Strategic Analysis on Toyota - Assignment Example

?Strategic Analysis on Toyota Toyota’s vision is to be the leading global car manufacturer well into the future. In pursuit of this, the company has rolled out a strategy embedded in the ethos of high quality products, a motivated workforce, sustenance of the Toyota Way organisational culture and prudent research and design, all of which are very formidable strengths towards achievement of the vision. Concern on the quality of its vehicles in recent times is however a main concern which will be a weakness if not dealt with. This study will briefly explore the company’s history and context and then analyse Toyota’s internationalisation strategy. A value chain analysis will be undertaken to explore how the different groups at Toyota work together as a unit and thus help understand how the different factors of production at Toyota are interrelated. A SWOT analysis, Porter’s Five Forces analysis and PESTEL analysis will then be used for the internal and industry analyses of Toyota. Company History and Context The history of Toyota can be traced back to humble beginnings in 1930 as a research initiative into gasoline-powered engines at Toyoda Automatic Loom Works, before the registration of Toyota Motor Corporation Ltd. in 1937. The company’s timeline is characterised by major breakthroughs involving careful business partnerships with other players in the car industry and launch of activities into foreign markets. The first formal exports were to the USA in 1957. The company then entered with Hino Motors Ltd. in 1966 and Daihatsu Motor Co. in 1967, before launching the very successful Lexus brand in the USA. Production in the UK began in 1992, and the company saw the launch of the world’s first mass produced hybrid car, the Prius. Production in France began in 2001, with Toyota entering Formula 1 in 2002. Recent highlights include the introduction of the Lexus in Japan in 2005 and establishment of a strategic direction for the firm towards industry leadership into the future (Toyota-Global.com 2011). Toyota has grown into a giant global car maker, surviving a decade of poor performance by the industry to continually post profits and growth nearly all the time. In 2010, the company was ranked first in terms of units moved (8,557,351) and thus market share (11%). The latest figures (first half of 2011) however indicate that the company has fallen into third place behind GM and Volkswagen especially following the recent devastating earthquake in Japan (Business Week 2011). Company Purpose Through analysis of Toyota’s vision, mission, objectives and company principles it is possible to gain important insight on Toyota’s current position in the global market and the strategic direction the company is taking. The company’s global vision is to “lead the way to the future of mobility, enriching lives around the world with the safest and most responsible way of moving people” (Toyota-global.com 2011). The company bases this vision on commitment to quality, high innovativeness and respect for the earth. From the company’s vision, it is clear that Toyota seeks to be the industry leader way into the future. The company’s mission statement is “To sustain profitable growth by providing the best possible customer experience and dealer support” (Toyota-global.com 2011). The mission and vision statements reveal that the company’s current and future are pegged on sustainability, quality and customer satisfaction. The management at Toyota has generated a set of principles that have brought the company the success it now enjoys, and still look to work with these principles into the future. These guiding principles involve honouring every nations law in order to be a good global corporate citizen, respecting customs and cultures of the different peoples around the globe, production of cleans and safe products, production of outstanding products through innovative technology, fostering individual creativity and teamwork through an appropriately enabling corporate culture, harmonious growth with global community and healthy cooperation with stakeholders (Toyota-global.com 2011). From these principles, it is clear that Toyota seeks to remain within the law at all times, provide quality and safe products, respecting the environment and the community while balancing this with stakeholder interests. These principles also indicate that Toyota is energy-conscious as it is committed to sustainable development and respect for environment and harmony in the company’s work environment. Internally, the company not only seeks to comply with all labour and employment laws and regulations but goes a step further and establishes a culture for its employees based on mutual trust and mutual responsibility (Toyota Motor Corporation 2006, p. 8). These company’s values are integral in attainment of its objectives as it seeks to fulfill its mission and drive towards the established vision. Toyota’s Internationalisation Strategy The best way to study whether Toyota has followed a standardisation, adaptation or a unique mix-method in its internalisation strategy is to explore the company’s marketing mix at an international level; product, price, place and promotion. When the product is considered, it is clear that Toyota follows a mix method as evidenced by standardisation of its brand names all across the world. These brand vehicles however may differ from country to country or region to region in terms of transmission, engine capacity, shape (saloon versus station wagon models) or other such considerations after a market research has been undertaken to determine preferences (Toyotaglobal.com 2011). This product differentiation strategy is indicative of adaptation of the products. Some models may also be released in particular regions but not in others. On a consideration closely related to the product is the price. Toyota adopts a pricing strategy based on market research as to the spending powers of its target markets and hence a location pricing strategy. Here, it introduces luxury cars that are highly priced (although lower priced than that of competitors). An example of this is introduction of the Lexus in the USA and Corolla in developing countries, introduction of fixed prices in most provinces in Canada (Zeng, Dasgupta and Weinberg 2008, pp. 3-5). There is also provision for the optional feature pricing where the customer can order the vehicle with or without certain features and hence the same vehicle model can be sold at different prices. Meyer (2009) however argues that Toyota’s management is keen on going back to its value-based pricing strategy based on the customers and the market. Hence, Toyota’s pricing strategy is largely based on an adaptation model. When the place is considered, Toyota has a much standardised distribution system across the globe. This is well established model that has been appreciated as main contributor to Toyota’s success and also explains the reasons behind the failure of similar Japanese car makers in replicating the success of Toyota at the global scene. It however also does undertake personal selling where dealers in show rooms act as the interface between Toyota and its customers. The choice on whether to adapt or standardise is informed by market research on the particular target market (Toyota Motor Corporation 2003, p. 9). Promotion of the product follows a mix model of adaptation and standardization. In terms of standardization, the entire global outlets and marketing ensure that Toyota is recognised as a brand characterised with high quality, fuel efficiency, reliability and affordability, such that it has maintained this global image over time and many individuals around the world bear such a perception of the company. Adaptation involves promotion of the products based on the target market. For example, the Innova in India is targeted at Indian youth and up-coming executives and thus is promoted through association with popular Bollywood movie stars (The Economic Times 2005), whereas promotion for the Lexus in other markets would not follow the same. Theory-based Analysis of Toyota’s Internationalisation Process The strategy undertaken by companies in internationalisation can be categorised as following either a stage approach or a global approach. In the traditional stage approach companies are observed to begin by selling their products in their home markets and then sequentially expanding into other countries. The stage approach can further be categorised into the Product Life Cycle model or the Uppsala Internationalisation model. In the former, a given firm will introduce products into the home market during the growth phases and only go international after achieving the maturity phase. In the Uppsala model, firms begin exporting their products to markets that are deemed psychically near, beginning with irregular exporting activities, then through independent representatives followed by use of affiliate exporters finally leading to establishment of production facilities in the foreign markets (McDonald, Burton and Dowling 2002, p. 271). The other approach is that followed by Born Globals, firms which launch international activities right from their establishment, accessing distant markets and trading in multiple countries at once (Parker 2005, pp. 99-101). Toyota’s internationalisation strategy can be explained through the Uppsala model as its delay in accessing global market first rules out the global approach. Toyota bypassed several markets to launch activities in the USA in 1957 which is indicative of the psychic proximity that is characteristic of the Uppsala theory. Toyota Motor Manufacturing production began years later in other countries, 1992 in the UK and 2001 in France (Toyotaglobal.com 2011). Besides, it was not in its maturity phase when it first launched its export activities and is still on expansion plans to launch production facilities in other countries. SWOT Analysis on Toyota Strengths One of the main strengths of Toyota is its successful implementation their widely recognised “Toyota Way” strategy in all its global business operations. This strategy is based on operational excellence through a 4-P model; philosophy, process, people and problem solving. Philosophy is anchored on long-term thinking; process on waste elimination; people on respect, growth and challenge; and problem solving through the concept of continuous improvement. The resultant effect of this strategy is organisational performance excellence due to sustenance of high quality that not only attracts customers but also makes them loyal (Liker 2004, pp. 1-2). The “Toyota way” is a lean management system (Havard Business Review 2008, pp. 171-174) that is a clear strategic strength since it is tailor-made for the company as evidenced by the fact that most of the other operational excellence strategies pursued by organisations/industries around the world borrowed sometimes heavily from it, including the popular “lean manufacturing”, “just in time” and “six sigma” philosophies (Chalice 2007, pp. 1-3). As a result, Toyota is way ahead of competitors since its strategy has evolved with the company and is integral in Toyota’s organisational culture, hence few challenges can hamper its implementation. Besides, the “Toyota Way” is a well established company tradition, embraced by the employees and passed down generations in a manner that has been famously regarded as Toyota Company’s “genes” and “DNA” (Hino 2006, pp. 1-3). Toyota boasts of an exceptionally talented workforce that under close observation takes the credit for the growth of the company from a small company in Japan to the renowned automaker known today. The top leadership at Toyota appreciates this fact and believes that their sole competitive advantage lies in their talent development and priority on workforce. The “Toyota Way” only works due to its effective adoption by the employees, and the Toyota culture of hard work and continuous improvement is only possible through the quality of employees present (Liker and Hoseus 2008, pp. 37-38). Toyota’s excellent workforce is a major strength especially considering the fact that the company operates on principles based on continuous improvement and high quality and organisational performance appraisal, which would prove strenuous and overwhelming to weak employees. It is not unknown for companies to adopt noble strategies and policies only for them to fail due to difficulties in adoption by the workforce. Toyota takes its research and development seriously and this has been a major strength to the company. It has a fully fledged Toyota Industries section guided by the founding spirit of being “ahead of the times through endless creativity, inquisitiveness, and pursuit of improvement” (Toyota-industires.com). The section coordinates two categories of activities; development and improvements on products performed independently at each business division, and research and design processes undertaken by the Research & Development Center which has separate activities from the business divisions and aims at a company-wide management strategy. According to Liker (2006, p.1) the Toyota product development system is highly effective due to a number of strategies; it focuses on customer value and waste elimination, decentralises decisions, leans on world class technical competence, has front-loaded processes and identifies and attacks barriers to innovations and improvements. The product development currently at Toyota is well-suited to drive the company towards its mission as elements of sustainability and environmental consciousness are quite discernible from it. It also takes into consideration the customers- a very important category of stakeholders in the motor vehicle industry. Weaknesses Toyota’s large size as a company means that any errors in the manufacturing processes will result in the production of numerous faulty vehicles. If these faults are not corrected and the vehicles availed to the market, the end result will be customer dissatisfaction and aloofness to future car models from the company. The extent to which the reputation of a company can be damaged by poor quality is not in question. Toyota recently went through this, having to make recalls of vehicles from its global markets due to failed break systems. Concerns on safety are enough to cause virtually irreparable harm to a company such as Toyota, besides the losses accompanied by the recalls, compensations and repairs (Webb 2010). Failed break systems or any other faults in the manufactured vehicles are indicative of a breakdown at some point along the line of production and poor quality assurance and verification. Commitment to quality is one of the key principals of the company and thus it should not be seen to fail in this part. Review of the total quality management system at Toyota to accommodate the demand-driven mass production is of utmost priority. Opportunities Several global events provide opportunities for Toyota to continue growing. First, the emerging of strong middle-class populations in countries such as China and India is a mass market opportunity for Toyota vehicles. The economic boom in such countries is accompanied by considerable gains in spending power as the livelihoods of the population get better. It is also important to note that these are highly populated countries. Setting up production lines in such countries is a sure way for Toyota to strategically position itself into these emerging markets. The financial hardships being experienced around the world translate to a situation where consumers are not interested in expensive and fuel-guzzling vehicles, a fact which places Toyota at an advantage over rivals since it is already known for presenting affordable vehicles to the market. This is also accompanied by the perception of the customers about Toyota’s concern for the environment (Cole, 2003, pp. 216-217). Threats Toyota has to find strategies of dealing with several important threats to its position in the global car making industry. The first of this is the shift in focus by the most of the industry players to production of affordable models of their vehicles, including previously premium-targeting firms and traditional Japanese competitors. The cost-leadership competitive advantage gained by Toyota in several markets is easily replicated by competitors, which has grave consequences to Toyota. The other source of threat is the ever-rising global fuel prices. These are not only making driving a luxury but also pushing the prices of all other commodities up thus limiting the spending power of consumers. With such high prices, global car sales are surely set for decline, with mass producers and large workforce companies such as Toyota set to feel the effects the most. Value Chain Analysis on Toyota As pointed out earlier, one of the best ways to understand how all the different systems at Toyota work together in harmonious fashion- arguably a difficult task for global giants- is to study its value chain. Toyota has a well-developed value chain centred on business units through which the vehicles undergo value addition at each step as shown in Figure 1 below: Figure 1: a) Toyota’s value chain in relation to stakeholders’ value chains & b) Toyota’s organisational value chain. (Source: Scribd.com 2010) The first figure indicates that Toyota seeks to work with stakeholders with well-established value chains to in order to maximise on professionalism for example the suppliers (Taylor and Brunt 2001, pp. 71-72). The company’s value chain is harmoniously linked with the suppliers, distribution channels and ultimately the customers. This enables a smooth and efficient flow in the processes of procurement, productions, distribution and finally sales. In the second figure, the company has followed the popular visualisation of a value chain and integrated this into their company culture. Each department within Toyota is properly linked to the others as the product (vehicle) moves through the company. Rather than work disjointedly, the different sections cooperate and collaborate under the “Toyota Way” to ensure that the organisation is run efficiently, operations optimised and accountability maximised. Toyota’s value chain also incorporates consumer views through close and enduring relationships. It has also adopted intensive and extensive application of IT in its expansion (Toyota.co 2001). PESTEL Analysis on Toyota Political Environment An analysis of the company’s political environment has to consider its transnational operations nature, which translates to the influence of the home government and the foreign governments on the company. Basing on this, Toyota has experienced considerably positive effect from the Japanese government as on many occasions throughout its timeline it has sought financial help from the government. The latest of these is in 2009-2010 where the car-maker sought a loan from the government to help it navigate the global economic recession (Inskeep 2009). Externally, examples of government influence on Toyota also prove to be in the positive as can be seen by the $545 million upgrade by the Canadian government on Toyota’s Ontario plant. The two instances (home and foreign) are in line with Toyota’s principles of respecting laws and regulations across nations and establishing good relationships with governments as part of its stakeholders. Ultimately, such cooperation and help from the government is important in attainment of the company’s mission. Economic After periods of steady growth not only for Toyota but also for the entire automobile industry, the recent economic downturn has reversed fortunes for all carmakers. As a mass producer, Toyota has been largely affected as consumer spending power hit lows and with most countries around the world still in recovery from the recession. Priorities have shifted towards basic needs especially in middle-income and developing countries where Toyota is the market leader (Wad 2010). The impact of this on the company was the reporting of its first operating loss in 70 years, with a $1.6 billion dip in 2008-2009 compared to a profit of $25.2 billion the previous year. As of now, the firm is in a recovery path (Toyota-global.com 2011). Social Analysis The social aspect is a huge determinant of success in the car-making industry as volatility linked to societal perception can fell giant companies. This is clearly appreciated by Toyota as manifested by highlighting the society among its principles; respect of customs and cultures of people around the globe (Toyota-global.com 2011). Toyota also undertakes an effective CSR strategy and involves the society in its value chain process. Most significantly, the company has established the Toyota Community Connection with its suppliers. This philanthropy program has to date made $1 million in donations to charities in areas where Toyota and its suppliers have operations (Tundrasolutions.com 2011). Technological Analysis The vehicle industry is characterised by cutting-edge technology by the major players as different manufacturers seek to make safer, fuel-efficient, high performance and comfortable vehicles among other considerations. Toyota’s technological disposition indicates that it has an eye on the future while at the same time producing vehicles that are less harmful to the environment. This is manifested in engine modification towards use of alternative fuels and power-train technologies through which the company is making headways towards the first “ultimate eco-car” (Toyota Motor Corporation 2007, p.1). This is directly in line with the company’s vision of being in market leadership into the future and the company principles of innovation and environmental conservation. Environmental Analysis The motor-vehicle industry is at the forefront of the going green revolution due to its direct links to organic fuel consumption and mass production in factories. Toyota’s efforts in environment consciousness and sustainability are entrenched in its principles and cover production processes and the final product. In the production system, Toyota has adopted the highly praised lean manufacturing (Figure 2) with emphasis being placed on the “just in time” process systems. The results have been attractive with the company achieving 22% reduction in energy use as of 2008 and gaining recognition for being environmentally conscious car maker (Balle and Balle 2008, pp. 17-22). Fig 2: Lean management at Toyota. (Source- Balle and Balle 2005, p. 19) Legal Aspects Toyota is committed to being on the right side of the law as demonstrated by having compliance with each nation’s laws across the globe as the very first principle of the company (Toyota-global.com 2011). Besides, the company has taken steps to ensure that its global policies and activities are in line with international and national requirements. The company complies with labour laws, corporate ethics and prime risk management issues in all aspects of its operations in the global market. Porter’s 5 Forces Analysis on Toyota This industry analysis will be based on the extensive information on the car making industry provided by Bradley et al (2005) whose analysis covers all major players and the industry as a whole. Bargaining Power of Suppliers An important determinant in this case is the volume. Toyota and other car makers are mass producers and the volume of its needs is critical to suppliers. Hence, the reliance on large volume purchase by Toyota leaves the suppliers with little bargaining power and may positively affect Toyota. Besides, the lack of proliferation in new car makers in the industry means that the traditional industry leaders retain substantial power. Besides, the fact that most automotive parts are usually standardized- for example mufflers and belts-and are only for use in motor vehicles limits supplier power. Bargaining Power of Customers The customers have considerable bargaining power versus car-makers due to a number of factors. They have a number of different producers from which to select and are increasingly becoming informed consumers which deals a significant blow to the power that brands wield. Switching between brands does not involve large costs due to a number of standardised vehicle classes in the market. Toyota and other car-makers however balance this power off due to the large number of consumers available to them, translating to limited leveraging on the part of the consumers and thus advantage to the car-maker. Competition The motor-vehicle industry is a competitive one with each firm seeking competitive advantage through several strategies. It is noted that several competitors have now opted for production of cheaper vehicles marketed to the middle class and low-end consumer (Toyota’s niche market) in a bid to attain overall cost-leadership in this very competitive market. Traditionally premium-vehicle manufacturers are diversifying into affordable vehicles and as a result significantly making inroads into Toyota’s markets. However, Toyota has a head start in this since it is already recognised by this particular market in production of affordable. Besides, it combines affordability with emphasis on quality and reliability and hence stays ahead of competitors. Threat of Substitution In general, the threat of substitutes to the vehicle industry is only fairly mild despite the numerous other forms of transportation available globally. Some of the substitutes include the increasingly accessible and affordable point-to-point air travel and high speed railway lines accompanying national development across the globe. These, however, fail to achieve the convenience, utility, independence, value, and flexibility that vehicles present. Hence, significant substitution of car-makers is still not in sight. Entry of New Competitors The car manufacture industry is particularly difficult for a new entrant to break through. It is full of substantial barriers to entry in place including prohibitive initial capital ventures, lack of strong distribution networks as what is already owned by the incumbents, prerequisite advanced technology to keep up with the standards being set in motor vehicles, difficult-to-achieve economies of scale which companies such as Toyota gain from leveraging in the distribution systems and lastly, the presence of well established and strong brands in the market. Conclusion Toyota’s vision, mission and objectives all point at strengthening market leadership and becoming the industry standard into the future. It has adopted a mix method of adaptation and standardisation in its global marketing mix operations, and it is discernible that the firm followed an Uppsala Internationalisation process. The main strengths lie in the company’s Toyota Way culture, a highly motivated and able workforce, an effective product development section and an efficient value chain. Product quality is however an issue that needs to be addressed. Opportunities lie in emerging mass markets in countries such as India and China while the production of cheaper vehicles by rivals and the rising fuel costs are the main threats facing the company. PESTEL and Porter’s 5 forces analysis reveal that Toyota is in a strong industry position currently and as it heads into the future. References Balle F & Balle, B 2005, “Lean development”, Business Strategy Review, pp. 17-22. Bradley, D et al. 2005, Automotive industry analysis, viewed 22 November 2011, Business Week 2011, VW likely to surpass Toyota as biggest carmaker this year, viewed 22 November 2011, Chalice, R 2007, Improving healthcare using Toyota lean production methods: 46 steps for improvement, ASQ, USA. 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