The Uniqueness of Toyotas Strategy - Term Paper Example

MBA Case - Toyota's Strategy and Initiative in Europe: the launch of Aygo The new strategy introduced by Toyota helped the company to increase itssales and improve financial performance in Europe. Marketing deals with people's needs, provides satisfaction for these needs, and, hence, delivers utility. These drastic changes in income have caused additional turbulence in the market place in terms of people's needs and their satisfactions. Although these factors of non-price competition are important, price competition is particularly critical in times of recession (Annual Report Toyota 2008). If those consumers who have limited means are able to buy more products (particularly consumer durables), that would be an important growth stimulus for the economy. However, instead of being engaged in price competition, companies are scaling down their operations. The uniqueness of Toyota's strategy was that it designed and manufactured locally adapted models. This strategy helped the company to increase sales: "by almost 50 percent from 2000 to 2005. The new strategy paid off financially, too. According to Business Week, the operating profit increased ninefold to $654 million in 2003" (Thompson et al 2008, p. C245). Research and innovation are a part of Toyota's success. The company launched its new car Aygo and "challenged many of its traditional views: the car was specifically designed for the European market and exclusively" (Thompson et al 2008, p. C245). For Toyota, this business decision is multi-dimensional and extremely complex. It is impossible to assume that business decisions even approach rationality, let alone perfect rationality. Toyota has to make complex decisions and, because of the multi-dimensionality of their decision conditions, they make many decisions (Annual Report Toyota 2008). Product adaptability and outsources are also key success factors. Today's consumer has a tremendous number of choices. Most of the products are complex and many of them have additives, preservatives, and other chemicals. Some of them are dangerous. Many of them have hazardous long-term effects. It is virtually impossible for the modern consumer to be rational and maximizing. Normal average consumers are typically confused and have difficulty making satisfactory decisions. Even though they may have the capability to evaluate functional product attributes in a rational manner, they lack the time and motivation to do so (Annual Report Toyota 2008). Global expansion and penetration to the North American market improves Toyota's position on the market "For 2006 Toyota was expected to reach 9 million units in production-with luxury brand Lexus reaching the 500,000 units mark for the first time (up from 400,000 units in 2004)" (Thompson et al 2008, p. C246). Toyota follows growth strategies based on the idea that expansion and market development will help it to attract new customers. According to its Annual repot: "Toyota expects to record net sales of 2,000.0 billion ahead of schedule for the fi scal year ending March 31, 2008" (Annual Report 2008, p. 3). The global car market is not only very complex but also not quite open for entry. Investment in research and development improve its position and increase opportunities on the global scale (Financial Results. Presentations 2008). 2. SWOT analysis shows that there is a strong correlation between successful strategies and direction selected by the company and its financial performance. The main strength is stable position on the market and loyal consumers. Financial statements highlight that in 2007 Toyota has increased its sales in 4.7% in comparison with 2006. Its operation income increased in 17.3% and income before income taxes and minority interests increased in 29.2 %. The net income is $40,309 million (2007) in comparison with 30,268 million in 2006 (see Appendix 1, 2). The main opportunity for Toyota is growth. Growth up until the 1990s meant expanding productive capabilities and market opportunities and making sure that this growth would yield better returns on investment. However, since the 1990s, growth has become financial manipulation. Leveraged buyouts and unfriendly takeovers have created large companies like Toyota. This orientation enhanced the conditions that are providing turbulence in the market system. Businesses that did not pursue strategies and plans to maintain continuity and growth have contributed to the less than impressive performance of economy. According to Toyota's management: "Toyota Industries expects the global economy to continue expanding. Uncertainties persist, however, regarding fluctuations in oil prices and the direction of the global economy, including the U.S. economy. Our projections are based on an exchange rate of 115.0 =US$1 and 159.0 = 1 euro" " (Annual Report 2008). Competition and oil prices are the main threats for Toyota. When the corporate entity started having an orientation different from continuity and growth, then the prosperity that it generated became selective. New competitors become a weakness for Toyota. Today's market has many barriers to entry. Some of these are economic and others are legal. Economic barriers are related to unevenness of economic power distribution. In a number of major industries the market can be described as oligopolistic. Legal barriers are related to local or federal regulations. In many industries, such as banking, insurance, or health-related activities, there are vigorously enforced strict local and federal regulations restricting entry. "These risks and uncertainties include, but are not limited to, the following: (1) reliance on a small number of customers, (2) product development capabilities, (3) intellectual property rights, (4) product defects, (5) price competition, (6) reliance on suppliers of raw materials and components, (7) environmental regulations, (8) success or failure of strategic alliances with other companies, (9) exchange rate fl uctuations, (10) share price fl uctuations, (11) eff ects of disasters, power blackouts and other incidents, (12) latent risks associated with international activities and (13) retirement benefit liabilities" (Annual Report 2008, p. 0). These facts and figures show that Toyota obtains a strong position of market but influenced by international activities and competition. Market position of the firm is a good indicator of the firm's marketing effectiveness. Toyota can be characterized as the company capable to determine its market position and sustain its a unique position to detect its own well-being. Market position, well in advance of the profit and loss statement, would indicate if the overall performance of the firm is satisfactory or deteriorating. 3. TNE's joint venture with PSA was successful and allows Toyota to enter the market with new ideas. The joint-venture helped Toyota facilitated customization of the catalog to the market, more rapid response times and more control over the overall quality of the customer interaction. Also, Toyota 's single focus on minicars seemed more successful than the divided focus. Toyota tailored its product line based on sales. "So fuel-efficient engines became crucial for meeting the needs of this voluntary target. PSA developed a new 1.6-liter engine which consumed 10 percent less fuel, but this development came at a cost of $6l 0 million" (Thompson et al 2008, p. C253). The most serious obstacles to entry are the high costs of labor, real estate, logistics, taxes, utilities, and other expenses. (This may have been particularly emphasized because the survey was conducted during a period of significant appreciation of the dollar against the euro.) Market maturity and strategic stalemate are caused by a self-fulfilling prophecy of if the market is not growing, the corporate entity will not be investing in advance of market growth. It will, therefore, eliminate risk and, by definition, reduce the growth prospects in the economy. It is quite likely that all participating corporate entities will take a similar strategic position and create a stalemate of economic non-growth, nonchanging market shares in an overall stabilized market share picture by all participants (Financial Results. Presentations 2008). Uneven distribution of resources, perhaps, relates to the fact that companies, as they consider allocation of investments, tend to be bureaucratic without paying attention to the overall balance of the company's business portfolio. For Toyota, growing international complexities are reflected in companies' being forced to revise global business in the form of multilocal. Instead, modern multinational companies are catering to local needs of local markets accordingly. The world is becoming more fragmented and cannot be treated as a single homogeneous unit. Thus, overseas competition and overseas opportunities are becoming more difficult and more costly to cope with or take advantage of. "Toyota is considered the benchmark of manufacturing efficiency. This factory is an interesting fusion between Toyota and Peugeot; however, Toyota is absolutely in charge of the manufacturing process, and this is a Toyota factory" (Kenety 2003). As in any global market, there are parts of the minicar market that are represented by global tastes and styles. New products or services need to address the peculiar cultural and structural demands of the Japanese market. Failure to do so is one of the most common sources of entry failure, and among the easiest to identify and rectify if companies take off their domestic blinders. The type of business also affects the decision of whether native or foreign managers fare better. Foreign managers can be an asset for niche businesses with a foreign cache. Yet in manufacturing, the advantages of Japanese management and skill will probably be more of an advantage. Joint ventures have become less popular as foreign entrants find the trading companies bring trading expertise, but not the marketing savvy needed to achieve success. It is much easier for foreign entrants to make their way directly into Japan, given changes in regulations, distribution systems, and other factors. There may be other reasons to create a partnership, particularly to leverage research and knowledge bases in industrial markets, but they are less compelling than before. Success in Europe requires a great commitment. One of the reasons Toyota has been so successful in Europe is that it stayed in the country when American companies pulled out during challenging times. It is this consistent presence, the long-term relationships, and the process of building that become the greatest strength of a new entrant. These changes have tremendous implications for the critical success factors in entering European markets. Overall, these many changes have made marketing more central to success (Financial Results. Presentations 2008). 4. The main challenge for TME is to differentiate its products and appeal to generation Y. "Generation Y was definitely attractive size-wise, but reaching them would require many changes to the existing ways of doing things" (Thompson et al 2008, p. C 256). Typically, consumers' perceptions are limited to their own experience. Their ability to sort out and articulate their needs is circumscribed; and their opinions about an unfamiliar product are subject to change. If we believe that consumers buy products consistent with their self-image and group norms, then it is natural that many new products, especially those involving high technology, will be rejected by the average consumer. Furthermore, the consumer may not have the education or the perception to articulate his needs or desires (Aygo Home Page 2008). Even though some consumers are able to provide information about conscious desires and needs, as they articulate their needs clearly, it is virtually impossible to extract information about their equally important unconscious needs. Thus, depending totally on consumers' awareness of their needs as the basis of new product or new product concept evaluation leads away from any genuine innovation in product development (Financial Results. Presentations 2008). The first step -- idea generation -- can come from within the corporation or from government, university, or jointly sponsored research efforts among others. Somebody must be doing basic, solid research and development in order for truly innovative product concepts to emerge. Internal feasibility assessment, the second step, can use various techniques. This is the major phase where many of the ideas are eliminated because of a lack of feasibility. Most of the time, those ideas that call for a smaller basic investment or are more suitable for the existing facilities and characteristics of the firm are likely to be judged more feasible than others. Because product development teams today are so present-oriented, most future-oriented ideas are put on the back burner at this stage (Toyota-PSA plant officially online 2008). 5. In order to attract more customers and improve its competitive position, Toyota should test the features of the proposed new futuristic product need to be achieved by future-focused groups made up of future-oriented and sophisticated people. Market testing, too, must be accomplished using unusual consumers. They should be innovators and early adopters, since more ordinary consumers have difficulty relating to breakthrough products. Consumer innovators, as reported in a number of studies, are from higher income groups. They are well educated, highly exposed to mass media, socially active, opinion leaders, cosmopolitan, and venturesome. Along with experts and heavy users of related products, they can effectively evaluate technology pushed product ideas. Finally, not only should specially constituted consumer groups be used for concept testing as well as market testing but also nonconventional techniques should be used (Drejer, 2002). One such technique is Hedonic analysis. This analysis probes multisensory fantasy and emotive aspects related to the use of proposed new products. It is particularly useful when testing products that are innovative or futuristic. Developing products that may not be satisfying existing needs but win satisfy needs of the future can make a significant contribution toward improving the quality of life in the future. Futuristic portfolios create major and minor breakthroughs for future company growth in revenues and profit. The key in the overall process is being long-term oriented. However, all futuristic products may not have the same degree of capability to fight off economic turbulence (Drejer, 2002). Thus, instead of one or two, a healthy number of products may be included in the futuristic product portfolio of the firm. There are at least two differences between the megatrend and scenariobuilding methodologies. First, scenarios are usually much more focused on changes in an industry. That is, environmental monitoring searches for changes in trends relevant to an industry, while megatrend research focuses on the implications of a broad trend in society. Second, scenarios are developed by company planners, while megatrends are often identified by people outside the company who may be perceived as being authorities or gurus in the industry or in the product area. References 1. Annual Report Toyota (2008). Available at: http://www.toyota-industries.com/ir/library/annual/2008/semiannual.html 2. Aygo Home Page. (2008). Available at: http://www.aygo.com/ 3. Drejer, A. (2002). Strategic Management and Core Competencies: Theory and Application. Quorum Books. 4. Financial Results. Presentations. (2008). Available at: http://www.toyota-industries.com/ir/library/presentation/ 5. Thompson, Arthur, Strickland, A.J. and Gamble, John. (2008). Crafting and Executing Strategy: The Quest for Competitive Advantage, Concept and cases, 16th Edition. McGraw-Hill Irwin. Boston, MA. Toyota's Strategy and Initiatives in Europe: the Launch of the Aygo, pp. C245-C259. 6. Toyota-PSA plant officially online, gearing up for car-per-minute production. (2003). Available at: http://www.radio.cz/en/article/63985 Appendix 1. Financial statements (2008) 2. Financial Results 2 3. Automobile segment. Read More