Toyota: Commitment to Raising Localisation

2:47:31 PM | 9/28/2018

Actively contributing to the development of the Vietnamese automobile industry and spurring Vietnamese supporting industry development are always the top objectives of Toyota Vietnam. Vietnam Business Forum Magazine has an interview with Mr Toru Kinoshita, General Director of Toyota Vietnam, on the company’s efforts in the past 20 years and in the future. Le Hien reports.

Since it set foot in Vietnam, what was Toyota’s commitment to localisation rate?
Since it built the factories in Vietnam, Toyota has always made an effort for the development of the Vietnamese automobile industry as directed by the Government. Wherein, raising the localisation ratio is always a top priority for our long-term development strategy. In 1995 when Toyota arrived in Vietnam, it was difficult to increase the localisation rate because the car market was very small, just a few thousand cars a year, but there were up to 10 manufacturers with 20 different brands. To solve this matter, we were determined to scale up our business and production. To do so, we had to do business well. In fact, a large-scale production will result in a large demand for parts. Then, the localisation rate will increase as a result. This relationship needs to solve the top first to grow the root later. And, Toyota has so far become an FDI automobile manufacturer with a high localisation ratio, and will continue to pursue the goal of raising the localisation ratio.

At present, Vietnam’s market size is still considered small and supporting industries have not developed. What plan does Toyota have to improve the localisation rate?
Toyota's goal is helping the development of the Vietnamese society with its contributions to the country’s automobile industry from assembly to sales and after-sales services. At first, we convinced Japanese companies to invest in spare parts. Since 2004, they have not only provided parts for Toyota and other domestic makers but also exported to other countries, earning US$500 million from exports in the first six months of 2018 via the Toyota Auto Parts Export Centre in addition to their own exports. In addition, Toyota developed the first body workshop in the country in 2003, making it the first manufacturer in the industry to complete all five stages of stamping, welding, painting, assembling and inspecting at the factory. In 2008, we continued to operate a chassis factory with a yearly capacity of 21,000 units. For example, Vios model, a strategic model of Toyota Motor Vietnam (TMV), used treble parts from its precedents, from 51 items to 151 items. At present, 33 suppliers supply over 400 products, including five Vietnamese venders.

In the past 20 years, we have been always actively seeking and assisting local suppliers to improve their management capacity to meet TMV’s quality requirements. Especially this year, we set up a specialised unit to support suppliers, giving priority to Vietnamese suppliers and assisting them to improve their production management capacity, and enhancing their labour productivity and product quality. This programme is particularly considered by the Board of Directors of Toyota Vietnam and seen as a prerequisite factor to increase the localisation rate of Toyota in particular and the Vietnamese automotive industry in general. This also demonstrates the principle of “Respecting partner and vendor networks by challenging them and helping them improve” in the 14 ways in which Toyota operates.

Could you please tell us about some concrete operations and examples of the local supplier support programme?
Toyota defines that developing the number and scale of Vietnamese suppliers is a priority and long-term task. Vietnamese companies often lack experience and fail to meet quality requirements to become global parts suppliers. Initially, Toyota increased the capacity of Vietnamese suppliers in 5S, safety and quality management. We established specialised divisions responsible for training and developing human resources for suppliers, transferring 5S methodology and Toyota Production System (TPS) know-how and Quality Control Circle (QCC), and sending specialists to grassroots units to support, assist, consult, test, assess and accompany on daily and weekly basis.

We also saw initial results. Hanoi Plastic Factory, a vendor for Toyota since 2012, is an example. In 2017, Toyota launched the first transfer support project at Hanoi Plastic Factory. After one year, the factory has really “changed the quality and quantity” by applying the Toyota 5S principles and standardising works. Its tidiness, cleanness and workers’ sense of compliance increased markedly. By economic efficiency, in the first six months of 2018, the facility reduced costs by VND2.8 billion by improving moulds and raised average labour productivity by 10 per cent. As for new-generation Vios car, the factory increased its parts supplied for the model to 29 from 3, showing the potential of Vietnamese supporting industries. And, we hope that suppliers will further improve their capabilities and engage in regional and global parts supply chains.

Has Toyota Vietnam faced any difficulty in localising its products? What does Toyota want to get in terms of support from the Vietnamese Government, and from Vietnamese enterprises?
The biggest hardship for Toyota Vietnam today is the small market size, leading to high production costs and a wide gap with other countries in the region, especially when import duties from ASEAN countries are 0 per cent.

First of all, we hope that the Government of Vietnam will develop long-term policies to ensure a stable growth of the automobile market and keeping a reasonable ratio between domestic and imported vehicles. Then, the government needs to have domestic manufacturer support programme to reduce costs, increase competitiveness, narrow the gap between locally assembled vehicles and imported ones, and adopt one-size-fits-all policies for automakers in Vietnam. Therefore, we and other VAMA members are highly supportive of special consumption tax (SCT) initiative for vehicles manufactured and assembled in the country, being discussed by the Ministry of Finance and the Ministry of Industry and Trade. Just like in other countries, we hope the Government will consider direct support for mould and fixture investment to compensate for insufficient market capacity relative to other countries in the region. If so, businesses will find it easier to increase localisation.

Thank you very much!