Automotives Industry


Overview of Toyota:

Toyota Motor Corporation is the world product quality leader in automotives industry. In the 1980s, Toyota received the Japanese Quality Control Award for the first time due to its success of producing high quality and reliability products (Wikipedia, 2009). In the first quarter of 2008, Toyota sold 2.41 million vehicles in the worldwide and that data makes Toyota took General Motors' position to become the new leader of global sales in the automotives industry (U.S news, 2008). In 2009, Toyota's global production jumped 22% from 2008.

Toyota in Europe is also a big deal. Since 1990, Toyota has invested over 7 billion euro, and currently has approximately 80,000 employees throughout Europe. Its operations in Europe are supported by a network of 31 national marketing and sales companies in 56 countries with total of 3,000 sales outlets and 9 manufacturing plants. In 2008, Toyota sold 1,112,021 vehicles in Europe.

Toyota has 2 manufacturing plants in the UK, respectively located at Burnaston in Derbyshire and Deeside in North Wales, while Toyota has invested over 1.85 billion pounds and currently has around 4,000 employees in the UK.

Strategic review:

A. Strategic analysis of Toyota:

Macro-environment Analysis-PESTEL framework

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It is a comprehensive way to analyses Toyota's macro business environment background by using PESTEL framework.

Toyota as a global carmaker, is strongly affected by the vary politics in different countries. Due to the fact of oil shortage, some countries such as U.S have to rely on foreign oil to fulfil their demand; therefore, the energy saving politics issued by governments may lead to consumers turning their demands to Toyota's oil saving products such as plug-in hybrid (Berthiaume et al, 2007). However, some hostile governments have interfered Toyota's operations with political threat in order to benefit its local car industry; Venezuela President Hugo Chavez announced that the government would take over Toyota's local assembly plant if Toyota does not agree with transferring its new technologies to local car manufacturers and producing more vehicles designed for Venezuela's rural areas.

Due to the realities of global financial crisis, Toyota has to narrow its scope of business and focus on its core business; for example, Toyota has confirmed that withdrawal leaves from formula one racing competition and turn to concentrate on its vehicle producing (BBC, 2009). On the other hand, with the global economic recovery, Toyota will keep increase its output to global markets; Toyota aims of 7.5 million outputs in 2010 (Economic Times, 2009). And certain countries' economic growth provides Toyota chances to develop products in new markets; for example, Toyota has purpose to occupy more than 10% of India's car market by 2015 (Dhara and Kitamura, 2010). Plus, the global oil price changing may increase consumers' desirability of Toyota's plug-in hybrid vehicles.

Social-culture factors are able to affect Toyota in a certain degree. In addition to product quality leader, Toyota has achieved a good company image though many social cause activities in different areas; for example, Toyota has been worked with Kirloskar Group on a rural drinking water project for Karnataka (a state in the southern part of India)(Business Standard News, 2006). This operation not only solved a large social problem for local government, but also earned respect and cooperation from local people for company, also built a good company reputation.

Toyota's success cannot be separated from modern science and technology; the new technologies strongly influence Toyota's future development. Such as "lithium-ion battery" technology, has been used by Toyota on new generation of plug-in Prius. Toyota will only produce 600 units in the first half of 2010 as a new product test programme (Wilkins, 2009). However, another fact is that Toyota has recalled 15.2 million vehicles in 2009 due to technical errors like uncontrollable acceleration (Symes, 2010). Using technologies in the wrong way may damage Toyota's reputation and losing its reliability.

Due to the realities of global warming, Toyota is required in concerned with producing vehicles that increase the fuel efficiency and reduce emissions. Toyota has certain achievement in environmental area though research and develop hybrids vehicles such as gasoline-electric Prius (Nascar, 2004).

Competitive Forces Analysis-Porter's five forces framework

There is a truth that people would hardly name all the car brands on the street, and many of them are even produced by a same company, because carmakers have put a lot of effort to make products for every conceivable buyer. The degree of competitive rivalry is very high in the automotive industry. Strong competition in the automotive industry has led some companies became loser, such as General Motors. Toyota already had 6 hybrid models in 2006, and hybrid product has become the most competitive factor in recent years (Brooke, 2006). Therefore other competitors like Honda also has launched new hybrid models as it seeks to take over Toyota's leading position in the green car competition (Kim, 2008). Honda is also a major competitor in India market; Toyota, Honda and other carmakers recently unveiled more than 10 models in India and will lead to a price war.

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In terms of threat of substitutes and new entrants, there are few newcomers to automotive industry in the future, and newcomers can hardly to challenge large car companies like Toyota as new carmakers are naturally difficult to meet market demands which increasingly require carmakers to focus on higher level of product quality and variability. Substitutes are minor threat in automotive industry. Despite high oil price keep driving some people to use alternative transportation like train or bus, the high fuel cost won't make majority of consumers sacrifice their cars.

The bargaining power of buyers is quite high in car market due to low switching costs. For example, different companies may produce products on a similar price and quality level; therefore buyers can easily switch from one company to another when they come to cars. Price war is a common result that companies try to attract consumers.

Resource and Competence Analysis:

Toyota's core competence is Toyota lean production system and control of supply chain. Toyota has a very strong lean value chain and production system (Appendix 1). By adopting lean production, Toyota is able to improve quality, increase flexibility and speed, and reduce waste.

B. Porter's generic strategy and corporate parent strategy:

Toyota has a series of measures to achieve its cost leadership strategy, including: careful control and choice of suppliers, lean production, efficient distribution, and low costs of serving from its quality products (Macmillan and Tampoe, 2000). In addition, Toyota has a long history of producing cheap vehicles with good quality. Due to the oil crisis in 1973 and 1979, American consumers started turning their demand to small economy cars in order to achieve a better fuel costs. Toyota and other foreign car companies gradually occupied the U.S market as the local American car manufacturers were lack of small car production technology. American car producers had defined small economy cars as "entry level" and not able to produce cars at low price without reduce the level of quality at that time (Wikipedia, 2009). During that period, Toyota had a great success from adopting cost leadership strategy.

Also, it has been argued that Toyota has adopted mixed generic strategies including both cost leadership and differentiation strategy. Toyota is a successful company which combine its brand image, production system, supply chain etc with cost effectiveness and therefore add more competitive advantages to the company (Miller, 1992). The efficient production system provides Toyota a low cost strategy in the automotive industry. Meanwhile, Toyota has differentiated its products from competitors based upon a higher level of design and quality. This variety allows the company to generate a higher price other than average price for some of its popular brands, such as "Lexus" first launched in 1989s as a luxury type and plug-in hybrids cars as an energy saving type.

Toyota is a large "Keiretsu" (a type of business group) with both vertical and horizontal characteristics (Watkins, Valley and Alley, n.d.). From the viewpoint of vertical integration, Toyota has a pyramid structure with a series of directly controlled firms, such as "Toyoda Machine Works", "Toyota Auto Body" and "Toyoda Boshoku" etc (Appendix 2). Those firms are able to support Toyota by focusing on related fields such as machine tools, vehicle assembly or air filter etc. and make Toyota to be a pyramid keiretsu with backward integration activities in the automotive industry (Watkins, Valley and Alley, n.d.).

However, Toyota is not a pure vertical integrated company; it has branched out into many related fields, including (Appendix 3): telecommunications, nonlife insurance (car insurance), and finance etc (Watkins, Valley and Alley, n.d.). Those activities not only horizontally developing a wide range of complementary to present business, but also allow Toyota able to maintain its current business in a forward integrated way in terms of vertical integration strategy.

C. Recommendation for future development:

In terms of the five forces analysis above, Toyota will keep facing a fierce competition in the industry. Consequently there is no trend that Toyota becomes a monopoly company in the automotive industry due to the constant price war and expensive marketing battles even it is leader at the moment. So, dealing with existing market with existing product (Market penetration) may not effectively beat competitors who are able to design and produce cars on a similar price and quality level. Plus, in terms of car markets, the existing products may not fully meet consumers' demands such as more environmentally friendly vehicles.

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However, product development may be a good option as Toyota already has huge existing markets like America and Europe and earned considerable reputation. Despite there are growing competition, but competition also can be kind of power to promote Toyota's innovation and development on new product. Also, keep developing hybrid product and maintain its leading position is important because hybrid vehicles are particular attractive to oil shortage countries with developed economy. Furthermore, Toyota underpinned by its strong competence and resource therefore doesn't lack of new strategic capabilities and risk management skills.

While, market development may suitable for poor countries such as Venezuela, dealing new but poor markets with existing products can not only avoid transferring its newest technologies to outside, but also find new consumers therefore increase output and sales.

Proper related diversification maintains Toyota able to control its suppliers and developing a wide range of complementary to present business. But excessive diversification with bad economic environment may cause resource wasting, such as fail running on formula one. Diversification must surrounding Toyota's core business therefore benefits the company as a whole.