Foreign Direct Investment (FDI): The Case of Toyota.

It has come to my attention, due to tough economic growth, uncertainty and weak consumer confidence in many countries; FDI is playing an increasingly important role for businesses across the world to seek out opportunities for growth (Rees, 2012). Although FDI may be risky compared to other investment strategies, there are many benefits that outweigh the drawbacks with this method.  FDI in the manufacturing industry has shown substantial growth since 2003 and with global competition growing, there is clearly more room for growth in FDI (National Association of Manufacturers, 2014).

Toyota is a great example of how FDI has been used as a strategy for further investment, Firstly, Toyota started exporting to avoid competitors from gaining first-mover advantage in new markets since exporting is fast and brings the lowest risk. However, Toyota Japan chose FDI as a strategy in Thailand in 1964 as Thailand was not only a lower cost location, but also lower tariff (Runnckel & Associates, 2005). My research has shown that Thailand is the second most favourable location for investment, according to the annual survey “Outlook for Japanese Foreign Direct Investment”, which was conducted by the Japan Bank for International Cooperation (JBIC).  Furthermore other factors such as competitive labour costs, inexpensive labour force, low production costs as well as the overall favorability of the nation’s investment climate also appealed to Japanese manufacturers to move production in Thailand (IMF, 2002). Reducing costs is important for businesses, otherwise how else will they survive?

Moreover on 19 April 2013, Toyota Motor Manufacturing announced that the company would begin manufacturing the Lexus ES 350 in Kentucky. This is because transportation costs are high in the car manufacturing industry, which creates barriers and also raises consumer prices. In order to save costs, multinational companies such as Toyota are able to build production plants closer to the market. Production is set to take place at the company’s Georgetown plant and will create 750 new jobs (Trade and Industry Development, 2014). The company is investing $360m in this facility and will start producing vehicles in 2015. This would be the first time that the company has manufactured Lexus vehicles in the United States, which has resulted in positive news for manufacturing and has shown the benefits of FDI towards job creation. The economy has been significantly tough, which has led to low unemployment rates. As a result of companies investing in FDI, more jobs can be created which can benefit those who are looking for employment.