The growth of emerging markets and their potentials have lured companies all over the world to expand into new markets and get a piece of the benefits. Generally, companies are looking for countries or market that possesses low-risk and high potential markets as a vital source of growth. Nevertheless, this does not mean that these companies have all that it takes to gain such benefit from its undertaking. Most companies generally lack the knowledge and understanding of the new market to perform such an undertaking.
There are significant differences between the new emerging markets compare to developed ones in the United States or European countries. These differences could sometimes be huge obstacles to gain economic benefits from the new markets. However, with the right perspective and the proper treatment, companies can facilitate tremendous amount of growth from the benefits gained from the market. Choosing or identifying the right market for business expansion is crucial for getting the full benefit of the emerging market.
Afterwards, strategic planning and marketing schemes seem to be the key for successful penetration of the market (Heakal, 2003).
These steps are important since business environment contains numerous influential factors; this undeniable connection is what made strategic management a dissimilar challenge for each business design. In order to cope with such challenge entrepreneurs generally used several analysis tools that will help them discover the competitive advantages of their business and take advantage of them for the improvement of their companies.
Concerning the analysis of a company’s strategy, this paper will discuss about the strategy of Toyota in dealing with the fierce competition in automotive industry in the world. The discussion includes the company’s strategic planning vision, mission, and environmental analysis like PESTEL, Porter’s Five Forces analysis, Value Chain, Strategic Decisions, and 7: SWOT Analysis. Prior to the discussion, this paper will elaborate the corporate background identifying the current products of Toyota.
- Aims and Objectives
The objectives of this paper are to develop business analysis on Toyota in competing in challenging automotive industry in the world. Systematically, we can derive the objectives into several points as following:
- This paper aims to elaborate the strategic planning of Toyota as described in their corporate mission, vision, and objectives.
- Using the appropriate research methodology to conduct environmental analysis on Toyota. They include PESTEL and Porter’s Five Forces.
- Using the relationship of research approach, deductive, quantitative to internal analysis as depicted in their resources and value chain.
- Using the non-participant observation method, collecting data and analyzing qualitative information from journal, books, magazine and online materials to assess the company’s strategic decision through SWOT Analysis.
- Vision, Mission, Objectives
In “Exploring Corporate Strategy,” Johnson G. and Scholes K. says that corporate strategy is concerned with the overall purpose and scope of the organization to meet the expectations of owners or major stakeholders while business strategy is about how to compete successfully in a particular market.
In addition to strategy definition, companies are common to conduct strategic planning that is the way to identify and go towards desired future condition (“Strategic Planning”). This kind of planning is important for companies like Toyota since it becomes a step to develop, implement, and achieve goals and objectives. Similar to the concept of strategy, the strategic planning also comes from military terminology. While in military the planning called military strategy, in business it refers to strategic management. The strategic planning, as we will discuss in this paper, comes in three forms: objectives, mission, and vision statements.
Mission statement details what a company will do today to reach the company’s goal, purpose, or mission (“Strategic Planning”). Therefore, the mission statement should not wordy since people might consider and implement it in different ways. For example, Ford Motor Company has a mission statement that is short but has a deep meaning. “Quality is Job 1” is the Ford’s mission statement.
Concerning the mission statement of Toyota, Hiroshi Okuda, Chairman of Toyota, reveals that the company’s mission is “to create a more prosperous society through automotive manufacturing” (Toyota Motor Corporation, 2008a).
Based on the definition of a company’s mission statement, what Toyota states about its mission lacks of the statement about why the mission is done so. In addition, the Toyota’s mission also lacks of the description about who does the action whether top managements or all employees of Toyota.
Vision statement describes what a company wants to be in the future (“Strategic Planning”). The difference between mission and vision statements lies on the nature of statement. Vision statement is likely to be more graphical forms and abstract in nature than mission statements that tend to be more concrete and proscriptive.
In other words, a vision statement is a picture of ideal future outcomes. Therefore, a good and en effective vision statement is one that provides clarity, description of the future, and driven by customer needs (“Strategic Planning”).
Concerning the vision statement of Toyota, Hiroshi Okuda, Chairman of Toyota, states that their vision is “to achieve long-term, stable growth in harmony with the environment, the global economy, the local communities it serves, and its stakeholders” (Toyota Motor Corporation, 2008a).
By definition, an objective is strategic statement of a company that tends to come in exact form (“Strategic Planning”). For example, a objective statement becomes “I want to hit $250 million of sales in 2006”.
Concerning the objective of Toyota, the company’s objective is “to create automobiles and a mobility society in which people can live with a sense of safety, peace of mind, and comfort” (Toyota Motor Corporation, 2008b)
- Environmental analysis
In general, corporations at any size are influenced by external and internal situations and condition that influence them at different level. Several external factors that influence a company includes antitrust Act, technological advancement, changes of customers’ preferences, export and import policy, and customers’ demand. These kind of external factors coupled with internal factors may become winning strategy if corporations can utilize and manage them appropriately and effectively.
Among many environmental factors, PESTEL analysis becomes a business analysis tool that commonly used by corporations to figure out and explore issues that influence the rise and ruin of a industry in the world.
- PESTEL framework
In general, business analysis tools consist of two general forms: external and internal analysis. While SWOT analysis considers both external and internal forces, PESTLE analysis deals with external environment that may impact an organization or industry. PESTLE analysis composes of six elements: political, economical, socio-cultural, technological, legislation, and environmental.
- Political Factors
Political factors become key issue for business especially those operate in worldwide. This is because every government has its own policy towards business, products, and country of origin (QuickMBA.com, 2006). According to QuickMBA.com, political factors also take into account the formal and informal regulations/laws that influence the way a business perform its operation. In automobile industry, the political factors employment laws, trade restriction, tariffs, and political stability.
Regarding the political factor, the company admits that their business heavily depends on political situations especially the political tensions or terrorist activities. The two political issues may hamper the growth of the automobile manufacturers’ sales. Political tensions could also have adverse impact towards the economical condition of automobile industry. For instances, the decision to force automobile manufacturers to produce more green cars, as the result of recent forum on global climate issue in Bali (UNFCCC), may cause the reduced profits of automakers considering that green cars are still in developing stage and costly that only premium customers can buy it.
- Economic Factors
Economic factors have important influence on Toyota Motor Corporation since it favors the business by influencing purchasing power of consumers and the firm cost of capital. Some issues on economic factors include economy growth, interest rates, foreign exchange rates, and inflation rate (QuickMBA.com, 2006). For example, Table 1 shows a UK economic indicator that exhibit the purchase power of consumers in the UK.
Table 1 UK Economic Indicator
Source: (The Economist Intelligence Unit Limited, 2002)
In case of automobile industry, the economic factor may be favorable or vice versa depending on particular condition in a country. For instances, Table 1 show that UK has positive economic performance that influences the growth of Toyota business in the country. This figure also applies to another country that Toyota Motor Corporation intends to expand.
- Socio-cultural Factors
Socio-cultural factors refer to demographic and cultural forces that influence a business. The factors include diverse customers’ needs, health consciousness, safety concerns, and age distribution (QuickMBA.com, 2006).
In automobile industry, the consideration of socio-cultural factors is inseparable. The customers’ behavior in purchasing new cars and their preferences that are different from one country to another are just two samples of factors that influence the industry.
For Toyota Motor Corporation, the consideration of socio-cultural factors goes beyond merely conducting research on customers’ preferences. In fact, the Japanese auto automobile manufacturer also develops new system that selects their suppliers not only based on their innovative products/solutions and technical expertise but also their adoption of technology that takes into accounts the ecological and social criteria.
- Technological Factors
Another macro environmental factor is technology. In fast moving consumer goods industry, technology plays significant role since it reduces barriers to entry and increases production efficiencies, to name a few. Some activities relate to technological factor are the degree of R&D, production automation, rate of product invention, new technology or invention (QuickMBA.com, 2006). For Toyota, the coming manufacturing technology will provide great benefits for the company in having the high quality products that free of defects etc.
- Legal Factors
Legal factors refer to law in effect that influences the way business operates. In Toyota Motor Corporation, many legal forces influence the firm such as employment and labor law, environmental, and safety regulation, to name a few.
- Environmental Factors
Environmental factors relate to environmental issues that influence an industry or business in local, national, and worldwide point of view. In Toyota Motor Company, the firm pays great attention to such issues since they realize that global warming issues may endanger environment and thus drive them to develop new green vehicle that are environmentally friendly.
Concerning the environmental issue, Toyota Motor Company is driven to initiate a program that assesses the quality standards of their suppliers to find whether they already comply with social and ecological targets. This is important to support the implementation of green technology immediately.
In general, the environmental issue of global warming and the increase in oil price still becomes driving forces that encourage automobile manufacturers to design fuel-efficient cars by developing hybrid cars (Powers, 2006). Nowadays, there are many kind hybrid cars from various brands such as Toyota, Honda and many others. Some examples of famous hybrid cars include the Toyota Prius, Honda Civic Hybrid (HCH), and the Honda Insight (Powers, 2006).
- Five Forces analysis
Porter’s Five Forces analysis will assist businesses to comprehend the environmental forces that influence a company. The business analysis tool divides the environmental forces into five categories; they are rivalry, threat of substitutes, supplier power, buyer power, and barriers to entry. The use of this analysis tool is important because it would lead us to understand the amount and the extent of challenges and opportunities faced by companies within the particular industry.
Rivalry represents the degree of competition in a particular industry. The analysis of rivalry deals with the measurement of industry concentration. The higher industry concentration ratio means the industry is more attractive for new entrants. This is because high industry concentration suggests that there are only few players in the business, competition level is low and thus price wars are still far away (‘Porter’s Five Forces’, 2006).
Concerning the rivalry, we find that automobile industry has a big deal competition since there are many automakers target the same customers’ segment. In 1998, for instance become a hard situation since the foreign operation sales declines while the costs of materials were rising. Under such circumstances, the automotive companies develop new strategy by encouraging the development of product excellence, revitalize marketing and sales tactics, and encourage the cost reduction efforts. Figure 1 highlighting the strategic position of Toyota in which Toyota market share is close to GM and Geng (2005) predicts Toyota’s market share will surpass GM within next two years.
Figure 1 Global Auto Ranking
Source: Seeking Alpha, 2007
- Threat of Substitutes
Substitute products are products of other industries that could affect the prices and other features of automobile products (‘Porter’s Five Forces’, 2006). It is considerably justified to say that the automobile industry is facing intense product substitution since there are many alternative products that powered by hybrid technology or solar cells although the market share of this product is still low.
At the present, there are type of hybrid cars that produced by various automakers including Toyota, Honda and many others. Some famous hybrid cars include the Toyota Prius, Honda Civic Hybrid (HCH), and the Honda Insight (Powers, 2006).
- Buyer Power
This factor represents the impact that customers have on the producing industry. The buyer is strong if they are few in numbers and there are numerous producers. On the other hand, buyers are weak if there are many of them and few sellers (‘Porter’s Five Forces’, 2006).
Figure 2 Features of customization at Toyota Official Website
Source: (Toyota Motor Sales, 2007).
The key competitive advantages that Toyota possesses that ensure the success of any Toyota products are the adoption of Toyota Production System (TPS) that adopted the idea of a value-based production system. In this system, innovations in the production systems are designed to create values to customers rather than making harassing demands to suppliers in order to cut costs (Teresko, 2006).
Another buyer power relates to brand of vehicles. According to marketing theory, consumer would prefer famous brands to unknown ones (‘Developing’, 2003). In marketing concept, this condition is important since the use of well-known brand will enhance self-esteem to the buyers. The condition also indicates a direct connection between sales volume and product or brand’s “image”.
- Supplier Power
Because automakers need raw materials, extensive number of labor, components, machines and other supplies, the consideration of supplier power must also take part in corporate environmental analysis. Suppliers are powerful if they are concentrated, has a possibility of integration to other suppliers and there is significant cost to change suppliers (‘Porter’s Five Forces’, 2006).
- Barriers to Entry
The barriers to entry characterize the degree of complexity for a new entrant to enter the industry. This factor is considerably very essential because a high level of barriers to entry will create a higher level of advantages for players within the industry.
The key success factors that determine the success of Toyota in automobile industry is their efforts to reduce the time to develop and produce new cars. In addition, Toyota is well-known to have efficient labor costs compared to their competitors like General Motors. This condition highlight that Toyota has performed efficient production in their facilities (Figure 3).
Figure 3 Average Labor Costs
Source: (Geng, 2005).
- Strategic Groups
Another example of multinational company that alters its strategic move significantly in order to gain powerful presence in the new emerging markets is Toyota. The company generally has a strategy of assembling car parts within the local markets but with engines and vital parts imported from Japan. This generates more assurance in terms of quality because the Japanese manufacturer has a high manufacturing standards and more dependable technology. However, this plan is not suitable for further expansion in the emerging markets because Japanese parts are expensive (Shirouzu, 2005).
Today, the company had established manufacturing plants near targeted markets which eliminated the high cost of importing from Japanese producers. These plants manufactured almost all the parts in a strategic location with low cost labor like free trade zones. The strategy aimed to increase sales number and avoiding foreign currency conversion risks. Some however, questioned how the strategy will support quality enhancement of the products with the tendency of reducing quality standards resulted by producing all the parts personally instead of importing it (Shirouzu, 2005).
Figure 4 Global Auto Ranking
Source: Seeking Alpha, 2007
Figure 4 shows that the company superior internationalization strategy has endowed the company with the largest market capitalization in the world in which Toyota Motor accounts for 207 million of market cap, far ahead its competitors like Honda Motor (59 million, and Daimler Chrysler (57 million).
- Internal diagnosis
The main important factor of resources is products differentiation. Toyota has four different brands: Toyota, Lexus, Hino, and Scion (Figure 5). The diversifications are important in today’s automotive industry since automobile brands tend to have worldwide influences.
In order to maintain their strong position in the U.S. market, Toyota has deployed a leading OLAP platform to streamline dealer performance analysis. By implementing this tool, Toyota achieves an improved information quality, a faster and reliable reporting and analysis, and time and cost savings in several departments and locations (Stark).
The deployment of analysis tool also enables the company to sustain their presence within next ten years since Toyota already has a strong marketing and distribution arm in the U.S, Hyperion® Essbase® (Stark). The task of the marketing arm is to provide headquarters and regional staff access to critical information for analyzing dealer performance.
Figure 5 Product Lines of Toyota
Source: Toyota Motor Sales, 2007
In addition, Toyota like other Japanese automakers has several distinctive characteristics: fostering global efficiency, worldwide orientation, centralized core activities, minimum local adaptation with improved local responsiveness, and a more transnational strategic orientation. Moreover, the company also separates the distribution channel of its high-end cars, Lexus, from other brands to ensure the effectiveness.
- Strategic Decisions: SWOT Analysis
Entering into a new market is an obvious challenge, even for experienced entrepreneurs. The complexity of relationships between factors that influence a business development has made every business a worthy research project. Unless there are advantages like technological patents or other powerful superiority, opening a business today always means we are entering someone’s backyard, someone’s field of work and apparently the competition is not far around.
Any organizations especially one dealing with business environment must encounter an era where the success of their operation depends on both internal and external factors. Under such circumstances, it is useful to carry out an analysis that takes into account not only the company’s internal factors, but also external factors such as activities of the company’s competitors and current industry situation as well.
Strengths are components of internal analysis. The components describe any resources and capabilities that support a company to achieve its competitive advantage such as patents, excellent reputation, low-cost structure and many more.
In Toyota, the strengths of the company are their capability to have appropriate a vehicle launch process. This is important since the time to market becomes one element of a company’s success. Among North American manufacturers, Toyota is in the second place behind Honda in terms of launching a new vehicle.
According to Toyota, the achievement is done so since the company has adopted an appropriate P-D-C-A Management Cycle in order to manage the process of continuous improvement. The process also enables the company and its suppliers to foster improved quality four times prior to the start of production (Smith).
Another strong factor that Toyota attains is that the company already has dealership analysis in which critical dealership financial and other performance information is available in one place and more accessible to users around the company. Knowing the potential benefits of the application, Toyota now encourages that every associate in Toyota’s headquarters and in the regional offices to use the dealership performance information to reduce the time and effort required finding and formatting data.
The second internal factors are Weaknesses. This is simply in contrast to the strength in which the absence of specific strength might be considered as the weaknesses of the company. It includes a lack of patent protection, high-cost structure and many more. However, any internal factor could be the strength or the weakness for a company. Consider lots of human resources. When a company could not employ and appoint them in the appropriate manner, they could the weakness for the company since it causes high-cost structure and ineffective business environment and vice versa.
In Toyota, the possible weaknesses are their lack of respect to internationalization and limited brand portfolio (“Brand Management”). The two factors are important in today’s automotive industry since automobile brands tend to have worldwide influences. Similarly, the limited brand portfolio makes Toyota to have limited tools to compete with diversified products from its competitors. Currently, Toyota has four brands: Toyota, Lexus, Hino, and Scion. While its competitors like Volkswagen has eight brands: Volkswagen, Audi, Seat, Škoda, Bugatti, Bentley, Lamborghini, and Commercial vehicles in which each brand has a specific target market.
By conducting business analysis tools like Porter’s Five Forces, PESTEL analysis, and SWOT analysis, Toyota shows to be more successful automobile manufacturer since there are able to create high-demand automobile. This is in contrast to their competitors like General Motors which is considered to be the failed automaker since they continue losing profits and market share not only in the U.S but also in the global marketplace.
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