Toyota Strategy Evaluation - Case Study Example

TOYOTA STRATEGY EVALUATION al Affiliation TOYOTA STRATEGY EVALUATION Introduction Toyota is a multinational automobile Company that started in 1934 and has expanded across the world. The company started with the aim of capturing over 20% of the global automobile industry and to become a world leader in sales. Since its invention, the company has upheld the spirit of innovation industry to consistently produce creative car models that satisfy the economical class. As at now, the company is approaching the 20% market share and the company is the second producer of automobile worldwide. With high differentiation in the market, the company has remained top in the market. However, competition increase especially in the low-cost model market has become a big threat for the company. Recently, the company has experienced reduced growth as it competitors continue to penetrate the market and push the company’s profits downwards. The company still stands a chance to penetrate the market by establishing new markets and focusing on cost differentiation. The survival of the company depends on the ability of the management to detect the changes in the market and to design new strategies that will keep the company top of the market in the long-term. Strategic Evaluation Organizational strategies refers to the approaches that a company deploys to push its products to the market and to acquire an appropriate position in the market. Companies use competitive strategies to compete with their business rivals. In the automobile company, competition has consistently increased due to the entry of new producers. However, there is a notable insatiable demand for automobile company. A close analysis of Toyota Company will provide an appropriate ground to measure the competitive ability of the Toyota. Toyota TOWS Analysis TOWS Analysis is one of the most critical tools that help to evaluate the strengths, weaknesses, opportunities, and Threats of company’s business model. The strength of the Toyota Company lies in its ability to brand itself as a top manufacture of automobile companies in the world. This strategy has helped the company to create a strong brand image in every market, which has become an important marketing tool. The company’s mass production has been feasible allowing the company to minimize the cost of their cars. With standard quality cars, the company’s strategy has been acceptable within the market. Besides, the company’s ability to diversify its products has helped to satisfy various needs of the market and to satisfy different market segments. Innovation within the company has led to high level of customer satisfaction which explains why the company’s sales continue to increase each year. Besides, it strong corporate social responsibility such as supporting the poor in the society has made this brand acceptable (The Guardian, 2014). The weaknesses of the company have come as a result of large recalls, which led to lose of customer confidence. For instance, in 2011, the recall of 111 thousand brands affected the company’s image. The company still stands a chance to take advantage of the opportunities within the market to streamline its operations and overcome its weaknesses. One of the opportunities that Toyota possesses is the market growth that has created an increase in the demand for automobiles. In 2002, the automobile industry grew by 9% percent and this is expected to continue in the next few decades. Therefore, the company should take advantage of this opportunity to reconstruct its image. Secondly, the company’s partnership with BMW in June 2012 is an opportunity for the company to acquire new technology that will improve its creativity (Cusumano, 2010). This will consistently lead to creating of new brand products that can earn the company a bigger market share. However, the company is under external threat from competitors such as Ford, Mercedes, Chrysler, and Mazda. For instance, Mazda has paid attention to the creation of low cost automobile, hence become a direct competitor of Toyota (Williamson, 2012). The company is there is under threat of losing a large market share to its competitors unless it takes a turn around. Other threats such as disruption of manufacturing process by earthquakes has become an important issue as the company largest plant is located in this region. Pestle Analysis of Toyota The Pestle Model of analysis is important in assessing an organizations external market environment. It helps to measure a company’s suitability within the macroeconomic environment. The Political environment has particularly been favorable for Toyota due to existence of minimum barriers, which has helped the company to enter into over 27 countries with ease. However, the economic factors have been unfavorable due to the fluctuation of the Yemen Dollar over time. On the other hand, the companies is benefiting from economic growth in its potential markets such as China. Notably, emerging markets such as China, India and Africa are becoming economically active, hence providing new opportunities for investment. Social factors have become a driver for increased purchasing behavior within the global market. The proliferation of technology in the world has led to change in social attitudes, making the public more sensitive to life style. This is connected to the 10% increase in demand for automobile products. Besides, technological development has provided an opportunity for the company to market its products efficiently. Toyota Company has used social media advertisement which has become more cost-effective, hence contributing to its price-competition model (Cusumano, 2010). Therefore, the macro-economic factors have greatly benefited Toyota’s business model. Porter’s Five Forces Model Porters five forces model is one critical business tools that help in analyzing the position of an organization within a specific industry. This model forms a good ground to analyses the automobile industry and to evaluate Toyota’s suitability in the industry (Porter, 2000). The threat of new market entrants is very weak in the automobile industry. Quite clear that establishment of an automobile entity would require significant investments to be made when it comes to aspects such as the machinery of raw materials and technology. Furthermore, there is a high threat of retaliation when it comes to existing players and competitors of companies such as Lexus and Nissan who have already established their positions in the market (Cusumano, 2010). For Toyota, this implies that there is no threat from new companies. The existence of low supplier bargaining power in the automobile industry has become an advantage for Toyota. Large and well-established companies such as Toyota unable to wield significant power been it comes to their suppliers since they have access to global supply channels in addition to which the number of suppliers for automobile components can be readily acquired as they are large number, given the nature of the automobile component suppliers it is also highly unlikely that they would undertake forward integration posing challenges to Toyota and therefore these can be considered to be weak in nature (The Guardian, 2014). Therefore, Toyota has access to cheap supplies which has enhanced its ability to produce high quality products and sell them at low prices. The Buyer bargaining power is another important factor of Porter five forces mode. The buyers bargaining power refers to the ability of customer to bargain for both quality and low prices for products. Arguably, although the majority of buyers when it comes to Toyota vehicles may be individual buyers there are also large corporate firms as well as governments that make large number of bulk purchases. The number of options available for automobile purchases to the buyers is also large in number with relative similarity in terms of the utility of the automobiles making it easier for existing buyers of Toyota vehicles to switch over to other providers such as Honda which is also another Japanese company (The Guardian, 2014). In this light, Toyota has a challenge to position itself as top quality producer in the market. The threat of substitute’s products in the automobile industry is minimal. Given the wide range of vehicles that are produced and manufactured at Toyota and since they are aimed at different markets and consumers it is quite possible to identify that the threat of substitutes will be limited (Porter, 2000). Besides, other available modes such as trains or public transport do not offer similar convenience as the motor vehicles. Unfortunately competitive rivalry is a big threat for Toyota given the high number of automobile producers that have targeted the market. Evidently, automobile companies are competing for both economic and high class vehicles, which Toyota continues to target. Companies such as Mercedes are highly specialized in quality cars which make it tough for Toyota to win this market segment. Additionally, more companies such as Mazda and Honda have consistently competed with Toyota in the economic class model as they perceive this market as more profitable (Porter, 2000). Porter’s Generic Competitive model Porter established that companies can only remain competitive by focusing on differentiation or price competition. In differentiation, companies produce unique products that target specific groups within the society. On the other hand, price competition focuses on cost minimization to attract as many customers as possible. For Toyota, price competition has become an important aspect of its competitive strategy. The company has established manufacturing plants in over 27 countries with the aim of maintain the investment cost low. This is a strategy that has become feasible for the company as it has enabled the company to sell its products at lower prices while maintaining standard quality. Secondly, the company has specialized in low fuel models such as Toyota Prius, which use both electricity and fuel for running the engine (Toyota Pressroom, 2014). As a result, the middle economic class has found Toyota as an acceptable company that offers both quality and price sensitive models. This explains why the company’s sales remain very high while other companies experience customer shortage. Alternative Strategies for Toyota While Toyota Company has consistently performed effectively, there is evidence that the company is under great threat from competitors. The company is under pressure to seek new strategies that will promote its performance. One alternative strategy would be to design high class vehicles to broaden their target market. For instance, the company can design models that compete with Mercedes models in terms of comfort and quality. While this may lead “sticking at the middle,” it will help the company to increase its sales by leveraging on its strong brand name. The advantage is that the company will invest in a new market and will have the opportunity to offset competition by other middle class vehicle models such as Mazda and Nissan (Pauwels, Silva-Risso, Srinivasan & Hanssens, 2004). Secondly, the company needs to focus on relaunching its brand image to avoid various shortcomings that it has faced during its 2012 high recall. The company’s 111 thousand brand tarnished its image, depicting the company as an unreliable automobile supplier. Therefore, the company needs to build new trust with the workers by launching better modes which will outperform its former models such as Lexus that frustrated the market. This way, the company will build a better image and ensure customer loyalty. Branding itself as an acceptable model will have a long term impact, and will sustain its performance (Pauwels, Silva-Risso, Srinivasan & Hanssens, 2004). The swiftness of the company in adopting new strategies will ensure that it remains a top performer irrespective of the increasing market competition. In conclusion, Toyota is company which has consistently engaged in feasible, suitable and acceptable strategies since its founding. The company’s differentiation strategy in different market segments has contributed to its ability to win a large market share. However, like any other company, the company has experienced intensive market competition as a result of increased business rivalry within the automobile industry, which has consistently led to reduction of marginal profits. The increase in customer bargaining power has pushed the company to a slippery end threatening its long-term survival. Evidently, the company needs to evaluate the value of alternative strategies to safeguard its position in the market. Broadening its target market and considering new channels of marketing will contribute to retaining a strong market position. Bibliography Cusumano, M. A. 2010, The Japanese automobile industry: Technology and management at Nissan and Toyota (No. 122). Harvard University Press. Pauwels, K., Silva-Risso, J., Srinivasan, S., & Hanssens, D. M. 2004, New products, sales promotions, and firm value: The case of the automobile industry. Journal of marketing, 68(4), 142-156. Porter, M. E. 2000, Towards a dynamic theory of strategy. Strategic management journal, 12(S2), 95-117. The Guardian, (2014). Green vehicle demand revs up as UK electric car sales quadruple. [online] Available at: http://www.theguardian.com/environment/2015/jan/08/green-vehicle-demand-revs-up-uk-electric-car-sales-quadruple [Accessed 16 Mar. 2015]. Toyota Pressroom, 2014, Third Generation Toyota Prius is Worlds Best-Selling Hybrid. [online] Available at: http://pressroom.toyota.com/article_print.cfm?article_id=2074. Williamson, P. J. 2012, Strategy as options on the future. Sloan management review, 40(3). Appendix 1: Toyota Porters Five Forces Appendix 2: Toyota Swot Analysis Read More