General Motors Case Study
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General Motors, an American-based automotive manufacturer with a large global presence, has long held a large share of the worldwide automotive market. Despite its market position and reputation for quality, the company has recently begun to struggle with new competitors in the Asian Pacific region, which has pushed their needs to develop new manufacturing technologies, as well as to better control costs and quality in its American manufacturing facilities.
Beginning in the 1970s, several nations of the Asian Pacific region, most notably Japan and South Korea, emerged as economic powerhouses. As their manufacturing bases matured, they entered the automotive industry and began to present new challenges as well as new opportunities for General Motors. GM would need to find a successful formula for doing business in this region, as well as develop and adopt innovations that would help it improve its manufacturing operations elsewhere.
In this Case Study, we will examine the facts, the problems, identify the core problems in how General Motors has managed its business alliances in with Asian partner companies, and offer our recommendations how General Motors can best master the challenges of doing business in the East and fully benefit from its joint ventures.
I. THE FACTS
Toyota and NUMMI: In Japan, Toyota was the heavyweight of the automotive industry, controlling over fifty percent of the entire Japanese auto market, and eight percent of the total world market, making it the worlds third largest automotive manufacturer, behind only Ford and General Motors. Toyota presided over a tight confederation of companies, known as a keiretsu where a major manufacturer, such as Toyota, presides over a “pyramid” with the primary manufacturer on top, and several tiers of suppliers below. Unlike General Motors, who held seventy percent vertical integration with its global network of partnerships, alliances, and joint ventures, Toyota only had thirty percent vertical integration in its affiliations, but still managed to have many long-lasting and stable partnerships with its suppliers.
Keiretsus were vast and closely-allied corporate partnerships which evolved from the pre-World War II zaibatsus, giant industrial conglomerates that dominated the nations pre-war economy and politics, but were broken up during by the post-war United States-run Occupation authority. These networks were bound by complex and long-lasting arrangements, often minority equity ownership by the company at the top of the keiretsu. The member firms often plan strategies jointly, share information and technology, pooled resources, and in times of trouble, take on employees from each others firms. Normally, memberships in these keiretsus are long-lasting and change very little, creating high levels of trust and stability within these confederations, as well as a strong sense of common purpose.
Toyotas keiretsu is dominated by the companys well-refined production and supply system, operated almost entirely within Toyota City, a large and well-integrated complex of assembly and supplier plants in Japan. The “kanban” or “just-in-time system” is a tightly controlled distribution system which routes parts directly from suppliers to the assembly plants, as needed, reducing inventory and delivery times, as well as the storage space needed to hold excess inventory. This fast-moving supply system was famous for keeping costs and needed inventory levels low, while helping identify and eliminate distribution bottlenecks and increasing accountability among suppliers.
Toyota, in spite of its domestic dominance, had taken a conservative approach to new ideas, including overseas expansion. Typically, the manufacturer was content to allow other Japanese competitors to make the first moves with new products, as well as expanding overseas. However, in 1983, Toyota entered the U.S. market with a manufacturing partnership with General Motors. Funded with $100 million each from General Motors and Toyota, they set the joint venture up in a GM plant in Fremont, California that had been shuttered in the 1970s, New American Manufacturing Incorporated (NUMMI) would produce cars for both companies for sale in the United States.
The NUMMI operation, which barely received FTC approval in a 3-2 vote, would be governed by its own board of directors, appointed in equal numbers by GM and Toyota. Toyota would name the ventures president, CEO, and other top officers, while GM was allowed to appoint no more than sixteen executives to the plant at any given time. UAW members would staff the plants production facilities. In exchange for FTC approval, the joint venture would only be allowed to run until 1996.
General Motors had two primary reasons for entering the NUMMI venture: to gain access to a small car to help expand its marketing mix, and to learn about the famous Toyota Production System, with the goal of being able to incorporate both into their operations. Toyota had its own motive: to get around the voluntary export restraints agreed to by the Japanese government by manufacturing inside the United States. Some also speculated this venture was to enable the company, which was the last Japanese automaker to set up operation in the United States, to familiarize itself with manufacturing and doing business in the United States towards the goal of establishing a much-larger long-term presence there.
Plans called for the plant to manufacture approximately 200,000 vehicles a year, for which Toyota would supply the major components, NUMMI would provide stamping and assembly operations, and other parts and components would be supplied by United States-based suppliers. Production would start with a compact car that has been manufactured and sold by Toyota in Japan as the Sprinter, but branded in the United States as the Chevrolet Nova.
While the NUMMI plant would be operated with American labor, it would be operated with Japanese management and by Japanese management principles. Many of the first employees at the plant had visited Toyota City for extensive training in the Toyota system, incentives would be provided to encourage workers to train to handle multiple jobs, and much of the day-to-day decision-making was to be delegated to small employee-led teams. The Just-in-Time supply chain system used in Toyota City would be implemented at this facility along with Toyotas stringent quality-control standards for its suppliers.
The results of the implementation of these management practices at the NUMMI facility were mixed. GMs quality audits gave the plant very high ratings, and while some suppliers complained about the high quality