Analytical Essay on Business Strategy of Toyota Company

Executive Summary

This is about environmental analysis for one of the world’s largest automobile company Toyota. This whole report contains about Toyota and this report basically focused on internal environmental and external environmental analysis and identifying the impact to the organization. Also contains competitive analysis for Toyota and identifying most suitable strategies to overcome competitors. Finally, this report makes us to develop comprehensive strategic management plans with strategies, objectives, and tactics by applying theories, concepts, and models for Toyota.

List of abbreviations

• PESTEL – Political, EconomicSocio-culturalal, Technological, Ecological, Legal
• SWOT – Strengths, Weaknesses, Opportunities, Treats
• TTC – Toyota Tsusho Corporation
• AI – Artificial Intelligence
• BCG – Boston Consulting Group

Introduction

Importance of strategic management and the role of a strategic manager

Strategy management is the skills and knowledge of planning and implementing to achieve the goals, vision and mission of a company. Strategy management is very important to a company. There is a Japanese saying that “When you are dying of thirst, it’s too late to think about digging a well” (Anon., n.d.). So we must be ready for upcoming problems before it’s too late and strategic management helps us to do that.

There are strategic managers in companies. They are very important to the company. They focus about the future of the company and they give long term plans to improve customer satisfaction and strategies to compete with competitors. They help to achieve company goals and ensure that company aligns with its vision and mission.

Toyota

Toyota Motor Corporation is a well-known multinational automotive company. Its headquarters is in Toyota City, Aichi, Japan. By revenue Toyota is the sixth largest company in the world. It was founded on 28th of August 1937 by Kiichiro Toyoda. In 2008 Toyota became the world largest automaker. Toyota expanded their business all over the world including America, China, Australia, Africa and Russia. More than 360,000 employees work in Toyota. Their profit for 2018 is more than 173,000 millions of yen (Anon., 2018). Toyota was the first automobile maker to produce more than 10 million vehicles per year. Toyota also started making hybrid and electrical vehicles. Toyota Prius series is the world’s top selling hybrid series. Under Toyota Motor Corporation they also have four other brands. They are Lexus, Hino, Ranz and Daihatsu.

So this report contains PESTEL analysis, SWOT analysis, Porter’s Five Forces Model and strategies about Toyota Motor Corporation.

Toyota Global Vision

“Reward with a smile by exceeding your expectations”

Toyota Lanka

Toyota Lanka is the exclusive distributor for Toyota in Sri Lanka. It is owned by Toyota Tsusho Corporation (TTC), Japan. Toyota Lanka is the only automobile company in Sri Lanka which is fully owned by its parent company. It was established in 1995. Toyota Lankas current managing director is Shungo Yoshioka. Toyota Lanka gives Sri Lankan people automobile sales, servicing and spare parts. Toyota Lanka sells passenger cars, commercial vehicles, trucks and sport cars. Especially Toyota Lanka sells country suited automobiles with a high quality and also Toyota Lanka has a good customer service. They deliver vehicles island wide. Since 1995 Toyota Lanka has established lots of branches island wide. Ratmalana, Maharagama, Negombo and Kurunegala are the key branches of Toyota Lanka.

Other service stations in Toyota Lanka:

• Panchikawatte
• Kandy
• Galle
• Kalutara
• Ampara
• Nugegoda
• Gampaha
• Anuradhapura

Toyota Lanka Vision

“To become the most respected &admired total auto mobility solutions provider in the country”

Toyota Lanka Mission

“To create delighted life-time customers & lifetime delighted employees”

PESTEL Analysis

1. P – Political
2. E – Economic
3. S – Socio-cultural
4. T – Technological
5. E – Ecological
6. L – Legal

PESTEL analysis is a part of the external environment analysis. It helps to analyze macro environmental factors of a company.

PESTEL analysis of Toyota

Political factors on Toyota

• Tax policies
• Government stability
• Trade regulation

Economic factors on Toyota

• Growth rate
• Currency exchange rate
• Customer demand

Socio-cultural factors on Toyota

• Cultural differences
• Trends
• Education level
• Diversity

Technological factors on Toyota

• Using AI(Artificial Intelligence)
• Numerical flexibility
• Research funding
• New vehicle models
• Functional flexibility

Ecological factors on Toyota

• Environmental regulations
• Weather
• Minimizing the wastages
• Make green products

Legal factors on Toyota

• Consumer protection laws
• Employment laws
• Discrimination laws

Critical analysis in to political impact

Tax policies impact a lot to the company. Importing vehicle tax is very high in some countries. In Sri Lanka tax rate for vehicles is about 300%. So people demotivate to buy a new vehicle because of the price. Also tax for big foreign companies is very high in Sri Lanka. Also government stability is important. When the government becomes unstable they try to collect money from putting more taxes and laws. Trade regulations also impact to the company. Company has to export and import complied with those regulations. It takes more time and money.

Critical analysis in to economic impact

Economic factors are also important to the company. When the growth rate increase in a country it is good for the company. When the growth rate increases the labour costs will be decreased because there are lots of people and less job opportunities. Currency exchange rate is also impact to the company. If Toyota imports from a supplier and currency rate of the suppliers country is low compared to Yen (All accountings of the Toyota motor corporation is done by Yen), then it is good for the company. That could also go other way and it is not good for the company. Other thing is customer demand. In an economic slowdown, the demand for vehicles will be decreased. Because of that employee demand will be low too. So Toyota will have to decrease the employee recruitment amount, rewards and incentives to save their profits. Sometimes the company has to lay off employees and it’s depending on the economic condition.

Critical analysis in to socio-cultural impact

When Toyota deals with other countries, it is very important to learn about other cultures. Cultures are different from a country to another country. So Toyota always tries to get the employees from the same country to work in their branches. It is very easy to communicate with customers because employees know the culture. Also Toyota has to work with the trends or else customers won’t buy the vehicles. These days people are more concern about hybrid and electrical vehicles. So Toyota started making vehicles such as Toyota Prius. Education level is important to the company specially in recruiting employees. Education level of the employees will impact on the performance of the company. Toyota also thinks about diversity. Toyota makes different kinds of vehicles such as traveling vehicles for traveling people, etc.

Critical analysis in to technological impact

As a big company Toyota also stared to use AI for their factories. It helps to reduce production cost and it’s fast. Because of the growth of technology Toyota reduced employees. Most of the workers who had temporary jobs were released from the company as a numerical flexibility. Toyota is funding a big amount of money for research. From research Toyota develop more types of vehicles such as luxury vehicles, budget vehicles, racing cars, etc. Their luxury-type vehicle brand is Lexus. Also Toyota is concerned about functional flexibility. Toyota trains their employees for multitasking. It can help Toyota in an economic crisis.

Critical analysis in to ecological impact

There are lots of environment regulations. Companies should protect the environment. Toyota is always trying to stop water and air pollution. So they make green products hybrids and electric vehicles. It reduces the pollution. Toyota also minimizes the wastages. They manage their factory waste and they recycle their waste. Some factors like weather is also impact to the company. Whether especially impacts to their transportation. It is hard to transport vehicles during a storm or in a heavy wind especially from the ships.

Critical analysis in to legal impact

Consumer protection law is very important. Vehicles should be made by exact standards. So Toyota does lots of standard checks before releasing a vehicle to the market. There is also an employment law. It is for employee’s safety. It includes industrial safety, protecting workers rights, the minimum salary for employees, etc. Discrimination law is also impacts to the company. Some countries don’t allow some kinds of vehicles and also doesn’t import modified vehicles from that kind.

SWOT analysis

1. S – Strengths
2. W – Weaknesses
3. O – Opportunities
4. T – Threats

SWOT-analysis helps to identify internal strengths, weakness, and also external opportunities, treats of a company.

SWOT analysis of Toyota:

Strengths of Toyota

• Having a strong brand name (S1)
• Having big financial resource (S2)
• Equipped with latest technology (S3)
• Having a good production system (S4)

Weakness of Toyota

• Product recalls (W1)
• Depending on suppliers (W2)

Opportunities for Toyota

• Focusing the developing countries (O1)
• Investing on new technologies (O2)
• Green vehicle technology (O3)

Treats for Toyota

• Having lots of competitors (T1)
• Passenger safety issues (T2)
• Changing of the prices of fuel (T3)
• Raw materials having high prices (T4)

Strategies for Toyota from SWOT analysis

• Lots of cars from Toyota were been recalled in last years. Because of that media spread lots of negativity about the company. But Toyota has the latest technology. So they must build new machines to check the quality of their vehicles. (S3,W1,T2)
• Toyota has a good production system. They manage their waste very efficiently. Also Toyota focuses on developing countries. So they should make low cost vehicles by improving their production system and developing countries will buy more vehicles for a lower price. (S4,O1)
• These days people try to make machines environment friendly. Toyota is making lots of green vehicles. Because Toyota has a big financial resource they can try to improve their hybrids and electrical vehicles to be more environment friendly. So changing fuel prices won’t be a problem for green vehicles. (S2,O3,T3)
• Most of the times Toyota depends on their suppliers. Also raw materials having a very high price. Because Toyota have a good financial resource and a good production system, they can start making some materials that they are buying from their suppliers or they can buy some companies who are selling raw materials. It will reduce their costs. (S2,S4,W2,T4)
• There are lots of competitors for Toyota. Honda and Mitsubishi are some of their Japanese competitors and Toyota also has Indian and Chinese competitors too. But it’s hard to compete with Toyota especially because of their strong brand name. In order to keep their brand name stronger they should try new vehicle models and improve the quality of their vehicles. (S1,T1)

Porter’s Five Forces Model

• Rivalry among existing contenders
• Bargaining power of buyers
• Bargaining power of suppliers
• Threat of new entrants
• Threat of substitutes

Porter’s five forces framework is used to analyze the competition of a business.

Applying porter’s five forces model to Toyota

Rivalry among existing contenders – High

In worldwide market Toyota has lots of contenders. The following external factors make competitive rivalry strong.

• High forcefulness of firms
• Low number of large firms
• High separation of firms

Automobile organizations are forceful against one another especially because of marketing and innovation. Toyota has to contend with high assortment of organizations and those organizations separate through eco-friendliness, cost, style, etc. Despite the fact that there are lots of small automobile companies, Toyota just contends with small number of larger companies. Toyota’s brand name makes it easier to rival with contenders.

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Bargaining power of buyers – High

Toyota’s clients legitimately influence the business through incomes. Following factors makes the bargaining power of buyers strong.

• Low exchanging costs
• Easy to find data

The low exchanging costs imply that clients can undoubtedly change from Toyota to a contending company at no additional expense. This change commonly happens when clients purchase another vehicle. Also because of new technology customers can easily find data about the company and vehicles. That makes customers easier to choose a vehicle from a company.

Bargaining power of suppliers – Low

Toyota’s providers plan to impact the organization to improve their organizations but it is not easy thing to do because of the following reasons.

• Lots of suppliers are available worldwide
• Easy to find materials

There are lots of automobile part suppliers worldwide. So for those suppliers it is not easy to bargain with automobile companies. Also it is easy to find raw materials such as rubber, aluminium, etc. so the suppliers won’t be able to bargain with big automobile companies.

The threat of new entrance – Low

The threat of new entrants is very low for Toyota because of the following reasons.

• Need to find a high capital
• Hard to build a good brand name

It is hard to start an automobile company. There are lots of entry barriers to start an automobile company. Main barrier is capital. Starting an automobile company will cost a lot and also there are lots of rules and regulations to start an automobile company. It will take years to build a good brand name and people hesitate to try a new brand name. So the new entrants can’t affect Toyota.

The threat of substitutes – Moderate

Substitutes influence Toyota’s business by contending with the organization’s items. These are the treats of substitution.

• Exchanging costs are low
• Moderate amount of substitute availability

Customers can easily move from Toyota to a substitute. Using bicycles and public transportation are some substitutes and it takes low cost to exchange. And because of the moderate amount of substitute availability customers will exchange quickly. So because of those reasons threat of substitutes are moderate for Toyota.

Applying models, theories, concepts, and models, interpret and devise strategic planning for Toyota

The industry life cycle for Toyota

Figure 1

According to the industry life cycle Toyota is in the maturity stage. So the market has reached its maximum size and industry growth is likely to be zero.

Marketing strategies to use in maturity stage

• Product modification
• Increasing the usage rate
• Do more research
• Make products for a lower price than market

BCG Matrix for Toyota

Companies restructure the portfolio of their firms’ businesses to accelerate growth. Boston Consulting Group (BCG) is a helpful tool to guide portfolio planning. This matrix locates the firm’s individual businesses in two dimensions,

• Horizontal axis – Relative market share
• Vertical axis – Market growth

Figure 2

Toyota can be included in cash cow category. In cash cow category market share is high but the market growth is low and their earnings are high and stable.

Toyota should create new car designs using new technology to Target more customers to grow their market more.

The Ansoff Matrix for Toyota

The Ansoff matrix can be used by senior managers, marketers, and executives to devise strategies for future growth.

Figure 3

Market penetration

• Starting an environment friendly program – Together Green
• Sponsoring for motor racing – agreement with speedway
• Starting a motor racing club – Etios Motor Racing

Market development

• Started making many product lines for customers – Trucks, SUVs
• Overseas business – Making in Japan and exporting worldwide

Product development

• Manufacturing automated driving vehicles
• Manufacturing hybrids and electric vehicles

Diversification

• Launching a ski boat line
• Establishing Marine Business Division
• Establishing Biotechnology and Afforestation Business Department
• Acquiring the Japan Flying Service

Conclusion

This report contains about Toyota and also about Toyota Lanka and its vision and mission. Introduction to PESTEL analysis and applying PESTEL analysis for Toyota and a critical analysis on PESTEL. Then contains introduction to SWOT analysis and applying SWOT to Toyota and critical SWOT analysis on Toyota. Also this report contains introduction to porter’s five forces analysis and applying porter’s five forces analysis for Toyota. Also contains industry life cycle for Toyota and BCG matrix for Toyota. Finally in this report contains introduction to Ansoff matrix and applying Ansoff matrix for Toyota.

References

1. Anon., 2018. Annual Financial Report. Toyota Industries Coporation.
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7. Anon., n.d. Toyota Official Website. [Online] Available at: https://www.toyota.com/.
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9. Fujimoto, T., 1999. The Evolution of a Manufacturing System at Toyota. New York: Oxford University Press.