Porters 5 Force Analysis Of Toyota

Published Date: 02 Nov 2017

DIPLOMA IN BUSINESS MANAGEMENT

INDIVIDUAL ASSIGNMENT

BUSINESS ENVIRONMENT

BM 502(09)

Name

:

Desmond a/l Augustin

IC

:

891231 – 02 – 5451

Index No

:

PP102544

Batch No

:

1127

CAMPUS

:

PENANG

QUESTIONS

Select an organization of your choice and present critical internal and external environmental analysis based on the following tasks:

Task 1:

Give a meaningful definition of the contexts of business strategy and discuss a company’s external environment using Porter’s 5-Force Analysis and PEST analysis.

Task 2:

Discuss the company’s internal environment using value chain analysis and SWOT analysis.

Task 3:

Review the existing strategy or strategies practiced by this company and purpose a better strategy for this company based on available options.

TABLE OF CONTENTS

Introduction 4

Answer 1 5-11

Answer 2 12-18

Answer 3 19-21

BIBLIOGRAPHY 22

VIPER REPORT 24

INTRODUCTION

In this severely violent business world, the goal of most firms is to establish distinctive or unique capabilities to gain a competitive advantage in the marketplace through utilizing the most of their core competencies. Competencies refer to the fundamental knowledge owned by the firm (knowledge, know-how, experience, innovation and unique information), and to be distinctive they are not confined to functional domains but cut across the firm and its organizational boundaries. Today, business enterprises in developed countries operate in a more complicated, and more regulated, environment. The strategic task, then, is to create a distinctive way ahead, using whatever core competencies and resources at its disposal, against the background and influence of the environment. Through these distinctive capabilities the organization seeks sustainable competitive advantage. Competition in many domestic and international markets appears to be entering a new phase, in which product quality and performance are becoming more important to customers than price. In such markets, the effective management of the new product development process is the essence of competitive advantage. Due to such changes, a review of the organizations strategic capabilities is a must if they are to keep up with the demands of the changing times. This paper analyses the strategic capabilities of Toyota Company in face of the ever-stiffening competition in the automotive industry, as a potential tool to further strengthen Toyota position in the automobile market.

Answer 1

Defination of Business Strategy

The definition of business strategy is a long term plan of action designed to achieve a particular goal or set of goals or objectives. 

Strategy is management's game plan for strengthening the performance of the enterprise. It states how business should be conduct to achieve the desired goals. Without a strategy management has no roadmap to guide them.  

Creating a business strategy is a core management function. It must be said that having a good strategy and executing the strategy well, does not guarantee success. Organizations can face unforeseen circumstances and adverse conditions through no fault of their own.

Porter’s 5-Force Analysis of Toyota

Threat of New Entrants – Low

Entering a car manufacturing market is very costly and risky. The initial capital investment is extremely high, while the competition between the companies is very intense and dominated by the well established companies.

The well-known brand, unshakable market presence in various segments, and large size gives Toyota a competitive advantage over new entrants in the auto manufacturing industry.

Threat of Substitutes – Medium

As the industry trends indicate, the customers still have a solid reliance on the used car market. Considering the fact that economy has not fully recovered, a significant part of the car demand is taken by the used car industry.

With the ability to cut costs more efficiently than its competitors, Toyota has narrowed the price gap between the used cars and its own automobiles. Therefore, compared to its peers, the substitution with the used cars is less of a danger for Toyota.

Rivalry Among the Competitors – High

Considering that the automotive industry represents an oligopoly (especially in United States) the constant competition for the market share and industry dominance is prevalent. Continuously increasing competition is fueled by the higher consumer expectations and anticipation for the lower prices.

Although Toyota has rather strong cost cutting strategy, the recent natural disaster has put an additional pressure on Toyota’s costs. Recently, the Detroit Three have been offering higher sales discounts to counter price competition, which puts Toyota under a heavier burden of efficient production and cost cutting strategies. Yet, Toyota remains a leader in the low cost manufacturing, while its production system caused other car-manufacturers to change the way they operate.

Buyer Power – Moderate

The recent trends indicate that the consumers are prone to seek out more fuel-efficient cars due to the rising oil prices. This also results in the increasing demand for the hybrid cars that offer cheaper alternatives for operating the vehicle coupled with higher expectations of product quality. Moreover, since the choices in the car market are abundant, the buyer has a quite strong bargaining power and low switching costs.

The cost cutting practices that Toyota implements in its operations lowers the buyer power and puts its cars into a more advantageous position compared to its competitors.

Supplier Power – Low

The suppliers in the auto-manufacturing industry are likely to be smaller than manufacturers and thus tend to sell to multiple automakers. While we see that supplier’s network with automakers is pretty diversified, they provide crucial elements for car making and most of the auto-manufacturers rely on the supplier’s timely operations and stellar quality. For this reason, the long-term contracts accompanied by strict standards or quality on for the suppliers are very common. Usually if a supplier does not comply with the standards set by the carmakers and charge too much it is fairly easy for the car manufacturer to find another supplier and even move the supply chain towards the cheaper supply markets in a different country.

One of the competitive advantages of Toyota Co. is its strong relationship with the suppliers. Its efficient manner of monitoring supply chain places low bargaining power on the suppliers.

(Standard & Poor’s Net Advantage – Industry Survey,)

PEST Analysis of Toyota

The automotive industry is a highly competitive market. Toyota is one of the world’s largest motor companies, and is highly successful in the market. To be successful and maintain profitability, Toyota must constantly monitor the external environment and respond to any changes. Several environmental on Toyota’s including political, economic, social and technological.

Politic

Political include measures, policies and standards governments implement. These influence marketing decisions and strategies made by companies

Governments are offering tax rebates and other incentives to consumers to buy the Toyota cars. The UK Government in 2006 introduced tax cuts ranging from 5-15% on company cars with less CO2 emissions. The US Government recently imposed tough new fuel-efficiency standards. These are set to cause problems for some car makers, but Toyota is looking to capitalize, as the measures could potentially boost sales. (Automotive Engineer, 2006)

Economic

Economic forces have a significant influence on how companies market their products, as they determine consumers’ activities and buying decisions. Economic forces include the general economic conditions (the current state of the economy) and consumers’ buying power and willingness to spend. These are affected by many factors such as the cost of living, interest rates and inflation.

Economic have had a major impact on Toyota’s financial and marketing strategies. The world is currently in the midst of a financial crisis which stemmed from the collapse of US investment banks in 2008. This has severely affected the worldwide automobile industry, with global sales of cars rapidly decreasing in 2008-09. Toyota has been hit hard by the recession. It recorded a loss of almost $6 billion in 2009, its first annual loss in 59 years. (The Wall Street Journal, 2009)

The cost of owning a car has also gone up a great deal over the years. A survey in 2008 revealed many consumers couldn’t see the benefit of owning a car. It found that despite rising petrol prices, many motorists would not buy the Toyota as it was too expensive. For most, the savings on petrol didn’t outweigh the extra cost of buying the car – at least for the time being. Over a quarter of people accepted that they would be driving car in 5 years. expensive (carsguide.com.au/The Age 2008)

Social

Social are related to influences on society and its culture which bring about changes in attitudes, beliefs and lifestyles. They have an impact on how successful companies are in selling products as they shape consumer decisions and buying behavior. Changes in lifestyle choices, shifting demographic patterns and change in social and cultural values lead to shifting desires and needs for particular products.

Throughout the world there is growing concern for the harmful impact of burning fossil fuels on the environment. Climate change is a prominent issue, and is receiving widespread media coverage. People are concerned about their "carbon footprint" and want to do their bit to reduce their impact on the environment. Toyota initially established in response to these concerns.

Another growing trend is of dual income households, as more females are entering the workforce. This is resulting in increased disposable income, and hence increased consumer buying power. More people are able to afford luxuries they previously would not have considered. Many people are looking to the Toyota as a second car, one they can use for commuting to work. With the current economic crisis and rising fuel prices, the Toyota makes sense to consumers as a second car for frequent use.

Toyota is targeting a larger, broader audience of buyers with its new models. As families are looking to save costs, Toyota is aiming for "the first space in the garage". Rather than consider it is as a second car, Toyota hopes more families will look as an affordable, first-choice family car. It markets the Toyota as comfortable and roomy (even without being a large car). Excellent fuel economy, distinctive styling and low cost servicing would further appeal to a broader range of buyers. " (All Cars Electric, 2009)

Technology

Technology is the application of knowledge and creativity in solving problems and increasing efficiency. In most industries, capitalizing on technological advances and coming up with new ideas usually leads to a company gaining a competitive advantage. Toyota’s innovation led to it releasing the world’s first hybrid car.

There was growing concern over the harmful impacts of petrol cars on the environment. The burning of fossil fuels and subsequent release of greenhouse gases is believed to be contributing to climate change and global warming. Pressure was growing on auto companies to develop green, environmentally friendly cars. Toyota saw this as an opportunity, and responded to this concern by pioneering the world’s first hybrid car. Hybrid cars use a combination of electricity and petrol to power the motor. This results in vastly superior fuel economy, as the petrol engine is only used when needed – on highways and at higher speeds. They also emit lower greenhouse gas emissions which lead to global warming.

Leading the way in green motoring, Toyota released a new model of the Prius in 2009, one which is even more environmentally friendly and technologically advanced than its predecessor. It is powered by Toyota’s revolutionary petrol-electric engine, the Hybrid Synergy Drive system. It has improved fuel economy over the older model – 3.9L/km, the lowest for any car in Australia. It also emits lower emissions – around 89g/km of CO2, a 14 percent improvement. Despite this, there is a 20 percent improvement in its engine performance.

The 21st century has been a time of rapid technological advancement. Not to be outdone, the new Prius also comes packed with cutting edge technology. The Solar Ventilation System uses solar panels embedded in the roof cools the cabin when parked during the day; the Multi Information Display provides instant feedback on fuel efficiency and power flow; and the Head Up Display projects speed and navigation information onto the windscreen in the driver’s line of sight. There is also a remote air conditioning system, active cruise control and intelligent parking assistance.

Answer 2

Value Chain Analysis of Toyota

The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980).The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organization. The 'margin' depicted in the diagram is the same as added value. The organization is split into 'primary activities' and 'support activities.

http://htmlimg2.scribdassets.com/1b55j28la8epram/images/3-87b17110f8.png

Primary Activities

Inbound Logistics

Here goods are received from a company's suppliers. They are stored until they areneeded on the production/assembly line. Goods are moved around the organization.Toyota motors purchase their raw material from all around the world. In order tomaximize their availability of raw material Toyota motors maintain good relationshipwith their suppliers. Toyota use JIT (Just In Time) approach for handling of raw material

Operations

This is where goods are manufactured or assembled. Individual operations could include organizing the parts to make new cars & the final tune for a new car's engine. Toyota motors are known for their reliability which comes from efficient operations.

Outbound Logistics

The goods are now finish and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Toyota motors manage their own Showrooms in different countries. Toyota motors make their product easily assessable.

Marketing and Sales

In true customer orientated fashion, at this stage the Toyota motors prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.

Service

This includes all areas of service such as final checking, after-sales service, complaints handling, training and so on. Toyota values their customers.

Support Activities

Procurement

This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. Toyota motors will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organizations), and e-Purchasing (using IT and web-based technologies to achieve procurement aims).

Techonology Development

Technology is an important source of competitive advantage. Companies need toinnovate to reduce costs and to protect and sustain competitive advantage. Toyota motorsimplemented production technology, Internet marketing activities, lean manufacturing,Customer Relationship Management (CRM), and many other technologicaldevelopments

Human Resource Management (HRM)

Employees are an expensive and vital resource. Toyota motors manage recruitment and selection, training and development, and rewards and remuneration. Toyota motorsconsider their employees as HUMAN CAPITAL. The mission and objectives of theToyota motor is the driving force behind the HRM strategy.Toyota motors uses following techniques to retain their employes:

Recruitment

Selection

Training and development

Compensation

Maintenance

Firm Infrastructure

This activity includes and is driven by corporate or strategic planning. Toyota motorsimplemented Management Information System (MIS), and other mechanisms for planning and control in different departments.

SWOT Analysis of Toyota

Strengths

Size and Brand Name: Toyota is the world’s largest vehicle manufacturer by production and sales and its brand name is widely known as best quality for minimal cost cars.

Pioneer in Innovations: Toyota stays high on the competitive edge in terms of technological development and follows industry trends and consumer tendencies; it has initiated first mass produced gasoline-electric hybrid automobile that had over 2million sales worldwide in 2010.

Lean Manufacturing: Toyota maximizes profit through efficient manufacturing approaches like Just-In-Time (JIT) production method, Total Quality Management (TQM), 6 Sigma, etc.

Integrated Supply Chain: Toyota maintains close relationships with its suppliers and has created an effective communication system (Kanban)

Organizational Culture: Toyota prides itself with a remarkable loyalty from the employees. Since the company bears Japanese cultural values, the respect for the hierarchy authority is rather high. The management empowers every employee and gives every worker opportunity to participate in the process of the Kaizen, or continuous improvement.

Wide range of car variants to offer

One of the oldest and reputed car manufacturers which brings high brand awareness

Over 310,000 employees

Highly diversified product portfolio

World class R&D and Engineering capabilities

High brand awareness and market presence in the international market

Popular in motorsport and sponsoring events

Weaknesses

Size: Due to its large size, heavy market share, and high rate of Japanese production, Toyota is the auto-manufacturing company most affected by the natural disaster and its devastating impact on Japanese manufacturing.

Decreasing Market Share: In the first quarter of 2011, GM outsold Toyota globally by a wide margin—2.2 million units versus 1.8 million vehicles. Volkswagen also beat Toyota, with sales of 2.0 million vehicles.

Recalls: In the first quarter of 2010, Toyota recalled more than 8 million trucks globally due to the quality issues.

 Immense competition from world class competitors

Lesser grip in European market as compared to other car manufacturers

Opportunities

Emerging Markets: The rapid development of emerging markets, especially China, offers Toyota an opportunity to boost sales in the faster growing markets and produce at lower manufacturing costs.

Consumer Preferences: Since the consumers are shifting towards smaller, fuel-efficient, and cost-effective cars, Toyota can benefit from being a leader innovator in those areas.

Expanding Automobile market and opportunities for launching new products

Concentrated efforts in hybrid segment can help Toyota become a market leader

Augmenting worldwide distribution and servicing network to increase market penetration

Threats

The Japanese Yen has been strengthening against the Dollar and Euro, which projects potential increase in the production costs for Toyota, leading to narrower margins.

Repetition of the natural disaster might jeopardize future sales growth of the company.

Rising fuel prices, increasing raw material costs, and changing customer preferences might be challenging threats.

Intense competition in the market leading to saturation

Competition offering innovative features at lower price

New entrants in the same segment with better features and lower price

Car manufacturers catering to high ended customers

(Toyota.com, Standard & Poors Net Advantage (Industry Survey), Hoover’s.com , Morningstar.com)

Answer 3

The strategics

Cost Leadership

The low cost leader in any market gains competitive advantage from being able to manyto produce at the lowest cost. Factories are built and maintained; labor is recruited andtrained to deliver the lowest possible costs of production. 'cost advantage' is the focus.Costs are shaved off every element of the value chain. Products tend to be 'no frills.'However, low cost does not always lead to low price. Producers could price atcompetitive parity, exploiting the benefits of a bigger margin than competitors.Some organization, such as Toyota, are very good not only at producing high qualityautos at a low price, but have the brand and marketing skills to use a premiumpricing policy.

Differentiation

Differentiated goods and services satisfy the needs of customers through a sustainablecompetitive advantage. This allows companies to desensitize prices and focus on valuethat generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and servicesat specific segments, generating a higher than average price.

For example, Toyotadifferentiates its product and service. The differentiating organization will incuradditional costs in creating their competitive advantage. These costs must be offsetby the increase in revenue generated by sales. Costs must be recovered. There is alsothe chance that any differentiation could be copied by competitors. Therefore thereis always an incentive to innovated and continuously improve.

Focus or Niche strategy

The focus strategy is also known as a 'niche' strategy. Where an organization can affordneither a wide scope cost leadership nor a wide scope differentiation strategy, a nichestrategy could be more suitable. Here an organization focuses effort and resources on anarrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by smaller firms. A company could use either acost focus or a differentiation focus. With a cost focus a firm aims at being the lowestcost producer in that niche or segment. With a differentiation focus a firm createscompetitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications.

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(Marketing Management 30th edition - Philip Kotler)

(Marketing Management 2005 - T. N. Chabra)

(Marketing Management 2006 - C. B. Gupt)

SUGESSIONS & RECMENDATIONS

Toyota motors should use Value Coalitions for better use of their under utilizedrecourses. Toyota develops synergies among their recourses.http://htmlimg2.scribdassets.com/1b55j28la8epram/images/5-124fc26c75.png

Marketing Production

R & D Customer

Toyota should use design to maximize the performance of their operations. Using the value chain approach, processes that provide direct value to the customer aremodeled first. Derivative processes that support the value chain processes aremodeled to support the value chain.

Toyota Company Functional and Process Based Design

Functional Marketing Finance Sales Engineering Manufacturing Distributionhttp://htmlimg3.scribdassets.com/1b55j28la8epram/images/6-7f19d86bf2.jpg

Design

Process Design Buid Market Deliver

Design car car car cars