A Study of Toyota - Research Paper Example

A Study of Toyota Executive Summary A company that places highest value on the actual implementation and taking action, a company that believes in constant improvements and continuous hard work to improve and produce the best! A company that believes in consistency, reliability, competitive costs and being the best at what they do! One name that says this all and more – Toyota! Toyota is the world’s leading car maker and is one of the most innovative and high technologically advanced companies in the world. The recession however has not spared any company across the world and Toyota as well has been impacted. This paper deals with the impact of recession on Toyota and how the performance of the company has been affected. Details of the company’s income, profits and also the vehicle production have been included to gain an overview of the effects of recession on the company. The new strategies being adopted by the company, i.e. the higher customer attention, corporate social responsibility and also the increased global attention has also been discussed. A few recommendations have been provided at the end of the paper to assist the company get through the recession period and work towards a brighter and more successful post – recessionary period. USA Today has described the company as, ‘Toyota is as much a state of mind as it is a car company’. The company has earned an image for its environmentally friendly products, immense commitment to research and the excellence that the company has portrayed all through these years. The recommendations have been developed based on these and with a view to keep up this image for years to come. Introduction: The current economic environment across the world has been faced with intense crisis and difficulties. The sudden dip in the economic condition has led numerous companies and to be faced with high levels of financial crisis and immense changes have been required strategically to smoothly and gracefully face the issues. This paper will deal with one of the world’s largest carmakers – Toyota Motor Co. Ltd. The report will start with a brief overview of the company, following which the financial crisis that is being faced by the company will also be detailed. The strategic decision followed by the company to face the issue of the economic recession will also be discussed. The paper will also deal with details like the current position of the company in the market and the strategic objective of the company will also be discussed. Finally based on all the discussions, recommendations will be listed out for the company to keep up its competitive advantage - Operational Excellence. Company Profile: Toyota Motor Co. Ltd. was started in 1937 in Japan. The company however grabbed attention worldwide in 1980s with the special Japanese quality and efficiency. In 1980s, it was seen that the Japanese cars lasted more than the American cars and the required much lesser repairs as well. It was in 1991, that the world recognised Toyota had something much more special than the rest of the Japanese companies as well (Liker, 2004). Over the years Toyota has been placed on the second position in the markets, right after General Motors. The table below provides a clear view of the market share of the various companies in the U.S. markets for as of May 2008. It is clear that as of May 2008, Toyota has gained as much as 18.4% of the total US markets (See Appendix 1 - U.S. Market Share by Manufacturers (Newman, 2008). The company has spread its operations across the world and currently operates in over 170 countries. Toyota has built a brand name and image for itself and has proved itself in the past. The company has by – far the most profitable business than any other car manufacturer. Financial Crisis Impact Analysis The recession that has been faced by the world economy has also had an affect on Toyota as well. The world’s leading car maker Toyota has had to slash its production to a great extent and has needed to increase the training programs for its employees at the car plants, as the car productions has seen a major slow down. The impact has been felt all across the world and in an interview with Business Line, the Deputy Managing Director of Toyota Kirloskar Motor (India), - Mr. Shekar Vishnwanathan mentioned: “Production has reduced in TKAP, by as much as 40 per cent from earlier levels. It will be back to normal as soon as market conditions revive” (Giriprakash, 2009). With the decline of the United States Economy, a number of firms have been greatly affected and the impact has not only been felt in the U.S but has been felt across the globe. Toyota has been faced with a major slow down in other parts of the world as well. In order to be able to cope with the recession and the need for cost cutting within the company, Toyota has adopted different strategies across the various operations. The impact of recession has led the company to be faced with numerous financial losses. The recession has led numerous car manufacturers to suffer to great extents. General Motors (GM) has even declared bankruptcy and has been completed eliminated from the market. Toyota has also moved down to a great extent in the market and has entered into a downturn. However, Reuters reported: "The fact that Toyota entered the downturn from a position of strength strongly suggests it will be among the first to return to profit" (Ahmed, 2009). Considering Toyota’s performance in Philippines, it has been noted that the company has been faced with high depression in terms of its production and has also had to move towards a ‘Monday no production day’. The company has had to take measures like this to cut costs by cutting the 500 odd contractual workers and also the on the job training as well. It is clear from the above discussion that the company has been faced with numerous issues in terms of the production and employment during this period of recession. The financial implications have been many. The financial reports highlight that the company has been faced with a major slowdown and the net revenues of the company has dropped down to 20,549.5 billion Yen in 2009, from 26,289.2 Billion Yen in 2008. The company has seen a percentage change of almost -21.9%. Also in terms of the operating profits the company has seen a major dip of almost -2,731.3 billion Yen, this reflects a change percentage of almost -120.3%. Similarly the change percentage for the Net income has been calculated to be as high as -125.4% (See Appendix 2: Financial Summary 2009). Strategic Decision to Face the Economic Recession Toyota has adopted a number of new strategies to beat the economic recession. The company still uses its basic strategy of operational excellence in all its products and this has always been its competitive advantage. In terms of the production strategies, the company still utilises the Just – in – time strategy across all the locations. Toyota has implemented a simple and straight forward strategy across all locations worldwide. The company has had to reduce the production due to low sales hence instead of losing its employees the company has now incorporated new on – the – job training for its employees. Also, Toyota has implemented this to ensure that the ideal time of the employees is reduced to the maximum possible. The company follows the fundamental of ‘Knowledge is Power’ and it has now been investing in knowledge. Also, Toyota has taken on numerous projects and initiatives where the employees can contribute towards helping the society and participating in improving the world. One of the best examples for this has been in India, where the employees, apart from being trained have also been participating, towards creating a ‘clean and green city’. Mr Vishwanathan, the Deputy Managing Director of Toyota Kirloskar (India), had also mentioned in his interview with Business Line, that ‘for the remaining time, employees have started engaging themselves in activities such as promoting clean and green areas in Bangalore [India]’ (Giriprakash, 2009). The company has moved towards a strategic decision of participating in social causes to a greater extent. The company’s website also mentions, ‘our environmental commitment is a way of life, extending across all of our operations and through the full life cycle of our products. Through our strategy of sustainable mobility, we are developing and managing vehicles and technologies through their "life-cycle assessment" footprint so that we deliver the right vehicle, at the right time’ (Toyota - Environment, 2009). Toyota has also taken several intiatives during this period to cut down the production levels and it has been noted that the company has cut its production capacity by 1 million vehicles, which equals a reduction of 10 percent of its production. Toyota has also taken up the task of the cost cutting by shutting down the New United Motor Manufacturing Inc., and by reducing or halting a few of the production lines at the plants in Japan and England. This strategy allows the company to save on the costs incurred and to reduce its losses to a great extent. With the cuts, the company’s production capacity has been reduced to 9 million and the company as well as the experts in the markets like Reuters, expect the company to be able to cope back up in 2010. Toyota has adopted a global strategy and has realised that the current working environment is completely different requiring a different approach (Yip, 2003). The company has moved out of its traditional business model and has tried using other strategies which will help continue in the global markets smoothly and in a more customer oriented manner (Dunning, 2002). It has also been noticed in by Global Vice Chair Industry, Ernst and Young, Steve Almassy, ‘The world has changed in the last year and so have traditional business models. Some have disappeared outright but others will have to adapt to the new rules of the game. Thriving in this challenging business climate requires flexibility, creativity and imagination’ (Emirates Business, 2009). Current Performance Toyota has been impacted to a great extent and this is evident from the performance in terms of its sales. The companies financial statements highlight the impact that has been faced in 2009 and the changes compared to 2008. It has been noted that the company has had a major drop of -1,103,000 vehicles which have been reduced over the year. It can be noted that the company’s operations in North America has been faced with high levels of decline in production and the total drop in the retail sales has been -746,000 vehicles. Other countries like Japan and Europe have also been impacted however, relatively they are much lesser than the drop seen in Northern America (See Appendix 3: Consolidated Vehicle Sales & See Appendix 4: Table of consolidated vehicle sales). Based on the above reduction of sales of the cars, it is clear that the impact has also been clearly felt on the reduction of profits and income for the company. The Operating Income of the company has also taken a major dip in most of the locations. The figure attached (see Appendix 5: Geographic Operating Income), highlights the drop that the company has faced over the year across various major locations like Japan, North America, Europe, Asia and other countries like Central and South America, Oceania and Africa. In North America alone the company has been faced with a drop in the operating income. In the year 2008, North America had reported an operating income of 305.3 billion Yens. However in 209, the operating income has dropped down to -390.2 billion Yen. The percentage change has been -227.8% which is very high for any industry and company. The company’s current performance has been very low. However the company does not seem to be very shaken up by this, and have also planned the next year forecasts as a flat profit. Despite all of these issues, the company has been able to improve the level of profits to almost 130 billion yen. Strategic Objectives Toyota has developed very realistic and achievable strategic objectives. The company realises the impact of the recession and the time required to recoup from the impact. Toyota has hence developed very realistic objectives as follows: a) Short Term: Toyota aims at achieving a flat growth in the year 2010. Toyota has always achieved a continuous rise in the sales, however in the current year the company has seen a major drop in sales (as discussed). ‘The company hopes that this move will raise operation levels past the break-even point of 70%, and put the company’s books in the black for fiscal year 2010’ (Calogera, 2009). Take advantage of the eco friendly vehicles that they produce and expand the sales based on these vehicles. Also try to regain the markets to the maximum possible by introducing special edition cars to meet the needs of the customers across the various locations. The company aims at improving its operations by concentrating more on the changing demand of customers and to move towards more resource rich and emerging countries. b) Long Term: In the long run, the company aims at providing products based on the customer’s view point and provide the customers with high quality, attractive products at most affordable prices. The company’s reports also highlight that they plan, ‘Early commercialization of next-generation environmental, energy and safety technologies’ (Toyota, 2009). Toyota also aims at developing production and sales environment to respond easily to the business environment changes in a more effective and efficient manner (See Appendix 6: Future Plans, strategic objectives). Recommendation to Maintain the Competitive Advantage Toyota has set down some excellent plans for both the short term as well as long term strategies. In recommendation based on the company and with a brief understanding of the current market, it can be recommended: a) To increase and invest more in the human resources within the company. b) Improvise on the existing designs and develop more cost effective vehicles which fit the needs of the current markets c) To contribute to the markets in terms of the Corporate social responsibility and build a better image for the company. Conclusions In conclusion it can be safe to say, that although Toyota has been affected by the recession, the company will be able to recoup and come back with a big bang post the recessionary period. As explained by Reuters, ‘The fact that Toyota entered the downturn from a position of strength strongly suggests it will be among the first to return to profit’ (Ahmed, 2009). The trend that the company is following along with the newly incorporated and extensive urge for knowledge, the company will definitely be able to steer through the recession, recoup in the post recessionary period and stabilize back to normal or even higher levels. Toyota has a high growth possibility and is one of the only companies that will be able to stabilise back to the neutral position or even exceed their pervious performance as well, ‘The Toyota Way’. References Ahmed, R. (2009, June 14). Toyota can face Post Recession Demand Well? Retrieved October 29, 2009, from Asianbiz: http://asianbiz.blogspot.com/2009/06/toyota-can-face-post-recession-demand.html Calogera, S. (2009, August 27). Toyota to cut global production capacity by 1 million units. Retrieved October 28, 2009, from egmCarTech: http://www.egmcartech.com/2009/08/27/toyota-to-cut-global-production-capacity-by-1-million-units/ Dunning, J. (2002). Theories and paradigms of international business activities. Cheltenham: Edward Elgar. Emirates Business. (2009, October 22). Companies are re-focusing on core competencies . Retrieved October 23, 2009, from Emirates Business: http://www.business24-7.ae/Articles/2009/10/Pages/21102009/10222009_28e7069ab4f841108c3cc60fe4ec2b41.aspx Giriprakash, K. (2009, January 09). Recession forces Toyota go-slow. Retrieved October 31, 2009, from Business Line: http://www.thehindubusinessline.com/2009/01/09/stories/2009010950880300.htm Liker, J. K. (2004). The Toyota Way. New York: McGraw - Hill Edition 2004. Newman, R. (2008, June 9). How Toyota Could Become the U.S. Sales Champ. Retrieved October 30, 2009, from U.S. News : http://www.usnews.com/money/blogs/flowchart/2008/06/09/how-toyota-could-become-the-us-sales-champ Toyota - Environment. (2009). Sustainable Mobility. Retrieved October 23, 2009, from Toyota: http://www.toyota.com/about/environment/ Toyota. (2009, May 08). FY2009 Financial Results. Retrieved October 23, 2009, from Toyota Motor Corporation: http://www.toyota.com/about/our_business/investor_relations/financial_data/2009/20090509Presentation.pdf Yip, G. (2003). Total Global Strategy II. Prentice Hall . Appendix Appendix 1: U.S. Market Share by Manufacturers (Newman, 2008) U.S. Market Share by Manufacturer Companies May-07 May-08 GM 23.80% 19.30% Toyota 17.2 18.4 Ford 16.5 15.4 Chrysler 12.8 10.7 Honda 9.3 12 Nissan 6 7.2 Hyundai 4.6 5.6 BMW (includes Mini) 2 2.3 Volkswagen (includes Audi) 2 2.2 Mercedes (includes Smart) 1.4 1.8 Appendix 2: Financial Summary 2009 (Toyota, 2009) Appendix 3: Consolidated Vehicle Sales (Toyota, 2009) Appendix 4: Table of Consolidated Vehicle Sales (Toyota, 2009) Country 2008 2009 Change Japan 2,188 1,945 -243 North America 2,958 2,212 -746 Europe 1,284 1,062 -222 Asia 956 905 -51 Others (Central and South America, Oceania, Africa, The Middle East, etc) 1,527 1,443 -84 Appendix 5: Geographic Operating Income (Toyota, 2009) Appendix 6: Future Plans, Strategic Objectives: Read More