Analysis of Toyota
Motor Corporation
By: Thembani Nkomo
This paper will explore the external and internal
environment of Toyota Motor Corporation, and suggest
recommendations to sustain its competitive advantage.
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Toyota Motor Corp: Analysis of External & Internal Environment with Recommendations, Assignments of Marketing Research
An analysis of Toyota Motor Corporation's external and internal environment, including industry overview, Porter's Five Forces, SWOT analysis, and BCG Matrix. It also suggests recommendations to sustain Toyota's competitive advantage.
What you will learn
- What are the major competitors of Toyota Motor Corporation in the automotive industry?
- What are Toyota's core competencies and distinct competencies?
- What recommendations does the analysis suggest for Toyota Motor Corporation to sustain its competitive advantage?
- What are the key external factors affecting Toyota Motor Corporation in the automotive industry?
- Which business units does Toyota have in its portfolio according to the BCG Matrix?
Typology: Assignments
2019/2020
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Analysis of Toyota
Motor Corporation
By: Thembani Nkomo
This paper will explore the external and internal
environment of Toyota Motor Corporation, and suggest
recommendations to sustain its competitive advantage.
ANALYISIS OF TOYOTA MOTOR CORPORATION
TABLE OF CONTENTS
1 COMPANY OVERVIEW
2 EXTERNAL ENVIRONMENT OF THE AUTOMOTIVE INDUSTRY
2.1 Industry Overview and Analysis 2.2 Industry Life Cycle 2.3 Industry Demand Determinants 2.4 Porter’s Five Forces 2.5 Industry Cost Structure Benchmark 2.6 Industry Competitive Landscape 2.7 Major Competitors 2.8 Key Success Factors in Industry
3 INTERNAL ENVIRONMENT OF TOYOTA
3.1 Core Competencies 3.2 Distinct Competency 3.3 SWOT Analysis 3.4 BCG Matrix: Internal Analysis of Toyota Portfolio 3.5 VRIO Framework Analysis 3.6 Toyota’s Efforts in Emerging Economies 3.7 Case Study: Toyota’s Successful Strategy in Indonesia 3.8 Strategic M&A, Partnerships, Joint Ventures, and Alliances 3.9 Analysis of Financial Performance
4 RECOMMENDATIONS
5 APPENDICES
6 REFERENCES
2.4. Porter’s Five Forces of the Automotive Industry
Threat of New Entry (Weak): Large amount of capital required High retaliation possible from existing companies, if new entrants would bring innovative products and ideas to the industry Few legal barriers protect existing companies from new entrants All automotive companies have established brand image and reputation Products are mainly differentiated by design and engineering quality New entrant could easily access suppliers and distributors It is very hard to achieve economies of scale for small companies Governments often protect their home markets by introducing high import taxes Supplier power (Weak): Large number of suppliers Some suppliers are large but the most of them are pretty small Companies use another type of material (use one metal instead of another) but only to some extent (plastic instead of metal) Materials widely accessible Suppliers do not pose any threat of forward integration Buyer power (Strong): There are many buyers Most of the buyers are individuals that buy one car, but corporates or governments usually buy large fleets and can bargain for lower prices It doesn’t cost much for buyers to switch to another brand of vehicle or to start using other type of transportation Buyers can easily choose alternative car brand Buyers are price sensitive and their decision is often based on how much does a vehicle cost Buyers do not threaten backward integration Threat of Substitutes (Weak): There are many alternative types of transportation, such as bicycles, motorcycles, trains, buses or planes Substitutes can rarely offer the same convenience Alternative types of transportation almost always cost less and sometimes are more environment friendly Competitive Rivalry (Very Strong): Moderate number of competitors If a firm would decide to leave an industry it would incur huge losses, so most of the time it either bankrupts or stays in automotive industry for the lifetime Industry is very large but matured Size of competing firm’s vary but they usually compete for different consumer segments Customers are loyal to their brands There is moderate threat of being acquired by a competitor
2.5. Automotive Industry Cost Structure Benchmark
Purchases (70.7%), wages (6.3%), depreciation (6.0%), rent & utilities (1.7%), other (10.4%), profit (4.9%) 5
2.6. Automotive Industry Competitive Landscape
Market share concentration in the industry is low. The industry is deemed to have a low level of concentration, and the largest four automakers are estimated to account for about one-third of global revenue.
2.7. Major Companies in the Automotive Industry
Toyota (10.2%), Volkswagen (9.6%), General Motors (6.9%), Ford (5.6%), Others (67.7%) 6
2.8. Key Success Factors in the Automotive Industry:
Flexibility in determining expenditure : Controlling employee-related costs, such as health and pension costs, makes manufacturers in the developed world more competitive.
Establishment of export markets : Development of export markets helps negate any downturns in domestic markets. Use of most efficient work practices : Good industrial relations through a motivated workforce assist in minimizing industrial disputes. Effective cost controls : A close relationship with suppliers and good distribution channels assist controlling costs. Access to the latest available and most efficient technology and techniques : The industry is highly competitive, so enterprises need a technology-enabled competitive edge. Optimum capacity utilization : Excessively high plant utilization is required for success in any modern automobile and light-duty motor vehicle manufacturing plant.
3. INTERNAL ENVIROMENT OF TOYOTA:
3.1. Core Competency
The core competence of Toyota Motor Corporation is its ability to produce automobiles of great quality at best prices, thereby providing a value for money to the customers. This core competence of quality can be attributed to its innovative production practices. The quality aspect of Toyota’s products have revolutionized the automobiles in the past and almost all the automobile companies had to try and better the quality of their products. It is a cornerstone of the cost leadership strategy that the company pursues.
3.2. Distinctive Competency
Toyota’s distinctive competence is its production system known as the “Toyota Production System” or TPS. TPS is based on the Lean Manufacturing concept. This concept also includes innovative practices like Just in Time, Kaizen, and Six Sigma and so on. Toyota has worked tirelessly over the years to establish this distinctive competence. No other automobile manufacturer can do it as well as Toyota does. This distinct competence has led to a competitive advantage that has given Toyota a sustainable brand name and a market leader position. 7
3.3. SWOT Analysis
Strengths: Strong market position and brand recognition: Toyota has a strong market position in different geographies across the world. The company's market share for Toyota and Lexus brands, (excluding mini vehicles) in Japan was 45.5% in FY2012. Similarly, Toyota has a market share of 12.2% in North America, 13.4% market share in Asia (excluding Japan and China), and 4.3% market share in Europe. In addition, the company holds a 7% share of the Chinese market and a significant market share in South and Central America, Oceania, Africa and the Middle East regions. Such strong market position allows the company to gain competitive advantage and also expand into international markets. In addition, Toyota holds a portfolio of strong brands in the automotive industry. Thus, the company's strong market position gives it significant competitive advantage and helps it to register higher sales growth in domestic and international markets. 8 Strong focus on R&D: Toyota has a strong focus on R&D to expand its product portfolio and improve the functionality, quality; safety and environmental compatibility of its products. The company's R&D efforts are directed at developing new products and processes and improving the capabilities of existing products. The company conducts its R&D operations at 14 facilities worldwide. Strong focus on R&D has helped the company in incorporating newer features to its existing range of products and also in bringing out latest technologies in the varied areas. The company's strong focus on R&D allows it to uphold the technological leadership in most of its product segments. It also enables Toyota to develop innovative products, leading to strong sales. 9 Extensive production and distribution network: Toyota has an extensive production and distribution network. Toyota and its affiliates produce automobiles and related parts and components through more than 50 manufacturing companies in 27 countries and regions besides Japan. During FY2012, the company produced 7,435,781 vehicles, including 3,940,000 vehicles in Japan and 3,495,000 vehicles across all other manufacturing locations. In addition, Toyota has an extensive distribution network. While the company’s geographically well spread production base diversifies business risks, its extensive distribution network provides a wider reach, thus boosting revenues. 10 Weaknesses: Product recalls could affect brand image: Toyota has conducted a number of product recalls in the recent past, which could affect the brand image and overall sales of the company. For instance, in 2011, Toyota recalled 111,000 models of Toyota and Lexus brands’ vehicles due to the damage to elements of the substrate and potential shutdown of the hybrid system. Further in the year, Toyota recalled 181,000 vehicles in Japan in relation to abnormal noise and oil leakage that
3.4. BCG Matrix: Internal Analysis of Toyota Portfolio
High Relative Market Share Low Relative Market Share High market growth STAR Lexus- luxury sedans Prius hybrid Land Cruiser SUV
QUESTION Scion – for youth in USA Camry / Corolla – as hybrids Bio – fuel, Solar – powered , hydrogen gas Diesel engine cars for India, Southeast Asia Small cars for India / China More SUVs and MPVs : Fortuner Low market growth CASH COW Camry , Corolla sedans Innova , Venza – MPV Daihatsu - small cars
DOG Celica , MR2 - for youth Tundra – pick-up Crown, Cressida, Corona, Quails: Withdrawn Declining markets in UK, Europe Petrol cars to be phased – out
3.5. VRIO Framework Analysis
Valuable : Yes, because it has been proven to keep production costs low Rare : Yes, just-in-time production is a popular strategy used by companies in all industries; however, Toyota’s methodology is very rare. Inimitable : Yes, many companies have tried to recreate the system; however none have been able to do it in as efficient of a manner. Organization : Yes, Toyota has been using this system since the 1960’s and have been perfecting it along the way. Competitive Implication : This creates a sustained competitive advantage
3.6. Toyota’s Efforts in Emerging Economies
Toyota’s emerging market sales have increased significantly in the period 2000 to 2011, from 18.6% to 45%. 20 If this trend continues, Toyota’s sales in emerging markets will shortly surpass its sales in developed markets. Toyota successfully observed and responded to the needs of the rising of middle class in the emerging markets. Through localization initiatives, Toyota designs and produces cars in these markets to meet these consumers’ unique needs.
3.7. Case Study: Toyota’s Successful Strategy in Indonesia
Toyota first began selling cars in Indonesia in 1971 and began producing them in 1977. Toyota entered the market via a joint venture with Astra Motor. 21 From 2008 to 2012, sales have more than doubled from 199,000 units to 409,000 units. 22 In terms of market share, Indonesia is Toyota’s best performing market, with an estimated market share of 40%. 23 Four of the top ten best-selling cars in Indonesia are Toyotas, with the Toyota Avanza taking the clear lead. The success of Toyota in Indonesia can be attributed to its “Innovative International Multi-Purpose Vehicle” strategy launched in 2003. Specifically, Toyota designed and produced cars in Indonesia to meet the needs of the local market, with the Toyota Avanza priced at $16,000. Toyota launched its second auto plant in Indonesia in March 2013 at an investment of $340 million, and earlier this year, Toyota announced that it plans to invest an additional $1.3 billion over the next five years. 24 If Toyota proceeds with this plan, this will represent a doubling of Toyota’s FDI of the last 40 years in the country. Motives for Toyota’s FDI initiatives in Indonesia include:
- To capture Indonesia's growing middle class; which is expected to double by 2020.
- To maintain its market dominance.
- In response to Government incentives for new car buyers, which include tax breaks as low as 0% for low cost eco-friendly cars, while maintaining interest rates in the low single-digits.
3.8. Toyota’s Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 – 2013)
Shown in APPENDICES 2 & 3.
3.9. Analysis of Financial Performance
Overall, Toyota has outperformed the industry over the past five years. Total assets increased 586.8 billion yen from the end of the previous fiscal year to 3,243.7 billion yen due mainly to an increase in market value of investment securities. Liabilities amounted to 1,718.8 billion yen, an increase of 259.7 billion yen from the end of the previous fiscal year due mainly to an increase in deferred tax liabilities. Net assets amounted to 1,524.9 billion yen, an increase of 327.1 billion yen from the end of the previous fiscal year. Cash flows from operating activities increased by 151.2 billion yen in fiscal 2013, due mainly to posting income before income taxes of 80.1 billion yen. Net cash provided by operating activities increased by 49.5 billion yen compared with an increase of 101.7 billion yen in fiscal 2012. Cash flows from investing activities resulted in a decrease in cash of 274.2 billion yen in fiscal 2013, attributable primarily to an increase in payments for purchases of property, plant and equipment amounting to 112.4 billion yen. Net cash used in investing activities increased by 264.8 billion yen compared with a decrease of 9.4 billion yen in fiscal 2012. Cash flows from financing activities resulted in an increase in cash of 7.0 billion yen in fiscal 2013, due mainly to 51.7 billion yen of net increase in short-term loans payable, despite the redemption of bonds payable of 54.1 billion yen. After adding translation adjustments and cash and cash equivalents at beginning of period, cash and cash equivalents as of March 31, 2013 stood at 179.3 billion yen, a decrease of 117.5 billion yen, or 40%, over fiscal 2012. 25 Detailed Financial Ratios are shown in APPENDIX 1.
4. RECOMMENDATIONS:
- Toyota should continue to undertake concerted efforts to strengthen its management platform and raise corporate value.
- As immediate tasks, Toyota should promote business and cost structure reforms to realize a solid management platform so that it can respond quickly to the changing market circumstances. Specifically, Toyota should maintain a streamlined structure through the reduction of fixed costs and enhance its business in established markets in developed countries.
- Toyota should accelerate its business expansion into rapidly growing emerging countries by thoroughly and meticulously monitoring market conditions in respective regions and introducing products suited to the characteristics and needs of each market. Toyota should also strive to establish production and supply structures to realize optimum product pricing and delivery, and to enhance the value chain to provide a wide range of customer services in each country and region.
- Toyota should consider making Lexus a priority in the Chinese market. This will enable it to become competitive with other car manufacturers in the luxury segment. By increasing production facilities in Asia, this will enable Toyota to have cheaper delivery channels and become closer to the emerging market customer. Toyota should also cut out layers of middle management so that engineers get more authority over what specific customer needs are answered in the design and development of a new car.
- Toyota should pursue the development of environmentally conscious, energy-saving products while incorporating functions and services demanded by customers (value chain) and delivering them to the global market. Acting on these measures, Toyota should aim for growth in three business units, namely, “solutions” in the areas of materials handling equipment, logistics and textile machinery; “key components” in the fields of car air-conditioning compressors and car electronics; and “mobility” in the domains of vehicles and engines.
- To support consolidated management on a global scale, Toyota should enhance the power of the workplace and diversity in the use of human resources, and strive to nurture global human resources.
- In addition to placing top priority on safety, Toyota should thoroughly enforce compliance, including observance of laws and regulations, and actively participate in social contribution activities.
- Toyota should aim to support industries and social infrastructures around the world by continuously supplying products and services that anticipate customers’ needs in order to contribute to engendering a compassionate society.
- Overall, Toyota has outperformed the industry over the past five years and gained market share. A shift toward smaller, more fuel-efficient vehicles, which Toyota can manufacture at a relatively low price, will support growth in the United States.
Source: GlobeData
APPENDIX 2: Top Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 – 2013)
Source: MarketLine Financial Deals
APPENDIX 3: Breakdown of Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 – 2013)
Source: MarketLine Financial Deals
APPENDIX 5: Industry Costs
Source: IBIS World 2013 Global Car Manufacturing Industry Report
APPENDIX 6: Industry Barriers to Entry
Source: IBIS World 2013 Global Car Manufacturing Industry Report
APPENDIX 7: Industry Cost Structure Benchmark:
Source: IBIS World 2013 Global Car Manufacturing Industry Report
APPENDIX 8: Map of Toyota’s Worldwide Operations
Source: Toyota Motor Corporation 2012 Annual Report
APPENDIX 9: Toyota’s History in Emerging Markets
Source: Toyota Motor Corporation 2012 Annual Report
APPENDIX 10: The Rise of Toyota’s Sales in Emerging Markets
Source: Toyota Motor Corporation 2012 Annual Report
6. REFERENCES: