Toyota has a very distinctive competence in its production system also known as the “Toyota Production System”. Sometimes referred to as the “Lean Manufacturing System” or the Just in time method. Vehicles are produced in the quickest most efficient manner without the compromise of quality.
Toyota is 6th in the Fortune Global 500 based on revenues, they are generating the most revenues in the automotive industry.As of the first quarter of 2018 Toyota has a market share of 13.52% in North America 5.54% in Europe, 6.97% in the Asian Pacific, 10.71% in Latin America and significant share in Africa and Middle East regions. This strong market position gives Toyota a significant competitive advantage and allows them to generate more sales year on year and also plays a role in making them one of the more recognizable brands worldwide.
Toyota has been named the “World’s Most Admired” company for four years in a row according to surveys done. They were ranked number one in nearly every key attribute of reputation.
In their continuous effort to stay ahead in the automotive industry and to advance it’s designs and developments of new products and to make advancements in the area of robotics and Artificial Intelligence, Toyota has made investments of about $9.6 billion in the 2017 financial year
Recently Toyota has been faced with scandals that could adversely affect their brand and image. The company has had to recall 2.9 million vehicles in Japan, China, Oceania and other regions. This was as a result of faulty airbags. This comes after recalls in 1989 and 2009.
As a result of the company’s growth and expansion they have become more secretive with information. This has led to a more centralized, rigid corporate culture and a hierarchy of seniority which has resulted in delayed responses to issues that are raised. The board of directors consists of 29 Japanese men and all the major decisions are made in the headquarters in Japan without any communication between individual business units.
Toyota has seen a decline in sales in the U.S. of its passenger vehicles. More sales are being generated for light trucks and SUVs but Toyota has a heavy dependence on its passenger vehicles.
For the FY2018 Toyota has generated a return on equity (ROE) and return on assets (ROA) on a 5 year average of 13.1 % and 4.14% respectively. Compared to the industry has 15.78% and 7.26% it serves to show that the company has issues in turning its assets into profits for shareholders.
Although there has been an overall cool down of automotive demand there is still growth that can be captured from emerging market to a lesser extent the US , Japan, South Korea and Europe where growth is expected to be stagnant.
Environmental concerns which have resulted in policies put in place for producers to reduce carbon emissions and high gas prices have driven prices up on cars. There is an increasing demand for smaller cars with good fuel economy.
The weak Japanese Yen to the US dollar will create more exports of automobiles manufactured in Japan.
Consumers’ interest in advanced technologies has increased significantly and surveys show that consumers on average are willing to pay more for vehicles that possess these features.
The trade deficit that the US has with Japan has caused great concerns for the American who has threatened to impose tariffs on Japanese exports including automotive exports.
The automotive industry is very cut throat with very intense competition that Toyota faces from various automotive manufacturers who continue to increase their presence in foreign markets. This competition poses a threat to Toyota’s established brand as the company could lose markets share and could see a decline in sales as a result.
Japanese companies face an increasing vulnerability to supply chain disruptions due to natural disasters. These disasters have a direct effect on output due to damages to factories.
Porters 5 Forces:
Threat of new entry
Large amounts of capital required to purchase manufacturing parts, raw materials and to train and hire employees
There would likely be a heavy response from existing manufacturers if a new entrant comes in with new innovative ideas, these new companies would eventually get bought out by one of the more established companies
There are a few legal barriers to protect existing manufacturers from new entrants, governments usually introduce import taxes to protect local producers from foreign completion
Existing manufacturers have established brands and images it is costly to set up a strong brand that can be in comparison with that of Toyota, General Motors and Volkswagen
There is a high cost of running normal business operations and continuously being competitive with innovative ideas, research and development costs are usually high
Companies in the automotive industry normally have to mass produce in order to make cars cheap and affordable for customers, for new companies entering the industry this would be difficult to achieve
New entrants will not have access to adequate distribution channels
Power of suppliers
There is a relatively high availability of suppliers in the industry
The suppliers in the industry do not have ownership of the materials that reach firms like Toyota, Ford or General Motors
Only few of the suppliers are significant in size, more of them are relatively small
The automotive brands in the industry hold immense power in the sense that raw materials are readily available and it is not difficult to switch from one brand to the other
Although manufacturers can easily switch from one supplier to another switching costs are high due to the fact that establishing part designs and specifications requires a high initial investment
Power of buyers
Most of the buyers are individual buyers and buy single vehicles, there are some government agencies and business corporations that buy vehicles in bulk and can bargain for lower prices
There are low switching costs for consumers they can easily switch from Toyota to another competing firm
Buyers have access to accurate information on the vehicles because product information is readily available, buyers will opt for the best option
Buyers will often look for the best vehicle at the most competitive price, they will always choose the cheapest vehicle
These factors don’t affect the backward integration of the manufactures, their hand is not forced to purchase the supply chain in order to control costs
Threat of substitutes
With fuel prices increasing some consumers would opt to use public transport instead of their personal vehicle which is readily available in some places but not in others
The only threat however to using motor vehicles is the large scale transportation that is provided by railways, given this fact people are still more reliant on motor vehicles
The substitute forms of transportation rarely offer the same type of convenience
Cost wise these substitutes cost less and are more environmentally friendly
The automotive industry is large and has matured (growth is flat), there is a reasonable amount of competitors
Firms in the industry compete on price and non-price dimensions such as fuel efficiency, brand and style
Firms are very aggressive against each other in terms of innovation and marketing
Firms differ in size there are many small automotive manufacturers Toyota competes with a few large firms
Customers are usually loyal to their selected brand