Toyota Motor Corporation is well-known Japanese Multinational Corporation.

It is the second largest

manufacturer of automobiles, robots trucks, buses. In addition to manufacturing, the company also
provides financial services to its customers which gives additional profits to Toyota. Toyota is a major
global automobile brand and a main competitor for companies such as Ford, Hyundai & Volkswagen. It is
a globally well known car maker, SUVs and electric vehicles. Toyota has mainly focused on sustainable
growth and the production of electrical vehicles that have a very low impact on the environment. Toyota
Prius is an example of it which uses alternative energy. Those environmental issues also gives another
advantage to that company. North America is the largest market for Toyota, followed by Japan and Asia.
In its industry environment,Toyota Motor Corporation faces the significant effects of the external factors,
which were shown in this Five Forces analysis based on Porter’s model. These external factors and
influence Toyota`s strategic direction. Even with the issues and challenges identified in this Five Forces
analysis, Toyota remains one of the top players in its market and among its competitors. Such success
represents the company’s ability to struggle against the negative forces in its external environment.
Although, as indicated in this Five Forces analysis, Toyota has to continue innovating for competitive
advantage against its competitors.

Toyota’s Five Forces Analysis

Toyota’s Five Forces analysis demonstrates that the most obvious matters are competition and the
bargaining power of consumers, which are the strongest external factors in the automobile industry
environment. The following are the five forces and their intensities which have some effects on Toyota:

1. Competitive rivalry or competition (strong force)

2. Bargaining power of buyers or consumers (strong force)

3. Bargaining power of suppliers (weak force)

4. Threat of substitutes or substitution (moderate force)

5. Threat of new entrants or new entry (weak force)

This Five Forces analysis illustrates that Toyota has to concern ensuring competitive advantage to
withstand the strong force of competition. In addition, Toyota has to make maximum its ability to satisfy
the preferences and future expectations of consumers, who also demonstrates a strong force on the
business and the automotive industry.

Competitive Rivalry or Competition with Toyota (Strong Force)

There is a strong force of competition in automotive industry in which Toyota operates. This factor of
the Five Forces analysis makes known how firms have significant effects on each other. In that case, the
following external factors clearly indicates how strong factor is it:

* Firms` high aggressiveness (strong force)

* Firms` high variety and differentiation (strong force)

* Quantity factor, I mean low number of large firms in industry (moderate force)

In terms of innovation and marketing, automotive firms are aggressive against each other and try to use
these factors for attract customers and increase their market share. Toyota also in a competition with a
large quantity of firms, which attempts to make their products different through cost, electronics, fuel
efficiency, style, brand image, and other variables, which have directs role in people`s mind. Although,
there are many small auto firms, Toyota competes with only a small number of large firms. This part of
Toyota’s Five Forces analysis indicates that the organization must have general strategies to address the
strong force of competitive rivalry.

Bargaining Power of Toyota’s Consumers/Buyers (Again Strong Force)

Toyota’s customers have direct effect on the business which demonstrates its power on revenues. This
factor of the Five Forces analysis shows the influence of consumers on the business of Toyota. The
following external factors are the most important contributors to the strong force or bargaining power of
buyers in the automotive industry environment:

* Lower switching costs (strong force)

* Quality of information which is high (strong force)

* Availability of substitution which is moderate (moderate force)

Lower switching costs mean that consumers can easily alter from Toyota to other competitors at no
extra cost. This alteration ussually occurs when buyers purchase a new car. In addition, Toyota’s buyers
can easily opt their best choice because they an opportunity to find true and accurate information, such
as product information from the websites of companies.With the help of technology they compare prices
and quality, then decide which companies` products are suitable for their needs and preferences.
Although substitutes are available, cars from firms like Toyota are still better in terms of convenience and
safety. In this part of Toyota’s Five Forces analysis, the combined effect of these external factors is the
strong force or bargaining power of customers. Toyota needs to ensure that its products match the
preferences and expectations of its target customers.

Bargaining Power of Toyota’s Suppliers (Weak Force)

Toyota’s suppliers aim to influence the firm to improve their businesses. This component of the Five
Forces analysis reflects the interactions between firms and their suppliers. In Toyota’s case, the following
external factors in the automobile industry environment contribute to the weak force or bargaining
power of suppliers:

* Moderate population of suppliers (moderate force)

* High overall supply (weak force)

* Low forward integration of suppliers (weak force)

The limited population of suppliers around the world creates a moderate force that influences Toyota.
Theoretically, this bargaining power is higher when the suppliers are fewer. However, the high
availability of supply used for manufacturing Toyota’s products weakens suppliers’ power. In addition,
majority of suppliers in the global automotive industry do not have forward integration or ownership and
control of the distribution of materials that reach firms like Toyota. Thus, this part of Toyota’s Five Forces
analysis highlights the company’s relative ease in addressing the weak force or bargaining power of
suppliers.

Threat of Substitutes or Substitution (Moderate Force)

Substitutes affect Toyota’s business by competing with the company’s products. This component of the
Five Forces analysis determines the impact of substitute products. In Toyota’s case, the following
external factors in the automotive industry environment are the main contributors to the moderate
force or threat of substitution:

* Low switching costs (strong force)

* Moderate availability of substitutes (moderate force)

* Low convenience in using substitutes (weak force)

In most cases, it is relatively easy for customers to shift from Toyota to substitutes. These substitutes to
Toyota products include public transportation, bicycles and other modes of transportation. However,
these substitutes are only moderately available. In some areas, substitutes to Toyota’s products are
absent, such as in some suburban areas where public transportation is not readily available. In addition,
these substitutes are usually less convenient than using the products of firms like Toyota. In this part of
Toyota’s Five Forces analysis, the combination of such external factors in the automobile industry creates
the moderate threat of substitution that Toyota must address by making its products more accessible,
affordable and convenient.

Threat of New Entrants or New Entry (Weak Force)

New entrants are potential competitors that threaten Toyota’s business. This component of the Five
Forces analysis shows the potential impact of new entry. In Toyota’s case, the following external factors
in the automotive industry environment contribute to the weak force or threat of new entrants:

* High capital costs (weak force)

* High cost of brand development (weak force)

* High supply chain costs (weak force)

Toyota faces the weak threat of new entry. The high costs of establishing, maintaining and growing a
new firm in the industry are significant entry barriers. These barriers weaken the effects of new entrants
on companies like Toyota. This force is less significant than competition and the bargaining power of
customers on Toyota’s business. Thus, this part of the Five Forces analysis shows that the threat of new
entrants is among the least of Toyota’s concerns in growing its business and maintaining its positions as
one of the top automobile manufacturers in the world.

Toyota Company has claimed that they will setup technology centers which will gear up their global
decision making capabilities. They have faced 8 million orders of new cars per year that’s why they need
a speedy decision making system. They will increase the different center around the world in order to
increase the efficiency of the product and speedy order processing. For this they have decided to build 6
units in North America, 6 in china and 7 units in Europe and many more in other countries.

They are trying to be the world largest cars manufacturing company for this purpose they are decided to
build “Customer first” training center in which they will ensure the quality and quantity of the products.
The head of Toyota Company Akio Toyoda is giving more emphasis on the quality of the product in order
to get more loyalty of the customer. For this purpose he has appointed the five best Chief quality officers
around the world Including, For Europe Didier Leroy, For North America Angelo, For Asia Region Sonoda,
Masahiro Kato is selection for China, and Africa, Latin America and Middle East he has appointed Two
person Katsutada Masumoto and Hisayuki.

The Main emphasis of Toyota Company’s decision is to gain the customer loyalty and trust. That’s why in
their every decision or strategy customer is the main beneficiary person. Recent Credit crunch badly
affected the demand and growth of the Toyota. People purchasing powers are very low in this day that’s
why no one is going to buy new cars. This results a decrease in demand for new cars and eventually it
will result in the reduction in the profit of the company.

TOYOTA PEST ANALYSIS

(P)OLITICAL:

Instability is caused due to fuel efficiency an important decision factor for car buyers, increasing the
chance of the plug-in hybrid. You can see some consumers will buy a hybrid plug-in like a train,
dependence on foreign oil, and one that serves to strengthen the independence of the United States
reduce the purchasing power in relation to the government. The Political instability around the world
due to war and terror is also a big challenge for Toyota Corporation.

(E)CONOMIC:

The Oil prices by the concerns of increasing supply and demand will increase the attractiveness of the
vehicle features such as plug-in hybrids that are less dependent on gasoline. Government increased tax
credits and tax increases for gasoline, the possibility of plug-in hybrids. Global oil consumption has
exceeded global production. India and china are growing at 8-10% per year put an enormous demand for
oil on the world market prices to stay stable.

(S)OCIO-CULTURAL:

Positive factor for Toyota is that it is overall market leader with hybrid technology. Consumers will realize
more their ecological footprint in the upcoming years. The operation of a hybrid is a status symbol in the
young Hollywood.

(T)ECHNOLOGICAL:

Sales of hybrid vehicles will increase the competitive advantage over competitors with the potential
mass market for hybrid technology and has established a strong position to innovate and develop hybrid
platform to ward off competition. Next three years, Toyota and Honda are planning to hybrid power train
to reduce weight by 50%. They also seek; the price of hybrid technology from $ 4,000 to $ 1,900 per
vehicle as much low as possible.

SWOT Analysis on Toyota Motor Corporation

(S)trengths

Toyota is having a very good recognition among 170 countries due to its multinational image.

There is massive growth rate over the year around 29.3% with sales turn over around £131,511 million
during 2009.

Due to its Lean production system which constitute of TQM a JIT Toyota has gained World’s No. 1
Position.

Toyota is considered now one of the world’s large car manufacturers due to entrance in major market of
US, China and EMEA etc.

Toyota is having Research and development center which is ensuring quality and environmental
friendliness of the products. (Toyota Annual Report: 2009)

(W)eakness

Toyota is regarding as foreign imports due to the Japan based company.

Toyota most of manufacturing Units are located in US and Japan only, while its competitors are taking
the advantages of low production cost, cheaper labor and other cheaper management costs.
(O)pportunities

Due to shortage of Oil and increase in oil prices Toyota’s management is looking for other alternatives
like gas-guzzling cars and they are looking for new hybrid gas and electric cars production on mass scale.
(Toyota Annual Report: 2009)

Toyota is looking for cars that can increase performance, fuel efficiency and mainly environmental
friendly.

To develop the car which are controlled through electricity and fulfills the institutional and social
requirements and cost effective for this purpose Toyota has established their Eco-Vehicle Assessment
center. (Toyota Website)

Now they are looking for big countries for the expansion purpose like Brazil, India, Pakistan, China and
Russia.

(T)hreats

Competitive pressure is increased due to increase in Research and Development and belligerent
marketing campaigns.

Increase in the prices of raw materials.

Decrease in the demand of new cars due to the recent recession around the globe. Purchasing power of
the people is almost down to earth.

To cater the need of larger family units who demand for larger cars. (Demographic Factor Website)

In western countries there is large trend of using public transport instead of their own vehicles, this will
eventually decrease the demand for new cars. (Market Research website)

Nowadays people are more contented to send their child through school or college busses instead of
their own cars.

Automotive Industry Cost Structure Benchmark Purchases (70.7%), wages (6.3%), depreciation (6.0%),
rent & utilities (1.7%), other (10.4%), profit (4.9%)

Automotive Industry Competitive Landscape Market share concentration in the industry is low. The
industry is deemed to have a low level of concentration, and the largest four automakers are estimated
to account for about one-third of global revenue.

Major Companies in the Automotive Industry Toyota (10.2%), Volkswagen (9.6%), General Motors
(6.9%), Ford (5.6%), Others (67.7%)

Competitive Analysis

Key Successes in its competitive analysis:

  Flexibility in determining expenditure: Controlling employee-related costs, such as health and pension
costs, makes manufacturers in the developed world more competitive. Analysis of Toyota Motor
Corporation by Thembani Nkomo

 Establishment of export markets: Development of export markets helps negate any downturns in
domestic markets.

 Use of most efficient work practices: Good industrial relations through a motivated workforce assist in
minimizing industrial disputes.

 Effective cost controls: A close relationship with suppliers and good distribution channels assist
controlling costs.

 Access to the latest available and most efficient technology and techniques: The industry is highly
competitive, so enterprises need a technology-enabled competitive edge.

 Optimum capacity utilization: Excessively high plant utilization is required for success in any modern
automobile and light-duty motor vehicle manufacturing plant.

Toyota faces fierce competition from all angles, and is facing a very tough
market from other Japanese, American, South Korean and German auto
manufacturers. Toyota is working hard to set itself apart from the competition
in more than one way, however. Since Toyota products have a reputation for
reliability, the resale value of their vehicles tends to be much higher than many
other producers.  The most serious threat to Toyota is widely considered to be
Honda Motor company. However, Toyota has done some substantial work on
their products and price points to stay competitive against Honda. Below are
some comparisons between Honda and Toyota products, and the price points
for a base product, and fully loaded.

Toyota - Toyota - Honda - Honda -

Category Toyota Stripped Loaded   Honda Stripped loaded
Small Car Corolla 13330 18880   Civic 13010
Family Sedan Camry 18970 25405   Accord 15880
mini-SUV RAV-4 18975 24287   CR-V 17110
mini-van Sienna 28012 36250   Odyssey 24440
 

Consistently, Honda seems to match Toyota on the lower levels of price, but
on higher priced an equipped models, the prices on Honda vehicles seem to
be substantially higher than on comparable Toyota products. This would seem
to favor Toyota, giving them a better image of Value and a better price on the
same top quality merchandise.
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TAGS: AUTOMOBILE INDUSTRY, AUTOMOTIVE INDUSTRY, CASE STUDY & CASE ANALYSIS, PORTER'S FIVE
FORCES ANALYSIS, TOYOTA

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