– by Hu Xuhui
Regional variations in automobile consumption in China have been imposing a more significant influence on the structure of automakers in the country. Following FAW-Volkswagen, FAW-Toyota Motor Sales Co., Ltd. (FTMS) is also looking for ways to decentralize its operations by creating a new system through which it will be gradually granting more powers to its Great Districts (the company has divided the Chinese market into six Great Districts such as Northern China, Southern China, Eastern China and Western China), and eventually build these Great Districts into mini-FTMSs.
Widely divided speculations
“FTMS will perfect the Great Districts system by piloting it first in the Southern and Eastern China districts and then expand the system nationwide,” said Wang Fachang, standing vice president of FTMS, at a forum in late September.
“In spite of disputes inside the company, we still have to carry it (the Great District system) through,” said a Great Districts director.
But the company’s PR director tells a totally different story. “We have’t received any notifications (about the new system) yet,” he said. “So far only two branch offices have been set up in Guangzhou and Shanghai to guide and support sales in local markets.”
Widespread disputes about this structural reform continue to exist inside the JV as it involves a redistribution of power and interests between different entities inside the company.
Undetermined new sales structure
FTMS has been piloting the Great Districts system in Southern and Eastern China since 2006, giving controlling power of sales, aftersales services, distribution network management and expansion, marketing and PR to the districts, empowering them with full autonomy to independently handle their separate markets.
Since the adoption of the Great Districts system, the company has greatly enhanced efficiency in solving problems and handling local markets.
“We are aiming at building a few small FTMSs,” said Wang Fachang. “This is a major aspect of FTMS’ regional market management system reform. Once the reform is completed, the FTMS headquarters will be in charge of making policies and strategies, and then the districts will have to implement these strategies and carry out promotional campaigns according to the individual features and requirements of their local markets.”
“The Japanese side is an active advocate of the new system,” added Wang. Given China’s vast land and regional variations, the Japanese side deems it a wise decision to adopt the Great Districts system in order to be closer to ground realities and to be able to swiftly adapt to changes in the local markets to boost sales.
But the Chinese side hesitates to carry on the reform, citing control concerns. Toyota is well known for the emphasis it puts on the controlling of its end sales networks, which has greatly contributed to FTMS’ ability to maintain a stable pricing strategy even during periods of slump.
When the Great Districts system is fully in place and the districts assume firm control of local sales, the authority of the headquarters in controlling the end sales networks will be undermined. “Once the control is granted to the Great Districts, a new organ will emerge between the OEM and its dealers, weakening the OEM’s control over its dealers,” said Wang.
Toyota’s sales goals
Toyota Motor Corp. released its sales plan earlier, aiming to sell one million vehicles and hold a 10 percent market share in China by the end of 2010. FTMS will be responsible for selling 600,000 vehicles, which is two-thirds of this sales target; Guangzhou-Toyota Motor Co., Ltd. (GTMC) would have to sell 350,000 vehicles or 30 percent; and the imported luxury brand Lexus is projected to sell 50,000-100,000 units.
FTMS must really buck up to achieve this goal. It plans to sell 270,000 vehicles in 2007 and over 400,000 vehicles in 2008. Therefore, FTMS is now forced to restructure its sales networks under the weight of its sizable sales goal.
“Cloning” the U.S. model
“With fast-expanding vehicle parc and wider choices for customers, the Chinese vehicle market is increasingly exhibiting distinctive regional variations,” noted a senior industry analyst with Sinotrust, a Beijing-based consulting firm.
A survey by Sinotrust shows that customers in different regions have distinctively different tastes in terms of vehicle models, price range and brand. The differences are closely related to both the product and the brand. For example, most customers in northern China identify with the Volkswagen brand while those in the Zhujiang Delta area are more inclined to buy Japanese brands.
FTMS experienced sluggish sales in 2004 and failed to meet its sales target even after it lowered its goal from 118,000 to 105,000 units. Yet it scored beautifully in the U.S. market in the meantime. Sales of Toyota vehicles outstripped that of Ford and Chevrolet. The North American market contributed to Toyota’s three-fourths global revenues the same year.
Toyota’s success in the U.S market was closely related to the attention it paid to variations among different districts and employment of local sales persons.
To “clone” the successful U.S. model, FTMS has been undertaking a series of readjustment in its personnel and organizational structures, including the adoption of the Great Districts system.
FTMS divided the Chinese market into six Great Districts, based on the way Toyota divided the U.S. market into 12 Great Districts.
In 2006, FTMS granted the Southern and Eastern China districts more managerial rights.
Rewritten by Louise Liu based on the author’s story published on 21st Century Business Herald