Suitability and Acceptability of Home Market - Term Paper Example

 «Suitability and Acceptability of Home Market» Toyota’s strategic development since 1980s has remained focused on developing operational methodologies as well as marketing strategies which can help company to achieve and sustain its competitive advantage. In order to effectively evaluate the strategic developments of the company, following strategic tools may provide a better understanding of the same: ANSOFF GROWTH MATRIX Toyota’s early history suggests that the firm has been involved in market penetration because of its relatively smaller size and market position. This same strategy has been carried forward too however, with slight variations. Therefore, in order to effectively understand its strategic developments it would be better if a market wise analysis of the company’s strategic development is performed: Home Market Toyota focused on market penetration in its home market by becoming more cost efficient as well as developing strategic alliances not only with its suppliers but through creative market strategies too. As lynch outlined that the firm was up against the giants of the industry. Therefore, it adopted a strategy of market penetration through cost reduction by implementing an efficient and flexible production system. The market penetration strategies included the development of efficient cars duly supported by the effective sales forces system. The firm has been successful in developing different operational methodologies by implementing concepts such as Kaizen as well as Kanban- two of the most important production philosophies which are now being used on industry wise level. KAIZEN, specially helped Toyota to make incremental changes in its production strategy to evolve as a leading market player. Toyota’s entry into foreign markets has been on its market development as well as diversification strategies. Over the period of time, it has been able to enter new markets because of its cost leadership and different joint ventures it initiated with different suppliers to offer different parts used in car manufacturing. On a production side, it has been able to initiate circular layout for production lines to achieve more efficiency in manufacturing hence achieving low cost advantage. Further, its joint ventures with different suppliers to achieve efficiency in terms of carrying lower stocks through its Just in Time Inventory management system. From marketing perspectives, it managed to launch different brands into different markets, and it’s because of its focused strategy that Toyota Camry is considered as the single largest car in North America. Suitability denotes the fit between the strategy and the situation faced by the organization. Toyota’s strategy has been to develop and penetrate markets through the introduction of new and innovative cars into the market. (Bremner et.al.1997). Toyota’s strength is in its production system which it has developed over the period of time. Due to its cost leadership as well as the formation of Diversification strategy included introduction of newer technologies and brands which suited different market segments of the firm. Its lean production system as well as strategic alliances with suppliers provided it to manufacture different brands of the cars. It is important to note that the over the period of time, it has been successful launched different products such as hybrid cars as well as the introduction of trucks, SUVs and Vans, which were not traditionally considered as Toyota’s preferred brands. Feasibility relates to the actual implementation of the strategy i.e. whether the strategy can be implemented successfully or not. Toyota’s basic strategy has always remained on market development and penetration through cost leadership. Toyota achieved it through implementation of KAIZEN and other KANBAN systems at its plants. Both these systems allowed it to control the costs at great length and improved upon the efficiency and are now considered as the leading methods of inventory management and strategy implementation. Acceptability is often referred to the peoples’ expectations from the company and Toyota has delivered on it also. Its strategic history since 1980s suggests that it has continuously improved itself to bring in new models suited to each category of its customers. Its hybrid car Pirus is the first hybrid car ever sold for commercial purpose. The development of hybrid cars also indicates the firm’s commitment towards becoming more environment friendly and with the introduction of its new breed of hybrid cars i.e. new Pirus and Camry are indicating the success story of the firm. (Toyota.com, 2009). Further, its strategy of not firing its employees and establishing long term relationships with its employees derive further acceptability and loyalty to the organization. Generally, Toyota evolved from a very humble beginning by focusing on devising a production system duly supported by marketing strategies. Auto industry witnessed a sharp decline of 26.6% with Toyota witnessing an individual drop of 32.3% as profitability is also decreasing due to this decline in sales. (Vlasic & Bunkley, 2008). Due to this steep decline into the market, many Governments including Government of US are also considering a bail out plans for reviving the industry and boost the profitability of the world’s largest car manufacturers. Strengths 1. Cost Leadership through efficient production system. 2. Third largest car manufacturer in the world. 3. Loyal and extremely motivated staff. Weaknesses 1. Its management style and philosophy is only successful in Japan. 2. Limited Market access i.e. mostly to Japan and US may put it against unique risks faced by these two economies of the world. 3. Inherent over and under capacity subject to economic fluctuations in the market. Opportunities 1. Chinese market is still largely untapped and by focusing its attention on this growing market, industry can achieve sustainable profitability. 2. Alternative fuel technologies may allow the car manufactures to further trim down their costs and produce cheap and inexpensive cars to suit different customers. 3. Growing population of world’s largest markets i.e. China, India; Indonesia may allow industry to develop mass transport vehicles rather than simple cars. 4. Current economic conditions may provide an incentive to engage into mergers and acquisitions therefore can provide an opportunity to further reduce costs through achieving synergies between organizations. 5. Fuel prices are continuously going down therefore considering the low cost of running the cars, the demand for fuel efficient cars may increase from working class individuals specially in countries like India, China, Russia as well as Brazil. 6. Production of environment friendly cars may provide an opportunity to tap a new segment of market. Threats 1. Volatile fuel prices may restrict output levels due to reduced demand. 2. Declining performance of financial sector may restrict the flow of credit for purchasing vehicles. 3. Current economic conditions may result into over capacity. 4. Cheap manufacturers from China can result into lost market at least in Asia. 5. Concerns for environment and growing consciousness of consumers to prefer environmentally sustainable products may be a challenge for the industry. 6. Concentration of market space into two regions i.e. US and Japan may increase overall risk. PESTLE ANALYSIS Political Factors 1. Increasing pressure on governments to compliance with the environmental related regulations. 2. Bailout plan for auto sector would mean greater stakes of government into automotive sector. 3. Relatively stable political system in developed world would ensure market friendly regulatory infrastructure in place. Economic Factors 1. Current financial meltdown is not supportive and many big giants are facing difficulties to remain profitable. 2. US and Japan economies are particularly heading towards recession which means two of the largest markets in the world would not offer any growth opportunities. 3. Increasing fuel prices is making it impossible for buyers to use big luxury cars where the profit margins are highest for the firms. Social Factors 1. Increasing use of cars may result into greater social cost because of the income differentials i.e. ability to afford cars. 2. Pollution caused due to emission may create substantial health related issues. 3. Increase use of cars may result into accidents bearing greater health cost to the society. Technological factors 1. Alternative fuel technologies are changing the very dynamics of doing the business in this sector. 2. Features such as cruistronics etc are being introduced to improve upon the marketability of the cars. 3. Lean manufacturing technologies are emerging which can further curtain costs for the manufacturers. Legal Factors 1. Increasing regulations are directed towards developing environmental friendly cars. 2. EU level efforts have already been put in place to restrict the CO2 emission from cars. 3. Increased safety regulations are forcing manufactures to provide built in safety measures. Environmental Factors 1. Automobiles are considered as one of the largest sources of CO2 emission. 2. Consumers are increasingly becoming conscious regarding the purchasing of environment friendly cars. 3. Increasing environmental damage is also causing safety issues. Strategic Alternatives Considering the above situation and analysis, Toyota may take following six steps from 2008-2013 1. Product diversification through more inexpensive product development as it will suit a larger chunk of customers who are facing economic hardships due to a current crisis. 2. Improve its focus on further streamlining its cost reduction strategies by relocating to locations which can provide necessary cost advantage. 3. Toyota must improve upon its distribution channels i.e. there is a great need for working closely with financial institutions to offer financing at relatively easier terms. Since a bailout is going to be injected therefore financial institutions will have greater leverage to lend. As such nontraditional strategic alliances may result into improve performance. 4. As a part of overall strategy, Automotive industry as a whole and Toyota, specifically need to penetrate into EU markets also as this market is dominated by traditional EU brands. Through acquisition, Toyota can make an entry into an untapped EU market. 5. There is a greater need for improving upon the efforts of educating customers regarding their environmental concerns. This will improve upon the public image of the firm and will it to further consolidate itself into North American market. Toyota needs to relocate its manufacturing facilities for achieving greater flexibility. Though its management style best suits Japanese conditions, but it needs to make a basic change into orientation and innovate further its management philosophy and style best suits different conditions. Management of Change and turnaround is one of the most sensitive and delicate tasks to be performed by the management in order to bring in more discipline into the organization. The general increase in the global competition as well as economic slowdowns required organizations to become more proactive and pass through a period which may be difficult as well as sensitive to tackle with. The management of turnaround and change in such situations are often difficult and marred with oppositions as well as social pressures which may effectively hinder the long term future of the organization. (Kannabiran & Bhaumik, 2005). Marks & Spencer or M&S is the leading chain store in UK which has been turnaround by its charismatic leader Stuart Rose. He not only brought a positive change into the company by refocusing its strategy on consolidating the core business of the firm i.e. women’s wear but also successfully defended the company from hostile bids made by Philip Green. What does make Stuart Rose so special is the fact that he is considered as one of the shrewdest leaders in the industry with great penchant for fashion and ability to bring in turnaround into companies which were considered as failures? It has been argued that the top management of the firm has the ability to influence the change into the organization and hence bring in corporate turnarounds. (Harker & Sharma, 1999). Thus corporate turnaround is considered as a two stage process which comprises of developing strategies to respond to the very factors which brought the downfall of the firm. Therefore, first it’s a critical evaluation of the factors which caused the failure and then responding through carefully chosen strategies. A turnaround. Therefore, typically therefore materialized as two stage process of the decline and then rise of the organizational performance. For this purpose, therefore, the leadership must also be transformational in nature. (Harker & Sharma, 1999). Rose’s efforts to bring in turnaround in M&S were based on a systematic process of first identifying what went wrong with the company. Rose in his article in Harvard Business Review of May 2007 narrated the story of turnaround for the firm which is leading with great success. It was noted that at M&S, decision making process was largely remained unaccountable and inventory management was not entirely satisfactory. It was because of this reason that the customers often preferred to shift towards relatively newer and more competitors in the market. The turnaround therefore began with the development of a trusted team which previously worked with Rose. He brought in new faces into I.T., Supply Chain, Marketing and Store designs department of the company. This change brought in a relatively new approach towards managing inventories more efficiently besides making changes which helped attract customers to the stores. What is also important to note that in order to bring in a successful turnaround, it is always important to initiate an effort from within which means company must allow itself to first concentrate on finding solutions internally and this is what exactly Rose done. He did not relied on the external consultants but attempted to put forward a single message of improving the product through better presentation in stores. It was because of this reason that a detailed scanning of stores was performed to clean up stores to not only give prominence to the major brands but also sideline any sub brands which were no longer selling for the firm. As discussed above that for a turnaround, it is important that the leadership must be transformational in nature with the ability to get respect as well as getting the message down the line. Rose, inherited an environment where people were separately lobbying for executing and employing new strategies, however, succeed in getting a message down the line by setting up operational level micro management of affairs. (Butler, 2007). What is also important to understand that Rose focused on basics and concentrated on what M&S was famous for? He closed down the financial services arm of the company besides retrenching and redesigning the portfolio of products which only constitute those inventory items for which M&S has the expertise and competitive advantage. Rose also concentrated on developing business in UK only by closing down overseas operations which were not considered as profitable for the firm as well as required greater energy and focus of the organization. This therefore resulted into reducing the overall costs besides offering an opportunity to become more profitable. Conclusion For an effective corporate turnaround, it is necessary that the leadership must be proactive and charismatic in nature so that it can offer the necessary insight as well as direction in achieving the corporate turnaround. Stuart Rose made a turnaround for Marks & Spencer by focusing on the very things in which M&S has the competitive advantage. The turnaround was focused on reviving the core business of the firm i.e. women’s wear besides focusing on improving upon the quality as well as improving upon the stores and product lines. What is however, critical to understand that the turnaround was mainly the result of transformational leadership of Rose. References 1. Bremner, Brian, Armstrong, Larry, Kerwin, Kathleen, Naughton, Keith. (1997). TOYOTA'S CRUSADE. Available: http://www.businessweek.com/1997/14/b35211.htm. Last accessed 23 January 2009. 2. Toyota.com. (2009). Toyota Reveals All-New Prius. Available: http://www.toyota.com/about/news/product/2009/01/12-1-Prius.html. Last accessed 23 January 2009. 3. Vlasic, Bill and Bunkley, Nick . (2008). Hazardous conditions for the auto industry. Available: http://www.iht.com/articles/2008/10/02/business/02sales.php. Last accessed 23 January 2009. 4. Kannabiran, Ganesan & Bhaumik, Saumen. (2005). corporate turnaround through effective supply chain management: the case of a leading jewellery manufacturer in India. Supply Chain Management: An International Journal. 10 (5), 340-348. 5. Harker, Michael & Sharma, Bishnu. (1999). Leadership and Company Turnaround. The Leadership & Organization Development Journal. 21 (1), 36-47. 6. Butler, Sarah. (2007). Rose’s turnaround plan is paying off for resurgent M&S. Available: http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article1826954.ece. Last accessed 23 January 2009. Read More