Toyota’s Strategy and Initiatives in Europe

Competition in the minicar segment of the European automobile industry was high. Because a large number of competitive manufacturers were competing for market share, and their products were relatively similar. Economic uncertainty, high unemployment and increasingly high fuel prices had led to volume gains in this segment. Many big manufacturers had realized it, and had already entered the market with success somehow. Five forces analysis of Toyota Motor Europe(TME) ?Rivalry among Competing Sellers – Strong -TME had just entered this segment and there had been many rivals competing for market share.

Other competitors, most of them had experienced for many years in this segment. They also had a lot of experience in automobile production and their size and capabilities were of a very high level. This led to a very high rivalry among sellers. -Each competitor was trying their best to differentiate their car in terms of performance and value which would possibly satisfy their customers. The new models were designed from time to time which raised the rivalry. -They needed to be very careful in making the decisions, because high fixed costs and low margins in this segment would result in substantial losses.

All the other competitors were carefully focusing on costs reduction. -Some firms were in over-capacity which may lead to them cutting their price in order to keep demand. -Strong advertising campaigns and promotional offers were some of the strategies used by Peugeot, Citroen and VW to create awareness and a customer base. ?Potential new Entrants – Strong -The number of global car manufacturers not already entered in this segment was high. They already had many of the resources, competencies and competitive capabilities. -The barriers to enter the minicar segment were low.

Some other car manufacturers who produced in a large scale were easy for them to make minicars. -Many of the potential new entrants, they had known quite well about European automobile market and some of them had built plants for bigger cars. They also had good relationships with suppliers of raw materials and components. ?Substitute Products – Moderate -The main substitute was a bigger car. There were so many choices and they offered more space and features. -Scooter could be a cheap and efficient means of transport. Scooters had low fuel consumption, lower maintenance costs, lower insurance costs.

-Public transport had an impact on the minicar which was encouraged by government. ?Supplier Bargaining Power -Weak -European suppliers were very eager to supply TPCA since this was seen as the entry point for supplying Toyota. European suppliers were struggling, as many of their traditional customers had cut their production volumes considerably in recent years. -Suppliers to TPCA could also qualify for PSA’s plant in neighboring Slovakia, about 250 km from Kolin. PSA had big plans at this plant, too. ?Buyer Bargaining Power – Weak

-The buyer bargaining power was relatively weak, because Toyota would be selling the Aygo through many of its existing dealers of its larger cars. They wanted to have a long deep relationship with each other. From doing 5 forces analysis, we can conclude that the competitive pressures TME faced were strong. Competition in the minicar Segment -Multicountry The competition in the minicar segment of the European automobile industry could be described as multicountry. Firstly, because most international car manufactures had entered or would enter into the European minicar segment. Like BMW-Mini, Smart, etc.

Secondly, in Europe different countries had different marketing characteristics of the minicar segment, which meant different levels of competition among them. For example, some western European countries compensated the purchase of minicar, while some countries didn’t in Eastern Europe. However, the increased demand was due to economical and energy issues in the European countries. TME’s international strategy TME’s corporate strategy was growth. It used “broad differentiation” in its international operations. Its products ranged with extra features, good quality and higher price.

Aygo, Yaris was basically designed for younger generation; someone of them would potentially purchase Lexus when they became older. In addition, there were also hybrid models, etc. It helped to raise customers’ brand loyalty. Key success factors for the minicar segment ?High quality – High quality is very important in the automobile industry. Any defects can possibly lead to severe consequences and negative impacts which will damage the reputation of companies. ?Low cost manufacturing – Competitive advantage can be achieved by lowering the level of production costs and ensuring that assets are being fully used.

Low-cost product design and engineering, economies of scale with suppliers and a skilled and competent workforce are also contributes to lower production costs. ?Low-cost plant locations – Pressures on minicar sales,low unit margins encourage cost cutting , including possible moves of more production to eastern Europe. ?Technology and innovation – As an economical, fuel-efficient and fun mode of transport, the minicar segment needs technology and innovation. Most innovative features around the minicar segment are the most economical, environmental, and mobility concepts.

?Creative and focused advertising campaign – In the minicar segment, a well thought out and precise advertising campaign is a key success factor to firms. Identifying the target market and ensuring these consumers alerted to the product is paramount to success. ?Policy framework – Government involvement in many countries requires that manufacturers lower emissions and raise their fuel-economy ratings. It may encourage the minicar segment. Changes in the minicar segment The minicar segment has existed for many years, but it has never been a major part of the overall car market in Europe.

The minicar segment has developed in recent times due to economic pressures such as high unemployment, rising fuel prices and general economic uncertainty. The minicar segment of the European automobile industry is tough with a large number of powerful players competing for market share with a relatively similar product. Driving forces 1. Globalization – The international car manufacturers are entering into the European market. For example, Toyota has brought its famous “Toyota Production System” to the Toyota Peugeot Citroen Automobile (TPCA) plant.

This will make competitors take a look at their own production systems and make the necessary changes to compete. 2. Technological Change and Manufacturing Process Innovation – Automation technologies are constantly advancing and being used to lower production costs. Technology is also constantly developing the supply chain by facilitating greater integration between each link. Distribution channels and logistics are being reshaped by technology. Communication between various elements of a company’s operation has been easier. This means more efficient control and more accurate planning.

3. Regulation – Under the 1999 agreement with the EU, the European car industry pledged to reduce CO2 emissions to 140g per kilometer. This pledge has been taken seriously and has made companies use fuel-efficient engines while still keeping the electric features and functions of the car. Further reductions in emissions and other restrictions are likely to continue in the future. 4. Social Concerns – Social attitudes and buyer power is constantly changing the minicar segment. Greater demands for safety features are causing companies to innovate their models in order to meet these demands.

Increased concerns over CO2 emissions have made consumers ask for more fuel efficient cars. Also, many of Toyota’s clients see a car almost as part of their identity rather than just as a means of transport and will be attracted to something which fits in with their fashion preferences. The overall impact of these driving forces will absolutely intensify competitive pressures within the minicar segment. Various strategies will be undertaken by companies in an attempt to meet the demands of these driving forces. SWOT analysis for TME ?Strengths 1.

Brand equity – The Toyota brand was world renowned and had a reputation of high quality. 2. Large capital – Through its success in the car industry, Toyota would have large capital reserves to finance its activities in the minicar segment. 3. Toyota Production System – Their TPS was the envy of many manufacturers for its attention to detail and efficiency and was a distinctive competence which Toyota held. The resource would be very difficult to copy, allowed cost savings over rivals through efficiency. 4. Innovation of co-operation – Toyota joined forces with PSA.

The joint plant in the Czech Republic started operations in 2004 and had a production capacity of 300,000 units. 5. Innovation of technology – Toyota’s use of technology and innovation was another strength which carried strong competitive power and was a core competence to its success. 6. HR issues – Its experience in the industry had developed employees with a high intellectual understanding of what was needed in order to be successful and put them in a position to pass on this knowledge to new and upcoming employees. 7. Advertising and promotion – Toyota’s competitive success was its style of advertising and promotion.

It is clear from the Aygo study that Toyota was not afraid to push the boundaries of traditional advertising, and found new ways which better suited to today’s modern minded consumers. 8. Environmental issues – Toyota’s grasp of environmental issues and the responsibility placed on car manufacturers to comply with regulations was another example of its competitive strength. All in all, Toyota’s strengths largely matched up to the industry’s key success factors. ?Weaknesses – TME did possess some competitive resource weaknesses but the positive aspect was that most of these could be rectified over a relatively short space of time.

1. Lack of the experience – Toyota was new to the segment which meant that it lacked the experience of its established rivals. Their lack of experience with suppliers was one of the main reasons for its joint venture with PSA. This weakness would be overcome over time 2. A Japanese brand – In the traditional European market, Toyota would experience some hostility due to it being a Japanese manufacturer, but this could be resolved over time through positive public relation and customers’ satisfaction. 3. Generation Y – Toyota had no experience selling to these customers.

It would weaken their ability to relate to the customers but they were willing to try new approaches. 4. Aygo annual units – Toyota’s main weakness was their commitment to produce 100,000 Aygo annually. In a congested market, this figure seemed to require a lot of hard work in order to be achieved. ?Opportunities 1. Many of the sales figures of Toyota’s competitors in the mini-car segment were in decline. This suggested that they were no longer appealing to customers. There was an opportunity for Toyota to capitalize on this and claim some of their dwindling market share.

2. Economic uncertainty, high unemployment and rising fuel prices would provide Toyota and the firms within the segment the opportunity for volume gains as consumers looked towards the minicar as an economical option. 3. Through their alliance with PSA, Toyota would have the opportunity to develop a supplier network in Eastern Europe for the location of any future plants. 4. Toyota’s involvement with innovative technologies would give it a better opportunity to implement these technologies into its product than that of its rivals’. ?Threats 1.

Toyota found itself in a crowded market with the possibility of more entrants to follow. This made the threat from competitors an ongoing one and would put further pressures on profit margins. 2. Although Toyota seemed to have no problems meeting the regulatory requirements regarding CO2 emissions at present, it was likely that these requirements would become more testing over the coming years and would require further compliance. 3. Hyundai Motor was due to open a new plant in the Czech Republic and this would pose a threat to Toyota’s workforce in its plant in Kolin.

4. The volatility of fuel prices and Europe’s ageing population which was not suited to Toyota’s strategy posed further threats to Toyota’s future competitiveness. TME’s joint venture with PSA ?How successful of TPCA? TPCA has proven to be a success. In early 2006 Aygo was doing extremely well on the forecasted resale values of the major leasing companies. The Aygo model was well received and contributed to Toyota’s sales growth of 10% in the first half of 2006. The launch was widely seen as successful and Toyota won the coveted “best media strategy award” in Germany.

This was the trophy everyone wanted to have. ?Why did TME choose this method to enter? For Toyota to successfully enter this segment, existing assumptions of the business model had to be changed. Given the cost pressure and purchasing issues, etc, Toyota realized that they needed to join forces with others. Cooperation agreements allowed them to share development costs and expertise and resources. It also provided the economies of scale they needed to remain competitive. PSA’s experience with suppliers would work in their favor and lead to Toyota building their own relationships with these suppliers.

?Competitive position strengthened? TME’s competitive position has been strengthened by the joint venture because it now has a plant in Eastern Europe, is familiar with the local suppliers, has improved its image with the public, is now operating in a promising market and due to the cost reductions by this alliance, is able to compete in the market. ?Competitive position weakened? Of course, there are also some weaknesses. Working with PSA means exposing the Toyota Way, the ‘mysterious’ Toyota DNA to outsiders.

It was a big challenge for Toyota to sell 100,000 units annually against 200,000 units of PSA. Aygo shared one assembly line with the other 2 models, and there were 93% common parts among them. PSA had a strong customer base in Europe, so making PSA’s customers buy Aygo instead of 107 and C1 with 93% common parts would be tough. Recommendations ?Differentiation -How to make Aygo with 93% standardized parts differentiated in the marketplace from its two siblings? ?Yaris – Toyota also launched the new Yaris in 2005. The car was a bit bigger than the Aygo, but 3,000 more expensive.

Sales representatives were likely to push the more expensive Yaris, as commissions were normally based on transaction prices. ?Generation Y – Toyota’s dealers were not used to dealing with Generation Y and their traditional sales methods would not be as effective. Generation Y was definitely attractive size-wise, but reaching them would require many changes to the existing ways of doing things. ?Advertising – One of the major determining factors in Toyota reaching its sales quota is how effective the car is advertised.

Its modern and fresh ideas give the car a unique image which matches that of its target customers. Associations with MTV and rap stars will also enhance its image in the eyes of its target customers. This type of advertising is needed on a permanent basis and will greatly increase the chances of Toyota reaching its sales target. ?Opening a new plant – In order to improve its position in Europe, TME could open another plant in Eastern Europe. Toyota will be in a better position since links will have been developed with local suppliers without building its competitor’s products.