External Environment Facing Toyota the Global Car Essay

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  • Subject: Business
  • Type: Essay
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Excerpt from Essay :

external environment facing TOYOTA, the global car manufacturer. This paper discusses impacts of the company's internal organizational strategy (structures and management). The work is divided into two tasks. Task 1: Critically evaluates key factors (e.g. environmental, global, competition, technology) impact TOYOTA performance. Task 2: Provides strategic recommendations for senior managers of the TOYOTA.

Examine the external environment of TOYOTA and how this impacts on the internal organizational strategy (structures and management). Critically evaluate the key factors (e.g. environmental, global, competition, technology) that impact on TOYOTA performance. Findings are drawn from use of analysis tools (e.g. PESTLE, Porter's five forces, SWOT).

Strategic Analysis

We begin our analysis of Toyota by looking at the company through three analytical prisms: Porter's Five Forces Analysis, SWOT Analysis, and PESTLE. It is necessary to define what these analytical prisms are, initially, i.e., define terms, before beginning the analysis in earnest.

Porter 5 Forces Analysis

Porter's Five Forces is an analytical framework for analysis and business strategy development formed by Michael E. Porter of Harvard Business School back in 1979. This model draws upon Industrial Organization (IO) economics to derive "five forces" that determine the competitive intensity and, thus, the attractiveness of a potential market. In this context, attractiveness refers to the overall industry profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A very unattractive industry would be one approaching "pure competition," where available profits for all firms are driven down to zero.

Note that three of Porter's five forces refer to competition from external sources. The others are internal threats, and Dr. Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. What follows is the five factor framework:

Source: Michael Porter/Harvard University

SWOT Analysis

SWOT analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats facing a business. A SWOT analysis involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique was created Albert Humphrey, who chaired a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 firms.

PESTLE Analysis

PEST analysis is a tool, and the acronym stands for "Political, Economic, Social, and Technological analysis." This describes the framework of macro-environmental factors used in the visualization of the environment element of strategic management. Some scholars added Legal and rearranged the mnemonic to SLEPT. Other scholars added Environmental factors expanded it to PESTEL or PESTLE. The model has recently been further extended to STEEPLE and STEEPLED, adding Ethics and demographic factors. This tool is used as part of an external analysis when conducting a strategic analysis or doing market research, and provides an executive an overview of the many macro-environmental factors that the company has to take into consideration when planning. PESTLE is quite a helpful strategic tool for understanding market growth or decline, business position, and potential options. The growing importance of environmental or ecological factors in recent years have given rise to "green business" and encouraged widespread use of an updated version of the PEST framework.

TOYOTA BACKGROUND

Toyota Motor Corporation (,LSE: TYT, NYSE: TM), commonly known as Toyota, is a multinational automaker headquartered in Toyota, Aichi, Japan. Toyota Motor Corporation employed 71,116 people worldwide, total Toyota 320,808, as of 2009. The company is the world's largest car maker by production and sales. See, Toyota Motor Corporation Global Web site, http://www.toyota-global.com/

Toyota Motor Corporation is headquartered in Toyota City, Aichi and in Tokyo. Founded by Kiichiro Toyoda in 1937 as a spinoff from his father's company, Toyota Industries, the founder's vision was to create a global car maker. The company's first product was the Type A engine; and its first passenger car, the Toyota AA. The company's brands include Toyota, Scion, Lexus, Daihatsu and Hino Motors. Ibid.

Toyota also provides financial services through its Toyota Financial Services division and also builds robots. Supra.

Toyota ranked eighth on Forbes 2000 list of the world's leading companies for the year 2005. The company was number one in global automobile sales for the first quarter of 2008. Supra.

TOYOTA'S ANNOUNCED STRATEGY

Toyota Motor Corp.'s "global master plan" calls for grabbing 15% of the world car market in the company's quest to permanently unseat rival General Motors in the coming years

The automaker is focusing its future on growing demand in Russia, India China and Brazil. Toyota controlled 11% of the global car market in 2005. See, Toyota seeks 15% of global car market: Japanese automaker targeting Russia, India, China and Brazil, MSNBC.com, November 13, 2006

The company's plan predicts global auto sales by all carmakers to jump to 73 million cars in 2011 from 65 million in 2005. To meet the demand, Toyota will bolster production in India and China to meet demand. The company is working on a new compact aimed at developing countries, where car ownership is on the rise but family budgets are still tiny. Ibid.

"Russia, India, China and Brazil, no doubt about it. Those four are absolutely where we think a lot of action will be coming," Toyota spokesman Paul Nolasco said, . "Look at the population and the rate of motorization. There's a lot of potential for growth." Supra.

Ford Motor Co. As the world's No. 2 automaker in annual global vehicle sales in 2003, and analysts say it is on track to surpass GM in the coming years. Supra.

GLOBAL CAR MARKET GROWING AGAIN

The recovery in global car sales is on a solid track, with sales volume advancing 6% above a year earlier in January -- in line with analysts' full-year 2011 forecast of a 7% increase.

The market rebound is being fuelled by double-digit increases in emerging nations, but sales volumes also continue to improve in the developed markets. Purchases in the U.S. soared 17% above a year earlier to an annualized 12.6 million units -- a further grow from an average of 12.3 million in the final months of 2010. See, Global Economic Research: Global Auto Report: Strengthening Car Sales Drive Global Vehicle Output To Record High -- Production increase will support global economic activity, Feb. 25, 2011, Scotiabank Group

The growth was concentrated in retail purchases, which jumped 30% above a year earlier to an annualized to 10.5 million units. Ibid.

The increase in U.S. retail volumes is being bolstered by growing consumer confidence -- currently at a three-year high -- a slight improvement in the labor market, and the growth of the U.S. economy. Supra.

The impact of the recent increase in oil prices to $100 per barrel will have to be monitored closely, as it reduces household purchasing power and could dampen the sales improvement, especially if retail prices rise even more and remain so for an extended period of time . Supra.

Now, with the following charts, based on the above-cited data, we will provide a strategic analysis of Toyota.

Porter Five Factor Analysis for Toyota

Here is a typical Porter Five Factor Analysis:

Source: Michael Porter/Harvard University

For Toyota, I submit the following analysis:

Porter Five Forces Analysis for Toyota Motor Co.

Now, based on the above-cited data, I present my SWOT analysis of Toyota. Recall that SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

SWOT ANALYSIS: Toyota Motor Corp.

PESTLE ANALYSIS

The factors in a PESTLE analysis are as follows: Political, Economic, Social, and Technological, Legal Ethical. What follows is my PESTLE analysis for Toyota:

PESTLE ANALYSIS FOR TOYOTA

Task 2

Provide strategic recommendations for senior managers of the TOYOTA.

STRATEGIC RECOMMENDATIONS

Toyota has been bolstering output, reaping big profits and raising its earnings forecast at a time when American rivals Ford and GM just starting to recover from massive losses, closing plants and slashing jobs. The Japanese carmaker was fast to cash-in on demand for reliable, fuel-efficient vehicles amidst surging gas prices. See, Toyota seeks 15% of global car market: Japanese automaker targeting Russia, India, China and Brazil, MSNBC.com

As sales growth plateaus in mature markets like North America and Western Europe, we recommend that Toyota continue to focus on developing countries like China, Russia, India and Brazil. GM and DaimlerChrysler have both been investing in China, while Japan's Honda is viewing expansion in India. Ibid.

This strategy will work for Toyota as the company already has one plant in India, with production of 44,500 units, another plant in Brazil, with output of 57,800, and five plants in China, with total output of 443,000. The company also recently opened new plants in Russia and China. Supra.

Toyota has a policy of trying to build its autos closer to the markets in which they are sold. We recommend that Toyota continue with this strategy.

Toyota is developing a low-cost family compact car and is planning to open a new factory in India, with capacity of 150,000 vehicles a year. Supra. We recommend they continue with this strategy.

Japanese…

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