Analysis of Toyota Corporation - Example

Analysis of Toyota Corporation Introduction Company analysis uses frameworks such as SWOT, PESTEL, and Porter’s five forces, among others. In this paper, the analysis is of Toyota Corporation, and the frameworks used are; PESTEL and SWOT analysis. PESTEL and SWOT analysis can be used by executives to make important decisions. SWOT analysis reveals the opportunities that the company can exploit, the strengths, the weaknesses it can manage, and the threats that the business has to deal with. This analysis guides product and business development, strategic planning, reporting on marketing communication plans, and evaluation of competitors. PESTEL on the other hand is an analysis of the external factors affecting the business. These external factors include; political, social, economic, technological, legal, and environmental factors affecting the business. The analysis provides information about factors that the company cannot control, but can work on to avoid or manage, to reduce losses and improve efficiency (Applegate & Johnsen, 2007; Murray-Webster & Stationery Office, 2010). Toyota Corporation Toyota Corporation is one of the multinational automobile companies. It is also the leader of technologically advanced and environmental friendly cars. The company officially started in 1937 when Kiichiro Toyoda launched the motor company. In 1952, it started exporting cars to South America, and with continual growth, it began exporting to North America. Toyota Corporation was formed in 1972 when Toyota Motor Sales Company, formed a merger with Toyota Motor Company (Borowski, 2010). The company currently operates worldwide with 12 factories in Japan, and more than 51 operating locations in 27 countries. Toyota has experienced some business downfalls, such as the recalling of some of its brands from the market, leading to an investigation by the U.S federal government (Borowski, 2010). This has also tarnished its reputation. Irrespective of all these problems, the company still has its strengths, opportunities and supportive business environment in which it can thrive. This is an analysis that will reveal Toyota’s current situation. SWOT Analysis Strengths Toyota has a strong market and strong brands. Toyota has different market shares in various geographical areas. The company had a market share of 45% for its Lexus brand in Japan in 2012. The company also has 13.4% market share in Asia, 4.3% in Europe, 12.2% in North America, and 7% share of the Chinese market. Apart from these shares, Toyota has shares in Africa, South and Central America, Middle East Region and Oceania. A great market size gives the company a competitive advantage over other companies in the automotive industry. It also has a great opportunity to expand to international markets. Toyota Corporation has a collection of brands in the industry. A company’s brand acts as an influence of choice; it enables the company to command a price premium, it provides a vital differentiator, provides a platform for growth, creates advocacy and loyalty, and provides a framework for business integration. Just one brand offers the above benefits to a company, yet Toyota has a collection of brands. Toyota has an extensive production and distribution system. It has 50 manufacturing companies in 27 regions and countries. Its extensive distribution network enables the company to reach so many regions and places, hence boosts revenue. Extensive production diversifies the company’s risks (Nkomo, 2013). Toyota has a well established research and development program. It has 14 research and development facilities worldwide. R&D is a strategy meant for sustainability in the market, as well as that of being innovative in a competitive business environment. Toyota also uses research and development to expand its brand collection. This ensures the safety, quality, functionality, and environmental compatibility of the company’s products. It is from research and development that Toyota develops new processes, new products, and improves the capabilities of existing products (Nkomo, 2013). Weaknesses Toyota has a problem with the number of recalls that can affect the brands’ images and sales. In 2011, for example, the company recalled 181 000 vehicles in Japan, following oil leakage and abnormal noise that may have resulted from a problem in the rear wheel and sub transmission. It also had to recall 111 000 models of Lexus brand vehicles in the same year. Product recall is one of the company’s major problems. In 2012 February, for example, there was a problem with the Camry and RAVA vehicles of 2007, which was suspected to be faulty power window master. This got the authorities investigating the company. Because of these repeated faults, the company could be penalized and could suffer losses (Nkomo, 2013). Another weakness with Toyota is the poor allocation of resources. It is considered that Toyota’s allocation of resources is poor because it has a lower return on equity and a lower return on assets, compared to its competitors. In 2012, Nissan Motors had a return on equity of 8%, while Honda Motors had a return on equity of 4.8%. Toyota on the other hand had a return on equity of 2.7%. A lower ROE shows that the shareholder’s money is not being used efficiently. Irrespective of the large market share that the company has, it has been experiencing declining sales in its main geographic segments. In 2012, the company experienced reduced sales in Asia, North America, Europe, and other geographic regions (Nkomo, 2013). Opportunities Toyota has developed a partnership with BMW that should offer the company the opportunity to improve technologically. In 2012, the company formed a contract that focused on BMW and Toyota collaborating on technological issues. This is specifically focused on jointly developing components and architecture for future sports vehicle, and jointly developing a fuel cell system. They have also decided to jointly research and develop lightweight technologies, and form collaboration on power-train electrification. This relationship presents a good opportunity for the company to improve in its technological know-how, and even in its cost savings (Nkomo, 2013). The global automobile industry is growing, and this presents an opportunity for the company. In 2008 and 2009, the automotive industry was severely affected by the economic recession. This, however, changed when there was a rebound in 2011 and the industry has since grown by 8.9% in 2012. Toyota can gain more customers through this. There is also a growing global market for new cars that is expected to accelerate during 2012 to 2016. This offers Toyota an opportunity to expand (Nkomo, 2013). Threats Toyota has its manufacturing facilities in various countries, and this places the company is a risky situation when natural disasters occur. In 2011 when Japan experienced the Tohoku earthquake, production was temporarily brought to halt in the domestic manufacturing facilities. Similarly, there were major floods in Thailand that affected the production of about 150 000 Toyota automobiles. Production and operations were temporarily stopped. Natural disasters could affect the company’s production structure if they keep on occurring. The company operates in Japan that is prone to earthquakes. If such natural disasters occur frequently, the company can be affected due to several work stoppages. It will, therefore, have reduced production output and reduced revenue base and profitability (Nkomo, 2013). There is also competition in the automobile industry. The industry is highly competitive with various automotive manufacturers in its various markets. Toyota faces competition from Chevrolet, Hyundai, Honda, Ford, Tata Motors, Audi, TATA, and BMW among several others. The world automotive industry market is also going through consolidation and globalization; factors that are bound to intensify competition. Toyota is therefore, forced to be up to standard, and even be the best in product features, quality, pricing, amount of time required for innovation and development, safety, reliability, customer service, fuel economy, and economic terms. This places much strain in the company and provides many opportunities for other companies to excel (Nkomo, 2013; Williams, 2011). One automotive company is expected to excel in all these areas. This brings in another threat; the threat of new entrants. A company can enter in the same segment but with better features, beating Toyota that competes with all other companies in all segments. With increased competition, the company risks losing customers due to reduced market share. High competition may be between two or more companies, but when there are several companies involved, and various areas of competition, the industry becomes saturated. Current competition has led to the development of innovative features and offering the same at lower prices. This is very risky for any company, because the return on equity is negatively affected. Appreciating and depreciating values of currencies could also be another threat. Toyota operates in various countries, and any irregular exchange rate on foreign currencies will affect the company’s operating results (Nkomo, 2013). PESTEL Analysis Political Environment Toyota operates in various countries, and each country has a different political environment. In the U.S, for example, Toyota recently claimed that the government was not industry friendly. This came when Toyota executives were to testify during an investigation about the company’s massive recall of one of its products from the market. According to Sherman (2010), the company feared the uncertain regulatory environments in each country due to changing political environment. Toyota is at a high risk if country’s regulations negatively affect their business. Each domestic automotive industry is strongly protected by their respective governments. Serious consideration could be given to domestic automotive manufacturers leaving out multinational companies like Toyota. If the government decides to offer incentives and grants, so that domestic automotive companies can be uplifted, Toyota can experience tough competition. The company is, therefore, operating in risky markets with governments controlling the political environments. Any regulatory change can happen anytime (Nyborg, 2012). Different countries have different regulations, and this can be to the advantage of Toyota. Some countries may exempt some products from taxation, depending on the standard requirements, and performance of the product. If a country, for example, offers incentives for companies to develop environmental friendly products, then such companies comply, they may be given incentives in the form of tax reduction, or no tax on such products. Toyota can benefit from its environmentally friendly products (Jain, Trehan & Trehan, 2009; Toyota Global (b), 2014). Economic Environment Toyota is a multinational company. Any effect on the global economy therefore, affects it. It operates in major economies of the world, for example, in China, U.S, Japan, Europe, and so on. Global recession will affect it, as well as economic downturns of specific countries and regions in which it operates. The positive growth in the economy of any region of operation is an advantage to the company. Every country manages its economic problems and opportunities differently. A country can decide to put heavy taxes on imported cars in order to encourage a developing automotive industry in the domestic market (Kim & Hetzner, 2011). This can increase the market prices of the imported product hence affect sales. This is unpredictable, and Toyota should be ready to face any regulations aimed at improving the domestic markets. A country can also decide to exempt certain cars from exercise and custom duties. This can boost the sales of such products, for example, in 2011; the Malaysian government gave 100 exemptions on exercise and custom duties for Toyota’s electronic and hybrid cars. Good economic growth of any country, however, provides a favorable trading environment. People’s purchasing powers improve, thereby increasing their chances of purchasing durables such as Toyota hybrid cars (Kim & Hetzner, 2011). Social Environment In every product market, there are people of different social classes. In the automotive industry market, consumers are divided into four social classes; low end, medium, economy, and luxury. Toyota has developed different models and brands to cater for all these social classes. Within each class, consumers have preferences and tastes. These have since guided the development of new products. New cars come with improved features to please the consumer, for example, some consumers love luxury cars, but they also need such cars fuel efficient. Toyota has ensured it caters for this group of people by manufacturing fuel efficient cars. As described in the SWOT analysis section, automotive industry companies compete in various areas and issues. When comparing cars, they look at fuel efficiency safety, quality, and so on. These features determine the social class of the consumers (Kim & Hetzner, 2011).Toyota has a variety of cars differentiated by the major four social classes and specific features mentioned. It also has R&D program that has the capability of determining consumer’s needs, and developing cars according to market demands. A company’s social environment is also affected by people’s perceptions about the company’s values. Toyota operates in various regions from which it has its manufacturers. To ensure there are good relations, Toyota ensures a close and appreciative relationship with the communities where its suppliers are located. The Company ensures such communities are supported through different programs as a sign of appreciation and for the communities benefit (Toyota Global (b), 2014). Technology Technological development in the automotive industry is necessary for growth and expansion of the company. Toyota is one of the technology leaders in this industry. The company has a sustainable goal, which is to prevent accidents and minimize damage in case of an accident. In order to achieve this, the company is already integrating new technology to develop safe vehicles. This is under its new project named; achieving a safe mobility society. This project is directed by the belief that the most important parts in preventing accidents and reducing damage are the traffic environment, the people, and the vehicles; which should all be integrated into one initiative. This philosophy forms the basis on its current technologies used to ensure safety and reduced damage (Toyota Global (a), 2014). Toyota’s improvements in efficiency have focused on environmental friendly technologies which ensure reduced CO2 emissions, environmentally friendly energy sources, and prevent air pollution. It reduces vehicle load, proactively manages power train efficiency, and controls energy management. All these are achieved by integrating fuel-saving technologies. Toyota has been the leader of environmentally friendly vehicle technologies for a long time. Additionally, it recently formed a partnership with BMW, with one of the aims being, enhancement of the both the companies’ technological development. It is better placed in the market concerning technology (Sherman 2010; Nkomo, 2013). Environmental and legal Environment Environmental protection has long been a global concern. Because of its environmental friendly model cars, Toyota has no problem catching up with the global market. Building environmental cars is not the only initiative taken by Toyota. The company supports environmental protection projects in communities that it operates in, and serves. The management has different environmental initiatives specific to each country and area of operation. An example is the Toyota Together Green project, in Canada that works to conserve the natural resources, protect wildlife and improve water quality (Toyota Motor Manufacturing Canada Inc, 2014). Each country, down to the municipalities has legislation related to the environment. Toyota ensures it complies with this legislation, as well as other additional requirements. Like most companies. Toyota strives to comply with legal requirements of each country in which it operates. This, however, may affect the company and in turn its revenues if regulations hinder operations in one way or the other (TMMC, 2014). Strategic Group Analysis Strategic group analysis is the process of identifying and grouping certain firms based on the strategies they use. In any industry, there are firms that use similar strategies, and so compete with one another. In the automotive industry, there may be firms only focused on producing luxury cars, and so they will compete with one another and neglect the other firms within the industry. This group analysis is conceptual since the groups are not formally identified. These groups are identified based on a set of strategic dimensions, for example, the degree of product quality, technological leadership, choice of distribution channels, pricing policies, and the customer service (Kazmi, 2008). Analysis of Toyota will consider the following strategies; technological leadership, environmentally friendly cars, and research and development. Toyota is the leader of hybrid cars, but in 2013, it started receiving high competition from Ford. Toyota leads the hybrid car market by 72.40% followed by ford that moved up to the second position with 7.50%. Other players in the hybrid markets are; general motors, Hyundai, and Honda (Wernle, 2013). Toyota also produces race cars to compete with other racers like Audi. Currently, Toyota has revealed its new TS040 race car to compete with Audi’s Porsche in the World Endurance Championships. So considering race cars, Toyota competes with cars in the LMP1 category (Welsh, 2014). Ford and Toyota are also competing for technology leadership in the automotive industry. Ford was the leader in 2011, but currently, the position is held by Toyota. Under the sales category, Toyota competes with General Motors and Volkswagen. In the year 2013, Toyota beat GM and Volkswagen AG in its worldwide sales (Jie & Horie, 2014). Porters Five Forces Analysis Porter’s five forces is used for analyzing a company’s competitive position. The framework consists of an analysis of; the supplier power, buyer power, competitive rivalry, threat of substitution, and the threat of new entrance (Hill & Jones, 2009). Supplier power: Toyota has more than 200 suppliers from which it obtains its manufacturing components. It also depends on these 200 suppliers for the quality of the cars. Because of the number of suppliers, it is not easy for the suppliers to gain complete control of Toyota and have an upper hand in controlling prices (Toyota, 2012). Buyer Power: Toyota has a variety of car models and is number one in producing environmentally friendly cars. In terms of sales, it beats other competitors to take the number one position. It has a large market share in various regions and countries. Because of this, the buyer power is low (Toyota, 2012). Competitive rivalry: There are so many firms in the automotive industry. The number of firms presents the level of competition; there are so many players in the market each fighting for a share. Apart from this number, Toyota produces a variety of cars. As described above, for example, it competes with General Motors and Volkswagen in sales, it competes with Audi and others in manufacturing of race cars, and it competes with Ford and others in manufacturing hybrid cars. There are also other factors to consider such as quality, safety, and fuel efficiency, which complicate the competition. The market is, however, still attractive because of the degree of product differentiation (Toyota, 2012). Threat of substitution: It is not easy for Toyota to have its products substituted. This is because of its strong brand, and its reputation with its products. There are, however, some companies that develop similar cars, or even better, which can substitute Toyota’s brands. There are several of them; an example is Ford hybrid cars. There is, however, little threat because Toyota is currently leading the market with a big margin (Toyota, 2012). Threat of new entrants: The automotive industry is an expensive industry to start a business. There are so many companies already involved in car manufacturing. This makes the market saturated and unattractive to investors (Toyota, 2012). Value Chain Analysis This is an organized approach to the creation of competitive advantage. There are a series of activities that build value within the company, and these series of activities form the vale chain. Toyota’s series of activities are the maintenance of integration of new technology into the products, research and development. The value chain framework consists of the company’s infrastructure, human resource management, technological development, procurement, and primary activities. All these contribute to the value of the company (Müller, 2011). Toyota’s infrastructure contributes to its current market share. It has various manufacturing factories in about 27 countries. It also has an extensive distribution network. This helps in its sales and in turn, its revenue. Human resource management is a crucial department in ensuring the success of the company. Toyota values its employees and has a training and rewarding program through which it upgrades them and motivates them. Toyota is the current leader in terms of technological development, and this has contributed a lot to the company’s value. It has its electric and hybrid cars, among other models that define its worth in the market, and among competitors. The company’s procurement system is well managed. Car components are obtained from trusted suppliers who sign a long term contract with Toyota to provide such products for a specific period (Müller, 2011). Quality requirements are communicated to suppliers to be incorporated in the components used to manufacture the cars. Considering the number of recalls that Toyota has had, this procurement system could be the source of the problem. Since each supplier is supposed to comply with specific quality requirements, if one fails, then it may lead to problems as those experienced in Toyota recalled brands. Toyota should conduct an investigation to find out the source of the problem. Other activities that contribute to the company’s value chain are its inbound logistics, outbound logistics, operations, services, and marketing and sales (Müller, 2011). Conclusion Toyota is well placed in the market. The industry has an opportunity because of the expected growth of new cars. It has strengthened its technological leadership and know how through its partnership with BMW. Other strengths that it can use to improve its performance are; a strong brand and an extensive production system. There is competition, but the company just needs to deal with it to remain in the market. Toyota is the leading company in research and development in the automotive industry. It can make use of this to capture the new car market that is evidently growing to ensure it remains sustainable, and expand to greater levels. Another weakness is the number of recalls. The company should investigate the cause of all these recalls and rebuild its reputation. These recalls communicate the wrong message about the company; that they are negligent. It should be more cautious to ensure avoidable mistakes are not repeated. The business environment supports the Corporation except for government regulations that are uncertain and unavoidable. These regulations, however, are never formed overnight so the company should always have enough time to deal with such risks. Poor allocation of resources is something the company needs to handle. The company needs to carry out an evaluation of its allocation process to find out where the problem lies. This will help it identify new strategies to ensure increased return on equity. The company faces high impact risks due to natural disasters, but this is unavoidable. If the company analyzes the impact of natural disasters in all its areas of business, it can make changes aimed at reducing effects of natural disasters. Economic factors are beyond the company’s control, but it can analyze the economic trends in the past and be able to predict downturns. The social environment is well captured by the company. It has all the consumer requirements well catered for, and conducts its social responsibilities well. References Applegate, E. and Johnsen, A., 2007, Cases in Advertising and Marketing Management: Real Situations for Tomorrows Managers, Maryland: Rowman & Littlefield. Borowski, A., 2010, Report on the Toyota Company, Norderstedt: GRIN Verlag. Hill, C. and Jones, G., 2009, Strategic Management Theory: An Integrated Approach, 9th Ed. Boston, MA: Cengage Learning. Jain, T. R., Trehan, M., and Trehan, R., 2009, Business Environment, New Delhi: FK Publications. Jie, M. and Horie, M., 24 January 2014, Toyota Beats GM in 2013 as 10 Million Vehicles Seen. Retrieved from: http://www.bloomberg.com/news/2014-01-23/toyota-beats-gm-vw-in-2013-car-sales-sees-3-growth-this-year.html Kazmi, 2008, Strategic Mgmt & Bus Policy 3e, New Delhi: Tata McGraw-Hill Education. Kim, C. and Hetzner, C., 1 December 2011, Toyota, BMW join hands on green technology, Reuters. Retrieved from: http://www.reuters.com/article/2011/12/01/us-toyota-bmw-environment-idUSTRE7B00J920111201 Müller, C., 2011, Case Study and Comparative Strategic Analysis of Toyota and Ryanair, Norderstedt: GRIN Verlag. Murray-Webster, R. and Stationery Office, 2010. Management of risk: guidance for practitioners, Norwich: The Stationery Office. Nkomo, T., 2013, Analysis of Toyota Motor Corporation. Retrieved from: http://scholar.harvard.edu/files/tnkomo/files/analysis_of_toyota.pdf. Nyborg, K., 2012, The Ethics and Politics of Environmental Cost-benefit Analysis, London: Routledge. Sherman, J., 21 February 2010, Toyota: Democrats not industry friendly, POLITICO Magazine. Retrieved from: http://www.politico.com/news/stories/0210/33248.html Toyota, 2012, Toyota Global Vision and Strategy, Toyota European Sustainability Report. http://epts2012.ktenet.hu/Toyota_European_Sustainability.pdf Toyota Global (a), 2014, Toyotas Philosophy for a Safe Vehicle. Retrieved from: http://www.toyota-global.com/innovation/safety_technology/ Toyota Global (b), 2014, Toyotas Strategy for Environmental Technologies. http://www.toyota-global.com/innovation/environmental_technology/strategy_environmental_tech.html Toyota Motor Manufacturing Canada Inc. (TMMC), 2014, Environmental Responsibility. Retrieved from: http://www.tmmc.ca/en/environmental_responsibility.html Welsh, J., 30 January 2014, Toyota Reveals New Hybrid Race Car to Compete with Audi, Porsche, The Wall Street Journal. Retrieved from: http://blogs.wsj.com/speakeasy/2014/01/30/toyota-reveals-new-hybrid-race-car-to-compete-with-audi-porsche/ Wernle, B., 1 July 2013, Toyota still reigns, but Ford is flexing its muscles, Automotive News. Retrieved from: http://www.autonews.com/article/20130701/OEM05/307019995/toyota-still-reigns-but-ford-is-flexing-its-muscles Williams, C., 2011, Effective Management, 5th Ed., Boston, MA: Cengage Learning. Read More