Roles of Japanese Assemblers in Transferring Roles of Japanese Assemblers in Transferring Engineering and Production Management Engineering and Production Management Capabilities Technology: A case of ToyotaCapabilities Technology: A case of Toyota

Kriengkrai TechakanontKriengkrai TechakanontFaculty of Economics, Thammasat UniversityFaculty of Economics, Thammasat University

17 December 200717 December 2007

Why?Why?

MNCs MNCs view their global production as a view their global production as a network or GPNnetwork or GPN

Lack of understanding of the impacts Lack of understanding of the impacts of being a global production network of being a global production network on technology transfer on technology transfer

GPN will create new opportunities for GPN will create new opportunities for host economies to upgrade their host economies to upgrade their industrial sectors and promote industrial sectors and promote technological capabilities technological capabilities

Aims of this researchAims of this research

1.1. To study the roles of automobile To study the roles of automobile assemblers in promoting assemblers in promoting Thailand as part of GPN and in Thailand as part of GPN and in transferring technologytransferring technology

2.2. To draw lessons for local parts To draw lessons for local parts firms and policy firms and policy recommendations for policy recommendations for policy makers to promote the industrymakers to promote the industry

Thailand’s Automobile IndustryThailand’s Automobile Industry

The government had specific and clear The government had specific and clear goal to promote the industrygoal to promote the industry

Reliance on foreign firms to promote Reliance on foreign firms to promote supporting industries supporting industries

Relatively short historical developmentRelatively short historical development

Export orientation industryExport orientation industry

Integrated into part of global production Integrated into part of global production network of many firmsnetwork of many firms

Thai Automobile IndustryThai Automobile Industry

589,126682,693

1,176,840

158,130

539,206

14,0200

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1961 1971 1981 1985 1991 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Sales Production Export

Production capacity was 1.57 mil.units in 2006

1997 1998 1999 2000 2002 2004 2005Mitsubishi Motor 40,072 63,797 60,986 63,541 75,581 88,033 88,152

GM - - - 6,283 33,276 45,248 83,836

AAT - 1,213 42,785 49,977 47,333 73,842 77,551

Toyota 1,563 1,819 12,151 16,031 11,882 52,682 151,824

Honda 570 2,910 6,361 6,183 10,371 44,564 45,216Isuzu - 20 516 5,689 1,348 26,954 42,938

Nissan - - 1,912 4,590 555 301 829Others - 48 380 541 n.a. n.a. n.a.Total 42,205 69,807 125,091 152,835 180,553 332,053 440,715

Car exports by brand (1997-2005)Car exports by brand (1997-2005)

CompanyYear of announcement

to use Thailand as export baseAnnual productioncapacity (units)

Export in 2005 Main export market

Toyota 2002 450,000 151,824 Asia, Australia, New Zealand, Ocenea

Mitsubishi 1990s 208,000 88,152 EU, Africa, Middle East

Auto Alliance (Ford & Mazda)

1996 155,000 77,551 EU , Australia, New Zealand, Ocenea

Isuzu 200,000 42,938 Middle East and EU

GM 160,000 83,836 Australia, New Zealand, and Asia2001

Production and Export in 2005Production and Export in 2005

Data collection (2005-2006)Data collection (2005-2006)

Visits assemblers (in Japan and Visits assemblers (in Japan and Thailand)Thailand)

In-depth interview with Toyota staff in In-depth interview with Toyota staff in Thailand and JapanThailand and Japan

Visits part suppliersVisits part suppliers

Technology Transfer as a Technology Transfer as a Knowledge Conversion Process Knowledge Conversion Process

(Nonaka and Takeuchi 1995, McKelvey 1998)(Nonaka and Takeuchi 1995, McKelvey 1998)

Codified and tacit knowledge

of the Technology

owner

Codified and tacit

knowledge of the

Technology recipient

Internalization of knowledge

by the recipient

TransferorTransferor RecipientRecipient

Model of Knowledge ConversionModel of Knowledge Conversion

Nonaka and Takeuchi (1995) proposed Nonaka and Takeuchi (1995) proposed SECISECI model model to analyze knowledge creation processto analyze knowledge creation process– SocializationSocialization (Tacit-to-Tacit) : Share of tacit knowledge (Tacit-to-Tacit) : Share of tacit knowledge

among individuals among individuals – ExternalizationExternalization (Tacit-to-Explicit) : Articulation of tacit (Tacit-to-Explicit) : Articulation of tacit

knowledge to explicit format knowledge to explicit format – CombinationCombination (Explicit-to-Explicit) : Combining of discrete (Explicit-to-Explicit) : Combining of discrete

pieces of explicit knowledge to make a new whole pieces of explicit knowledge to make a new whole – InternalizationInternalization (Explicit-to-Tacit) : Internalization of new (Explicit-to-Tacit) : Internalization of new

explicit knowledge into individual tacit knowledge explicit knowledge into individual tacit knowledge

Intra-firm Technology Transfer and Intra-firm Technology Transfer and Knowledge Conversion Knowledge Conversion

Headquarter (Assembler in Japan)

Explicit knowledge

-Machines -Product and process design -Part specification -Working instruction -Quality control and standard-Written documents

Tacit knowledge

-Skill of engineering personnel -Skill of managerial personnel -Embedded production and management systems -Organizational culture-Other tacit elements

Affiliate (Assembler in Thailand)

Explicit knowledge

-Machines-Localized product and process design-Localized working instruction and working standard Quality control and standard-Written documents

Tacit knowledge

-Skill of engineering personnel-Wkill of managerial personnel-Production and management systems-Organizational culture-Other tacit elements

Combination

Socialization

Internal Internalization and Externalization

Automobile assemblersExplicit knowledge

Explicit Knowledge

Tacit knowledge

Tacit Knowledge

Local suppliers

Explicit knowledge

Explicit Knowledge

Tacit knowledge

Tacit KnowledgeInternal internalization and externalization

Absorptive Capacity

Intensity of effort Knowledge base

SocializationCombination

Exter

naliz

ation Internalization

Internal CombinationInternal Socialization

Inter-firm Technology Transfer and Inter-firm Technology Transfer and Local Capability Formation Local Capability Formation

IMV projectIMV project

Country Production model Start of production Annual production capacity Export market

Pickup trucks August 2004 350,000 (in 2007) EU, Asia, Oceania, Middle East,

SUV November 2004 (152,000 export) and others.

100,000 Asia and Middle East

(12,000 export)

120,000 (in 2007) Regions including Europe and Africa

(60,000 export)

65,000 Central and South America

(45,000 export)

South Africa April 2005

Argentina February 2005

Pickup trucks/SUV

Pickup trucks/SUV

Thai

Indonesia Minivan September 2004

Stages of Toyota’s Global Stages of Toyota’s Global Production Production

Toyota’s Production and Supply Network (IMV project)

Process Stages Individual processes Before 2002

2002 onwards

Concept generation J J Product Planning J J Product Engineering J J/T

Product Development

Engineering change for local specification

J J/T

Process engineering J/T T In-house production management T T

Production stage Supplier management T T

Processes that are Likely to be Processes that are Likely to be Transferred to ThailandTransferred to Thailand

Source: Adapted from Mori (2002); Fig. 2, pp. 33, and from interviews with manufacturers.

Toyota’s RolesToyota’s Roles

Necessity: Necessity: – Competition in the world marketCompetition in the world market– Advance in IT and computer technologyAdvance in IT and computer technology– Pressure to shorten time-to-marketPressure to shorten time-to-market

Toyota tries to promoteToyota tries to promote– More efficient product development More efficient product development – More efficient production managementMore efficient production management

Technology transfer is necessaryTechnology transfer is necessary

Toyota’s roles in transferring…Toyota’s roles in transferring…

Product engineering and design technologyProduct engineering and design technology– Establishment of TTCAP-THEstablishment of TTCAP-TH– Investment 2,700 m.bahtInvestment 2,700 m.baht– Train engineers in Japan (more than 200 Train engineers in Japan (more than 200

persons) through “Inter-Company Transfer” persons) through “Inter-Company Transfer” (ICT) Program(ICT) Program

– Technology : Toyota Development System Technology : Toyota Development System (TDS), V-Comm (Virtual & Visual (TDS), V-Comm (Virtual & Visual Communication), digital mock-upCommunication), digital mock-up

Toyota’s roles in transferring…Toyota’s roles in transferring…

Process engineering and manufacturing Process engineering and manufacturing technologytechnology– Train local staff in JapanTrain local staff in Japan– Dispatch Japanese expert to ThailandDispatch Japanese expert to Thailand

Establishment of Global Production CenterEstablishment of Global Production Center– Visual manualVisual manual– Lower training costLower training cost– Lower technical support to overseas plantLower technical support to overseas plant

Establishment of AP-GPC in August 2006Establishment of AP-GPC in August 2006Establishment of TMAP-EM in April 2007Establishment of TMAP-EM in April 2007

Visual Manual

Training steps

Target of GPCTarget of GPC

Toyota’s roles in transferring Toyota’s roles in transferring technologytechnology

Management technology (Toyota Production Management technology (Toyota Production System: TPS)System: TPS)Establishment of “Toyota Academy” in 2004Establishment of “Toyota Academy” in 2004– In-house training (production skills)In-house training (production skills)– Train suppliers, dealers, and affiliates (conceptual and Train suppliers, dealers, and affiliates (conceptual and

managerial skills)managerial skills)

Diffuse TPS concept to suppliers through “Toyota Diffuse TPS concept to suppliers through “Toyota Cooperation Club”Cooperation Club”Key Successes of Knowledge-sharing NetworkKey Successes of Knowledge-sharing Network – (1) motivate members to participate and openly share (1) motivate members to participate and openly share

knowledge (2) prevent free rider problem (3) efficiently knowledge (2) prevent free rider problem (3) efficiently transfer knowledge. transfer knowledge.

Toyota’s roles in transferring…Toyota’s roles in transferring…

Production management technology to Production management technology to supplierssuppliers– Toyota Cooperation ClubToyota Cooperation Club– TPS ActivityTPS Activity– Jishuken activityJishuken activity

Set up a “TPS Promotion Team”Set up a “TPS Promotion Team”– Provide consultant service to suppliersProvide consultant service to suppliers– Rove experts to suppliersRove experts to suppliers

Knowledge-sharing Network in Quality Assurance Knowledge-sharing Network in Quality Assurance (QA), Toyota Production System (TPS), and (QA), Toyota Production System (TPS), and

Quality Control Circle (QCC) Quality Control Circle (QCC)

Number of Firms Participated in Number of Firms Participated in TPS Activities TPS Activities

Year Firms participated Leader

2000 8 2

2001 12 2

2002 22 3

2003 40 6

2004 44 8

2005 60 8

2006 78 n.a.

TPS Promotion Activity Concept TPS Promotion Activity Concept 1) Level up TPS leaders with TMC support

2) Each TPS Leader provide jishuken training to members

3) Each member do jisuhken by making a TPS model line

4) TPS final presentation

Implications to Local SuppliersImplications to Local Suppliers

Heighten quality and capacity requirement.Heighten quality and capacity requirement.Automakers require Automakers require design capabilitydesign capabilityQCD + QCD + EE + M+ MLocal firms lack of “process engineering” Local firms lack of “process engineering” and “design” capability so they have and “design” capability so they have limitation to be a part of supplier networklimitation to be a part of supplier networkAcquiring foreign technology may be Acquiring foreign technology may be possible means to sustain businesspossible means to sustain businessSupport from public sector is necessitySupport from public sector is necessity

End of PresentationEnd of Presentation

Questions and comments are Questions and comments are welcomewelcome