Creating Sustainable Competitive Advantage: Toyota's Philosophy and Its EffectsWhat is Toyota's PhilosophyToyota is Japan's largest automobile manufacturer and the second in the world after General Motors. The fundamental reason for Toyota's success in the global market comes from its business philosophy, the set of rules and attitudes that govern the use of its resources. Toyota's philosophy is often referred to as the Toyota Production System. The system is based in part on a human resources management policy which stimulates creativity and employee loyalty but also on a very efficient network of suppliers and component manufacturers. Much of Toyota's success in global markets can be directly attributed to the synergistic performance of its human resource management policies and supply chain networks. Toyota's Human Resources Philosophy Although many other Asian automakers have gained reputations for building high-quality cars, they have been unable to overcome Toyota's advantages in human resources management, suppliers and distribution systems in the highly competitive American market. The evolution of Toyota's advanced human resource management dates back to the period immediately following World War II, when the economic outlook was uncertain and human, natural and financial resources were limited. The company has developed a highly efficient production system, called lean manufacturing, to use human resources more efficiently. Today, Toyota's philosophy of empowering its workers is at the heart of a human resource management system. It develops creativity and innovation by encouraging employee participation and brings high levels of employee loyalty. Toyota's Philosophy of Supply Chain Management. Internal production has been declining for several years. Among U.S. automakers, General Motors continues to make a high percentage of components in-house, while DaimlerChrysler outsources more than any other company. Volkswagen, a German brand, produces on average less than 50 percent of its automotive components in Germany. Outsourcing is becoming increasingly important for automakers because 85 percent of the direct cost of automobile production comes from component engineering and manufacturing. Companies attempt to externalize many of these direct costs and minimize market risks. They can also benefit from the advantages of using specialist suppliers. In Japan, Toyota's supply chain relationships are based on a complex system of cooperation and stakes. Cooperation and concentration of assets are encouraged and antitrust prohibitions are much less restrictive than in the United States. It is also important to understand that government and culture play a major role in manufacturing and distribution practices in Asia..