Toyota Motor Company Characteristics, Markets and Economic Environment - Case Study Example

Toyota Motor Company Characteristics, Markets and Economic Environment Name Professor Institution Course Date Toyota Motor Company Characteristics, Markets and Economic Environment Executive Summary This report is prepared to discuss basic characteristics, analyze the markets and economic environment in which Toyota Motor Company operates. Toyota is a multinational automobile manufacturer with headquarters in Japan. The company was established in 1937 and has since grown and operates worldwide (TMC 2014). Today, Toyota Motor Company is rated as the largest automaker by revenue and produces more than 10 million cars per year. The research on companies in 2014 reported that that Toyota is the 14th largest company in the world by revenue (TMC 2014). By 2013 the multinational company had up to 333,498 employees globally. The company has several products under the company name. Shang & Pheng (2012, p.291) claim that by 2009, Toyota officially listed about 70 automobile models made and sold under its brand, comprising of vans, trucks, coupes, hybrids, crossover and sedans. Table of Contents Toyota Motor Company Characteristics, Markets and Economic Environment 2 Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Toyota Motor Company basic characteristics 4 3.0 Analysis of the Toyota market and economic environment 7 4.0 Recent Performance 11 5.0 Conclusion 12 6.0 References 12 1.0 Introduction With increase in globalization, information technology advancement, and growing pressure from external forces, it means that managers can no longer use old theories of management today in their operations (Mullins, Walker & Boyd 2010). The organizations have become too complex to run because the businesses now operate in culturally different environments. Toyota faces stiff competition from other market players including General Motors, Honda, Volkswagen, BMW, Chevrolet, Tata and Mercedes among others (Anderson 2010, p.89). The change has prompted the companies to use their characteristic and strengths to attain market advantage. As the market leader in the automobile industry this report discusses Toyota Motor Company basic characteristics, analyze the markets and economic environment in which it operates. 2.0 Toyota Motor Company basic characteristics Toyota Company is a market leader in the car producing, assembling and distribution across the globe (Anderson 2010, p.88). A very effective and efficient style of management which the corporation employs has been its major reason for its good performance. Anderson (2010, p.107) argues that due to competition and scramble for the world markets, the company has set several plants in many countries across the world where it assembles its vehicles to avoid the situation of delivery delays. It has a several distribution network across the world which has made it to reach an every segment of the market, which is making it pursue those markets in greater heights (Andrews, Simon, Jun Zhao 2011, p.1065). Because of its global presence, it is completely imperative for the company to have within it the skills, knowledge, cultural know-how and a wide spectrum of talents necessary to successfully function at its best potential. The company mission express its intention to provide value for its customers. As such, the fundamental mission of the company is to develop and offer safe, outstanding, high quality and innovative products and services which satisfy a range of customers' needs to improve the lives of the people across the world (TMC 2014). In order to ensure that each segment of Toyota Company is successful within this mission, numerous philosophies and principles have been put in place to fulfill the company objectives in a more productive manner, demonstrating improved efficacy. The Toyota Way was published in 2001 as a way of expounding on "the beliefs and values that every employee should adopt to achieve the Guiding Principles of Toyota” (Low & Gao 2011, P.6). Toyota Way 2001 is tailored within "Lean Manufacturing" and Just In Time Production, which is well recognized by Toyota. Shang & Pheng (2012, 293) postulate that Toyota describes its conduct and value guidelines in five principles including, challenge, Kaizen (improvement), Genchi Genbutsu translated as go and see, respect and teamwork. Before this, Toyota Company’s management business methods, values and philosophies were just passed on as inherent knowledge. Nevertheless, with the growth of the staff population and its global expansion, it became crucial to define those principles (Low & Gao 2011, p.12). The company has several product portfolios which are highly diversified under its name targeting both the upper class and the middle class. Toyota Company manufactures automobiles under five brands consisting of the Toyota brand, Lexus, Hino, Scion and Ranz. It also has a 51.2 percent stake at Daihatsu, a 16.66 percent share in Fuji Heavy companies, a 5.9 percent share at Isuzu, and a 0.27 percent share at Tesla, including joint-ventures with GAC Toyota, Sichuan FAW Toyota Motor, Toyota Kirloskar, and TPCA (Anderson 2010, p.94. Having many products and stakes in many companies has increased its competitive advantage. It has also ensured that the company spread economic risks, especially when one of their products are not doing well. Heller & Darling (2012, p56) claim that it has also helped spread risk more so in times of natural disasters during Tōhoku earthquake and tsunami in 2011 and Thailand flooding in also 2011. The company is also a pioneer in the hybrid technology which it uses in production. The company also uses technology to make hybrid electric automobiles. According to Osch & Avital (2010, p.104), Toyota Company is one of the biggest firms to make hybrid electric automobiles in the auto market, and the first one to manufacture and sell electric vehicles; with Toyota Prius being the first brand in 1997. Toyota is operating towards the realization of a more and better sustainable economy by working in a more stable international market. As such, the company is investing in technology to conduct research, produce and market their product quickly and within time (Drummond & Ensor 2005). The demands of owning vehicles have gone up and with new technology advancement, the company can be able to serve its large customer base efficiently. The Company also has several employees of up to 333,498 and an able network of expertise which is geared towards research and development quire often to keep the firm on top with regards to delivery of product and service to its international market (TMC 2014). The Toyota Company has an able management and numerous key members, consisting of Akio Toyoda, who is the current president and the CEO, the chairman Takeshi Uchiyamada, the vice president Satoshi Ozawa, board member, senior manager and mangers who form the organizational structure (TMC 2014). This group of people has ensured the success of the Company in the recent past. The company employs high level and qualified managers in Japan, the US and other countries who are educated and have experience in business, economics and cultural matters. Nevertheless, in an attempt to cover plants and distribution centers, both domestic and overseas, Toyota Company has set up a committee purposely for making sure that there is proper management in every area which is normally called the IAB (TMC 2014). According to the TMC (2014), today, the company produces over 10 million vehicles every year and a net profits of US$ 216, 7 billion in 2013 which represents an increase of 18.7%. It must also be recognized that Toyota Company stock is usually publicly traded on the NASDAQ and NYSE, with just 1 percent being owned by the "insiders", practically reducing any conflict emerging so as to increase personal profit (Shang & Pheng 2012, p.307). Just like any business, Toyota also has its negative attributes in its operations. Toyota has in the past recalled its product which might affect its brand image and the general sales (Tomas 2013). For example, Toyota recalled up to 110,000 Toyota and Lexus models in 2011 while in 2012 it recalled 7.43 million automobiles globally to repair faulty window power switches (Tomas 2013). 3.0 Analysis of the Toyota market and economic environment Toyota Company is the largest automobile maker and exporter and it looks to exactly be fulfilling the company mission that is to be the leader and largest firm in manufacture of vehicles which provide value all over the world (Liker & Morgan 2006, p.7). The corporation is operating towards creating a market which is prosperous by offering their customers with value for their money. The last five years, the automobile manufacturers have had tumultuous times. Increasing fuel prices and rising environmental challenges have changed customer preferences outside fuel-guzzling trucks and pickup to more fuel-efficient and smaller cars (Andrews, Simon, Jun Zhao 2011, p.1067). Shang & Pheng (2012, p.298) contend that despite the situation, the emerging market sales of Toyota have gone up considerably between the periods of 2000/2011, from 18.6 percent to 45 percent. If this form of trend remains, the sales of Toyota in rising markets will soon exceed its sales in the developed markets. Toyota effectively studied and reacted to the demands of the growing middle class in rising markets. Through localization programs, Toyota Company designs and manufactures automobiles in those markets to satisfy unique needs of the customers. These developing markets are mainly in South America and South East Asia (Shang & Pheng 2012, p.302). Low ownership of cars along with increasing disposable incomes augurs well for the car industry demands in these nations in a long term basis. The image created by Toyota has a low-maintenance, value for money for the product and a no-frills company resounds better with the consumer demands in the emerging markets (Forbes 2013). With a great emphasis on producing vehicles fulfilling the customer’s needs in developing economies, Toyota expects to make 50 percent of its total automobile sales from developing economies by 2015, an increase from 45 percent in 2011. Generally, Toyota aims at introducing eight new subcompact vehicles by 2015 developed particularly for emerging economies; Etios is one of such vehicles (Forbes 2013). IBISWorld (2013) reports that global economic downturn experienced in the recent times made some automakers including Toyota to embrace a change by increasing their automobile portfolios and diversification into the manufacturing of hybrid electric types of cars. Other car makers were hesitant to shift their concentration from bigger to smaller automobiles, hoping the fuel prices would contract ultimately, bringing customers back to the big car category. When fuel prices fell in the second half of 2008, it was because of the US economic crisis ripping across the international economy (Forbes 2013). This had some big effect all through the developing and the developed countries, with several Western countries following the US into a depression. Global demand for Toyota automobiles depends on the prices of the vehicle, per capita fuel prices, product innovation and disposable income (IBISWorld 2013). On the perspective of supply, the vehicle prices come from the equipment and raw material costs, with high plastic and steel prices increasing the manufacturers' cost of purchasing and eventually, the retail prices. In the last five years, car-makers have been faced with high cost of plastics and steel resulting to high costs of product and manufacturing. Varian (2006) argues that, on demand point of view, disposable incomes in terms of per capita enable the affordability for customers. Varian (2006) claims that with the incomes increasing, the degree to purchase cars rises and they turn out to be more affordable to consumers. Incentives are applied to create sales in the low economic growth periods. In the auto market where technology advancement is on the increase, customers are becoming more informed regarding the actual cost of the vehicles and will probably not accept high price increases if at all the market price in not that high (Varian 2006). In the periods of low inflation, consumers who know the car dealer cost information from the consumer online publications have grown to be smarter during the negotiation for the vehicle purchase (Morris & Lancaster 2005). In this manner, customer awareness and information access can influence the demand. Fluctuations in prices of fuel also influence the demand for the type of a vehicle. In the periods when the fuel prices are high, the demand for vehicles which are fuel-efficient goes up (Morris & Lancaster 2005). From 2009, the fuel prices have been going up encouraging the embracing of hybrid, electric and other fuel-efficient car brands. For instance, this made Japanese car manufacturer, mostly Toyota Motor Company to provide vehicles which are fuel-efficient on the market, hence increasing dominating the market share in the recent years, particularly with hybrids and electric cars (Peleg & Whang 2005). The more the car is fuel-efficient; there is more likelihood that a customer would be willing to buy that new car so as to save on the costs of fuel. The market structure in which Toyota operates is complex and cannot be clearly stated. Some people think that it is monopoly because the company has dominated the global car market for quite a while (Peleg & Whang 2005). In some countries which are not known to make cars have been dominated by Toyota preventing small companies to establish themselves. An example is Holden Company in Australia, which was established 1908 but has been overshadowed by Toyota Company (Anderson 2010, p.97). Similarly, Toyota’s differentiation strategy has enabled it to enjoy a nearly monopolistic presence, particularly in most developing economies (Anderson 2010, p.87). Alternatively, the car global market structure can be argued to be an oligopoly because of the presence of other players such General Motors, Tata, Honda, BMW and Ford among others who also provide stiff competition to Toyota. Here, the decision of one company is influenced by decisions of other companies. Green & May (2005, p.501) maintain that, Toyota Company is normally keen to observe what these market players do and react to it in a manner that cement its market leadership position. 4.0 Recent Performance The performance accomplishments of Toyota are just the employee’s functions at every level. This is because of their mutual relationship with the organization. Generally, Toyota Company has outperformed other automobile companies in the global industry in the previous five years (Low & Gao 2011, p.9). In 2014, it is ranked the largest automaker and the 14th largest company globally based on its revenue (TMC 2014). The company has been posting a good financial performance signaling proper management. In the recent past, i.e. from 1998, the company has increased its production every year except in 2009 and 2011 when it experienced economic downturn. In 2013, Toyota production went from 9,909,440 in 2012 to 10,117,274 in 2013 (TMC 2014). Total assets of the company went up 586.7 billion yen the past financial year up to 3,243.7 billion yen owing mainly to the surge of the investment securities value. Liabilities accrued to 1,718.9 billion yen, representing a rise of 259.5 billion yen from previous financial year (2012) owing to an increase in the deferred tax liabilities. TMC (2014) posit that net assets also accrued to 1,624.9 billion yen, showing an increase of up to 327.4 billion yen from the preceding financial year of 2012. Cash flows from the operating profits went up by 151.2 billion yen in the fiscal of 2013, because of posting revenue before deducting income taxes of up to 80.1 billion yen (TMC 2014). The net cash presented by the operating expensed went up by 49.5 billion yen as compared to the rise of 101.7 billion yen in the financial year 2012. According to TMC (2014), the company’s net revenues also went up to 22.064 trillion, representing an increase of 18.7% in 2013. 5.0 Conclusion Toyota Motor Company enjoys both local and global industry dominance. The company dominates in the product innovation platforms in truck, pick and small cars’ segments due to its strong brand. However, it faces constant complaints regarding environmental pollution in unfair practices and faulty cars. Nevertheless, there are several opportunities which can be exploited to sustain this market dominance, mostly to partner with environmental organization which can recommend its products and boost its image. Toyota Motor Company must also ease competition posed by General Motors, BMW, and Mercedes including other upcoming airline companies. 6.0 References Andrews, A.P, Simon, J, Jun Zhao, FT 2011, The Toyota crisis: an economic, operational and strategic analysis of the massive recall, Management Research Review, Vol. 34, pp.1064 – 1077. Anderson, E 2010, Toyota's competitive advantage: path dependency, dynamic capabilities, and sources of inimitability – a contrastive study with Nissan, in Ron Sanchez, Aimé Heene (ed.) Enhancing Competences for Competitive Advantage (Advances in Applied Business Strategy, (Volume 12), Emerald Group Publishing Limited, pp.87-120. Drummond, G & Ensor, J 2005, Introduction to marketing concepts, Oxford, UK, Elsevier. Forbes 2013, Toyota Eyes Big Growth Ahead in Emerging Markets, viewed on 14th May 2014 http://www.forbes.com/sites/greatspeculations/2013/04/04/toyota-eyes-big-growth- ahead-in-emerging-markets/ Green, S.D & May, S.C 2005, Lean construction: arenas of enactment, models of diffusion and the meaning of ‘leanness, Building Research & Information, Vol. 33, p. 498-511. Heller, V & Darling, J 2012, Anatomy of crisis management: lessons from the infamous Toyota Case, European Business Review, Vol. 24, p.151–168. IBISWorld 2013, IBISWorld Industry Report C2531-GL: Global Car & Automobile Manufacturing, viewed on 14th May 2014 http://clients1.ibisworld.com.au.ezproxy.lib.uts.edu.au/reports/gl/industry/default.aspx?en tid=1000 Liker, J.K & Morgan, J.M 2006, The Toyota Way in service: the case of lean product development, Academy of Management Perspective, Vol. 20, pp.5-20. Low, S.P & Gao, S 2011, Bridging western management theories with Japanese management practices: case of the Toyota Way model, Emerald Emerging Markets Case studies, Vol. 1, pp.1-15. Morris, T & Lancaster, Z 2005, Translating management ideas, Organization Studies, Vol. 27, pp. 207-223. Mullins, J., Walker, J. O & Boyd, H. W 2010, Marketing management: a strategic decision making approach, Boston, A McGraw-Hill Irwin. Peleg, L & Whang, S 2005, Toyota: Demand Chain Management, Harvard Business School Publishing, Boston, MA, Case No.GS-42. Shang, G & Pheng, L 2012, The adoption of Toyota Way principles in large Chinese construction firms, Journal of Technology Management in China, Vol. 7, pp. 291–316. Tomas, C.M 2013, Recalling Toyota, Emerald Emerging Markets Case Studies. Toyota Motor Corporation (TMC) 2014, Toyota Motor Corporation Official Website, Viewed on 14th May 2014 http://www.toyota-global.com/ Osch, W & Avital, M 2010, The road to Sustainable Value: The path-dependent construction of sustainable innovation as socio-material practices in the car industry, in Tojo Thatchenkery, David L. Cooperrider, Michel Avital (ed.) Positive Design and Appreciative Construction: From Sustainable Development to Sustainable Value (Advances in Appreciative Inquiry, Volume 3), Emerald Group Publishing Limited, pp.99-111 Varian, H.R 2006, Intermediate Micro Economics, W.W. Norton, New York. Read More