Toyota Company External Environment - Case Study Example

EXTERNAL ENVIRONMENT OF TOYOTA MOTOR COMPANY Author’s Name Class Name Professor’s Name School City and State Date Introduction Founded in 1937, Toyota Company is a Japanese corporation that has grown to become the world’s leading auto manufacturer. The company inception began in 1933 when Toyoda Automatic Loom created the provision for a new division responsible for the production of automobiles. According to Toyota website (2015), Kiichiro Toyoda’s, the founder, motivation’s came from the rapid motorization-taking place in the USA. The company has since grown and as of March 2013, the company registered an annual income of 213 billion dollars. Brands under the Toyota Corporation are inclusive of Toyota, Lexus, Hino, and Daihatsu. Toyota’ success has been attributed to its popular slogan; “The Toyota way” that aims at the overall operational excellence of the company. In the recent years, the global auto market has been more competitive than ever in history. Toyota has 10.2%, Volkswagen 9.6%, General Motors 6.9%, Ford 5.6% and the others share the remaining 67.7% according to Maxcy (2013), Toyota Company has still managed to be the most successful car maker despite the stiff competition in the motor industry. For the past 15 years now, the company has been the top auto manufacturing company in regards to its reliability, the initial quality, and durability. Skyrocketing fuel prices and growing environmental concerns have shifted the customer’s preference from oil guzzling vehicles to small more efficient fuel cars. In the year 2006 and 2007 when the U.S financial crises were ripping other western nations, the company was able to earn profits of up to 13.7 US dollars in that fiscal year. Other competing firms in the market incurred losses amounting to 1.97 billion US dollars for General Motors and 12.61 billion dollars for Ford Company. With such impressive figures, the question that arises is why Toyota Company is so successful and how it has maintained its top position for so long. The primary objective of this research paper is to analyze keenly the external environment of Toyota Motor Company to establish the potential growth factors and the company’s competitive advantage that has helped it cut a niche for itself in the highly competitive automobile manufacturing industry. External Environment The surrounding aspects around a business that are uncontrollable are referred to as the business environment. Factors included are such as economic, political, social, environmental, legal, and human resource. Focusing on the external environment, factors affecting the functioning of the business include political, economic, social, legal, and environmental concerns. Competitive advantage Toyota realizes that it has to be the price maker and not the price taker if it wants to remain ahead in the market. Automobile demand depends on the fuel prices, product innovation, and Per capita disposable income. On the suppliers end, the material and equipment costs will be a market price determinant. Combining these factors, the company is able to produce a product that is favorable to different markets in different parts of the world (Mittal, Mitra & Roy 2013). Competition Fluctuating oil prices One of the major factors that give Toyota Corporation a competitive edge is their ability to manufacture the fuel-efficient car, models. According to Ahmadian, Hassan & Regassa (2013), over the past five years, the fuel prices have been on a rise. Consumers prefer these cars as they are economical to fuel and maintain. Constant fluctuation of oil prices has helped Toyota company overtake General Motors, which previously was the world’s leading automobile company. Toyota Corporation seized the opportunity which as seen it soar to greater heights to date. Economies of scale With a large scale of production, Toyota Company’s cost per unit produced is lower when compared to the new market entrants. The company having been in business over an extended period enjoys economies of scale lowering the production cost. Other success factors that contribute to its competitive advantages include but not limited to: The Toyota Philosophy One of the crucial success reasons for Toyota Company lies in its corporate strategy. The definition of a corporate philosophy of a firm is a collection of rules and regulations that govern the use of the corporate resources. The Japanese culture believes in long-term orientation and planning. At Toyota Company Corporation, the management makes long-term financial decisions even at the cost of short-term financial objectives. For more specificity, the main contents of the Toyota's philosophy are to focus management decisions on a "philosophical sense of purpose" and to strategize on the long term. More also its philosophy focuses on having a clear problem-solving process, to develop its employees hence adding the organizations value and finally to appreciate that continuous solving of root problems enhances organizational learning. Toyota Production System The Toyota’s production system began after the Second World War II when the country had been economically brought to its knees. The most crucial goal objective of the Toyota System has been to double production efficiency by steadily, consistently, and carefully by thoroughly eliminating waste It is achieved through lean production that aims at reducing production time, human effort, and inventory to develop products. Next, the company focuses on avoiding unnecessary errors. When working with limited material resources and JIT inventory system (Maxcy 2013). One of the most important aspects to keep in mind is to ensure that each part headed to the next production process meets the ultimate highest possible quality standards. More also, they provide a constant improvement of production lines as well as allocating enough resources to train and employ well-trained employees. Technological Advantage By the year 2009, the company’s research and the developmental department had used over 9.8 billion U.S dollars. The technical advancement has helped the company go green in its car production. The hybrid car Toyota Prius has revolutionized the market after it won the twelve engine of the year award. Toyota Company Corporation was founded on the belief that it should be steps ahead of its competitors but at the same time keep its prices minimal. Technology has helped them advance that with a good example being a consumer favorite Toyota Corolla. Despite being a fuel-efficient car and low priced car, it still stands out as one of the models with the highest quality and durability. According to Rapp (2002), technology has come a long way in helping model diversification and enabled availability of different colors. This model diversification has increased the consumer preference. Through technology, the company has aligned its production in line with CITES and helped conserve the environment. Japan is known to face several natural calamities. The earthquake and Tsunami that hit Japan in 2011 halted production for a month. Regassa (2013) explains that Toyota Company has hence invested heavily in green technology and established Toyota Earth Charter, which it uses in recycling through innovative technology. Product Reengineering Re-engineering defined is the process vital rethinking and drastic redesigning of business models and processes with the aim of achieving huge improvements in crucial performance measures such as speed, service, and production cost. What gives the company a competitive advantage is its ability to re-engineer a model whose reception by the consumer market was low. Ford and General Motors; Toyota’s main competition tend to scrap off a failed model and even go the extent of firing the employees involved (Nunes & Bennett 2010). Human Resource Apart from the state of the art production methods, the concept of re-engineering, the long-term corporate philosophy, one of the other major competitive advantage of Toyota Corporation is highly effective human resource management. In contrast to its competitor’s auto companies such as Ford or General Motors, human resource here are the keystone for an increased level of their employee devotion and commitment to quality. The underlying principle is that a workplace with high morale and a high degree of job satisfaction is more likely to yield to reliable, high-quality products at reasonable prices (Matsuo 2015). According to Regassa (2013), Toyota Company has created an organizational culture that reinforces employee motivation and encourages their contribution, which is a crucial precondition for the functioning of the TPS. A good instance is, in Toyota factories group activities are encouraged among the members of the shop-floor team. Moreover, the knowledge base of all the company’s personnel is used to advance equipment reliability and productivity, thus taking down the operating and maintenance costs. Toyota's human resource management purposes to “developing leaders who live the Toyota philosophy and to respect, develop and challenge its people, teams, and partners.” Social factors The general society widely prefers Toyota. Globally, the brand is the most trusted among all automobile manufacturers. Toyota produces vehicles for different classes of people. For example Toyota Prius which is a hybrid car targets middle to low income earner whereas Toyota Lexus is an expensive brand mainly sold in the U.S market. The company has something for everyone in the society. They have earned the society’s respect and admiration by participating in economic and social development projects. Roy (2013) explains that Toyota Company is one of the biggest corporate members of the world. Holding the eighth position globally, Toyota indulges in open and transparent corporate actions to honor the laws of the country. Globalization Globalization can be defined as a process of integration and interaction between people of different nations (Dunning 2014). Increased globalization has enabled Toyota merchandise to penetrate markets that were previously protected. Change in political policies in certain countries has widened their market (Nkokmo 2001). Previously, the USA and UK markets were protected as the citizens preferred the efficiency of Toyota cars. The General Motors Company was facing competition in its home leading Toyota cars being banned into the country. Globalization has however brought about some challenges. First, competition has increased as the market has been opened up. Another major problem is the global pressure on the company that has made the company engage in reputation damaging activities Legal factors When Toyota Company penetrated the US market, the company had minimum legal and political implications. The company has to abide by the rules set up by USA government. The rules will range from consumer protection laws, laws regarding competition and even emission laws. Toyota Company is however advantaged in that it does not deal with financial burdens, unions, health care costs, retirement benefits or even legal costs. Is competitive advantage sustainable in the long-term? The sustainability of Toyota Company Competitive advantage cannot be assured. Recent debates on climate change have led to the invention of other environmental friendly travel means. There is increasing innovation in air travel that is viewed as environmentally friendly, faster and reduces the traffic jam. However, Toyota Company is not in a hurry to leave the market. With everyday technological advancement, the company is inventing new eco-friendly car models to keep them in the market. The company is also a well-recognized brand name that is entirely accepted by the consumers for its pricing and quality. New entries are cannot compete favorable since they are not well recognized, and they do not enjoy economies of scale. Toyota also dominates the world market and is an important income earner for Japan making it well protected by the government. Using the VRIO framework analysis, the company rates of maintaining the competitive advantage is high. Toyota Company is valuable because it maintains low production costs. Additionally, the company is rare because it uses different production and strategies distinct from other companies. More also, the company is inimitable since several other companies have imitated its production system, but they have failed to be as efficient as the Toyota Company. Lastly, the company has a good Organization, which it has employed since 1960 (Nkokmo 2001). Conclusion External factors affecting the Toyota Corporation are inevitable. Despite all that, Toyota Corporation has managed to maintain its position as a leading automobile manufacturer having by passed General Motors. Toyota company is well aware of the external factors discussed above and has learned how to use the individual disadvantages to establish an efficient and stronger competitive advantage. In regards to its strong capabilities and huge resources, the company is bound to remain at the top for a long time. With their strategy of best cost provider, the company will remain at the top until the competitors realize their weaknesses and work hard to strengthen them. With the growing expansion of external trade, the company will be in a position to downturn any losses in the domestic market. References Ahmadian, A., Hassan, A & Regassa, H 2013, The Impact of Oil Price Fluctuations on the Automobilie Industry, International Journal Of Business & Economics Perspectives, 8(2), 35-43. Dunning, J. H 2014, The Globalization of Business (Routledge Revivals): The Challenge of the 1990s, Routledge. Matsuo, M. 2015, Human Resource Development Programs for Knowledge Transfer and Creation: The Case of the Toyota Technical Development Corporation, Journal of Knowledge Management, 19(6). Maxcy, G 2013, The Multinational Motor Industry (RLE International Business), Routledge. Mittal, A., Mitra Mukherjee, P & Roy, D 2013, Global Competitiveness: World Passenger Car Industry, SCMS Journal Of Indian Management, 10(4), 75-85 Benchmarking: An International Journal, 17(3), 396-420. Nkokmo, T 2001, Analysis of Toyota Motor Corporation. Retrieved from http://scholar.harvard.edu/files/tnkomo/files/analysis_of_toyota.pdf Nunes, B., & Bennett, D 2010, Green operations initiatives in the automotive industry: An environmental reports analysis and benchmarking study, Benchmarking: An International Journal, 17(3), 396-420. Rapp, W 2000, Automobile: Toyota Motor Corporation. Retrieved from file:///C:/Users/hp/Downloads/WP_177.pdf Segarra-Oña, M., Peiró-Signes, A & Payá-Martínez, A 2014, Factors Influencing Automobile Firms' Eco-Innovation Orientation, Engineering Management Journal, 26(1), 31-38. Toyota Website, 2015, History of Toyota, Toyota Website, http://www.toyota-global.com/company/history_of_toyota/ Read More