Toyota — Turning Its Back on Japanese Mills to Reduce Costs

As we all know, Japan is probably the closest-knit business society in the world. The relationships built within trading companies often go back generations. But Japan is also a modern culture and its businesses know when they must put local relationships on hold in the spirit of building better products and meeting the needs of shareholders and customers alike. Perhaps this is why, according to Torbjörn Thorsen over on the Purchasing Transformation blog, Toyota recently decided to source steal from Korea. In his post, Torbjörn quotes the London Times that "after posting their first annual loss in 70 years, Toyota is about to break another (previously airtight) boundary by sourcing steel from Korea...Brokers described the gambit, which plays heavily on the current strength of the yen versus the Korean won, as a 'scene-shifting' moment for corporate Japan and the cosy lattice of domestic-only relationships that date back many decades."

In the past, "only Japanese steel" was "seen as good enough for a Japanese car," Thorsten quotes. Statements like this are protectionist bunk whether they come from Pittsburgh or Tokyo. But getting past stereotypes and customs in such a close-knit society takes time. Still, I suspect it will happen fast, both as the recession takes hold and as OEMs from developing markets continue to improve their products. As a related aside, I recently had the chance to ride in Hyundai's new luxury sedan, which the critics argue hands-down beats similarly priced models from Infiniti, Lexus, BMW and Mercedes. Even though I've not driven competitive products recently, I can say that riding in the Hyundai was a transformative experience. This makes me believe that as companies further up the Korean, Chinese, and Indian value chains -- not to mention manufacturers in other developing markets -- begin to hand incumbent, global branded manufacturers their lunch with cheaper, high quality products like the Hyundai, Toyota will be even more glad it finally stopped giving higher-cost, local suppliers business based solely on existing relationships and customs. In a global economy, where the best product wins, there's no place for sourcing nepotism.

- Jason Busch

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