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Environmental Analysis of Toyota

Paper Type: Free Essay Subject: Marketing
Wordcount: 3454 words Published: 1st May 2017

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Toyota – Environmental Analysis

1. Toyota – A Brief Introduction

Toyota is one of the world’s most popular car manufacturers, being known for its unique quality products. Launched in Japan, it is now known worldwide, having 52 manufacturing companies in 27 countries and regions excluding Japan and 170 countries as markets for its vehicles (Toyota 2010).

2. Nature of the Business

2.1. Historical Overview

Toyota started as a part of the Toyoda Automatic Loom Works in 1933 and was under the direction of the founder’s son, Kiichiro Toyoda. Nowadays, Toyota is best known for its cars, although the company was mainly specializing in manufacturing looms. The Toyoda Automatic Loom Works still exists and their products are available worldwide. Toyota Motor Co. was separated from the Toyoda Automatic Loom Works in 1937 and it became an independent company. The name Toyota was chosen to show a separation from the home life to the work life of the founders. Being on the edge of bankruptcy in 1949 was not an impediment for Toyota. Even if Toyota has struggled, it managed to revive during the Korean War when 5000 cars were ordered by the US army. Toyota started to expand in 1960 through research and development and it managed to establish a worldwide presence.

2.2. Current Stage

Toyota’s success comes from its planning and execution systems. Their management system keeps Toyota competitive year after year. Toyota has been a quality leader for more than two decades, as well as Honda. Toyota slipped when competitors matched its quality or even surpassed it. In the position of a leader based on quality, Toyota faced some issues that made it slip. These issues are: the fact that the company was sure about the success it has being a quality leader made the company stop from the continuous improvement of quality process and the fact that they thought that it will take long enough for other companies to match their quality standards.

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Although it seems that the company has solved their quality issues, the criteria of choosing a car will be based on styling, ride, handling and cabin design rather than quality. It is well known that Toyota’s value proposition was based on quality and reliability. The challenge that Toyota faces is that it has already set standards for quality and reliability and forced competitors to catch up, but now it has to set new standards in other areas such as innovation, design and customer engagement in order to remain a market leader.

In order to satisfy customer’s requirements and to be a market leader, Toyota has set several objectives, such as: improve quality, enhance efficiency, minimize cost and increase productivity. The company believes that satisfied and quality-driven staff can provide quality products and that is why Toyota focuses on the human resources department in order to provide efficiency and quality.

The current stage of Toyota is that of a leading motor company which offers a wide range of products from mini vehicles to trucks. The company has dealerships and manufacturing plants all over the world. The fact that Toyota puts the customer first provided the company the possibility of growth and also the possibility of increasing the market share. Their vision is about a sustainable future with new petrol and diesel engines.

The challenge that represents the global warming and urban pollution made Toyota try to develop new and innovative environmental technologies and vehicles. Due to this, Toyota is well known for being the first motor company that produced a hybrid car. Another innovation of Toyota was the Toyota D-CAT (Diesel-Clean Advanced Technology) concept. This last innovation was created in order to reduce the diesel emissions. Toyota is a company that is environmentally-driven and it sustains the “zero-emissions” concept.

The “Customer First” concept is used by Toyota. Their priority is to achieve maximum customer satisfaction, through providing trust and loyalty. In their opinion only satisfied customers are likely to be loyal. Customer experience is taken into consideration in every step of the buying process, from the design and production to sale and after-sale. Toyota wants to be sure that customers are positive of their experience with them. Its reputation for quality, durability and reliability is a way of increasing brand awareness and satisfy potential customers.

2.3. Organisation – An Internal View

As a global company, the organisational structure of the company is hierarchical. As mentioned above, Toyota relies on its employees in order to achieve success. According to Toyota (2010), the company encourages diversity, having a business partnership – Toyota Business Partnering Group, with different participants to the project: African American Collaborative, Diversity in Motion, GALA (Gay and Lesbian (Bisexual, Transgender & Friends) Alliance), Toyota Christian Fellowship, Toyota Asian American Society in Alliance (TAASiA) and so on. Also, innovation is another important for the company, as the company relies on its new technology and originality.

2.4. Future Performance

As the company relies on producing environmentally friendly cars, their future products (such as Fuel Cell-Hybrid Vehicle and FT-EV Concept Vehicle) are also considered to be eco-friendly and have low consumption (Toyota 2010). According to the same source, by the year 2015, Toyota would have launched all plug-in hybrids, hydrogen fuel cell hybrids, electric vehicles and natural gas hybrids.

3. Strategic Models of Environmental Analysis

3.1. PESTEL Analysis

Being one of the most used frameworks for environmental analysis of companies, PESTEL gives an in-depth view of the most important factors, which can affect Toyota both externally and internally, from the outside to the inside of the company.

Political: The supply chain is highly important for Toyota, because it has plants all over the world, manufacturing and delivering globally. When having this pricing strategy (for example, Toyota manufactures most of the cars in Japan because of the low costs involved), there are political factors which must be taken into account. Political instabilities may affect the supply process, especially the distribution. Also, political decisions such as increasing taxes, inflation, regulations affect the company and its chain of distribution worldwide.

Economic: According to Hirotaka et. al (2008), Toyota has an ‘unorthodox’ manufacturing system. Namely, low cost production in Japanese plants enables the company to develop and grow new technologies quickly.

However, despite of the low costs of manufacturing, by being a global brand, there are some disadvantages that affect the company. Aspects like currency exchange, interest losses, exchange rates fluctuations, can have a significant impact over the company and its profit. For example, nowadays, when the economic recession has affected all markets, global companies have suffered the most because of the exchange losses and the depreciation of currencies.

Socio-cultural: This factor has a significant influence over the company and its marketing strategy. Specifically, all Toyota’s marketing campaigns focus on the brand’s commitment to quality and it uses soft selling in order to create a strong connection between the brand and the audience watching the adverts (such as My Toyota – Youtube 2010).

Also, to be in trends and encourage car purchase, Toyota focuses on environmentally trendy cars, such as the electric ones (for example, Toyota Prius). Also, they target various market segments and try to be perceived as a cosmopolitan brand, which can satisfy anyone’s needs.

According to Mintel Group (2010), in the decision making processes, consumers now evaluate several aspects, such as fuel consumption, carbon emissions and noise pollution. In order to fulfil these wants, Toyota focuses on innovation and markets its cars as eco-friendly, with low consumption and less carbon emissions than regular cars. Also, in order to create a competitive advantage and a unique selling point, the company now offers a five year warranty for customers that choose to purchase a Toyota (Toyota 2010).

Technological: Research and investment on innovation – as seen on their website (Toyota 2010), they rely on the innovative aspect and use it for marketing purposes as well. Also, according to Jim Lentz, president and chief operating officer of Toyota Motor Sales, U.S.A., the company’s main headquarter is in Japan because it gives its researchers the chance to review all technologies (Taylor 2010).

Environmental: According to Toyota (2010), the company is an environmental leader and produces innovative products, with low fuel consumption, which fulfil the current environmental trends. An example of a product launched by the company that fulfils this fashion is the hybrid car Toyota Prius. The company also develops other products according to this trend, such as Camry Hybrid and Highlander Hybrid (Toyota 2010).

Also, in order to show its customers that the brand follows this concept of being eco-friendly, the company updates regular environmental reviews on the website and environment reports (Toyota 2010). Also, Toyota’s marketing campaign focuses significantly on the environmental aspect, showing that the company is making major efforts not to pollute the environment.

Legal: Headquartered in Japan but expanded worldwide, Toyota needs to take into account laws and regulations for each country. The company and its success can be affected by legal aspects, such as government taxes, vehicle safety and emission levels regulations. Also, other regulations such as employment policies or health and safety are highly important. In order to create a positive image, the legal factors must be closely analysed. By not accomplishing this, the company risks to create a negative image among the customers, fact which is likely to decrease its sales.

3.2. Porter’s Diamond Model

Developed by Professor Michael Porter at Harvard business school in 1990, the diamond model focuses on the position of a nation in a worldwide competition. It allows managers to disclose factors that can be strategically utilized as benefits to support globalisation. There are four main components forming the Diamond model:

Factor endowment: Effective production is enhanced by factors establishing the ease and application of production. There are basic factors such as land labour, climate location and demographics; however, Porter insists that these are only supportive to more advanced factor endowments like skilled labour, communication infrastructure and research and development.

Demand conditions: This strictly relates to home demand, it focuses on the nature of that demand, how much sales a country makes, how often do the sales vary, how often do trends change how often does customer preferences change. Supply and production in the country are also catalyst to demand conditions.

Firm strategy, structure and rivalry: Porter suggests that strategy, structure and rivalry trends have an impact on how firms perform internationally for example a country which encourages domestic rivalry is more like to compete effectively against other countries.

Related/support industries: This model suggests that the ease of access to raw materials influences how a country competes internationally. Porter suggests that united related industries benefit a nation globally. For example the more holidays sold, the more tourists are available for entertainment. Therefore if the Air services, Resorts and Casinos industries share information and work together their ability to compete against other countries is likely to be higher than those countries that operate differently.

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As a well-known country for its technological development, Japan is continuously developing and innovating. Experts are a significant input to quality products and services and although this highly benefits their manufacturing industries, Japan seems to be lacking skilled workers. It may not directly affect the manufacturing industries, but if supporting and related industries are affected by this it may cause a domino effect. As a highly interested country in research and development, whose success increases because of constant innovations and concepts, Japan has initiated several global brands, such as Toyota, Honda, Sony, Canon, Nintendo, Panasonic and Nissan.

3.3. SWOT Analysis

As a global company, Toyota benefits of a vast market, existing clientele and numerous resources. Therefore, it is a strong brand, with infinite opportunities. However, there are factors which might affect Toyota negatively; therefore, a SWOT Analysis must be conducted, in order to identify and analyse possible Strengths, Weaknesses, Opportunities and Threats.

Strengths: Existing key player in the automotive market; therefore, Toyota is perceived as a trustworthy and reliable brand. This also eases launches of new products, as the introduction stage can be easily covered by the brand’s popularity. Another strength is that car parts can be easily found and they are affordable. Being a strong company financially, Toyota can afford great training opportunities and skilled employees. Also, this financial stability enables the company to do research on innovation and maintain its role of key player in the industry.

Weaknesses: Even though they are new and unique, electric cars do not offer very practical uses apart from the consumption, having the constant need of recharging. Also, being a big company implies several levels of communication within the organisation and it might not always be efficient. Also, it is difficult for the company to launch new plants and establish higher levels of innovation, as the costs of building, research and production are high.

Opportunities: Being a global brand, Toyota can explore the low manufacturing costs and expand its market without opening new plants. Another opportunity is given by the fact that it can encourage sales through discounts for big purchases; improve its rate payment purchase, offer free services with the purchase of a car (free servicing, upgrade, warranty). Also, as the markets and consumers’ expectations are continuously changing, the company can explore new trends and launch new products. Also, as the eco-friendliness is very popular and the company has already created a name for this, Toyota can explore this potential through its unique and innovative products.

Threats: Competitors represent a significant threat, as aggressive strategies can make companies such as Honda to gain market share. Also, as mentioned above, needs and wants of consumers are continuously changing and the company might not always act according to these needs. Also, by offering free services, the company risks to lose profit; reconditioning of cars must also be considered, as it implies costs from the company. Furthermore, the current financial climate is still unstable and it is risky for the company to adopt new strategies. The economic recession also influences currencies, inflation, taxes, and it must be considered.

3.4. Strategic Options – Porter’s Generic Strategy

According to Michael Porter, the strength of an organisation falls on their primary and secondary determinant. The primary determinant of an organisation is represented by profitability, while the secondary determinant is the position within the industry (commonly known as Porter’s Generic Strategy

In order for an organisation such as Toyota to obtain strength within the industry and create a competitive advantage, Porter suggests that the cost advantage, differentiation, focus and hybrid need to be considered.

Cost advantage strategy is described as the understanding of an organisation of its position within the industry and which tries to set itself apart by being the less or most expensive product or service provided. The application of cost advantage is done through Toyota differentiating with elegance and class by using low cost procedures in the car manufacturing industry. However, Toyota designs car for different segments; thus appealing to all market segment (Macmillan and Tampoe 2000).

In addition, Toyota can shape the competition in the car manufacturing industry by applying Porter’s suggestion on bargaining power of buyer with the relations of cost advantage, as the company’s main goal is to create affordable cars with quality, style and providing protection. Hooley et al. (2008) argue that consumers can have a massive impact within the car manufacturing industry, with major competitors that can provide similar product to that of Toyota. Therefore, in forcing pressure that can affect the degree of competition within the industry as there are alternative source of car manufacturers for consumers to purchase from. It is for this reason that Toyota has to maintain their standard of production to avoid the loss of current and potential consumers. This approach can improve the brand image of the company, whilst increasing their sales.

Porter’s argument on differentiation strategy explains how a company such as Toyota can set itself apart from the rest of their competitors, through their product and service in which they offer. Toyota needs to have a strong creative department that is attentive to changes in the world. Firstly, this department would need to consider the economical, technological and financial changes in order to stay loyal to their customers. In the technological aspect Toyota needs to include features that can persuade customers to purchase their car, by manufacturing cars that has superior features in comparison to their competitors and it could be on the basis of the design, performance and quality of the cars.

Secondly, Toyota needs to provide a superior after sales service and efficient distribution channels as the perception of customer can determine the turnover of the company. Thus, having knowledge on the economic conditions of different countries in which they are based in would be an advantage for the company. Toyota’s marketing department must ensure that the company’s brand name is distinguished through their advertising, design and innovation (Macmillan and Tampoe 2000).

Focus strategy is the combination of both cost focus and differentiation focus strategies. However, focus strategy only target specific consumer in the market instead of the whole market. This will allow a company such as Toyota to focus on a particular market segment, such as manufacturing cars to suit people in the city. This target market would like to have high performance cars which are also reliable and would take them to their destination. While customers who seeks for adventures would like high performance car, that can survive in different conditions and some customer would just like a car that is comfortable Macmillan and Tampoe (2000). Toyota can achieve this by carefully choosing and controlling their suppliers to enable them in adapting a lean production and low service costs from quality product.

Toyota focuses their operation on hybrid strategy. This strategy is an optimal balance between price and value. As Toyota may choose to focus on price, appealing to customer who are price conscious or focus on providing quality car that is luxurious appealing to customers who want the best. Hybrid strategy allows Toyota to apply both cost and differentiation. It is therefore a combination of both differentiation, price and cost control as it is suitable for the position in which they are at in the car manufacturing industry. Therefore, Toyota operates with this strategy which is low cost production on cars which are differentiated on the basis of their quality and reliability (Macmillan and Tampoe 2000).

4. Conclusion

In conclusion, Toyota is a quality leader in the automobile industry and is a global company. It has a great opportunity to grow but also it faces some threats although it has a reputation for quality, durability and reliability, and that is why the company needs to adopt new strategic options in order to keep its status as a market leader.


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