Annual Report 2012

Special Feature:Toyota's Efforts in Emerging Markets

Aiming at Making Ever-Better Cars through New Strategies

We will conduct business that is strongly rooted in the countries in which we operate by adapting to local needs and pushing for 100% localization.

Toyota’s emerging market sales ratio reached 45% in 2011, an increase of 10% in the three years since we achieved 35% in 2008. The Toyota Global Vision calls for an emerging-market sales ratio of 50% by 2015, and we are striving to hit this target ahead of schedule by strengthening our global supply system in emerging markets and increasing localization, with Asia as an important base. In addition, we will actively release compact vehicles specifically designed for emerging markets.

Aiming at Making Ever-Better Cars through New Strategies

Toyota Vehicle Sales

Toyota's History in Emerging Markets

Toyota's Basic Global Expansion Policy

Toyota's basic philosophy on operations in emerging markets is to be contributive to the development and welfare of the country. This philosophy calls on us to contribute through the auto industry to the development of the economy, employment, transportation infrastructure, etc., of the countries in which we operate by cultivating and developing the supporting industries and engaging in operations that are based locally.

When Toyota sets up operations in a country we become a corporate citizen there, and through the auto industry we contribute to society via foundation activities, environmental conservation, and human resources training. We emphasize dialogue with local communities for sustainable growth in every country in which we do business.

Toyota's History in Emerging Markets

Relationship and activities associated with ASEAN

Toyota has a long history of efforts in emerging markets, particularly in the ASEAN nations, where we have been promoting exports and local production since the 1960s.

Period of Foundation
Preparing the automobile industry infrastructure and finding/growing suppliers

From 1970 through 1990 was a period of foundation in which we sought to deliver vehicles that would please local consumers. We introduced the Tamaraw in the Philippines in 1976, and the following year brought the Kijang to Indonesia. The Philippines and Indonesia are places where families tend to be large, so it was necessary to provide dual-use vehicles that could be used for business and family transport. Unpaved roads were common, so vantype multi-purpose vehicles were favored. We opted to make bodies by bending and welding sheet rather than importing stamping equipment, so as to make less expensive vehicles. We cultivated staff and suppliers and developed new products locally. Our goal was to prepare infrastructure for the auto industry, and find and develop local suppliers.

Period of Growth
Growing the parts-supply industry through mutual complementation of production

During the growth period of 1990 through 2000, the ASEAN countries were transitioning from country-based production to mutually complementary regional production, due to the gradual materialization of the ASEAN Free Trade Agreement as well as the difficulties in achieving mass production and cost reduction at the singlecountry-market scale. The Memorandum of Understanding on Brand-to-Brand Complementation on the Automotive Industry and other tariff exemptions on parts provided the impetus for each country to mass produce parts in its area of expertise, making for efficient plant investment through expansion of scale and volume efficiency and leading to the growth of the parts-supply industry.

Development Period
Overcoming the currency crisis and moving toward global production

The Asian currency crisis of 1997 that took place amidst these developments was a direct blow to ASEAN and had a great impact on the automobile market, but that experience provided the foundation for the later development of the IMV Project and other global vehicles. The volume of parts imported from Japan was broadly cut in response to the collapse of the ASEAN currencies, with a concurrent rise in the ratio of local procurement and the establishment of an export structure that exploited low-priced currencies. Quality was also improved to bolster exports, and cost-reduction efforts were made. The cooperation and support of governments and local communities, as well as the strengthening of aftersales service and the parts business, enabled the creation of a profitable structure without impacting sales. This ushered in the development period from 2000 through 2010, during which the foundation of the Asian auto industry grew markedly.

Progress of the Automotive Industry in the ASEAN Emerging Markets

The Shift to Emerging Markets and Toyota's Strategy
Making Cars that Meet National and Local Needs

Expanding Production in Emerging Markets - 3.1 million vehicles by 2013

Toyota's overseas business has evolved through three stages, from making in Japan and exporting, to producing in regions where demand exists and then to the current stage whereby Toyota has an efficient global production and supply.

Global production and supply are supported in the emerging markets, where we have been increasing investment so as to boost production capacity. We began production of the Fortuna in India in 2009, followed by the diesel Corolla and the Etios in 2010, and expanded investment in factories accordingly. In Brazil, production of the Corolla FFV began in 2007, and sales have steadily increased since then. We plan to start production at a new compact vehicle plant in Brazil in the latter half of 2012.

As a result of such efforts, production capacity in emerging markets is forecast to reach approximately 3.1 million vehicles in 2013, which is the same level as that in Japan and represents a great increase over the 540,000 vehicles output in 2000.

Production Capacity Expansion in Emerging Markets

Sales Strategies in Emerging Markets - The IMV* Project

The IMV Project constitutes an important sales strategy in emerging markets. Launched in 2004, the IMV series consists of five vehicles̶three pickup trucks, a minivan and an SUV̶specially developed in 2004 for introduction in over 140 countries. Currently, the IMV series is manufactured in 11 locations, with sales of locally manufactured vehicles underway in approximately 170 countries. Toyota applied the genchi genbutsu (onsite, hands-on experience) approach to observing and analyzing the kinds of vehicles used in various parts of the world, and developed and introduced IMVs to meet the needs of each region. Thorough aftersales service programs for IMVs have gained the trust of customers around the world.

The scale of the market will continue to grow, and Toyota plans to increase capacity in Thailand, where the auto parts supply industry is concentrated, as the global supply base. Increases in new investment to strengthen other supply bases, including Indonesia, and sequential production bases, are planned.

IMV Series Annual Sales Volume

IMV Series Vehicle Sales by Region

IMV's Global Supply Structure

*

IMV stands for" Innovative International Multipurpose Vehicle". The name is based on our intention to create multipurpose vehicles that will meet the needs of consumers worldwide.

Strengths of the IMV Project

The aims of the IMV Project are product appeal, low cost and efficiency, followed by exchange-rate-fluctuation response capability. Toyota aims to enhance product value by developing specialized models optimized to the tastes and environments of consumers in emerging markets. We have also sought to reduce costs and gain efficiency by consolidating production, transitioning from smallscale production at 11 companies to large-scale production at four global supply bases. We are coping with the ever-strengthening yen by creating a structure that maximizes local procurement.

The IMV Project is currently accelerating the process of globalizing production and supply. Among the four global supply bases, Thailand serves as the base for Asia, with the other global sites handling exports throughout the rest of the world, such as to Oceania, Europe, the Middle East, and Central/South America, developing into centralized bases. Localized procurement is also evolving, so that parts procurement is not handled within individual countries, but rather through a globally optimized procurement structure for parts.

Asia makes up half of the sales of the IMV series, but sales in the Middle East, Africa, and Central/South America are also solid, with sales structures based on locally made core models. Production capacity recovered comparatively quickly amidst the supply shortages caused by the Japan Earthquake and Thailand floods in 2011, with the number of vehicles sold increasing greatly. As a result, sales improved from 460,000 in 2005 in the immediate aftermath of the IMV Project launch to 770,000 in 2011, and with markets predicted to grow from 2012 on, sales are also expected to increase.

Hilux
From basic to luxury models for personal or business use

Fortuna
This high-end SUV garners much attention from consumers in the Middle East and India

Innova
Popular with big families in India and Indonesia, as well as taxi companies

Future Efforts in Emerging Markets
1) New Strategies for Growing Emerging Markets

A Second Home in Asia

Toyota’s basic attitude toward our efforts in emerging markets henceforth can be summed up as "Asia is our second mother base." What this means in practical terms is that we will follow on from the IMV Project by strengthening our production and supply bases for compact vehicles in Asia, move toward thorough localized procurement, and ensure and enhance our cost competitiveness.

Direction of Future Efforts

Direction of Future Efforts

New Compact Vehicle Strategy

The automobile market in emerging markets is growing each year in tandem with the economic growth of each country. Within those markets, there has been marked growth in the sales of compact vehicles, so Toyota is promoting a new compact vehicle strategy that emphasizes the compact vehicle lineup and seeks to meet the needs of consumers in emerging markets.

Efforts we are making include the launch of eight compact vehicle models specifically designed for emerging markets, starting with the Etios in India in December 2012. There are plans to produce compact vehicles in emerging markets and deliver a total of more than 1 million vehicles a year to customers in over 100 countries. Delivery of the compact Etios sedan and Etios Liva hatchback models to South Africa via Toyota Kirloskar Motors (TKM) of India began in April 2012.


April 2012: Ceremony for launch of Etios exports from India to South Africa

Localization Initiatives

Toyota believes that ensuring cost competitiveness by achieving thorough localization is necessary to making further progress in intra- and extraregional exports. We therefore are maximizing local R&D functions, and seek to achieve local/ regional procurement rates of 100% at the earliest possible stage.

Local Content Rate (IMV)

Local Content Rate (IMV)

Future Efforts in Emerging Markets
2) Future Efforts in Each Market

Russia

Russia is among the markets with the greatest potential, not only in Europe, but in the world. Toyota has gained experience and acclaim from Russian customers for our core models, such as the Camry and Land Cruiser Prado, and we are making steady progress in localization. We plan to contribute to the growth of the Russian auto industry by increasing production of the Camry by Toyota Motors Manufacturing Russia (TMMR), and also by starting local assembly of the Land Cruiser Prado in the Russian far east city of Vladivostok at the end of this year.

Russia

Africa

Africa, where economies and populations are steadily growing, is seen as a market that will continue to grow. From our base in the Republic of South Africa, Toyota is looking into building a vehicle supply system that can meet the special characteristics of each African nation. We aim to open and penetrate new markets through sales measures closely aligned to each region. Also, in April 2012, we started contract assembly production of the Fortuna IMV model in Egypt.

Africa

India

India’s auto market is expected to keep pace with India's growing economy. Toyota will continue to develop products that meet the needs of the region's growing consumer base, as we did with the Etios. In addition, TKM established the Toyota Technical Training Institute in 2007 with the goal of providing specialized technical training for manufacturing, and we intend to continue to engage in human resources development and job creation so as to contribute to the development of the Indian economy.

India

Asia

Toyota's definition of "Asia" (for business purposes) does not include China, India, Pakistan, Bangladesh and Japan. In 2012, this market is expected to recover from the impact of the Thailand floods, with demand rising above that of 2011. This market is expected to grow in tandem with the expansion of the regional economy in the medium- to longterm, and we are aiming to increase sales from the current 1.6 million-1.7 million annually to 2 million in the future. Hitting that target will require an expansion in production facilities in Thailand, Indonesia and elsewhere.

Asia

Asia

Brazil

We have established a new plant in Sorocaba, in the state of São Paulo, Brazil, and beginning in the second half of 2012, we will produce and sell the Etios, a new compact model. In the future we will offer products that meet the needs of a broad array of consumers. Our goal is to steadily expand and cultivate the Brazilian market through corporate activities deeply rooted in the region, such as localized production.

Brazil