Toyota Globalization Strategies - Case Study Example

Case Study Analysis: Toyota Globalization strategies Introduction In the contemporary competitive business environment, it is imperative for a firm to be competitive and distinctive. By doing things that customers value better, an organization can achieve increase its customer base. In this regard, it is imperative for the senior management of an organization to comprehend the success factors necessary to propel the company (Browaeys & Price, 2011). Toyota is an example of a company that strives to survive in its industry. The automobile industry has been boisterous because of the rising fuel prices and environmental concerns. Presently, business entities operate in more complex and regulated business environment (Cavusgil et al., 2008). Therefore, the strategic task of the companies is to create a distinctive way ahead through generating core competencies. It is through these competencies that the company seeks to achieve competitive advantage. Competition in various domestic and international markets has transformed to include customer considerations of product quality and performance (Morrison, 2009). As a result, the review of an organization’s business environment and strategic capabilities is necessary in order to be consistent with the shifting demands of customers. The automobile industry has been tumultuous for time immemorial. However, Toyota has continuously managed to grow to other regions and expanding its productivity. This has been attributed to numerous factors within and outside the company. Its globalization strategies have had an immense impact on the company’s development. The attainment of all its globalization strategies was aided by the company’s distinctive and core competencies and extensive production and distribution network. This paper will analyse Toyota’s business environment that attributed to the development of the company as indicated in the case study. It will also carry out a SWOT analysis and analysis of Porter’s five forces. External Environment Analysis The automobile industry is affected by fuel prices, per capita disposable income and product innovation. On the other side of the supply, the prices of the vehicles stem from the cost of production, the cost of the materials and the purchasing costs. Because of the increase in prices of fuel, many people turned to the small and fuel efficient cars. This is seen when the company tried to target the youth with cars that best suited their needs. The company had experienced a decrease in their sales to the young customers from 1980’s to 1990’s. In order to tackle this problem, Toyota ventured on a belligerent reorganization activity and found a new organization, Virtual Venture Company (VVC) to come up with car designs that were attractive to the young people. The VVC tried various sales strategies to increase Toyota models sales. As a strategy, VVC built an amusement park worth 83 million US dollars where it showcased Toyota’s dreams for future models and allowed the prospective customers to come up with car models they desired (Radhika, 2004). By 1999, Toyota released many car models that targeted the young customers. These included car models such as FunCargo compact, MR-S sports car and Vitz compact. These car models had unique designs and attributes that had been sought by the young buyers. The prices were relatively low for these models (Radhika, 2004). The socio-cultural factors within the industry seem to affect the demand for Toyota’s cars. Particularly in the American market, the customers are more conscious about the quality, class, performance and the brand name of the cars. This can be observed when Toyota took the danger of de-emphasizing its brand name in the new car models created. For example, a new car bB, which had become a common car among the youths, had no Toyota brand name or trademark except a symbol on the steering wheel. This shows that the customers are more particular about the cars they buy (Radhika, 2004). The external environment is characterised by changing car technologies. These changes aim at meeting the distinct customer needs. For instance, Toyota invested heavily in research and development in order to come up with new lines of products that would meet the desires of its customers. Toyota obtained customer responses and enhanced the Lexus engines in order to gain more sales in United States. Additionally, the company launched Prius in 1997. This was a hybrid car that was powered by both gasoline and electricity. This was promoted by the need to conserve the environment. Additionally, the company launched new models of Lexus such as the GS sedan and the RX 300 sports utility vehicle (SUV). It also launched a new small and fuel efficient car in 1998, Yaris, to the European market. This car aimed at satisfying the quality needs of the customers in Europe. In 1999, the company also designed new cars that would satisfy the needs of the younger generation. Such cars included the Vitz compact, FunCargo compact and MR-S sports car. All the cars of Toyota featured new technological innovations (Radhika, 2004). The operations of Toyota have also been affected by the economic factors. In the early 1990’s, as the company expanded its operations to foreign markets, its profit margins were immensely affected by the excessive capital expenditure (Radhika, 2004). At the same time, Japan was facing an economic slowdown, which also adversely affected the company’s revenues and profits. Additionally, the low labour rates in Asia and China and the low material costs obtained by Toyota reduced the company’s operating and production costs and increased the company’s revenues and profits. Additionally, political factors played a role in the progress of Toyota. After the development of the automobile department in Toyota Automatic Loom Works (TALW) in 1933, the company commenced the production of automobiles. This was before the beginning of the World War II. After the war started in 1939, the company flourished by selling trucks and buses to the Japanese army (Radhika, 2004). Porter’s Five Forces Model of Toyota This model is an outline of the industry analysis and the development of the company’s strategies. The Porter’s Five Forces implies the rivalry from the external factors such as the macro and micro environment (Johnson et al., 2010). These forces include "the bargaining power of buyers and suppliers, the threat of new entrants, threat of substitutes, and the competitive rivalry between the existing players". The bargaining power of the consumers delineates the degree to which the customers are locked in the industry (Cavulsgil et al., 2008). According Radhika (2004), the bargaining power of consumers is high. This is because the customers are aware of what they want and are specific in terms of the quality, performance and brand of their cars. As a result, the Toyota has been involved in trying to look for better and cost effective models that will appeal the different sets of customers. The customers in the automobile industry can easily obtain substitutes in the market. Therefore, increasing the prices of a car model means that customers will look for cheaper substitutes. The bargaining power of suppliers delineates the degree to which the suppliers confined to a particular company in the automobile industry (Johnson et al., 2010). The bargaining power of suppliers is low. There are various types of suppliers within this industry since the assembly of a vehicle requires different components such as the cooling system, braking system, electrical system and fuel supply system. Toyota owns numerous interchangeable suppliers and can produce some of the components in short periods. This makes the suppliers have no power to change or control the prices of the supplies (Radhika, 2004). The threat of new entrants is low in the industry since automobile production requires a heavy investment for research and development and development of models that best suit the needs of the customers. Cars require a variety of features that differ from their processors. Therefore, the entrant has to spend much money for the design of cars that will consider quality, comfort, design and various electronic functions. The automobile industry centres on customer loyalty and this is an advantage to the existing companies such as Toyota, which has invested heavily in order to retain its customers. Toyota retains almost 63% of its customers. The automobile industry contains several substitutes in this market. This implies that an increase in the price of one car model will result to an increase in the demand of the substitutes. The more costly one model of the car will be the more people will seek other cheaper car models. The development of low cost and environmentally friendly cars attained high sales for Toyota. This shows that people left the other costly cars and purchased the low fuel consuming cars. Additionally, the entrance of new developed models reduces the demand for older cars. Rivalry among the players in the industry is particularly high. The automobile industry is filled with more than five global companies, which offer many choices to the customers. Before 1969, General Motors, Ford and Chrysler were the leading automobile companies. However, this changed as Chrysler was replaced by Toyota, as the company expanded to other regions (Radhika, 2004). Additionally, after some time, Toyota replaced Ford to take the number two spot. These companies have also been involved in intense advertising. SWOT Analysis A careful evaluation of the case study shows that the company possesses various strengths, weaknesses, opportunities and threats. Strengths The notable strengths that aided the company accomplish its globalization strategies included the unique corporate culture, efficient production systems, strong financial condition, and an effective management. Effective management is essential for the progress of the company (Cavusgil et al., 2008). One of the primary factors that assisted Toyota was an outstanding management of Hiroshi Okuda in 1995, the president of Toyota. He assisted Toyota adopt various strategies that assisted the company to gain grounds in the domestic market. First, Okuda decided to centre on dealer network. Under this approach, Toyota’s communication with its dealers was improved. Secondly, Okuda assisted in the adoption of an approach that provided incentives to augment sales and urge them to attract more projections for test drives. Finally, Okuda identified that the young people would help in gaining a large share of the market in Japan and took aggressive measures to attract the youth by designing products that suited their needs (Radhika, 2004). Additionally, through the leadership of Okuda, Toyota recognized that its dealer outlets would help in attracting the young generation. It then identified some of the operational inconsistencies among the dealers and identified that some of the dealers were located closely to each other and all showcased similar Toyota products. As a result of this, Toyota adopted a strategy where it ceased supplying the same car models to the dealers to evade any price competition and implemented stern measures to the dealers who failed to achieve the targets set by the company. Through this strategy, Toyota also requested some of the dealers to rebrand themselves in order to attract youngsters. It was because of this strategy the company used nearly $200 million in 1995 on promotion (Radhika, 2004). Notably, Toyota’s performance improved as a result of Okuda’s strategy. As the company’s financial base improved, Okuda categorically focused on developing the global sales performance, and took another direction of intensive globalization. In essence, Toyota’s foreign production improved to 1.54 million units per year in 1998 from 1.22 units annually in 1995 (Radhika, 2004). On the other hand, Toyota has a unique corporate culture that centres on innovation. The “The Toyota Way” was the company’s corporate culture that was embraced in all its manufacturing plants. This allowed the workers of Toyota to embrace such philosophies as Kaizen (continuous improvement), Just In Time, PDCA (plan, do, check, action), construction of cost competitiveness and Pokayoke (mistake-proofing) (Radhika, 2004). This allowed the strategies of the company be adapted to work anywhere. This also allowed the company to achieve its quality levels across all its plants in Japan. The management also implemented various Western management practices, which were mixed with the traditional Japanese methods. This allowed the company benefit from both practices. Additionally, Toyota focused on research and development and emphasised on innovation. The company invested profoundly on its research and development capabilities in order to develop a new line of products that satisfied the different needs of its consumers internationally. For instance, the company substituted the Lexus engines with stronger models and made different design modifications as directed by customers’ feedback. This led to increased sales in United States (Radhika, 2004). Toyota had efficient production systems. These systems ensured that the company increased and expanded its operations across different regions and increased the productivity of the plants. For instance, In North America, Toyota established the Toyota Motor Manufacturing plants in Kentucky (TMMK) which increased its production to 500, 000 units annually, Canada (TMMC) which produced 200, 000 units annually, Indiana (TMMI) and West Virginia (TMMV). With the establishment of these new plants, the production of Toyota increased to 1.25 million units annually in 2000. This was enhanced by the production of a new SUV model and V6 engines in 1999. The North American productivity increased from 700, 000 units per year in 1994 to 1.1 units in 1998. Toyota introduced the Tundra in the North American market and was aimed at a 100, 000 units per year production. Toyota also started the production of corolla car models 1998 with an expected production of 300, 000 units per years. In Europe, Toyota established a manufacturing plant in France in 1998 and started its operations in 2001 with an annual production of 150, 000 units. Additionally, Toyota also established plants in Asia in Thailand, Taiwan, Philippines and Indonesia (Radhika, 2004). Toyota also had effective globalisation strategies that focused on localization and expansion of the company. The first globalization strategy aimed at improving its localization of production and increasing imports by collaborating with foreign automobile organizations for a three year period. The second phase of globalization (1996-2005) focused on localization. By focusing on localization, the company believed that it would offer its clients with products that best suited their needs. As a result, Toyota increased its production capacity of the North American plants and established more production plants in the region. Toyota also designed more cars that would suit the needs of its European customers. The 2010 global vision aimed at attaining a 15% market share of the global automobile market by 2010. The company purposed to achieve this goal by developing its technology development and reforms internationally in order to strengthen its technologies. This served as an impetus in global renaissance by adopting the most advanced environmental technologies. These strategies also allowed the company to increase its presence in almost all segments of automobile markets (Radhika, 2004). Weakness The primary weakness of Toyota was the weak presence in the emerging markets. Toyota placed much emphasis on United States, Europe and Japan, and placed little emphasis on the Asian region, which is an emerging market (Radhika, 2004). Opportunities One of the primary opportunities available to Toyota is the ability to develop to distinct regions through acquisitions and joint ventures. In China, Toyota entered to various strategic alliances and joint ventures to promote its production capacity overseas and launched new car models. The company manufactured the Toyota Coaster bus through a joint venture with the Sichuan Luxing Chachang (Radhika, 2004). This offers Toyota an opportunity to partner with other companies in order to increase its productivity. The existing customers are more likely to purchase hybrid vehicles that conserve energy and have few negative effects on the environment. Vehicles that consume many fuels are less demanded, especially in regions where fuel prices are high. As a result, customers will turn to the less costly vehicles. On the other hand, because the emission of CO2 by vehicles may cause the greenhouse effect, the environment conscious customers will purchase the hybrid cars. In this case, Toyota has an opportunity as it intensifies its hybrid vehicle production. Additionally, the changing customer needs give Toyota an opportunity. Toyota invests heavily on research and design and develops new models that meet the needs of varying customer tastes and preferences. This makes Toyota models suitable to any consumer needs and preferences. Threats The major threat is the intense competition from the rival automobile manufacturers. General Motors hold the biggest market share and has various plans to reorganize and become more competitive. Conversely, Ford and Volkswagen have sought ways on how to effectively compete with Toyota. The other threat is the choosy customers who emphasise on quality, performance and the brand name of their cars. Conclusion Toyota’s journey through the tumultuous automobile industry has not been smooth. However, the company managed to grow and expand to other regions. This has been attributed to various factors within and outside the company. The notable external factors that impacted the operations of the company include the changing car technology, socio-cultural factors of the consumers and political factors. An evaluation of the Porter’s Five Forces reveals that the automobile industry has a low bargaining power of suppliers, a high bargaining power of consumers, low risk of new entrants, high risk of substitutes, and high rivalry among the companies in the industry. This makes the industry unattractive to new entrants. Evaluation of the company also revealed that the company has various strengths, weaknesses, opportunities and threats. The notable strengths included the unique corporate culture, efficient production systems, strong financial condition, and an effective management. Conversely, weaknesses include the weak presence in emerging markets. The changing consumer needs and the growing markets of the automobile present an opportunity to Toyota. On the other hand, the high competition is a threat to the business. References Browaeys, M-J. and Price, R. (2011). Understanding Cross-Culture Management, Pearson Prentice Hall Cavusgil, S.T.; Knight, G. and Riesenberger, J.R. (2008). International Business: Strategy, Management and the New Realities, Pearson Prentice Hall Johnson, G., Whittington, R. and Scholes, K. (2010). Exploring Corporate Strategy, Pearson Prentice Hall. Morrison, J. (2009). International Business: Challenges in a Changing World, Palgrave Macmillan Radhika, A. N. (2004). Case Study 2: Toyota Globalization strategies. Center for Management Research, 340-361. Read More