Strategic Management at Toyota Motor Corporation Australia Limited - Case Study Example

Strategic Management for Professional Practice at Toyota Motor Corporation Australia Limited Student’s Name: Course: Tutor’s Name: Date: Background information about Toyota Motor Corporation Australia Limited (Toyota AU) Toyota Australia set its operation in Australia more than 50 years ago, and has expanded to become one of the leading automotive manufacturing companies in the country. By 2002, Toyota AU was ranked as the 5th largest manufacturing company in Australia based on turnover (Griffin and Egan 1). The company is also a large employer with an estimated 4,100 people working in its corporate headquarters, manufacturing plant, and its sales and marketing operations. According to news posted on its website, the company commands 18 percent of Australia’s automotive market. Additionally, the company serves overseas markets mainly in the pacific islands, New Zealand and Middle East with vehicles manufactured in its Altona plant (Toyota.com.au/about us). The Aurion and Camry vehicles are specifically targeted for overseas markets, with an approximated 50 percent of all the manufactured vehicles in the two categories being destined for the export market. Toyota AU’s mission statement underscores the need for the company to improve the quality of its products to world class levels. Additionally, the company intends to improve its operating efficiency through enhanced flexibility and reduction of costs; work in partnership with “component suppliers to localise significant components and improve their operating capability and efficiency”; and establish and service new export destinations (Griffin and Egan 1). Toyota AU’s vision is to be the “most respected and admired company” (Toyota.com.au/ vision/philosophy). As one would expect, respect and admiration can only be attained through good performance, which would in turn guarantee the company good products and enhanced profitability. The company’s vision is further captured in its aspirations, which include continued growth in the Australian and export markets worldwide, the development of new products; development of new innovative capabilities; and the development of an extended supplier base (Griffin and Egan 2). To attain its vision as contained in the aspirations, Toyota AU will need to increase its flexibility, invest more in engineering and design capabilities, and invest in enhancing production capabilities. One of the areas in which Toyota will have to work with the government and other stakeholders is a policy that will affect the competitive nature of Australian automakers positively (Griffin and Egan 2). Toyota AU’s financial review Information posted on Toyota AU’s website for the year 2010 (i.e. 01 January -31 December 2010) reveals that the company had a total of $ 7.079 billion sales revenue during that period. Part of this revenue ($ 1.004 billion) came from the export market where the company exports vehicles and parts. The company does not reveal its expenses, earnings and liabilities, but has listed its total assets worth during the 2010 financial period as $ 2.305 billion (Toyota.com.au/key facts). The company’s financial status does not appear to be rosy since an article by Pettendy reveals that it registered losses for the second year in a row in the 2010-2011 FY. In the 2009-2010 financial year, Toyota AU had registered net loss amounting to $107.9 million, and in the 2010-2011 FY, the results worsened even further with the company recording $113.2 million in net losses. Pettendy cites increased competition, tax adjustments and unpredictable exchange rates pitting the Australian dollar against other major currencies as the main reasons why Toyota AU has performed dismally in the past two years. Pettendy also contends that tax adjustment for previous years contributed significantly to Toyota AU’s loss-making streak between 2010 and 2011. Dominant economic factors worth noting in Toyota AU’s case As noted elsewhere, Toyota commands 18 percent of Australia’s car market. Additionally, the company has an expanding overseas market, which according to Toyota.com.au/key facts, covers 13 countries and earned the company a total of $1.004 billion in revenues in 2010. In relation to competition, Toyota AU’s main competitors in the Australian market include GM Holden and Ford. In the global market, Toyota AU has to compete with other car manufacturers such as General Motors, in addition to competing with other Toyota subsidiaries especially in North America and Asia (Griffin and Egan 2). In the recent past, the Commonwealth of Australia (14) notes that the increasing imports from countries like the US, Japan, North Korea and Canada have increased the competitive pressure that Toyota AU and other Australian vehicle manufacturers face. The potential market growth rate, although immeasurable, is undoubtedly likely for Toyota AU considering that the government is working on necessitating the growth of Australia’s automotive industry’s presence abroad (Commonwealth of Australia 46). Unlike some utility products, it is hard to place Toyota AU at a specific stage in the product lifecycle (see diagram 1) due to its constant redesigning and innovations. For example, the Toyota Prius was initially manufactured in 2000, and remodelled to a new the Prius generation in 2004 in order to meet consumer requirements while living up to the prevailing trends in the automotive industry. When the Prius hits maturity stage in the product lifecycle, Toyota AU may once again choose to revamp it or introduce a substitute model in its place. Due to the research and development component that keeps working on new designs and components, Toyota AU is able to rejuvenate itself in such a way that its products and services remain relevant to the consumer market. As Cheverton (111) notes, a good strategy works on preventing the product from the effects of saturation, which happens when similar products hit the market, and decline. One of the ways that can be used to extend the lifecycle of a product such as cars is brand augmentation, where extra features are fitted into the initial design car; and brand extension where features of a car model that has reached the maturity stage are introduced for use in a new model (Cheverton 112-113). Figure 1: Product Life Cycle Source: Cheverton (112) Vertical integration at Toyota Just like its parent company Toyota, Toyota AU has established good working relationships with its suppliers, intermediate manufacturers and distributors. The company “has always stressed to its suppliers the idea that they share a common destiny” (Anderson 3-4). The distributors on the other hand have a good relationship with the company founded on commitment, cooperation and trust (Anderson 4). Players in Toyota AU’s supplier a distribution network thus understand that success for the company would translate to better fortunes. The opposite would also be true. The vertical integration in Toyota AU is further enhanced by the fact that a significant number of parts used in assembling cars in the Altona manufacturing plant are imported from its parent company, Toyota Motor Corporation. As a result of the relationship with the suppliers and distributors, Toyota AU is able to avail its products to all parts of Australia through the vast distribution network, improve its coordination of the supply chain, capture the resulting downstream and upstream profits, increase entry barriers to newer market entrants who may struggle to establish a good distribution and supplier network, and facilitate investment for distributors, who may be reluctant or lack enough funds to set up distribution outlets. By doing the latter, Toyota is assured that the distributors will owe the company some allegiance, even after the investment costs are recovered. Explicit contracts between Toyota AU and its distributors and suppliers further make it easier for the company to acquire vertical integration even in the midst of stiff competition. Porter’s five forces on Toyota AU Bargaining power of suppliers Toyota AU depends on Toyota Motor Corporation for its supplies. Toyota MC on the other hand depends on first and second tier suppliers for components and parts that are used in the assembly of cars (Anderson 5). One large and direct supplier that Toyota MC relies on for supplies is Denso, which according to Anderson (7), supplies Toyota with 14 percent of all parts that the car assembler uses. If Denso’s position in Toyota was to be considered, one can then argue that the bargaining power of suppliers is relatively high. This position is further reinforced by Molnar’s (6) observation that “…direct suppliers are becoming large global firms”, thus giving them more competitive powers especially because the motor car assembler places a significant amount of technical reliance on them. Bargaining power of buyers Looking at the buyers in the automobile industry, one would be tempted to conclude that they have no bargaining powers especially because they are individual purchasers who access the production from Toyota AU’s distribution network. However, a closer analysis of the market reveals that the motor vehicle consumer market has several dynamics, which include declining customer loyalty, increasing price sensitivity, increasing technological demands, and increased competition from other industry players. Combined, these aspects give consumers a substantive level of bargaining power. Threat of new entrants The motor vehicle industry in Australia is an expensive and concentrated market (Commonwealth Australia 41). Hence, the entry barriers are significant especially considering the competition that a new entrant would face, and the huge investments required for companies to succeed in the sector. Notably however, flexible import laws have made Australia an easy market for finished car imports. Threat of substitutes Trains, motorbikes, bicycles, and airplanes can all be considered as alternative products to motor vehicles. Notably however, none of the mentioned products can offer the comfort, affordability or the reliability that cars do. One can therefore argue that the threat of substitute products is relatively low. Rivalry among competing firms If the shutting down of Nissan Motor Company in 1992 and Mitsubishi Motors Australia Company in 2008 is anything to go by, then one can conclude that the rivalry among competing vehicle manufacturers in the country is tough. To date, the biggest players in Australia’s auto industry are Toyota AU, GM Holden, and Ford Motor Company (Bayari 93). While the three companies seem to command a significant percentage of loyal customers, their aggressive marketing campaigns seem to suggest that the level of rivalry is still high. Toyota for example uses different marketing strategies, which include traditional methods of advertising, and the more socially appealing approach of establishing ties with collective communities through corporate social responsibility (Commonwealth of Australia 143). Murphy (1) however argues that besides the internal competition rivalry posed by the three companies; the greatest risk to their operations is posed by “cheaper Asian produced imports”. Changes in Australia’s auto industry’s competitive structure and business environment The auto industry in Australia is facing significant changes in the business environment and this consequently affects the competitive structure. Among the major drivers of such changes include regulatory changes, technological changes, and economical changes. Regulatory changes are often related to policies made by the government. In 2005, the Australian government halved import tariffs from 10% to 5% (Derby 6). Consequently, cheaper imported vehicles are flooding the market and affecting the business and competitive structures of local car manufacturers such as Toyota AU. On the technological front, consumers have shown their liking for more tech-enhanced vehicles, meaning that local manufacturers have to invest more in research and development, in the hope of enhancing technological capabilities in the newer car models. On the economic front, the fluctuation of the Australian dollar against major world currencies (Bayari 95), and the prices of crude oil (Derby 6) are two vital indicators that affect the business and competitive environment for automakers in Australia. The exchange rate affects the pricing of imported spare parts and car assembly components, while the price of crude oil affects the type of cars that consumers purchase. Fortunately for Toyota, the crude oil aspect has affected its competitors (Ford and GM Holden) more, since the two produce big cars whose fuel consumption is higher compared to some Toyota car models. The rising cost of steel has also been cited by Derby (6) as one of the key factors that have affected the profitability of local car manufacturers. Toyota AU’s position in Australia’s car market Having observed that Toyota has attained full vertical integration by involving its suppliers and distributors as part of its business network, and having established that the company is in a better strategic position compared to GM Holden and Ford, due to its fuel efficient cars; one can argue that the company is in a better position than all its competitors in the local market. As illustrated in Figure 2 below, Toyota also has a relatively larger domestic market compared to its two major competitors and even other small manufacturers combined. Figure 2: Australia’s Car Market Data Source: Derby (26) The company’s strategic position is clearly seen through a SWOT analysis as follows: Strengths: A significantly larger local market share compared to competitors Strong export sale: 65 % of its cars are sold in the export market (Derby 26) Has invested in research and development, thus making it a market leader in hybrid cars Has a history of bucking trends- the Aurion is “pitched as the most fuel-efficient vehicle among all large cars produced in Australia” (Derby 27). Weaknesses Just like other Australian firms, occasional, unplanned employee absence affects Toyota AU’s overall performance (Murphy, Smith and Roberts). The reduction of import tariffs by the government has made Australia an easy target market for international car manufacturers The combined costs of high steel prices and high exchange rates are reducing the profit margins that Toyota AU makes. Opportunities Toyota AU’s investment in research and development will continue making it a market leader in days to come The export market is expanding and Toyota AU could make use of the opportunities created The demand for green cars is increasing and Toyota is already a market leader in making such cars (Derby 11). Threats Increased competition from cheap imports Increased price sensitivities by consumer might be hard to balance against their zest for more tech-advanced cars Conclusion There is little doubt that Toyota AU is strategically positioned to compete with other car manufacturers in the Australian market. Its market share is just one of the key indicators that the company is indeed well positioned to beat competition posed by both local manufacturers and importers. By investing in research and development, corporate social responsibility initiatives and by investing in social community partnerships, the car manufacturer is further cementing its position in the Australian market. This is in addition to the fact that Toyota AU has already depicted that it understands the consumer position by manufacturing smaller, fuel-efficient cars. Through vertical integration, Toyota AU has ridden on the precedence set by its parent company in establishing strategic relationships with suppliers and distributors. Consequently, participants in the supply chain work in a symbiotic relationship with Toyota, riding on the idea that they (suppliers and distributors) share the same destiny with the carmaker. Despite its position in the Australian market, the decreasing profits, market share, and increasing competition from cheap imports are all indications that Toyota AU needs to rethink its strategic management priorities. For example, the company may need to rethink whether being a market leader is satisfying enough even though the financial records reveal that the profit levels are declining. Additionally, the company may need to strategise on how to utilise the opportunities presented in its operational environment. Works Cited Anderson, Evelyn. “The Enigma of Toyota’s Competitive Advantage: Is Denso the Missing Link in the Academic Literature?” Pacific Economic Paper. 339 (2003): 1-32. Bayari, Celal. “Japanese Auto Manufacturers in the Australian Market and the Government Industry Assistance Spending.” The Otemon Journal of Australian Studies. 34 (2008): 87-107. Cheverton, Peter. How Come your Brand is not working Hard Enough? London: Kogan Page Limited. Print. Commonwealth Government. “Review of Australia’s Automotive Industry”. Final Report. (2008):1-185. Derby, Sarah-Jane. “Green Pressure: The Industry in Reverse from Producing Unwanted Vehicles.” IBISWORLD. (2011): 1-39. Griffin, Peter and John Egan. “Toyota Motor Corporation Australia”. Submission to Productivity Commission Inquiry into Post 2005 Assistance Arrangements for the Automotive Manufacturing Sector. (2002): 1-54. Molnar, Eszter. “Strategic Management in the Ailing Automobile Industry.” 17 Apr. 2009. < http://elib.kkf.hu/edip/D_14581.pdf>. 21 Feb. 2012. Murphy, Jason, Fiona Smith and Peter Roberts. “Absenteeism Reflects Sick Organisation.” Financial Review. 07 Feb. 2012. < http://www.afr.com/p/national/work_space/absenteeism_reflects_sick_organisation_QvCKWp1Cz5dtUNGF1rdhaN>. 21 Feb. 2012. Pettendy, Marton. “Toyota Australia Posts $13.2m loss.” John Mellor PTY Ltd. 27 Jun. 2011. . 21 Feb. 2012 Toyota.com.au. “The Company”. Jan. 2012. . 16 Feb. 2012. Toyota.com.au. “Our Vision.” Jan. 2012. . 21 Feb. 2012. Toyota.com.au. “Key Facts.” Jan. 2012. < http://www.toyota.com.au/toyota/company/key-facts?WT.ac=Toyota_TheCompany_TopNav_KeyFacts>. 21 Feb. 2012. Read More