International Business Environment - Essay Example

International Business Environment – Toyota Table of contents Executive summary 3 2. Introduction 4 3. Background of the company 5 4. Growth and performance 5 4.1 Growth 5 4.2 Performance 7 5. Assessment of key environmental factors 5.1 Identify and explain what the key factors in the business environment are 9 5.2 Future impact 10 Explain how the above factors ( PESTLE) affect the company future. 6. Conclusion 11 7. Reference 11 1. Executive summary The ability of organizations to succeed in the global business environment is related to a series of factors, including the resources available, the organizational objectives and the network of each firm’s strategic alliances, both locally and globally. At this point, the following problem has appeared: is the global business environment able to affect organizational performance? The performance of a Multinational Enterprise (MNE) in the context of the global business environment is explored in this paper. Reference is made to Toyota and the challenges that the particular organization faces under the pressures by the global business environment. It is revealed that despite its financial strength and its exceptional position in the global market, the firm needs to review its strategies seeking rather for slow and long term growth rather than for high profits in the near future. 2. Introduction The expansion of a business globally is usually decided taking into consideration the organizational needs but also the risks involved. In practice, it has been proved that the development of businesses in the global market is not an easy initiative, especially due to high competition which causes instability in regard to most firms’ profits. In this paper, the effects of global business environment on organizational activities are set under examination. More specifically, the question that this paper addresses is the following one: how and at what level the global business environment can affect business operations. The case of Toyota, a major competitor in the global automotive industry is set under examination. Before proceeding to the exploration of the above issue, it would be necessary to describe the context of the following two terms: international business environment and Multinational Enterprise. Jain, Trehan and Trehan (2010) refer to the characteristics of business environment. For the above researchers, th business environment refers to those aspects of the surroundings of business enterprise which have influence on the functioning of business’ (Jain, Trehan and Trehan 2010, p.6). At the next level, the international environment reflects ‘the interaction between domestic and foreign factors’ (Aswathappa 2010 , p.124); the term factors in the above definition refers to all the forces that a business has to face when operating in the global market (Aswathappa 2010 p.124). In regard to the characteristics of a multinational enterprise (MNE) different views have been developed. For example, Dunning and Lundan (2008) consider that an enterprise can be characterized as multinational when it meets the following two requirements: ‘a) it is involved in foreign direct investment activities and b) it is engaged in value-added activities in more than one countries’ (Dunning and Lundan 2008, p.3). From another point of view, an enterprise is multinational when it manages to achieve’ an income of at least $75 million in sales from foreign operations’ (Stopford and Dunning 1982, in Gilroy 1993, p.42). 3. Background of the company Toyota is among the most powerful competitors in the global automotive industry. The organization was first established in 1933 with a capital of ¥ 80,462 million (Toyota Company Profile, 2013). The founder of Toyota, Sakishi Toyoda, had already invented, in 1924, the Automatic Loom, an invention which was sold to a British company in 1929 (Toyota History 2013). Today, the firm’s head office is in Tokyo, Japan (Toyota Company Profile 2013). The firm operates in the automotive industry focusing on the ‘motor vehicle production and sale’ (Toyota Company Profile 2013). About 325,000 individuals work in the firm’s sites worldwide (Toyota Company Profile 2013). The firm’s profits for 2012 reached the ¥18,583.6 billion (Toyota Company Profile 2013). Two have been the key reasons for the success of the organization worldwide: a) its emphasis on innovation and b) its efforts to keep customer service at quite high levels. 4. Growth and performance a. Growth Figure 1 – Toyota company worldwide (source: Toyota, Worldwide Operations, 2013) In Figure 1 above, the expansion of Toyota’s units worldwide is presented. The presence of the firm in the global market can be characterized as impressive. Another important issue highlighted through the above Figure is the following one: firm has emphasized on specific markets, such as North America, South East Asia and Europe. The firm’s strategy in regard to its internationalization is characterized by the following trend: different methods of entry in foreign markets have been employed by the organization, probably in an effort to control the risks involved. For example, the firm’s entry in China primarily based on exports (Hitt et al. 2008, p.230); then, a joint venture with local firms was developed (Hitt et al. 2008,p.230). Moreover, the ability of the organization to change its strategic choices in regard to its global expansion are presented in Figure 2 below, where the production and R&D units of the firm’s globally are presented. Both Figures 1 & 2 reflect another characteristic of the firm’s strategic choices in regard to its growth: the firm has addressed all markets globally, apart from the Russian market. The specific trend is verified through the strategic choices of Toyota when entering the USA market. In regard to its entry in the particular market, Toyota has employed two dynamic entry modes: ‘the joint venture and the greenfield venture’ (Hitt et al. 2007, p.250). The particular trend reflects the firm’s aggressive strategic decisions in regard to its global expansion. Figure 2 – The production and R&D units of Toyota worldwide (source: Toyota, Worldwide Operations, 2013) b. Performance The performance of Toyota during the last years is characterized by the following phenomenon: up to 2008 the company’s profits showed a trend of continuous increase. In 2009 an important decrease in the firm’s profits is reported. From 2010 up to 2012 a trend for stabilization in regard to the firm’s performance has appeared. The specific trend is reflected in Table 1 below, where financial indicators related to the organizational performance are presented. Fiscal Year Financial Indicator Operating income return on revenues Pretax return on revenues Pretax return on capital Return on assets (R.O.A.) Return on equity (R.O.E.) Shareholders equity ratio FY2012 1.9% 2.3% 1.4% 0.9% 2.7% 34.4% FY2011 2.5% 3.0% 1.9% 1.4% 3.9% 34.7% FY2010 0.8% 1.5% 1.0% 0.7% 2.1% 34.1% FY2009 2.2% 2.7% 1.8% 1.4% 4.0% 34.6% FY2008 8.6% 9.3% 7.5% 5.3% 14.5% 36.6% FY2007 9.3% 9.9% 7.8% 5.4% 14.7% 36.3% FY2006 8.9% 9.9% 7.9% 5.2% 14.0% 36.8% FY2005 9.0% 9.5% 7.6% 5.1% 13.6% 37.2% FY2004 9.6% 10.2% 8.4% 5.5% 15.2% 37.1% FY2003 8.2% 7.9% 6.2% 3.8% 10.4% 35.3% FY2002 7.7% 6.9% 5.4% 3.1% 7.8% 37.6% FY2001 6.1% 8.5% 6.6% 4.0% 9.6% 41.6% Table 1 – Financial indicators, related to the firm’s performance between 2001 and 2012 (Source: Toyota, Investors, Financial Highlights 2013). Apart from the above figures, reference should be made to the income of the organization during the last 10 years, as reported in the firm’s financial accounts for the above period. Information in regard to the income of Toyota from 2002 up to 2012 is provided through the Figures 3 and 4 below. Figure 3 – Financial performance of Toyota for 2008 up to 2012 (Source: Toyota, Investors, Financial Highlights 2013). Figure 4 - (Financial performance/ income of Toyota from 2002 to 2006) According to the information provided above, the performance of the organization during the last 10 years can be characterized as quite satisfactory, showing trends for continuous growth, at least up to 2010 when signs of decrease of the firm’s profits, compared to the past, appeared. The limitation of the firm’s profits during the last three years, as analyzed above, seems to be related to the continuous failures in regard to the firm’s vehicles, as these failures have led, in certain cases, to massive recall of the firm’s vehicles in the past. Reference should be made, as examples, to the following cases: a) in 2009 Toyota had to recall abou 3.8m vehicles for failures related to safety (Muller 2009), b) in 2012, November, Toyota recalled 2.7m vehicles because of water pump problems (The Telegraph 2012); c) recently, in January of 2013, the firm had to recall 1.3m vehicles for problems related to the airbags and the windscreen wiper (Tryhorn 2013). Up today, the ability of the firm to introduce innovative products, either in terms of their design, their features or their performance, has been considered as responsible for the organization’s impressive expansion worldwide. The stabilization of the firm’s performance has been also related to technology, as described earlier. Among the various factors of the international business environment, as analyzed below, the firm should emphasize on the technological factor as the only way to re-establish its position as a leading competitor in the global automotive industry. 5. Assessment of key environmental factors a. Identify and explain what the key factors in the business environment are The key environmental factors that have influenced the firm’s performance up today can be identified using the PESTLE analysis. In the context of the PESTLE framework, the firm’s position in the global business environment is influenced by six factors: a) Political; political turbulences worldwide have become a common phenomenon; governments are replaced unexpectedly while new political parties appear in many countries around the world. Reference can be made, for example, to the case of EU, the members of which had to face elections during 2012 and 2013, up today. The case of Italy and the lack of a party that represents the majority of the population is an indicative example, of unstable political environment globally; the firm’s strategic managers should take into consideration this issue when having to decide the firm’s strategic initiatives in the global market for the near future; b) Economic; global economy faces strong turbulences, especially due to high competition in currency exchange rates; the high decrease of yen towards other currencies, as this trend appeared the last three months, has caused severe conflicts between the government of Japan and that of USA; c) Social; social conflicts have appeared in many countries globally as a result of severe tax reforms; firms that need to secure their position the global market have to adjust their global activities accordingly; for example, an emerging market like China should be preferred, as a target market, rather than an area where social conflicts have become strong, as in the case, for example, of EU; d) Technological; the technology is rapidly developed worldwide; in the automotive industry a similar trend exists; firms that need to secure their position in the global business environment need to ensure that their products are aligned with the technology advances in the industry involved; e) Legal; important reforms on existing laws related to taxation have introduced in many countries internationally, possibly because the increase of debt at national level; f) Environmental; the protection of the environment has become a key prerequisite for MNEs, the activities of which highly impact the environment; in addition, the tax against the products that are environmental friendly tends to be lower, compared to conventional vehicles. b. Future impact The factors mentioned above can affect the firm’s future in the following way: a) the firm’s further expansion in the global market should be carefully reviewed; investments for entry in a foreign market could be characterized as a rather risky initiative, at this point of time; the development of the firm’s existing units worldwide should be rather preferred; b) the funds that the firm invests on research and development should be reviewed, as of the priorities set; emphasis should be given rather on features that tend to attract more customers, such as the use of advanced communication technology within the vehicle and the development of vehicles that are environment friendly, c) the firm’s strategies in its units internationally should be reviewed taking into consideration the changes on tax laws internationally; d) the communication of the firm with its customers would be improved, mainly by focusing on social media that tend to influence a high percentage of consumers in all markets. 6. Conclusion The success of Toyota in the global market cannot be doubted. However, the stabilization in the firm’s productivity, as reflected in the financial results of the organization presented in section 4 above, leads to the following assumption: for the last years, i.e. from 2010 onwards the firm has been unable to improve its performance, meaning that it has not been able in competing effectively. The conditions in the international business environment, as explained above using the PESTLE analysis are highly responsible for the specific outcome. In this condition, it can be stated that the power of the firm in the global automotive industry is threatened, since a decline in the firm’s profits is always possible to start. Therefore, the stabilization and the future growth of the firm is depended on the review and the update of its strategic priorities, according to the trends in the international business environment, as analyzed above. 7. References Aswathappa, K. 2010. International Business. New Delhi: Tata McGraw-Hill Education. Dunning, J. and Lundan, S., 2008. Multinational Enterprises and the Global Economy. Cheltenham: Edward Elgar Publishing Gilroy, B., 1993. Networking in Multinational Enterprises: The Importance of Strategic Alliances. South Carolina: University of South Carolina Press. Hitt, M., Ireland, D. and Hoskisson, R., 2008. Strategic Management: Competitiveness and Globalization: Concepts & Cases. Belmont: Cengage Learning. Hitt, M, Ireland, D. and Hoskisson, R. 2007. Strategic Management With Infotrac: Competitiveness and Globalization. Belmont: Cengage Learning. Jain, T., Trehan, M. and Trehan, R., 2010. Business Environment. New Delhi: FK Publications. Muller, J., 2009. Runaway Toyota Recall. 29 September 2009. Forbes. Available at http://www.forbes.com/2009/09/29/automobiles-toyota-recall-business-autos-toyota.html The Telegraph, 2012. Toyota recalls 2.7m cars in latest blow to reputation. 14 November 2012. The Telegraph. Available at http://www.telegraph.co.uk/finance/newsbysector/industry/9676794/Toyota-recalls-2.77m-cars-in-latest-blow-to-reputation.html Toyota Group, 2013. Company Profile. Available at http://www.toyota-global.com/company/profile/toyota_group/ Toyota Group, 2013. Overview. Available at http://www.toyota-global.com/company/ Tryhorn, C., 2013. Toyota recalls 1.3m cars over airbag and windscreen wiper faults. 30 January 13. The Guardian. Available at http://www.guardian.co.uk/business/2013/jan/30/toyota-recall-cars-airbag-wiper-faults Read More