Toyota SWOT analysis
Toyota PESTEL analysis
Porter’s five forces based on Toyota
Marketing Analysis Tools and Strategic Decisions
Firms today operate in a business environment that is frequently changing and very competitive. This is mostly true of the external environment which has forces and conditions that provide opportunities as well as pose threats to the companies. These include shifts in economic and business cycles, political realignments as well as changes in cultural values. Governments have also changed their policies and regulatory programs Williams & Green (1997). Therefore businesses that want to achieve and sustain growth must keep an eye on those forces to determine their effects when planning both for long-term and short-term. In order for management to make effective strategic decisions it will need to capture the whole picture of what is happening in the market. Therefore analysis tools are important in getting the information required and the whole picture of the situation (Nimmo, 1980).
Toyota Motor Corporation is one of the companies that have relied on these tools to develop its strategies and this has enabled it to relatively be one of the most successful companies in the automobile industry. Toyota is a Japan based multinational automaker which has its headquarters in Toyota, Aichi, Japan and was founded in 1937 by Kiichiro Toyoda, then known as Toyota industries. The company entered American market in 1957 and is also found in European countries such the UK and France It also operates in Asia such China and Hong Kong and Australia and has operations in Africa in countries such as South Africa and Egypt. The company sells a variety of cars such as luxurious cars, trucks, motor sports and hybrid. In the 1st quarter of 2008 the company was leading globally in automobile sales and on the Forbes 2000 list of 2005, ranking the world leading companies, Toyota was ranked fifth (Toyota Motor Corporation, n.d).
Toyota SWOT analysis
SWOT is an analysis tool that offers the foundational data that all other business strategy steps can build on. It is divided in to four categories; strengths weaknesses, opportunities and threats. Strengths refer to the strong capabilities that the organization has (Pahl and Richter, 2009. This company is currently the world’s largest automobile manufacturer based on production and sales. This has been achieved through coming up with a range of vehicles that attract both commercial and private users. Secondly the company is committed to lean manufacturing and ensuring quality which is a key operation principles embedded in its production system (Chapman, 2006).
The corporation has production plants set up throughout the world in all continents whereby it had 51 manufacturing companies overseas which helps it developing highly market targeted products. Coupled with strong financial muscle from Toyota financial services the company has expanded its global market to over 170 countries as the end of 2009 (Toyota Motor Corporation, n.d). This also can be attributed to its strong distribution coupled with aggressive market efforts. The company also has a committed workforce as a result of its policy of employee empowerment, whereby it moulds leaders to have a thorough understanding in their area of specialization. Lastly the company has developed up to date technologies that are superior to most of its competitors such as the hybrid vehicle, whereby the company is the first one to have produce hybrid vehicles in bulk (Nieman and Pretorius, 2004).
Weaknesses refer to the areas that organization experiences lack, they refer to deficiencies that an organization has that hamper its progress (Böhm, 2009) One of Toyota’s weakness is that it over relies on car sales to meet its cost such that if the industry goes through a downturn then the company can be affected severely. The company depends also on export sale to countries such as the US where it is regarded as a foreigner therefore putting hurdles on its expansion program. In addition the vehicle industry is also is capital intensive venture whereby high costs are incurred in setting up manufacturing plants and being that the company mostly sells in Japan and US markets as opposed to its competitors who are worldwide it then lacks a global advantage(Toyota Motor Corporation, n.d).
Opportunities; entering in to strategic relationship can be an ample opportunity for a firm to enter in a market that cannot be easily penetrated. For instance in 2002 the company entered in to a joint venture with Peugeot and Citroen which are France manufacturing companies and as a result was able to produce for the market (Toyota Motor Corporation, n.d). Increase in fuel ability served as an opportunity for the company, particularly because of its innovative ability whereby it has managed to mass-produce vehicles that are a hybrid of gas and electricity. Toyota mostly produces vehicles that have a low consumption of fuel; therefore as the fuel prices are sky-rocketing the American market is shifting to fuel efficient vehicle which puts Toyota in pole position. The company’s development of vehicles which are environment friendly has increased its popularity with environment conservation activists. Therefore with increased campaigns and regulations against environment pollution and carbon emission, the company stands a chance of making a good fortune (Andersen & Poulfelt 2009)
Threats refers to situations that affects negatively the company’s attempt to meet its objectives, therefore such situations undermine the company’s position in the market. Competition is one the major threats that faces companies today and Toyota has been facing increased competition as well (Wylie, 2009). New entrants are getting in to the market mostly in Asian countries such South Korea and China and some have also set up plants in Eastern Europe. There is also an upsurge of raw material costs such as steel and rubber which are key in the car making industry. In addition slow down in key economies such Europe the US is also a threat in that these serve as its major markets. Furthermore increase in fuel costs as well as inflation has lead many families to stop purchasing large vehicles or even stop using vehicles completely (Toyota Motor Corporation, n.d).
Toyota PESTEL analysis
PESTLE analysis is a tool that an organization can use to detect and monitor the forces that are in its industry and their effects. The acronym refers to the factors in the general environment which include political, economic, social, technological, legal and environmental. While SWOT analysis focuses on the organization, Pestle focuses on the industry as a whole and the general environment (Henry, 2008). The factors can be explained as under: Political realignments have in some cases made it difficult for Toyota manufacturing Corporation (TCM) to penetrate some markets, such the European market. The European Union has restrictions on imports in its areas of jurisdiction, hence making it difficult for non-members to penetrate (Toyota Motor Corporation, n.d).
Economic factors refer to those factors that directly affect home and overseas economic trends, which in turn affect company’s cash-flow as well the purchasing power of the consumers. They include market and industry cycles, interest and exchange rates and distribution trends (Birkholz, 2007). TCM has been faced by economic factors resulting in both positive and negative outcomes. For instance in the year ended 2009, the company experienced high sales due the high demand of its vehicles, particularly because the world economy was steadily rising from the downturn of 2008. However in the preceding year the company was severely hit by the economic meltdown. For instance in USA the company sales decreased from 1.1 million to 0.869 million, while in Europe it decreased from 0.688 million to 0.507 and in Australia from .191 million to 0.096 (Toyota Motor Corporation, n.d).
On the positive end, increase in fuel prices has benefited the company because it is a maker of fuel efficient vehicles. Therefore most consumers are going for cars that consume low fuel. The purchasing power of consumers is affected as shown by the downward trends in the demand for vehicles during the economic meltdown. Furthermore the low and middle income consumers are the hardest hit and being that they form a significant percentage of the company’s market share the company was also affected. Reduction in interest rates also has an effect on the company. For instance in India interest rates were reduced and these enabled customers to secure loans at low interest rates, hence this motivated them to purchase more vehicles (Toyota Motor Corporation, n.d).
Social factors are those that describe the lifestyles, cultural values, attitudes, beliefs, and customs. They are important to any organization because when it operates in an environment it will always interact with people who are defined by those social factors. Therefore any organization must ensure that it does not act contrary to those norms (Campbell and Craig, 2005). Toyota is Multinational Corporation and therefore it is bound to interact with people of different cultures, races and ages as it produces and markets its products. It must therefore endeavor to understand those people in order to serve them better. For instance the company entered the American market with small-sized vehicle which was under the brand name “Toyopet” there was a poor reception because of the connotation toy and pet. As a result the company dropped the name. This shows the impact of cultural values and attitudes (Toyota Motor Corporation, n.d).
Families are also experiencing significant changes, whereby most parents are giving birth to few children, resulting in change in the social unit. This has affected the demand for large cars, particularly because most families are small and therefore they go for small vehicles. In addition extended families are no longer a popular group as most people are identify themselves mostly with the nucleus level, giving another reason for dropping the demand for large cars (Campbell and Craig, 2005).
Toyota has to a great extent, made good use of technology to its advantage. Like in the American market where technology is advanced, the company has been able to mass produce hybrid vehicles that use gas and electricity. This has made it to be the leading seller of hybrid vehicles. In addition high technology levels in developed countries have enabled the company to use its website to market its products, as customers in those markets don’t use traditional purchasing methods. However in developing countries such as Kenya the company has to invest a lot in setting up showrooms and market through conventional media channels such newspapers in order to reach its customer (Toyota Motor Corporation, n.d).
. Environment is the fifth factor that affects a company’s operation and it refers to the forces that fight for environmental conservation. They include government environmental policies, non-governmental organizations activists and the general concern for the environment from the public. There has been a growing call for organizations to carry out their activities in ways that does not affect the environment negatively (North, 1997). As a result Toyota would like to be viewed by consumers and governments as being sensitive to the environment. It has developed vehicles which do use electricity instead of oil which is a contribution to its initiatives of reducing carbon emissions. It is also involved in environment conservation projects such afforestation around its manufacturing plants, whereby it has so far planted 230,000 indigenous trees (Toyota Motor Corporation, n.d).
Legal factors refer to the laws that are formed in a country and govern how businesses operate. They include the credibility of the judiciary system, whereby an organization can get justice if their rights are infringed. Toyota Motor Corporation has in the past found itself on the wrong side of the laws of foreign countries. For instance the company was subjected to a penalty of US$48.8 million by the American government for delaying to respond to National Highway Traffic Safety Administration concerning its car recalls in 2010. The Japanese car maker received government bailout in 2009 amounting to US$3 billion from the government-backed bank. Laws can therefore affect any given business either positively or negatively (Tabuchi, 2011).
Porter’s five forces based on Toyota
This is an analytical tool that helps organizations to determine the state of competition within an industry. It describes the competitive forces that are present in every industry as a result of the underlying structure of the industry as well as its core characteristics and economics. They are categorized in to fives basic forces: threat of substitute products, threat of new entrants, rivalry among competitors already in the market and bargaining power of customers as well as suppliers. The strength of each of these forces differs in any given market. In addition a company will have to deal with one or two forces at any given time in the market (Society for Human Resource Management (U.S.), 2006).
Threat of substitute products, whereby substitutes refer to products from a different industry that satisfies the same need as those met by products of Toyota Motor Corporation. The company has very few substitutes such air transport, water transport or even traveling on foot. In addition one can decide to hire the services of car instead of owning one. However almost all these substitutes do not meet the needs effectively as done by owning a car. For instance when one owns a car there is freedom to travel to wherever place at any time, however going on foot, the distance to be covered is limited. On the other hand when using hire services frequently it becomes costly as compared to using ones own car. Therefore competition from substitutes in this industry is limited (Stonehouse & Campbell, 2004).
The threat of new entrants is determined by how easy the new entrants find it to come in to the industry. Automobile industry requires high start up capital that deters many interested parties from entering the market. However as the market becomes lucrative day by day more companies are getting in to the business as seen by new manufacturing plants set up in China and South Korea. Most customers are loyal to particular brands and this also has made it difficult for the new brands to make any significant progress hence the potential entrants are reluctant to come in. In addition switching costs has also been a contributing factor, in that for customers to shift to a new car maker they have to be ready to pay for a new car which is costly (Stonehouse & Campbell, 2004).
The bargaining power of customers refers to the ability of customers to influence the decisions of the company in question, such as bargaining over availability of products, the features as well as prices of those products. The bargaining power of organizational customers is always high particularly because they purchase Toyota’s products in large volumes. For instance Toyota has been contracted to make cars for Japan’s imperial family, therefore they have to adhere to particular specifications of as far as product features is concerned (Toyota Motor Corporation, n.d). In addition, technology has made it easy for customers to access information; therefore they are able to make comparison of different suppliers. As a result this increases their bargaining power because as they approach Toyota they already have the rates and offerings of other companies; therefore they can bargain effectively (Kurtz, MacKenzie & Snow, 2009).
The bargaining power of suppliers; whereby suppliers refer to those organizations that provide the Toyota and other companies in the industry with raw materials, labour, finance etc. Their bargaining power refers to how able the suppliers are in raising prices of in puts or in raising industry costs. For instance fuel suppliers are able to collude in raising oil prices; hence they have a strong bargaining power. Particularly because they always act collectively, therefore Toyota does not have cheaper alternatives. The company however has ventured in provision of financial services, therefore reducing the bargaining power of suppliers in that sector as it can provides for itself (Kurtz, MacKenzie & Snow, 2009).
Rivalry among competitors that are already in the market is another factor. Rivalry describes the competitive struggle experienced between organizations within the industry as each of them strives to gain market share from the other. The demand in car making industry is growing every year and this has to a given level reduced the level of competition. However the high set up costs have led to high levels of competition as each company is trying to recoup back the initial costs through volume sales. Therefore companies in this industry market aggressively to gain market share from their competitors, hence increased rivalry. An automobile industry is a consolidated industry, whereby there are few companies that dominate the market. Therefore rivals’ market share is directly affected by competitive moves of one company; as a result this increases rivalry (Hill and Jones, 2009)
The analysis tools help managers to get a clear picture of the organization, by identifying the forces that affect it. As a result the manager will be able to make strategic decision on how to maximize the organization’s strengths, minimize weaknesses, capitalize on opportunities and avoid or counter threats (Ireland, Hoskisson & Hitt, 2008). Here are some strategic decisions: First the company should invest in the distribution channels of its raw material suppliers. This reduces the suppliers bargaining power as the supplier will not have total control of the supplies. Furthermore this helps in giving support to those suppliers in that the company can come up with technologies that enable raw material suppliers to do their work efficiently. This will reduce costs on the suppliers and the benefits will trickle down to the company.
The company can also buy shares of the supplying com it can have a say on how raw materials are delivered such as costs and quality. Investment in development of raw materials also helps the company to come up with quality raw materials that will help in getting quality products. Secondly the company should invest more in research as this will enable it to pioneer in innovative products, as a result it will be able to retain its market leadership. This entails finding out customer needs and developing products that surpass customers’ expectation, hence its products will be demanded more (Ireland, Hoskisson & Hitt, 2008).
The company should also venture in to other fields as a way of diversifying. This is because it’s over reliance on one industry is very risk, particularly because if the industry experiences economic shocks the company will be entirely affected. The company can also expand its non-automotive fields such as financial services, communication, housing and biotechnology (Houston, 2002). For instance through biotechnology the company can either venture in to floriculture business or even livestock biomass. On the other hand it can invest in chemical research where it can come up with cosmetics. These can be strong businesses in which automobile maker can fall on when the vehicle industry is not doing well. They can as well be income generating opportunities even when the car industry is still fine (Toyota Motor Corporation, n.d).
Effective communication can also be an important strategy that a business can use to attract and retrain customers and also use it to fight competition. Here the company can identify effective media channels depending on the level of technology that exists in that market. For example the internet for developed countries while traditional channels such as radio for the developing countries. However in order to counter the threat of substitutes as well as competitors, the message communicated will be crucial. The company should develop messages that clearly describe its products distinctiveness from those of competitors. In addition the distinctiveness should focus on the product’s superiority. This will ensure that customers are able to identify and chose Toyota’s products to meet particular needs as per the communications (Kourdi, 2009)
Pricing is also an important strategy that the company can employ to fight competition from similar or substitute products. Ensuring that the company’s products are fairly priced as compared to other manufacturers’ products will give Toyota an edge over its competitors. For instance if a particular make (such as pick-up truck), produced by Toyota is also manufactured by a competitor say General Motors, then if Toyota charges slightly lower prices compared to its rival, it will attract more customers in a market where customers are highly sensitive to price change. It can use low prices as its positioning strategy, whereby it develops highly performing vehicles but charges them at slightly lower prices as compared to its competitors (Kourdi, 2009).
The analysis tools enable Toyota Motor Corporation to get a clear picture of its business environment, whereby it is able to identify and monitor the forces that have an impact on its operations. With the required information and the clear picture, the managers are able to make the right decisions. As a result they can be able to take advantage of opportunities, counter threats or avoid them, as well as maximize on the corporation’s strengths and minimize its weaknesses. Therefore the company will have an edge over its competitors as it will be able to determine which customers to sell to, which businesses to partner with and which products to produce.
Therefore it comes out that those forces in the external environment determine how a company makes decisions to use its resources. Although all these tools are used in analysis, each of them performs different functions. The SWOT analysis focuses on the company, while the other two focuses on the industry as a whole. However it is also clear that the tools supplement each other. Therefore if the managers do not know their objectives in using each of the tools they might attain the results that might not help them in making the right decisions.