Microeconomic and Macroeconomic Factors Influencing Toyota - Case Study Example

Microeconomic and Macroeconomic Factors Influencing Toyota The company that has been chosen for the purpose of this assignment is the Toyota Corporation and the product that would be highlighted during this paper is going to be the Toyota Camry 2007 model. It is necessary to differentiate the difference between what are microeconomic factors and what are macroeconomic factors, the micro level economic factors are something that the company can exercise some level of control and can influence this environment to a certain degree but macroeconomic factors are such in nature that the company is unable to influence them by any means what so ever. On the literally terms, micro means small level and macro means on a larger scale. There are many factors that affect any company both on the micro as well as the macroeconomic level and it is of essence that companies realize these factors and potential factors so that they can survive in the long term, these factors are divided into two parts one is the consumers and the other is the company itself. The microeconomic factors that affect a company or a product are: a) Price: price is one of the single most if not the most important factor to be considered by the company in terms of microeconomic factors that affect the company. Price of a good determines the market share, what target market the product is trying to tap in to and how much of the good is going to be demanded and how much of it is going to be supplied by the company. The price of a good determines if the consumers think that the product is worth buying or even worth contemplating upon, if prices are irrational for example a pie for $250 then the demand is almost certainly going to be negligible if not non-existent for this kind of product. The price is and can be influenced by the company by managing its supply effectively. Another important consideration that needs to be taken care of is the competitive prices in the economy for example if Honda Accord is priced between $18000-$20000 then the Toyota Camry needs to be priced in the similar range because they are very close competitors in the US market, if Honda Accord prices its product lower than the Toyota Camry then it is almost certainly going to be able to get a larger pie of the target market given that all other things are kept constant or ceteris paribus rule applies. b) Opportunity Cost: The consideration of opportunity cost is extremely important when one talks about microeconomic factors, if Toyota Camry increases its prices then people would have to give up more money in order to purchase the same good i.e. their opportunity costs goes higher. This is where the concept of value for ones money steps in, if Camry is charging its customers $18000 then its value or its perceived value should be worth $18000 to the customer or else the customer would spend the $18000 where he or she deems that they would be much better spent. This is where the concept of studying the consumer comes in. The concepts of price elasticity comes in here as well, if a small positive change in the price of Camry decreases the units demanded for Camry then Camry is highly price elastic but if the change in price only results in a small change in the units demanded then it is inelastic and it can afford to increase its prices. Cross elasticity is where Honda Accord decreases its prices and it affects the sales of the Toyota Camry, in this case it would be highly cross elastic but if no change or only a very minute change occurs then it is not cross elastic. c) Consumer Behavior: Consumers are people that eventually make or break a company, this is why they need to be studied and understood because they are a very potent force as far as the business is concerned. Camry should understand what the consumers are looking for when they are making a decision to buy a car, is it safety? Is it durability? Is the fuel efficiency? Or is it all of the things mentioned before? When these questions have been answered and Camry has decided what market segment it is going to be in then it needs to position itself accordingly. Once this has been taken care of the company would then need to communicate what it stands for to the consumer so that the consumer understands what the company is offering and matches the benefits that are being offered to the prices that are being demanded and make the decision whether to buy or not. d) Another consideration that is extremely important for Toyota is that the costs of the cars that it is manufacturing should be at the lowest levels possible so that it gets the highest possible profits from each unit that is sold. How can the costs be controlled? There are a variety of factors into consideration when costs are involved, first of all Toyota should build strategic partnerships with all its vendors so that they are on board with the company strategy and are aware of what the company is trying to achieve. Secondly it should increase the plant efficiency and also have a look at its processes and implement cost cutting measures where ever it can but most importantly the workers have to be trained to be efficient so that they are on board with the company’s policies as well. If the costs are too high for Toyota then certainly so would be the prices of Camry and hence this would render the product unsuccessful because competitive brand would be able to capture a larger market share and may also be able to drive Camry out of business. e) Competition as highlighted above always has bearings on the company and its decisions and hence in a microeconomic environment the company has to keep a tab on the competition as well and analyze what they are doing and be able to predict what their next move is going to be and try to be one step ahead of the competition at all times, although the company cannot influence its competition directly but it can take measures that can affect the competition in a positive as well as a negative fashion. For example if Honda announces that it would launch a an Accord in 2012 that would be extremely fuel efficient but at the same time it would be able to break the sound barrier, then Toyota has to come up with a product that is equivalent to that Accord if not better. f) Market Structure: The market structure for this kind of product can be best described as an oligopolistic structure because there are few firms in the market and the decisions of each firm effects the decisions of other firms for example Honda introduced Honda Accord when Toyota Decided to launch its new Camry and the pricing was very similar as well. g) The second part of this paper deals with factors at the macroeconomic level, these factors are beyond the control of any of the firms and these are in a way given or handed down by the state of the economy and are largely dependent on the government policies and the economic structure that is prevalent in the environment that the company is operating in, for example Toyota Corporation in the US would not be able to determine the exchange rate of the dollar because that is more dependent on the US governments policies and the decisions that are taken within the economic environment by that government. a) Interest rates: Interest rates in an economy determine whether people are going to save more or spend more, when the interest rates are high people would prefer to save rather than spend but if the interest rates are low in the economy then people would prefer to spend their money rather than save it. The exact inverse is true when it comes to borrowing from banks or other financial institutions, people tend to take loans when the interest rates are lower and would prefer not to loan out money when interest rates are higher. How is Toyota affected by the interest rates prevalent within in the economy? If Toyota is to set up a new plant it is definitely going to need a loan to set up the plant, when would Toyota prefer to take the loan? When the interest rates are on the lower side and hence this macroeconomic factor affects the strategy of the company. b) Taxes: Toyota would prefer to set up a plant where the corporate taxes are on the lower side so that it enables the company to earn higher profits for its stakeholders, however the taxes or the tax regime is developed by the government and Toyota has no say in it. c) Employment: Employment or the ability of the workforce to fulfill the requirements of the Toyota corporation is another important element, Toyota cannot train the whole workforce or it cannot provide for itself employees all by itself, the government has to provide for the people basic education and training so there is enough workforce available to work for the Toyota Corporation. d) Business cycles or cyclical trends of the economy also have a bearing on the Toyota Corporation for example economy can experience growth and it can also experience stagnation and this would directly affect the sales of the Toyota Camry but this is something that the company has no control over and is not able to influence it. e) Inflation is another important element when talking about macroeconomic factors, inflation is the general increase in the price levels within an economy and if prices increase then the costs for Toyota also would increase and some of these costs or in some cases all of it would be transferred on to the customers of the company. f) GDP is another indicator which shows the Toyota corporation where to invest and how the economy is going to perform in the upcoming days, the GDP is the moneys value worth of all the goods that are produced within the economy, if the GDP goes down it is a sign that the economy is not doing good and this would affect the sales of the Toyota Corporation, where as if the GDP increases then it is possible that the sales would increase and this would be a good sign for the Toyota Corporation. Conclusion In conclusion, both macro and micro levels have an important bearing on the company but at the micro level the company should influence the factors in its favor and at the macro level the company should be able to predict the future trends and be adaptive. References Wessels, W. (2000). Economics. Barrons. Samuelson, P. (2001). Economics. Mcgraw_hill Higher Education. Donburch, R. (1988). Economics & business. Mcgraw_hill Higher Education. Lipsey, R. (2002). Economics. Addison-wesley Longman. Glass, P. (2010, February 18). Honda accord vs. toyota camry. Retrieved from http://www.differencebetween.net/object/difference-between-honda-accord-and-toyota-camry/ Read More