Mngt2001 Final Essay - Toyota Business Strategy

Introduction: Toyota Motor Corporation is a multinational company which manufactures automobiles in 27 countries all over the world and Toyota’s vehicles are sold over 170 countries, not only under the Toyota logo, but are also sold as Lexus, Daihatsu and Hino. Toyota’s vision, as found on their website is “To be the most respected and admired company”, while their mission is “To deliver outstanding automotive products, and enrich our community, partners and environment.” Toyota’s core values comprise of putting the customer first, having respect for people, being focused internationally and to focus on continuous improvement and innovation. This report contains a strategic profile of Toyota, containing a strategic analysis of the company.

PESTLE MODEL POLITICAL As Toyota is a multinational company, they become subject to various degrees of political pressures and instabilities. Currently Toyota is subject to increased government hostility in Venezuela and Nigeria, and as a direct result there has become a greater dependence on OPEC oil, thus causing a great deal influence on the motor industry. Instability in the Middle East has also affected Toyota a great deal. As an unavoidable result fuel efficiency has become a very significant factor for car manufacturers as with the current uncertainty consumers seek stability and cheaper alternatives. In turn prospective buyers may consider the purchase of a vehicle that is less dependent on oil and fossil fuels. ECONOMIC

Economic factors affecting Toyota include the Queensland government no longer supporting the fuel assistance scheme, in turn making petroleum prices for Queensland residents increase.

Global demand for oil has exceeded global production`

PESTLE ModelImportant FactorsImpact • Economic•Queensland not supporting the fuel assistance scheme anymore

•Global demand for oil has exceeded global production`- Increase in fuel costs may sway potential buyers to a cheaper technology - Government tax may increase in the future, once again persuading purchase of fuel efficient car. Socio-cultural•Aging population has lead to greater density in metropolitan areas •Greater Awareness of the environment and the damage of car emissions- Buyers are looking for smaller more economic cars - clean fuel cell development is in favour of older fuels

Technological•Increase in efficiency of production. •Decrease in employee numbers due to robotic technology.- Cheaper production methods reduce cost for purchaser - Competitive advantage - Disgruntled community members due to loss of jobs. Legal•CO2 emissions- 222g/km for passenger cars, SUVs and light commercial vehicles by 2010. Environment•Global warming •Recycling •Reduce substances of concern •Atmospheric quality- Reduce emissions in production, consumers may favour environmentally friendly company - Effective use of resources - increased public image - improved air quality for all

Strengths -Toyota is the World's second largest carmaker. Its strong industry position is based upon a number of factors including a diversified product range and highly targeted marketing. -Toyota makes a large range of vehicles for both private customers and commercial organizations. Weaknesses

-The World market for cars is in a condition of oversupply and so car manufacturers need to make sure that it is their models that consumers want. -Toyota markets most of its products in the US and in Japan. Therefore it is exposed to fluctuating economic and political conditions those markets

Opportunities -Toyota now has a reputation for manufacturing environmentally friendly vehicles, for example the Prius. The Prius is based upon advanced technologies developed by the organization. -Continued global expansion - especially in the emerging markets e.g. China, where population and demand is accelerating. Threats

-In 2005 the company had to recall 880,000 sports utility vehicles and trucks due to faulty front suspension. This shows that the car industry is not immune to product recalls and the cost of the recall can be detrimental. -Toyota faces tremendous competitive rivalry in the car market where competition is increasing almost daily. The company is also exposed to any movement in the price of raw materials such as rubber, steel and fuel Key Strategic Implementation Issues

1)Dedicate themself to providing clean and safe products and to enhancing the quality of life everywhere through all their activities. 2)Create and develop advanced technologies and provide outstanding products and services that fulfil the needs of customers worldwide 3)Work with business partners in research and creation to achieve stable, long-term growth and mutual benefits, while keeping themself open to new partnerships.

STRATEGIC IMPLEMENTATION: The resources and capabilities possessed by Toyota can be considered to be the building blocks for the development of Toyota’s ability to obtain and maintain competitive advantage. At a functional level, there is a fair amount of evidence to suggest managers within Toyota implement their capabilities and resources well. As Toyota is a large company, economies of scale is very relevant in that Toyota’s large production capacity allows for fixed costs to be spread over greater numbers, allowing a lower production cost per unit, thus making Toyota largely a highly efficient company.

To achieve greater efficiency Toyota also implements division of labour through specialisation. Different firms may achieve different levels of efficiency (see fig. 1) with economies of scale and although Toyota can be considered to be highly efficient, they have not reached the minimum efficient scale of output. In can be noted that this may not be completely due to managerial inefficiency, but rather due to an attempt by Toyota to derive a sense of social responsibility, as to become as efficient as possible a large reduction of the number of people employed, and hence replaced with machinery would be necessary.

This provides evidence of Toyota’s functional level strategy in relation to the concept of ethics of corporations within the motor industry. With this strategy in mind Toyota has developed an alternative method to remain as efficient as possible with use of the concept of the experience curve (see Fig. 2).

The more that you do something and the more experience you have at something the more efficient you become, and for this reason Toyota has implemented strategies to retain employee’s, such as salary increases for experience. Even though Toyota can be considered as ‘far down’ the experience curve, a functional level strategy involving constant training and re-training of staff allows for them to remain as efficient as possible. At a functional level Toyota allows for somewhat flexible manufacturing and mass customisation of units produced.

However this could not be seen as a competitive advantage in the current market as most mass production vehicle manufacturers allow for mass customisation and levels of flexible manufacturing to a similar extent. The marketing strategy adopted by any company can have a major impact on the performance of the company. Toyota’s marketing strategy differs quite substantially between countries, and then even between vehicles. Within Australia for example, all of the advertisements are branded quite heavily with the Toyota logo and theme, but all create different feelings and idea’s, depending on what market is being targeted.

The two different advertisements running for the Toyota echo can easily be identified as targeting young females, and the other young males. Toyota’s functional level strategy also involves achieving superior quality, as this is an important element of business strategy. It gives the company an increased reputation for quality, but also allows them to charge a premium price, evident through the Lexus brand as many of these vehicles even share the same engine and drive trains as Toyota badged vehicles but are sold at a premium price.

The total quality management concept applies to Toyota’s strategy as this theory highlights the need for slightly higher additional costs through higher quality implementation and higher staff levels etc. to reduce the amount of need for returns – costing the business not only warranty and repair costs but also opportunity and customer deflection costs. Innovation is also at the heart of Toyota’s functional level strategic implementation. Toyota is at the heart of the search for an alternative source of fuel to petroleum, and with cars such as their hybrid ‘Pruis’ they are at the forefront of the innovative market.

SAM... Focussing on a single business can have several advantages; Total managerial, financial, technological and physical resources and capabilities can be focussed on competing successfully in a single area. However there are severe disadvantages, for example, in industries where technological change is unavoidable, and common. The competitive advantage created is more likely to occur from the alternative to a single business approach; hence Toyota’s Current Corporate Strategy of expanding and the creation of a competitive advantage through vertical integration, strategic alliances and diversification.

In the early stages of Toyota referred to as the First Period (1985 – 1989), Toyota was primarily involved in Vertical Integration with the establishment of its ‘business development’ division. Its focus was upstream vertical integration where it was concerned with producing its own input to the intermediate manufacturing stage. A more current and continuing strategy in the corporate structure of Toyota is diversification (Third and Fourth periods – 1996 until present). As opposed to concentrating on a single business, the production of motor vehicles, Toyota is has diversified its business areas. Both related and unrelated diversification is occurring in explicit terms of car manufacturing.

Toyota now not only manufactures parts, assembles the parts and finally sells the finished product, but has also been involved in and heads businesses in reafforestation, bio technology, marine, aviation and pilot training, and turbine systems, all of which are pursuant of the strategic direction and objectives of Toyota as a whole. The related areas of diversification include its businesses in vehicle inspections and repairs, car audio and navigation systems, engine components and hybrid systems and components. These areas enable Toyota to create competitive advantage through vertical integration, with a transfer of competencies and economies of scope allowing for the entity to control the entire process of its business, from start to finish. For further affiliate companies see appendices B.

As Toyota is a large company with a large pool of resources, and is able to both co-ordinate and control a large portfolio of businesses, it is able to avoid most of the bureaucratic costs associated with diversification. Findings:

Figure 3 diplays the expenditure in both capital expenses and research and development (R&D) expenses for what Toyota refers to the fourth period. This period is where the major corporate strategy of diversification was actioned, hence the expansion in capital and R&D. Figure 4 displays the volume of car sales. There is a direct relationship between when diversification was heavily employed and car sales volume.

As diversification expands so does car sales. Figure 5 is a visual representation on share prices and trading volume over the fourth period. It shows that Toyota was achieving constant increases in shareholders’ dividends, until the realisation that there was global financial concerns, despite this, trading volume continued to increase. It is evident that diversification at a corporate level has had successful implementation, supported by increased share prices and sales volumes. This fits within the scope of Toyotas Vision, Mission and core values. It adds value to the company and creates and maintains sustainable competitive advantage.

STRATEGIC IMPLEMENTATION ISSUES: Pg. 164

Appendicies A: Figure 1.

Figure 2.

Figure 3:

Figure 4:

Figure 5:

Appendicies B:

References: Figure 1. http://courses.cit.cornell.edu/econ101-dl/lecture-supply-long-run.html Figure 2. http://www.agmrc.org/business_development/getting_prepared/business_and_econom