On the wind-swept northern tip of Japan's main island of Honshu, in Rokkasho Village, Toyota Motor Corp. is planting the seeds for growth in an entirely new field. Literally.
Toyota Floritech Co.'s robotized greenhouse, the largest in Asia with its 49,000-square-meter greenhouse, will grow 4 million poinsettias, miniature roses, and other flowering plants each year for Japan's flower markets. Beyond that, who knows?
'Toyota is making efforts to be involved in environmental and forestry businesses, and now is aiming for biotech,' boasted Kozaburo Tsukishima, a director of Toyota Floritech and general manager of Toyota Motor's Business Development Division.
What's going on here? Can this be the same Toyota that grew into the world's third-largest automaker through rigorous, almost single-minded attention to automotive manufacturing? Yes, it is. As Floritech shows, there is almost no limit to what field the new Toyota might enter next. Already, Toyota has entered markets as diverse as New Zealand-built motorboats, Japanese helicopter charters, long-distance and cellular telephone carriers, Internet broadband content providers, livestock feed and cyber retail malls. Toyota also has said it will enter mutual funds and Indonesian organic-based, biodegradable plastics.
The majority of Toyota's new ventures are in fields that, in Toyota's view, relate to its core auto business. Floritech is an exception. Yet, Toyota undeniably defines the auto business in much broader terms than before.
'We are now trying to define the automobile business in a new way that encompasses all the business from the upstream to the downstream,' said Tadaaki Jagawa, Toyota's executive vice president of purchasing, corporate planning and new business development.
Jagawa denied that such endeavors as biotechnology represent a diversification strategy, arguing that biodegradable plastics will be used in auto parts. Instead, he said that some areas that may seem far afield from the traditional auto business, whether upstream or downstream, are just an attempt by Toyota to 'try to widen the width of the river.'
Nothing symbolizes that new approach better then Gazoo.com. The popular Toyota Web site's cybermalls sell music compact discs, clothing and computer games. It soon will add tours and mutual funds. The idea is to build customer loyalty, so that when cybershoppers are ready to buy a car, Gazoo.com can send them straight to a Toyota dealer.
To be sure, autos still are the heart of Toyota's business vision. But analysts increasingly view the company as more than an automaker, and Toyota's stock price reflects that interpretation.
'Toyota's strategy appears to put the auto business at the corporation's core while encompassing an impressive array of other businesses - including the Internet, distribution and finance,' said Noriyuki Matsushima, an auto analyst for the brokerage firm Nikko Salomon Smith Barney. Toyota is not alone in its expansive view of the automotive business. Other automakers are rushing to develop telematics, to bring the power of the Internet into the car via mobile phones and navigation aids. Automakers want to sell Internet-related services such as e-mail, traffic advisories and entertainment to motorists. 'The car and truck is more than a transportation platform,' said General Motors Chairman Jack Smith at a press conference in Tokyo. 'It also is going to become a communications platform. We see that as a great growth opportunity, as well as finance and service.'
Smith and other executives are quick to disavow parallels with the 1980s, when GM bought Hughes Aircraft, Ford bought a savings and loan operation called The Associates and Chrysler bought aircraft maker Gulfstream. With a few exceptions, these experiments proved distracting. Automakers eventually sold most of their non-automotive operations.
Toyota may be an exception, but it has not ignored its core automotive business. The company has gained market share in each of the world's three major markets. This is because of sales of new light trucks in North America and the sales success of cars based on the small Vitz platform, including the Yaris and Verso in Europe, Echo in the United States, and FunCargo and Platz in Japan. Even if the U.S. market slows, analysts say Toyota's ability to gain share in a rebounding Japanese market puts it well ahead of its rivals. Steven Usher, an analyst for Jardine Fleming Securities (Asia) Ltd. in Tokyo, expects Toyota to gain share in the United States, Japan and Europe in the next two years.
The company sold a record 5.2 million vehicles worldwide in the fiscal year ending March 31, 2000. It is well on its way to a record this year. Toyota officials no longer talk publicly about the company's former goal of gaining 10 percent of the worldwide market. But there is no sign that Toyota has lowered its goals. Moreover, in Japan Toyota is moving to expand its strong distribution network into the booming used-car business. So even if sales of new cars slow, it still will benefit.
Although Toyota has long been involved in businesses beyond auto production, previous ventures were little more than sideshows. For example, the company made housing, mainly for its employees; produced forklifts; ran an air-transport business; and sold imported helicopters.
Toyota sees its new businesses as part of a comprehensive strategy, in a way housing never was. Recognizing that, Toyota amended its Articles of Incorporation at its shareholders' meeting in June to add Internet business to its official scope of operations. On January 1, it added several divisions to its organization chart, including the IT & ITS Sales Division, Biotechnology & Afforestation Business Division and Used Car Business Division.
It was not until 1997 that then-President Hiroshi Okuda stated that he wanted at least 10 percent of Toyota's consolidated revenue to come from non-auto businesses by 2000. The company has nearly achieved that goal. In the fiscal year ending March 31, non-automotive businesses, excluding financial operations, accounted for 9 percent of all revenues and nearly 4 percent of all operating profits.
Now, Toyota has set new targets based on profits. According to Jagawa, Toyota wants autos to account for 80 percent of pretax profits, finance for 10 percent and other non-automotive operations for the remaining 10 percent. In conversations with analysts, Toyota goes further. Usher of Jardine Fleming says Toyota expects telecommunications alone to account for 10 percent of operating profits within the next four years.
Because Toyota has promoted its telematics and Internet prospects, the market has focused attention on the telecommunications business. But investors' focus is misplaced, said Chris Redl, a Tokyo auto analyst for UBS Warburg Securities. 'We see the company's biggest strength in its financial services business,' he wrote in an October research report. Moody's Investors Services has awarded Toyota an AA1 credit rating, higher even than Japan's sovereign debt rating of AA2. That puts it in an enviable position to offer low-cost car loans in Japan, even as it exports financial-services know-how gained in the United States to other markets worldwide.
In October, Toyota put all of its financial services operations under a single umbrella, Toyota Financial Services Corp. That unified structure should help it expand its financial operations in Japan and Europe, which hitherto have lagged behind its more sophisticated operations in the United States.
Beyond automotive financing, Toyota will issue a credit card to Gazoo.com members. Gazoo.com has more than 600,000 members and is expected to have 4 million in two or three years - a solid base for credit card marketing. Later, it will sell mutual funds and other financial products to that same pool of consumers.
Toyota's approach to telecommunications has two prongs. With a 13.3 percent stake, it is the second-largest shareholder in KDDI, which became Japan's second-largest telecommunications company October 1. The company was formed when Japan's former overseas-call monopoly, KDD, merged with a Japan market long-distance carrier and a mobile telephone service provider. Toyota's share of the business is valued at 444 billion yen, or $4 billion.
While that investment puts Toyota squarely in the residential and commercial telephone business, its greater thrust is in telematics. Okuda is fond of citing forecasts that telematics could grow to a $6 billion busines.Toyota wants to capture some of those revenues and has invested in content providers. But Jagawa conceded that Toyota's skill at auto production does not guarantee success at computer software. So Toyota has built alliances with companies that have software management expertise, such as Sony Corp. and Fujitsu Ltd. 'The communications business is a software business, so we will be dedicated to being a shareholder' rather than bring those operations in-house, Jagawa said.
Regardless of the management arrangement, Toyota sees telematics as a way to set its cars apart from the competition. 'Most carmakers are only now waking up to the potential of telematics,' said Usher. 'General Motors has the lead. Toyota is the only one in Japan. Ford and DaimlerChrysler are putting on their running shoes. Honda gave its telematics to Sony. Nissan couldn't afford it, and they didn't know why they had it in the first place.'
Toyota, he said, lags behind GM because it insists on doing everything itself. By contrast, GM has partnered with Sun Microsystems, IBM and others. To promote telematics, he said, Toyota has ordered key affiliates to develop technologies themselves, or buy them. 'The key question, however, is whether anyone can make profits' from telematics, or whether it will become just another cost of doing business in the auto field, such as environmental or safety technology, Usher said. His view: Toyota will be one of the few carmakers to profit in niches.
'Toyota is transforming itself from Japan's largest car company into an effectively integrated auto and telecommunications company,' he said. 'Toyota will succeed as a car, financial and telecommuni- cations company. I'm not sure it makes them more profitable, but it makes everyone else less competitive.'
Akio Toyoda, the 44-year-old scion of the founding Toyoda family and son of honorary chairman Shoichiro Toyoda, who personally launched Gazoo.com, identifies four ways Toyota will use information technology:
Key automotive operations such as purchasing and manufacturing.
In-car navigation systems.
Consumer services such as car loans.
Internet Web sites dedicated to selling vehicles - 'and not just Toyota cars,' he said. 'This is where Gazoo is located.'
Toyota's vision does not impress everyone. To skeptics, nothing is quite so frivolous as Toyota's biotechnology endeavors, especially livestock feed and Floritech. Jagawa admitted biotechnology 'might be a little diverged from the main river.'
The academics who advised Toyota on biotechnology came from an agricultural background. They thought Toyota would be impatient to start earning a profit, and therefore advised Toyota to enter agribusiness, Jagawa said. That led to feedstock as a byproduct of Toyota's development of biodegradable plastics made from yams. He added, though, that Toyota has no interest in the livestock-feed business. 'If feed becomes the main business, it will be separated from Toyota,' he said.
For its part, Toyota Floritech believes it can grab market share by introducing modern flower cultivation technology. Lower costs will allow it to undercut the high prices that prevail in Japan.
That's a valid business case. But that was not how the venture began. Rather, it got its start when the Danish ambassador to Japan began talking about his country's flower-growing technology with Denmark's honorary consul in Nagoya. That consul just happened to be Tatsuro Toyoda, the carmaker's former president. He urged Toyota to look into the opportunity, and soon Toyota was in the poinsettia business.
That hardly seems to be the cautious Toyota of old. But as long as Floritech and Toyota's other new ventures produce healthy growth, Toyota will continue to look for opportunities to plant seeds.
E-mail writer James B. Treece at [email protected]