Strategic Analysis of Toyota Motors
Toyota Motors is a globally renowned brand of cars based in Japan. Apart from making excellent vehicles, it is famous for its use of great production methods and excellent supply chain management. The vehicle industry has been through a tumultuous phase during the recession. This period saw the sales and revenue of brands fall dismally. Toyota has also learnt a tough lesson. After several recalls in US, it has pledged to make its cars only better and better. The brand has got excellent technological capabilities and is focusing on growing its line of electrical vehicles. After the success of Toyota Prius, the world’s first mass produced Hybrid Vehicle, Toyota is targeting a larger line of electrified vehicles. The automotive industry is facing several challenges including higher regulation and increased costs of raw materials. Technology is also changing the world of automobiles like never before.
Vehicle brands are investing in R&D so as to be the first to bring autonomous vehicles on the roads. AI, Robotics and Internet of Things have brought the vehicle industry to the verge of a new era. A major shift has come in the way mobility has been affecting people’s lives. Toyota is globally popular and successful. However, the intense level of competition requires it to remain ready for the changes that lie ahead. Toyota is working on improving its technological capabilities and growing its presence in the less explored markets. Japan and US are its biggest markets. Now, it is eyeing growth in China.
Check out some more stats on Toyota here:-
Total Vehicles sales: – 8,970,860 (8.97 Million)
Vehicles sales in US: – 2,434,515
Number of manufacturing plants: – 69
Number of Research and development sites: – 16
Number of employees: – 364,445
An External Analysis of the Automotive Industry:
The recession was the most troublesome period for the automotive industry when some large brands had to be bailed out with government help. However, the industry has recovered a lot since the recession. In US, its sales and revenue have recovered faster. Apart from that, the industry has seen fast recovery in the Chinese market too. By 2020, it is expected that the sales and profits of the automotive brands would have doubled. Several new trends have emerged in the 21st century that are shaping the growth of the automotive industry. Car industry is undergoing a fast transition and its future is going to be shaped by electrical vehicles and autonomous driving. In future the focus will have shifted entirely to the customers and electrical driving and autonomous driving will be the main focus of most of the vehicle brands.
According to a report published by the Euler Hermes Economic Research, the automotive market is going to cross the threshold of 100 million units by 2019. Even in 2019, it is expected that the global sales of automotive will have crossed 98 million units. In China and Russia, the current growth rate is expected to continue and faster recovery is expected in Russia and Brazil. Since the automotive industry is undergoing fast transition, it will be a major challenge before the brands to manage this transition.
Automotive brands will need to continuously invest in new technologies and models including all forms of vehicle from low cost to premium and electrical vehicles to remain competitive. However, the growth of the industry is also being challenged by legal factors. Emission standards and other limitations are also leading to higher production costs for the brands. Simultaneously, the demand for vehicles has also kept growing and is expected to keep growing in the future. The profitability of automotive brands is expected to grow higher because of the rising demand for premium cars and SUVs.
#SWOT ANALYSIS OF TOYOTA MOTORS 2018: –
Brand equity :-
One of the most critical strengths of Toyota is its brand equity. Toyota is a brand that has always focused on winning the consumers’ hearts and trust. In the vehicle industry, trust and a good brand image are more important than everything else. Toyota is one of the most trusted brands in US market. In other corners of the world too, it is trusted by millions. The reason is the brand’s focus on product quality, driver safety and customer service. High brand equity translates into higher customer loyalty and strong reputation. Both of these are good for a brand’s financial performance.
Technological capabilities :-
Toyota’s major strength is its technological capability. The brand has 69 manufacturing plants and companies of which 16 are based in Japan and 24 in rest of Asia. Apart from that it has 16 R&D sites around the world. Its production system also sets it apart from the crowd of brands and has been hailed widely as the best in the entire industry. The Toyota Production System or TPS has been hailed as the most efficient at eliminating wastage. This system is also known as Just in Time or Lean Production system. Toyota has refined this production system over generations which has helped it achieve highest efficiency in terms of production of vehicles and their parts.
Focus on research and innovation:
Toyota has always focused on engineering and innovation. The brand is known for bringing perfectly engineered vehicles. It is focusing on accelerating the development of a nice range of electrified vehicles. Its eyes are set on the mobility of future. The brand is also investing in the development of human centric and safe automated driving technology. In its 2017 Annual Report Toyota Notes, “Toyota has established Toyota Research Institute, Inc., with Dr. Gill Pratt, one of the world’s foremost AI researchers, as its CEO, and set up a related venture capital fund. Through these efforts, we are accelerating initiatives in such areas as automated driving, AI, and robotics” (Toyota Annual report 2017). In this regard, Toyota has also partnered with MIT, University of Michigan and Stanford University to carry out further research on automated driving and robotics. Toyota has taken some smart steps in this area which will prove beneficial for its future. Every year it makes a large financial investment in the area of research and development. In 2017, it invested 1037.5 Billion Yen in R&D.
Supply chain & Distribution Network :-
Toyota has managed a large supply chain and distribution network efficiently. Each of the vehicles Toyota produces is made up of thousands of parts that it sources from suppliers located around the globe. Toyota works in close collaboration with its suppliers and has formed strong and long term relationships with these suppliers to control the costs of production. It has 167 main overseas distributors that distribute its products around the globe. The brand achieved a total sales of 8.9 Million vehicles in 2017. Managing a large and global distribution chain requires close collaboration with dealers and distributors. Toyota has managed this very well with the help of its global manufacturing and distribution network. Its distribution network is divided into eight regions that include North America, Latin America, Asia, Europe, Africa, China, Middle East and Oceania and also acts as the main sales channel for the brand.
Large product portfolio :-
Toyota is a leading producer of vehicles. It has brought a very large range of vehicles to the market. Its product portfolio is diverse as well as large. Toyota produces, sedans, SUVs, sports vehicles, hatchbacks, minivans, station wagon, trucks and buses. Its marine business segment produces excellent boats and sports cruisers as well as other marine vehicles and parts. Toyota also owns Lexus a brand of premium vehicles which has brought a large range of popular premium cars. Apart from these Toyota has brought a nice range of hybrid cars.
Toyota is a truly Global brand. Its products sell across more than 170 countries. Global presence is a major strength which leads to higher sales and revenue. To maintain its global business, Toyota has its manufacturing facilities in several countries around the globe. It also has several R&D sites located around the world.
Product recalls :-
In the recent years, Toyota has made several product recalls. while on the one hand it shows the brand’s concern for quality and driver safety, on the other it can affect the brand’s image negatively. In 2017, it was forced to recall around 2.9 Million vehicles due to faulty airbags. In past, it has made several more recalls.
Weak position in Asian markets :-
In the Asian markets, Toyota’s position compared to its competitors is weaker. The Asian markets are currently the hottest for vehicle brands. Toyota must focus on making its position stronger in India and China.
Falling RoE and RoA:
RoE and Roa of the brand fell in 2017 as compared to last year. After 2012 and 2013, its RoE and RoA had grown consistently. However, in 2017, Toyota’s RoE and RoA fell again. This shows somewhat poor allocation of resources. In 2012 and 2013, the brand’s RoE and RoA were considerably lower and compared to that its current RoE and RoA are still better.
AI & digital technology : –
AI and Digital technology have brought great new opportunities for the vehicle brands in terms of marketing and supply chain management. Toyota can use them to engage its suppliers and customers. It can use AI and digital technology to create superior customer experiences. Apart from that Toyota can use these technologies to keep its customers engaged and drive retention rates higher. AI and digital technology have great applications in the area of HR management too.
Autonomous vehicle technology : –
Autonomous vehicle technology is a hot area for vehicle brands. Around the world brands are in an aggressive race to be the first to bring autonomous vehicles on the roads. Investing in this area can bring great results for Toyota. It is why Toyota has made it a priority. However, several of its competitors are also aggressively chasing this dream.
Asian markets :-
Asian markets are currently the hottest markets for vehicle brands. While China has grown to become the leading vehicle market of the world, India is also growing fast and offers excellent opportunities of growth. Toyota must try to make its position stronger in both these markets. Both are highly attractive markets and currently ruled by Toyota’s competitors. Investing in marketing and customer engagement in these markets will bring superior results.
Toyota is a brand of motorcycles and marine products. Apart from having excellent technologies, the brand is also in a financially strong position. It can invest in new areas and build a more diversified portfolio of products and services. Diversification can open new channels of sales and revenue for the brand. It can help it acquire a larger customer base and expand faster.
Regulatory threats :-
The automotive industry is full of challenges but the biggest challenge currently is the growing pressure of law. Around the world legal authorities have grown highly aggressive in terms of oversight and control of the large businesses. Higher pressure of compliance leads to higher operational costs. Recently, VW got to be on the receiving end as it had to pay Billions for trying to escape emission standards. Legal pressures can makes things double difficult for businesses. On the one hand, brands have to be extra cautious regarding compliance and on the other law can be too restrictive in terms of allowing expansion and growth. Even in the US market, businesses have started complaining of an outdated regulatory model.
Competitive pressure :-
Competition in the automotive industry has grown quite intense. While there are several brands in the market, most of them are aggressive about product innovation, market share and growth. This has led to an intense battle. Competitive pressures lead to higher operational costs as well as higher expenditure on marketing and human resource management.
Growing costs of raw materials and labor :-
The costs of labor and raw material has kept growing. Due to this operational costs in the vehicle industry have kept increasing. This affects the profitability of the automotive brands.
#PESTEL Analysis of TOYOTA Motors:-
The importance of political factors in the automobile industry has grown a lot. It is because around the world governments have become highly aggressive regarding the control and oversight of businesses. The automobile industry is one of the largest global industries that employs millions. The business environment around the world has grown highly regulated leading to severe pressures on large businesses and industries. From trade relations to tax regimes, several things vary between markets. The political environment of the various markets also affects businesses. Political stability in a market leads to economic stability and that leads to higher sales and revenue. Toyota is based in Japan which is generally very stable politically. The company’s sales in Japan have remained high and apart from that in US too. Political stability in a region affects the market’s economic stability. Political instability and chaos can disrupt the supply chain and sales network. This can affect sales and revenue. Political relationships between two nations also affect their trade relationships and in turn their businesses. This is evident in the case of US and China. So, overall the role of political forces in the business industry is somewhere very big.
Economic factors have always played a central role in business. The world economy has been through a recession some years ago. This was the most turbulent period for the automotive industry when several automotive brands were on the verge of bankruptcy. During that period millions of people lost their jobs around the globe which led to lower income and less expenditure on lifestyle items. Now that the recession has passed, the level of employment around the globe has gone up and it has led to people having higher disposable income. This has also led to higher demand of vehicles all around the globe. This demand is expected to rise further in future which is good news for brands like Toyota. Their sales and revenue will keep growing due to rising demand. The global economy is stabler now apart from a few jolts here and there in a few regions.
Social factors have also grown more important in the business industry than ever before. They are affecting demand and sales as well as marketing. Brands now use different sales and marketing strategies for different markets. It so because socio cultural differences affect people’s shopping choices and buying decisions. Not just this but buying patterns too differ from market to market and region to region because of the differences in culture, language and other factors. Moreover, a good social image has become very important for businesses in the twenty first century. A good social image means higher popularity and better sales. Social changes affect taste and purchasing habits of people. Now, the sales of SUVs and electric vehicles have grown which is because of the rise of middle class and the millenial generation. It is why Toyota is investing more in these areas. In terms of marketing, the same strategy does not affect all the societies and cultures. Due to this, large businesses are addressing marketing concerns for various markets and regions using different strategies.
Technology is one of the biggest factors affecting businesses in the 21st century. It is the case in every industry. In the automobile industry particularly, there is a large investment in technology. From manufacturing to supply chain as well as distribution and sales everywhere brands have to invest a lot in technology and maintenance of technological infrastructure. The demand for technologically advanced cars has grown faster. It is why Toyota is investing in areas like Artificial Intelligence, IoT and Robotics. Technology is a source of competitive advantage and also a major differentiator. The more advanced technology a brand has, the larger is its reach and the higher its customer loyalty. Technology like social media and other forms of digital technology is also affecting how brands market themselves.
The role of environmental factors in the automotive industry has also grown. Around the world governments are now more strict about environmental regulations and emission standards. Moreover, in some markets these standards can be stricter than others. One of the leading vehicle makers was caught trying to escape the emission standards in US and was fined heavily in billions. It is why apart from following the mission standards and making low emission vehicles, Toyota is also focusing on making electrical vehicles and hybrids. The brand invests in environment in other ways too. Environmental factors in this way have started playing a major role in business industry. Brands investing in environment enjoy high level popularity and loyalty.
Law has grown one of the most important factors affecting businesses worldwide. Globally, law has grown stricter with regard to control of businesses. The level of pressure that automobile businesses are facing from law can be understood from the severe fines that VW was forced to pay for trying to escape emission standards an year ago. It was made to pay Billions for non compliance. While this has come as a warning for the automobile businesses, it also shows that law has become more of a barrier in the 21st century. Apart from emission standards, product quality, passenger safety, environmental standards and labor area also some areas that require being careful about. Otherwise government agencies are hungrily looking for noncomplying businesses. It is why the international brands like Toyota or VW have dedicated compliance teams that take care of compliance everywhere in the local markets.
#FIVE FORCES ANALYSIS OF TOYOTA MOTORS:
Bargaining power of suppliers:-
The bargaining power of Toyota suppliers is low. It is because while these suppliers are much smaller in size compared to Toyota, they are scattered globally. If they were large companies and irreplaceable, their bargaining power might have been higher. However, these suppliers are scattered globally and also do not hold any significant financial strength. the financial strength and brand image of Toyota are some factors that act to moderate the bargaining power of suppliers. However, Toyota has focused on building long term partnership with its suppliers. It sees its suppliers as partners. Still, it has framed rules related to quality, labor etc that the suppliers must necessarily follow.
Bargaining power of customers:-
The bargaining power of customers in the 21st century is higher. It is because of several reasons. proliferation of the internet technology has brought ease of access and customers have all the information they need to make their buying decisions on their finger tips. Moreover, the size of each purchase in the automobile industry is generally large. It is why apart from an army of sales representatives, brands are also working heavily on providing quality after sales service. Each brand does its best to please its customers and retain them. Some factors that moderate the bargaining power of customers in Toyota’s case are brand image, product quality and marketing.
Threat from substitute products:-
The threat from substitute products in the automobile industry has grown higher. It is because apart from the large number of global car brands, other optional means of transportation pose threat. In the recent years, several ride sharing services have cropped up. While the main threat of substitutes comes from the rival brands, the other government and private means of transformation also act as substitutes. Some factors that moderate this threat are Toyota’s brand image, marketing and rider convenience. The overall threat from substitute products remains moderate.
Threat from new entrants:-
The threat of new players entering the automobile industry is absolutely low. It is because of the high barriers to entry and exit. Apart from a avery large financial investment that is required for erecting a global infrastructure, a new comer would also need to invest in HR management, marketing and supply chain. To build brand equity and acquire a large customer base is also a difficult task that can be made possible either through a ground breaking innovation only or by investing billions. Law also acts as a major barrier in the way of entry for new brands. Moreover, the incumbent brands are quite aggressive about their market share and customer base. Apart from investing aggressively in research and development, they also invest heavily in marketing and promotions. So, all these factors make the market entry of new brands either very difficult or impossible.
Intensity of competitive rivalry:-
The intensity of competitive rivalry in the automobile industry is very high. It is because the number of international players in the industry is high and most of them are financially strong brands. Some factors that leverage Toyota’s position include its brand image, financial strength, engineering and marketing.
#VALUE CHAIN ANALYSIS OF TOYOTA MOTORS:
Each of the Toyota cars is made up of thousands of vehicle parts sourced from suppliers around the globe. Toyota has managed its inbound logistics very well through a network of warehouses. Its global network of distribution centers and warehouses receive parts from the suppliers.
Toyota has parts and logistics centers in various nations around the globe. It ships thousands of parts and orders each day from its network of warehouses and distribution centers. Toyota notes on its website, “The Toyota Parts Centre Europe is its central distribution centre, at the core of its parts supply chain. The centre is located in Belgium and ships thousands of parts every day to its regional depots across the entire region”.
Toyota is a global brand with global operations. With its headquarters in Japan, the brand serves customers across the globe through a large and global distribution network. Apart from several manufacturing and R&D sites, the brand also has several parts distribution centers located globally.
Marketing & sales:
Toyota is a global brand and is facing stiff competition in the 21st century from the other vehicle brands. To retain its market share and customer base, the brand has to make major investments in marketing and promotions. Toyota uses a mix of traditional and modern advertising mediums to promote its brand and products. Apart from its own website and social media, the brand also uses its sales and distribution channel for marketing. Events like races and motor shows are also an important channel of promotion for Toyota. In 2015 and 2016 the brand invested more than 4 Billion US dollars in advertising.
Toyota is a major vehicle brand known for its exceptional engineering and technology. Apart from great production technology, the brand has continued to invest in technological innovation for growth. It has its own research centers and has struck partnerships with institutes like MIT and Stanford for faster innovation. Every year it invests a large sum in R&D for innovation in AI and Robotics.
Toyota has maintained a large infrastructure globally. From its headquarters in Japan to North and South Americas as well as Asia and Europe, it has maintained an extensive presence throughout the globe. Currently led by Akio Toyoda, the brand has an impressive presence in most of the major markets of the world.
Toyota had 364.5K employees in 2017. The brand believes in a human centric approach to value creation and therefore focuses on the development of its human resources. It follows the philosophy of human centered Monozukuri. In the automotive industry, smart and able human capital can be a major source of competitive advantage.
Toyota procures from thousands of suppliers around the world. In 2009, the brand formulated a specific ‘Toyota way of purchasing’ that lays down the policies and principles to be followed by the procurement staff. Through its procurement strategy, Toyota has always worked to contribute to local economies.
#CORE COMPETENCIES OF TOYOTA MOTORS:
Toyota far excels most of its competitors in terms of technological capabilities. The brand has excellent technological capabilities in manufacturing, supply chain as well as sales and service. It is also because of its technology that the brand is so popular in the most advanced markets.
Toyota is a popular brand with some of tis products among the most popular in the advanced and fast growing markets. It has millions of loyal customers around the world. The brand has earned high level customer loyalty through its focus on quality and passenger safety.
Supply chain network:
The brand has managed an excellent supply chain network. It sources from thousands of suppliers from all around the globe. Toyota’s focus has remained on forming strong long term relationships with its suppliers. However, it always keeps its doors open for those who can offer better quality than others.
Toyota is a global brand that has maintained an excellent presence from Europe to Asia and the Americas. Its products sell in more than 170 countries. Apart from that it has an international manufacturing, distribution and sales network.
#VRIO ANALYSIS OF TOYOTA :
Resources and capabilities of Toyota
Technological capabilities : – Toyota has managed excellent technological capabilities. This is a distinct strength in which Toyota outshines most of its competitors.
Supply chain :-
Toyota has an excellent, global and strong supply chain. An integrated supply chain is the backbone of its manufacturing strategy.
HR management :-
In a highly competitive environment, human resources can be a source of competitive advantage. Toyota has focused on creating an environment of inclusion and development of its human resources. It employs around 350 K people as of March 2017.
Global presence :-
Toyota is a global brand with an integrated supply chain, manufacturing and distribution network. Its products sell in more than 170 countries.
Toyota has managed an excellent brand image as a socially responsible and technologically advanced brand. It has always cared for customers’ convenience and built a brand they trust.
#Toyota Motors Key Strategies:
Technological innovation for differentiation:-
The focus of Toyota since its foundation has remained on innovation for making efficient cars. It is why the brand has been abel to establish itself as an innovative brand in several areas. when it comes to making hybrids, Toyota Prius is ahead of all its competitors. In other areas too Toyota has used technology to distinguish itself from the others. It is investing in growing its line of electrified vehicles and being a leader in autonomous driving. Technology based differentiation has helped Toyota achieve a leadership status in the global market.
Waste reduction for excellent production:-
The brand has maintained strong focus on managing efficient production. The Toyota Production System is also referred to as Just in Time or Lean Manufacturing System. It is considered a highly efficient production system that targets complete waste elimination. By reducing wastage, Toyota has been able to control production and operational costs leading to higher profitability.
#FINANCIAL ANALYSIS OF TOYOTA:
Toyota’s financial performance has remained mostly consistent over the past several years. Revenue saw a slight drop in 2017 compared to 2016. Its revenue has seen fast rise in the last six years rising from 18583 Billion Japanese Yen to 27597 Billion Japanese Yen in 2017. Toyota’s revenue was highest in the year 2016 at past 28 thousand Billions. The decline in 2017 was mainly due to the effect of foreign currency exchange rates. Toyota’s ROE on the other hand also took a dip. From 2014 to 2016, its ROE was higher than 14.7% whereas it took a dip in 2017 to 10.6%. This is not very poor compared to the brand’s ROE in 2012 and 2013 at 2.7 and 8.5%. However, it shows that Toyota can allocate resources more efficiently.
- Focus on fast growing Asian markets : The Asian markets are the fastest growing ones in this century. Toyota must retain its focus on the Indian and Chinese markets to find faster growth. These are the markets with highest potential and especially in India Toyota can grow its sales and customer base by investing in marketing.
- Diversify for faster growth: The brand is in a financially strong position and can try diversification into new areas for faster growth. Diversification will open doors to new unexploited markets as well as open new channels of sales and revenue for the brand.
- Invest in marketing and customer engagement :- Toyota must try to drive its customer engagement high through investment in marketing and by using digital channels of customer engagement. AI and digital technology offer new opportunities of marketing and customer engagement. By creating better customer experiences, the brand can drive its retention rate higher.
- Allocate resources efficiently :- Efficient resource allocation is important for creating higher shareholder value. RoE and RoA of the brand have declined sharply in 2017 which shows a need for better resource allocation.
Toyota Annual Report 2017.