Strategic analysis of Toyota Motor Corporation

Introduction

Overview of Toyota Motor Corporation in the context of its industry

The recession that started in the late 2007 had a profound impact on the automobile industry. By early 2009, the global automobile industry was in a deep slump and sales were dropping substantially. Retail gasoline prices of more than $4.00 per gallon combined with a powerful recession put the brakes on new car sales. One result of the high gasoline costs has been the strong demand for Toyota's Prius gasoline-electric hybrid car over recent years. Other carmakers were greatly encouraged in their own efforts to bring more hybrids to the market, but however consumers generally aren't as impressed with U.S. hybrid technology as they are with that of Toyota models. (Plunkett Research Ltd., 2009)

The Toyota Motor Corporation is a multinational corporation and now the world's largest automaker in terms of sales, net worth, revenue, and profit according to Fortune Global 500. It was founded in 1926 as Toyoda Automatic Loom Works, Ltd. and has consistently been more productive than its competitors. The company has been widely recognized for the quality of its products and production systems. The company is already onto its third generation hybrid engine - which is incredible given that many manufacturers have not even begun to develop their first. (AUTOeBID)

Executive Summary

As it can be seen from Appendix 1, recently car sales are dropping substantially. However, Toyota is trying to overcome all the barriers car industry is facing and to continue to be the leader in the field. Its main strengths are its well-known brand name and the hybrid cars that the company produces. The well developed value chain gives competitive advantage, mainly due to the inbound logistics and the human resource chain. An emphasis is put on the new CO2 regulations and the success of the Prius -the most widely rolled-out environment-friendly system in the automotive industry to date. It is evident that Toyota has been hurt by the strength of the yen, which makes it less competitive and erodes the value of its earnings abroad. However, serious potential threat for the company is the strengthening of VW that is expected to become the main competitor of Toyota in the near future. According to the Ansoff matrix, the best strategic option for Toyota is Product development in existing market. However, different analysis and scenarios are presented in the following report that shows the current position and options for Toyota.

Strategic Review

Value Chain Analysis

Toyota's value chain is so well developed that it makes the company more profitable than the three largest automobile companies in the USA. (Henry, 2008)[1] The main strengths of Toyota's value chain are in the inbound logistics, due to the usage of Just-in-time production method, because it minimizes inventory cost. The other most valuable part of the chain is the Human resource. The employees are perceived as Human Capital. Toyota's HR department is aware that happy employees translate into better job performance. This equates to the kind of increased production and quality that renders satisfied customers.

Strategic Group Mapping

Toyota is positioned in the moderately low-price, high volume market. The company has managed to overcome mobility barriers and entered the luxury market with its Lexus brand, which is now competing with BMW and Mercedes. (Henry, 2008)

PESTEL

  • Political:
  • In times of crises the Japanese government is subsidising Toyota. The adoption of new regulations in Europe, concerning the emissions of CO2 and reducing the impact of it on the environment is another issue concerning Toyota. The company continues to exploit its know-how of developing hybrid cars. Also there is political instability in the main oil-producing countries in the world, leading to higher oil prices and less demand for cars.

  • Economic:
  • The collapse of the international economy leaded consequently to the falling of the power of the yen, which devaluates the prices of Toyota`s shares on the stock exchange. The economic crisis also diminishes the demand for Japanese electronics and cars. In additions there was a decline in the world buying power and high prices of the crude oil.

  • Social:
  • The population in the world as a whole is aging, which means that less people are interested in new car models. Also, as a consequence from the economic crises, more people are using alternative transportation means but cars, and by this again leading to excess production capacity.

  • Technological:
  • Toyota is considering building a hybrid-electric system available on every vehicle it sells worldwide during the 2010s. The company is the most innovative company during recent years, due to its vastly developing R & D department. Toyota is aiming at zero waste and zero emissions as an ultimate group goal. The main objective is the continuation of development of hybrid technology and development of hydrogen fuel cell technology.

  • Environmental:
  • Toyota is investing heavily in vehicles with lower emissions, for example, the Prius, based on technology such as the Hybrid Synergy Drive. It is considered the most widely rolled-out environment-friendly system in the automotive industry to date.

  • Legal:
  • In 1998 the United Nations Economic Commission for Europe adopted the Global Agreement on Vehicle Regulations, which leads to limitation of the emissions of CO2, that a car can eject in the atmosphere, from which Toyota Company benefited the most. In addition, some countries impose restriction on foreign countries to enter their markets in order to try to sustain the export and adopt new precautions of the competition law.

Resources and Competences

Toyota has good knowledge of the car industry and is recognised as being at the front of innovation. Toyota's skills are clear in everything they do, they have good innovation skills and are always looking to move with the market and never be behind. They have a dedicated marketing team who always uses the best selling approach to push the product into the limelight.

SWOT

Toyota's main strength is its well-known, trusted brand name. Also, the emphasis on the value of its employees and the necessity of instilling within them a sense of value makes the company that successful, as well as the application of technology and the utilization of machinery to aid in the manufacturing process. Their unique concepts of Jidoka and Just-in-Time have allowed them the speed and precision in manufacturing vehicles that has afforded them the opportunity to increase production profits and close the gap between themselves and their rivals, such as Ford and GM. However, one of the significant weaknesses of the corporation is Toyota's prior litigious issues and the claims of inadequate safety standards brought against them. Quite impressively, Toyota has turned this weakness into a lesson learned and implemented a standard of quality and safety that is now hard to match. (Medeiros, 2007) However, the bad publicity after the recall of 3.8m Toyota and Lexus vehicles may cause reputation damage on the company. Also, a serious threat is VW, which enlarged its business group by acquired Porsche recently and if VW ends up turning Suzuki into its 11th brand, it will overtake Toyota as the world's biggest car firm. (The Economist, Dec 9th 2009)

Porter's Five Forces

Toyota's main rivals are Ford Motor Company, General Motors and Honda Motor Co., Ltd. However, the innovative technology that Toyota offers combined with the very loyal customer base and the company's consistent, high-ranking quality marks assures a sufficient competitive advantage. (Walker, 2009)

The segment that Toyota occupies, especially the hybrid segment, is experiencing growth due to global economic factors. To sustain market position, many brands were encouraged in their own efforts to bring more hybrids to the market. Yet, new entrants to this segment have tried various strategies without much success.

Toyota is a leader in innovative technology, environmental initiatives, and quality. Nevertheless, given the financial situation the threat may come from other non-automobile personal transport or public transport.

Ansoff Matrix

Market Penetration

  • Suitability
  • The market penetration strategy is most suitable for growing and emerging markets. But in this case, the car market is already well-established and penetration would be made much easier if the target market is growing. Considering that Toyota is such an established name within the automotive industry, the risk of opting to penetrate the market is not that significant barrier.

  • Acceptability
  • Management may worry that targeting the customers of rival car manufacturers may result in retaliation and it is likely a retention strategy to be considered as a possible and preferable option. Since a fair amount of costs are involved with implementing this specific strategy, it is expected that Toyota would need to improve both product quality and levels of service, backed by promotional spend. However, if the risk of undertaking such a strategy does not pay off, both shareholders and staff may be cautious. That, on the other hand, would lead to shareholders losing value in their shares and also the employees possibly losing their jobs as a result of the failed venture and lost revenues.

  • Feasibility
  • The fact that Toyota's range is one of the largest in the automobile world and already exists in each segment of the car market is determining factor for potential penetration on the market. This suggests that Toyota is in a position to go ahead and penetrate any of these existing markets, where the most likely target market for this strategy would be the small car market which is predominantly aimed at young people.

Product Development

  • Suitability
  • Given the fierce high competition in the automotive market, it is necessary for car manufacturers to keep up to speed with the latest developments. Toyota, like many other car manufacturers is known for spending huge amounts of money on research and development[8]. It spent the most on research and development of any company in the world in 2008. The company spent $8,994million on R&D, which is 4.4% of sales. (Behura, 2009) Toyota was running an estimated Formula One budget of £190m per season and last year the budget was estimated of $445 million. (GPUpdate.net, 2009) The company is likely to continue to build on the technology found with the Prius and other 'new-fuel' alternatives. Toyota's Global 21 project, better known as Toyota Prius gives the company first mover advantage.

    Considering the rapidly vanishing natural resources and more specifically oil, future plans of Toyota include development of Camry Hybrid fueled by compressed natural gas (CNG) which shows that there may be possibilities of using a whole new fuel in the future. Also, TMC is planning to launch 10 new hybrid models by the early 2010s, in various global markets. Another key factor, affecting the market position is the launch of the 'urban commuter' battery-electric vehicle (BEV) by 2012. And finally, Toyota has a wide range of small cars already at their disposal that inevitably will continue to enlarge the niche that Toyota occupies.

  • Acceptability
  • With rising fuel prices, more drivers are likely to be looking for ways to cut the costs of motoring and to drive environmentally friendly vehicles. Moreover, shareholders and managers will be interested in maintaining the superior company image by being environmentally responsible. That is why Toyota continues to spend more on research, in order to fulfill its plan to release more hybrid cars in the future. It is likely that its good reputation that has stemmed from the Prius model will meet the consumers' needs. Furthermore, the Government will be satisfied about Toyota's decision to continue with the research and manufacture of new and innovative fuel alternatives.

  • Feasibility
  • Toyota is clearly serious about developing this new technology further and perceives it as being the future in this industry. They have successfully released the Prius model and therefore it is likely that if they unearth more ground-breaking technology they will be more than capable to launch it in the correct way. Given that Toyota is already making rapid progress on developing new products for the existing car market it is certainly feasible to continue develop in this market.

    Considering the two examined strategic options, most likely the best option for Toyota is Product Development for existing market. The company has proved itself and exists in each segment of the car market. Its best option is to continue to develop the brand and the products that are demanded most. Though consumers are becoming more environmentally conscious which enforced the excellent ability of the company to research and develop new fuel efficient technologies. Second, the corporation plans to release 10 new hybrid models in the near future. Toyota has the first mover advantage with hybrid synergy drive and sufficient expertise when developing small, fuel-efficient vehicles and there is an increasing demand for these cars.

Future recommendations

One recommendation for Toyota is to be more ruthless in utilization of its early leadership in the commercialization of hybrid systems and electric-vehicle technology. Although every other giant carmaker will launch new hybrids and purely battery-powered vehicles, or is preparing to, Toyota is convinced that it is still ahead of the pack. Within a few years there will be a hybrid version of every car Toyota makes and there are plans to extend the Prius brand to cover a range of innovative low- and zero-emission vehicles. Toyota has to stop making so many dull cars with all the appeal of household appliances. (The Economist, Dec 10th 2009). The company has to focus more on safety standards, in order to avoid bad publicity. Also, it can acquire few small companies, to reinforce its market position and expand the company. Another strategic option for Toyota is to separate its hybrid models into a separate brand that will target customers that are more environmentally friendly. Given that currently the world is still recovering from the financial crisis, a new brand, offering moderately cheep, environmentally friendly and efficient car would be perceived very well.

BIBLIOGRAPHY

  1. Plunkett Research Ltd. (2009) Automobiles and Trucks Overview Retrieved November, 26 2009 from http://www.plunkettresearch.com/Industries/AutomobilesTrucks/AutomobileTrends/tabid/89/Default.aspx
  2. AUTOeBID (2009) TOYOTA - background & news Retrieved November, 26 2009 from http://www.autoebid.com/getReview.asp?make=TOYOTA
  3. Henry, A. (2008) Understanding Strategic Management, Oxford University Press
  4. Scribd (2009) Value Chain Analysis of Toyota Co., Retrieved November, 27 2009 from http://www.scribd.com/doc/22372540/Value-Chain-Analysis-of-Toyota-Co
  5. Behura, ?. (2009), R&D spend: Just 4 Indian cos in global list retrieved November, 29 2009 from http://economictimes.indiatimes.com/RD-spend-Just-4-Indian-cos-in-global-list/articleshow/5229991.cms
  6. GPUpdate.net (2009) Toyota monitoring F1 costs closely, retrieved November, 30 2009 from http://f1.gpupdate.net/en/news/2009/09/30/toyota-monitoring-f1-costs-closely
  7. Hoover's, Inc., (2009) Toyota Motor Corporation, retrieved Dec, 3 2009 from http://www.hoovers.com/company/Toyota_Motor_Corporation/crxxsi-1.html
  8. Market Watch, (2009), Annual Financials for Toyota Motor Corp http://www.marketwatch.com/investing/stock/TM/financials
  9. Walker, M. (2009) Toyota's Strategy and Initiatives in Europe: The Launch of the Aygo, Retrieved November, 30 2009 from http://www.scribd.com/doc/21176071/Toyota-s-Strategy-and-Initiatives-in-Europe-The-Launch-of-The
  10. Medeiros, J. (2007) Toyota Motor Corporation, Retrieved December, 03 2009 from http://www.associatedcontent.com/article/267670/toyota_motor_corporation_strategic.html?cat=27
  11. The Economist, Dec 10th 2009, Losing its shine. Retrieved from http://www.economist.com/displaystory.cfm?story_id=15064411
  12. The Economist, Dec 9th 2009, Asian alliances, Retrieved from http://www.economist.com/businessfinance/displaystory.cfm?story_id=15063005

Please be aware that the free essay that you were just reading was not written by us. This essay, and all of the others available to view on the website, were provided to us by students in exchange for services that we offer. This relationship helps our students to get an even better deal while also contributing to the biggest free essay resource in the UK!