Toyotas Decision to Undertake FDI in Australia Case Study - 25

Toyotas Decision to Undertake FDI in Australia - Case Study Example ll also face challenges in the future, they will not affect the FDI that Toyota Company made since it is able to deal with competitiveness and financial crises that may arise. Japan’s economy is the second largest in the world but this would still not favor the hybrid of Toyota since its growth rate is slow. On the other hand, Australian’s economy is smaller compared to that of Japan but it experiences rapid growth. In addition, Japan’s purchasing power is high and thus building hybrids in Japan would have cost more than undertaking FDI in Australia. Australia has a framework that supports foreign direct investment and thus it will be possible for Toyota to monitor and analyze how the investment grows (Ghemawat, 2012). The FDI in Australia has several liabilities that ensure reinvestment. Carrying out a hybrid in Japan would have been a poor decision since Japan is facing a critical issue because of its allocative efficiency. There is very high competition among manufacturers who are well distributed and highly productive. Â  I think Toyota decided to adapt the existing plant in Melbourne instead of building a new one from the ground for several reasons. One of the reasons is because using the already existing plant was going to cut down on the cost of establishing themselves in Australia. Whenever a company is entering a new market, it is easier to use an existing plant than when it starts from the ground. Starting from the ground will mean that time for building has to be allocated whereas in an already existing plant the sales start immediately (Dadzie, 2012). By using an already existing plant, the production is higher than starting from the ground. In taking the already existing plant the Toyota Company is able to be in an area where the economy is already diversified opposed to setting up a new plant in an area where the economy is not yet diversified.