joint venture negotiations.
- Eiji Toyoda assembled a five-person project team consisting of representatives from production technology, finance, legal affairs, and overseas projects. Toshio Morita, Executive Vice-President of Production Technology, led the team.
- Toyota's planning concentrated on the general relationship with GM;
- One document, a draft memorandum of understanding for the joint venture, served as the centerpiece for those and subsequent internal efforts.
- Toyota hired three American law firms. Their advice and "compatibility" with the company were assessed over several months. Toyota then narrowed its choice to Arent, Fox, Kintner, Plotkin, and Kahn, a prominent firm in Washington, DC among whose partners was a former FTC chairman.
GM pre-negotiations preparations:
- GM's preparations were also "very thorough" and "well-organized" .
- Roger Smith, went to Japan with Jay Chai to research Toyota's projects intensively.
- After his return GM concentrated on Toyota's Corolla, and the two Smiths, with some ideas perhaps from reports of the Toyota-Ford experience, outlined a proposal for joint production in the US."
- a marketing group was put together to study the demand for a joint venture car.
- A design group looked into ways to differentiate a joint venture car from the common Corolla.
- A cost study for the venture was also undertaken.
- a number of mid-level managers, operations people and even executives resisted this plan.
- GM continued to consult Chai on strategic and cultural matters since he knew the industry, the ways of Japanese business, and the Japanese language.
- For antitrust concerns, GM employed an outside law firm, Jones, Day, Reavis, and Pogue in Cleveland, Ohio and an outside economist along with several antitrust lawyers within the company.
- The company also arranged to monitor carefully all negotiations with Toyota to ensure that parties avoided areas sensitive to the FTC.
4-My Comments on the outcome of the negotiations:
- Both GM and Toyota stand to gain substantially from the proposed joint venture. Through the GM connection, Toyota would acquire almost instant access to the U.S. market free from import quotas. For its part, GM will obtain entry into a modern front wheel-drive facility in the highly competitive subcompact field, in which it has, to date, failed to compete successfully.
- The Japanese management system can be adapted to include American concepts.
- A new management system could be created that would combine the technology of both countries. I.e., the Japanese Kanban system has been connected to the American concept.
- The employment effects anticipated by the parties to the venture indicate that the plant probably will be highly automated and used to produce parts that can be done using mass production methods for final assembly. GM officials have estimated that the venture will provide approximately 3,000 jobs at the Fremont plant.
- On the negative side, the results provide evidence that the proposed venture "generates findings of threshold antitrust risk."
- the venture could be viewed as providing the potential for a reduction of competition in the subcompact market with associated adverse effects on consumer welfare.
- a stamping plant would be constructed adjacent to the existing Fremont assembly plant
- the venture would price its cars on a market-basket standard
- Toyota would receive a "reasonable royalty" for the license to manufacture the car
- the agreement was contingent on the creation of an "acceptable employee relations structure"
- The agreement did not prevent GM from establishing similar relationships with other companies and gave Toyota the opportunity to produce vehicles for itself at the new plant.
- Without additional investment, GM created jobs for its laid-off workers, and gained access to a working model of the Toyota production system.
- Toyota established a foothold from which to compete with Nissan and Honda (its Japanese forerunners in the US auto industry) at a 50% savings, and gained access to the most extensive auto parts supplier network in the US.
- GM showed that Toyota to operational control of the venture for creating accurate model of Toyota production system and most components were from japan.
- The outcome of the joint venture: GM's fortunes had clearly improved; Net sales and net income topped all four previous years. Toyota's net income rose 52% in dollars.
- Toyota had very serious reservations about labor relations, cost and quality in the USA. The reputation of GM- Fremont workers did not alleviate these concerns.
- Development in delivery system for American parts was created and they set up a central supply point in Chicago and arranged for daily rail shipments to Fremont. And Japanese supplies could be shipped right into the Port of Oakland.
5- Lessons learned from this case:
About joint venture:
- A joint venture is a means of transfer of technology and management principles.
- A joint venture may be the best means for obtaining entry into an industry or geographic market where capital requirements are excessively high.
- A joint venture spreads the risk among the partners thus helping to reduce a major barrier to entry.
- A joint venture may permit the new firms interested in performing a given function to join together and not only safeguard whatever legitimate economic interest is involved but may do so efficiently as well.
For successful complex negotiations like international joint venture should have the following points:
- The importance of careful planning and monitoring.
- Interests and options should be identified and evaluated for all parts.
- Assessment must continue through the negotiations
- the activities of negotiators during the negotiating process may call for reevaluations of anticipated benefits and costs.
- the importance of top-level support in negotiation success.
- the commitment of both sides of negotiators.
- the "highly motivated" core group of negotiators
- Moderate executive intervention may be most effective at major impasses.
- Leadership among the more involved negotiators is important.
- outside experts may be especially helpful for different negotiating styles
- Break very large agendas into manageable issue clusters.
- the main negotiating can feed with different working groups and also Individuals can accomplish a great deal in formal and informal one-on-one meetings.
- key players should refer regularly to the basic relationship being sought and to the potential benefits of the companies.
Key factors in Japanese management system were:
- developing cooperative management-labor relations.
- careful selection and extensive training of workers.
- stressing teamwork and responsibility of the individual to the work group.
- putting safety and quality first, assigning the responsibility for safety and quality to each worker, and giving them the authority to assure it.
- implementing ‘lean production system’.
