Last week we discussed whether Toyota has responsibilities regarding its quality, beyond what it may mean to its bottom line. As an interesting follow up, a blog on hbr.org discusses one possible explanation for Toyota's recent massive recalls. The blog blames the company's current state primarily on its leadership, stating that its current leadership placed less importance on quality than on growth and that the company suffered accordingly. As China grabs headlines for higher than expected inflation, high export and retail sales growth, it might be interesting to parallel its situation with Toyota's.
While the specific technical causes of Toyota's recalls are still being debated, everyone seems to agree that it is undoubtedly a result of its rapid growth and the changing prioritization that came along with that growth. In early 2008, Toyota surpassed General Motors as the largest automaker in the world in terms of total vehicles sold. Between 1998 and 2008, GM's average annual rate of growth was roughly 1.5%, Toyota's was five times larger. Beyond gaining in market share and growing at a faster pace, Toyota also led the pack in terms of profitability per vehicle. In spite of its stellar performance across all metrics, including brand perception and customer satisfaction, for many years, Toyota has suddenly found itself in a deep turmoil from which it still remains to be seen if it will recover from. From our current stand-point, we can perhaps begin to conclude that Toyota's
hunger for market share may have come at the expense of its traditionally strict quality standards, even though there were no obvious warning signs that this was the case.
Much like Toyota once did, China now stands out amongst its peers. China rebounded more swiftly from the global downturn than any other big economy, growing by more than 10% in 2009. As its exports and domestic retail sales continue to grow and millions of Chinese continue to ascend into the middle class each year, China stands at what many consider to be a cross-road. Pundits and economists alike seem to be divided into two equal camps - those who believe that China is poised to over-take the United-States as the biggest economy in the world and those that claim that China's spectacular growth is based on
a bubble that will eventually explode. For example, in January, the Economist's online edition had a thoughtful article, which outlined the reasons why China's growth is sustainable.
Regardless of the arguments that each camp makes, Toyota's recent experiences should come as a cautionary tale: No matter the fundamentals of your current performance, during periods of rapid growth, there will always be variables that are ignored that may come back to hurt you - everything's fine, until it isn't.