The Toyota–GM global alliance and NUMMI (1984)

An alliance designed to share risk and test the unknown

The heart of this alliance lay less in the sheer surprise of joining hands with the arch-rival it fought with for first and second place in the world market than in its design for testing an unknown business. Pressed into local production by trade friction with the United States, Toyota faced, on its own, an outlay of $1.3B (¥300bn) for annual output of 200,000–250,000 units and still could not be sure of its costs once operations began. After talks with Ford broke down over models and antitrust law, the partner it chose as one with whom it could split the risk was none other than its largest competitor, GM. The care with which it set out to clear the high wall of U.S. antitrust law — structuring the venture so that the two parents and their joint company would compete with one another — captures the character of this judgment well.

For Toyota the joint venture became a place to test, in a relatively small bet, whether its own production system would work in North America. That it went on, on the strength of what it felt there, to its solo advance into Kentucky in 1986 shows Toyota’s way of taking risk: rather than making a large, irreversible investment all at once, it inserts a stage of verification. Inside the dramatic exterior of an alliance with an arch-rival, what was actually taking place was a cool calculation that checks the unknown one step at a time.