Toyota Has a Few Strengths on Which

Toyota has a few strengths on which to build competitive advantage and exploit opportunities in the marketplace. The company has two strong brands in Toyota and Lexus that are internationally recognized, allowing Toyota significant leverage when entering new markets or even negotiating with suppliers. Another strength that Toyota has is a strong global distribution network. Takahashi (2010) notes that even as Japan and the U.S. saw weakness in 2010, the company's gains in China and India were sufficient that it delivered a surprise profit.

There are a number of weaknesses, however, that Toyota has. Its historically strong production processes had a poor year in 2010, and the cost associated with product recalls in that year was ¥170 billion - ¥180 billion. Another weakness that the company has is with its supply chain. Again, the supply chain has historically been considered one of the company's strengths, but it is concentrated in a single region of Japan. When the earthquake/tsunami of March 2011 hit this region, the result was considerable disruption of the company's supply chain for much of the rest of the year. Vehicle production in Japan was down 6% for the year and sales were down 11.5% in Japan for the year (Toyota 2011 Annual Report).

Prior to the earthquake and tsunami, Toyota built strengths in innovation and design, especially on the production side of the business, and used these to carve out a place in the global automobile industry. The Prius is the centerpiece of the company's innovation into more fuel-efficient vehicles and his been a strong product for the company since its introduction (Toyota 2011 Annual Report). The company during this time was faced with a difficult economic environment in Japan, and of course the global economic downturn that affected most other markets as well (Takahashi, 2010).

This analysis reveals that the company's current strategy for its supply chain management has left it vulnerable to known disaster risks in Japan. While the company boosted production elsewhere in an attempt to make up for the problems in Japan, the effort was insufficient. However, the company's global distribution network is an asset because it has allowed the company to experience strong growth in emerging markets. Non-Japan Asia grew 28% last year; Latin America grew 21.9% and the Middle East grew 22%, while all developed world markets declined in sales. The company's geographic diversification has to this point insulated it against the ongoing economic downturn.

There are two recommendations that could help Toyota to shore up its weaknesses. The supply chain is too reliant on a single region of Japan, and that is something that the company must address. It is important to foster production in other regions, since it is precisely those other regions where the company's sales growth is going to come from for the foreseeable future. The more closely aligned the production and sales are -- over the long run -- the better this will be for Toyota. The shortages caused by the tsunami were felt not only in the home market, but in the crucial North American market, which is the company's largest. In addition, the risks of earthquake and tsunami in that part of Japan are well-known, so the company should have prepared better by having its key suppliers spread out. While there is advantage to clustering, such clusters should be located in secure areas unlikely to face long-term effects of natural disaster.

The second recommendation to Toyota is to address the production processes that led to the recalls. Toyota has a very strong reputation and it built its brand by producing superior cars at low cost, relative to the major American automakers in particular. Thus, quality problems and recalls can be devastating to a brand, especially when the brand is supposed to stand for quality. Thus, Toyota needs to root out the problems with its production that led to the issues. The other component of this strategy is that Toyota needs to communicate this success to the market. If Toyota has successfully fixed the problem, it needs to ensure that its dealers are aware of what happened so that they can answer customer questions about the problems. There is no need to publicize the issue and remind people of it, but some customers might ask and Toyota should have answers for those potential customers, to assuage their concerns.