Establishment of a Japanese-owned automobile company in India and construction of its production system: Principally focusing on Toyota Kirloskar Motor

Abstract

India, as well as other Asian countries, especially China and Thailand, has experienced a rapid growth in its automobile industry since the 1990s. One of the main reasons for this growth was the implementation of an economic liberalization policy that accelerated a huge amount of direct investment in India on the part multinational motor companies. These companies established 100%-owned assembly plants or joint ventures that collaborated with local business groups. In 2002, 12 motor companies, including three Japanese ones, competed for the market shares of passenger cars and multi-utility vehicles. While the total number of vehicles produced in India has gradually increased, the scale of production per company has remained small because of severe market competition. Toyota Kirloskar Motor (TKM), a joint venture created by Toyota Motor Company, Japan, with the Kirloskar Group, India, was investigated in an attempt to explain the small-scale vehicle production system of an overseas Japanese automobile plant. TKM was founded on the Bidadi Industrial Estate on the outskirts of Bangalore in 1997 and started commercial production of multi-utility vehicles in 1999. Its annual vehicle production is approximately 30,000 units, which is far fewer than those of Toyota-owned overseas plants in North America and Europe. Therefore, TKM is a suitable example for considering the above topic. TKM constructed an efficient factory to achieve cost reduction. Compared with Toyota's factory buildings in Japan, that of TKM is lower in total height and narrower in terms of aisle space. Instead of costly steel-collar robots, it utilizes manual workers in production processes like welding, painting, and body assembling. These processes are mostly automated in Japan. Some of the machinery and equipment were shifted from Toyota-owned factories in Japan or Southeast Asia to maintain a low initial investment. TKM employed an improved "just-in-time" (JIT) system to adapt to small-scale production and the local economic environment. TKM's parts suppliers are located in agglomerations of the automobile industry in Delhi, Pune, and Chennai, as well as Bangalore. TKM purchases 70% of its parts in monetary terms from Indian branches of Toyota group companies located in Bangalore. These group companies play an important role as core suppliers to TKM. TKM employs the milk run logistics system for parts delivery to perform JIT production. The milk run system has made it possible to minimize transportation costs. TKM established a transportation company responsible for transporting its auto parts. The company travels from supplier to supplier to collect parts along its routes. After arranging the parts in a long deck truck at consolidating stations in Delhi, Pune, and Chennai, the truck is driven to TKM every day. The suppliers surveyed in Bangalore are divided into the following two types. Members of the first type are Japanese owned and established as dedicated suppliers to TKM. Members of the second type are locally owned and their business with TKM comprises a small percentage of their sales. The local suppliers have many customers that vary from vehicle manufacturers to other industrial customers. In India, the business per customer is so small that suppliers need to have many business partners and networks to make a profit. Some of the Japanese suppliers tried to expand their business relations with other customers to meet the small-scale production of TKM.