Beyond labour cost: political and strategic factors in the investment strategy of Toyota in Europe (1989-2004)

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Abstract:

Why in the first place did Toyota decide to manufacture their cars in Europe, after all, their market share back in 1989 was only of 2.2% across the European continent? Why did they establish their plants in countries like UK and France, which figure among the so-called high cost countries? And why today do they keep investing and expanding their facilities and the number of their employees in these countries while most of the European manufacturers are either scaling down their investments in their home countries or shifting their attention to East Europe or China?
Even if answering these questions implies to a certain degree making a short historical analysis of the European adventure of Toyota, my focus here will be mainly on the strategic approach in terms of investment policy implemented by Toyota to face the challenge of the European markets, and on the different factors, more or less contingent and structural, which have affected so far this strategy.
From a more general theoretical standpoint, I will try also to argue that, despite the fact that labour cost plays of course an important role in shaping investment decisions for manufacturing companies, this is not at all the only factor, and the investment policy of Toyota in Europe is a good example of the other multiple decisive dimensions which surround investment strategies.
Policy obligations, institutional strategies and social compromises, currency risks and financial stability, value chain and logistic constraints, workforce skills value and structural externalities, the list could be longer, and each of these elements has a specific weight within the architecture of each sector and within the position and strategy of each company. Therefore, our general theoretical expectation here is that we will see a variety of approaches to delocalisation and investment policy, as we have seen before for previous major strategic issues, like the need to converge to the lean production standards, the imperative of globalisation, or the pressure for mergers and alliances, and this will depend on the very particular features of the automobile sector, on the trajectories and institutional environments of each company and on their market positions and profit strategies. This paper does not have however any major theoretical ambitions, and its aim is simply to give some understanding of the investment policy of Toyota in Europe, with a particular focus on their British and French plants