Business environment is about exploring the nature of the business in which it is being carried out. In this essay, analysis is being made for an automobile company known as Toyota Motor Corporation. Toyota Motor Corporation is commonly known as TOYOTA and is abbreviated as TMC. The company was founded by Kiichiro Toyoda in 1937 as a derivative from his father’s company Toyota industries to create automobiles. First passenger car was Toyota AA. Toyota Motor Corporation group companies are Toyota (including the Scion brand), Lexus, Daihatsu and Hino Motors, along with several “non-automotive” companies.
Toyota Motor Corporation uses two tools for its business environment which is PEST and SWOT.
Every business has an internal and an external environment. Before debating on external forces, internal forces/environment should be made clear. Internal environment is the one which is owned and controlled by the organisation itself.
It comprises of:
Resources: Toyota has a wide variety of resources such as well qualified employees, infrastructure.
Knowledge and the actions of decision makers: As they have well qualified employees, Toyota’s decision makers are successful decision makers.
External Business environment is a set of political, economic, social and technological forces. These forces can have a negative as well as positive impact on the operation of a business. External factors are of two types (i) External Micro factors, and (ii) External Macro factors.
External micro factors comprises of suppliers, agents, transporters, distributors, wholesalers etc.
External macro factors comprises of Political, Economic, Social and Technological factors.
External micro factors or industry factors can be influenced by an organisation whereas; External macro factors cannot be influenced by an organisation. Before beginning the marketing process, it is very important for an organisation to consider its external macro environment. External macro factors comprise of PEST factors as discussed above.
PEST factors are explained below:
Political: Political factor involve political stability, legal obligations for contract, intellectual property protection, trade regulations and tariffs, pricing regulations, taxation, wage legislation, product labelling requirements, environmental regulations. In 2004, Toyota spent $2.4 million (approx.) on lobbying. In 2005, its lobbying investment increased to $3.4 million and also for the first time TMC considered on creating a political committee.
One strong factor behind Toyota’s quest of greater political clout may be the possibility that the Big Three, staggered by slumping sales, will ask Congress for subsidies or a bailout, said Joan Claybrook, the president of the Public Citizen watchdog group in Washington.
Economic: These factors comprise of Government intervention in the free market, infrastructure quality, inflation rate, interest rate, economic growth rate, availability of labour, wage rate of labour. Toyota got a tax incentive on producing clean fuel and hybrid engine cars. Due to this tax rebate on Toyota, purchasing parity of consumers was increased for expensive hybrid engine and clean fuel cars.
Social: Social factors involve education, class structure, demographics, culture etc. Toyota has always remained one step ahead to its competitors. Toyota believes in sustainable development and they have proved it by producing clean fuel and hybrid engine cars. These cars ensure safety, better environment and affordability to their customers.
Technological: These factors depend on a country’s technological knowhow, recent technological advancements, rate of technological diffusion, investments made by the company etc. Toyota invests millions of dollars an hour to improve their technology for better driving experience as well as for the safety of passengers. Toyota also managed to bag some awards for their safety systems installed in the car, which is again possible due to advanced technology.
Advantages of PEST analysis:
PEST analysis is an effective and efficient tool, which provides a framework to an organisation for effective decision making. By making effective use of PEST analysis, one can ensure affirmative orientation of the business organisation. PEST analysis also helps an organisation in avoiding decisions which should not be taken. PEST analysis helps in making lawful decisions for the companies which are willing to enter into a new market.
Disadvantages of PEST analysis:
PEST analysis considers only the external business factors, but in reality all the factors should be considered in order to make effective decisions for an organisation. Most of the data gathered through this analysis is based on assumptions, which sometimes may not prove to be fruitful for an organisation. The rapid changes in the world economy can also make it difficult in analysing PEST factors for an organisation.
The second tool used by TMC, the SWOT analysis is discussed below:
SWOT analysis helps an organisation in achieving their goals in the environment in which they are operating. It comprises of environmental factors such as Strengths, weaknesses, opportunities and threats.
An explanation of these factors in context to TMC is discussed below:
Strengths: Strength can be the expertise of an organisation. This attribute is internal to an organisation and can be controlled by it. Toyota made new investments in USA and China; subsequently their profits were also increased. This increase in the profits was due to the effective market segmentation which Toyota made. Toyota uses marketing techniques to find the needs of their target customers, the profits are also maximised by using effective manufacturing techniques.
Weaknesses: Weaknesses of a company could be lack of effective marketing techniques, location of business, poor reputation etc. In Toyota’s case, the weakness is the economic and political conditions of the countries in which it manufactures the largest number of cars. The demand for cars in USA and Japan is very fluctuating, this is the reason Toyota is making a shift toward emerging economies like China.
Opportunities: An organisation can have many opportunities such as; mergers and acquisitions, availability of internet through which marketing becomes much easier, a new market segment, advance technology etc. Toyota has an opportunity of advanced technology, a new market segment and the availability of internet. By using advanced technology they produced hybrid cars, they got a new market segment in the name of Youth and they advertise their models on the internet.
Threats: Threats can be minor manufacturing defects which can hamper the reputation of a company, price wars with competitors, new innovative product with the rival etc. Toyota has a threat in terms of both manufacturing defects as well as price wars. In 2005, Toyota had to recall a large number of vehicles due to faulty front wheel suspension system. And in USA, Toyota is facing tuff competition with General Motors.
Advantages of SWOT analysis:
One of the major advantages of SWOT analysis is that it provides a clear view of all the opportunities and issues being faced by an organisation. SWOT analysis also helps an organisation in saving time. SWOT analysis is very easy to perform; any employee with basic understanding can perform it efficiently.
Disadvantages of SWOT analysis:
SWOT analysis requires further thorough research in order to get a more comprehensive picture. For example, a business must consider the degrees of strengths, weaknesses, opportunities and threats. Sometimes, an organisation tends to miss the weaknesses after looking at the strengths. A thorough SWOT analysis should also see the opportunities available to a company in relation to strengths and weaknesses. SWOT analysis is an informal method which provides just an overview of the current market situation of a company.
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