Post on 28-Jan-2016
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UNIVERSITY OF BRADFORD
in collaboration with MANAGEMENT DEVELOPMENT INSTITUTE
OF SINGAPORE
Bachelor Of Science (Hons) In International Business And Management
Applied Strategic Management
TOYOTA MOTOR COMPANY
(Japan)
Done by: Olesya Glukhova
2009
a
Assessment of the Strategic Management Models
Strategic Management helps to identify long-term targets by scanning operating
environments, evaluating organizational structures and resources, and matching these
resources to the challenges a firm faces.
Scanning of the environment been performed with the help of the Strategic
Management Models, such as PESTEL, Industry Life Cycle and Porter’s Five Forces.
PESTEL analysis based on the historical data, and can be used for forecasting. PESTEL
analysis assesses political, economical, socio-cultural, technological, ecological and
legal aspects of the environment. One or more factors will be dominant and impose
more pressure on a firm, thus must be assessed in depth.
Industry Life Cycle helps analyze the general industry condition. At different stages in
the ILC, different opportunities and key success factors are suggested. ILC shows the
general direction of the industry in which a firm is competing and providing guidance
on for strategy planning.
Porter’s Five Forces have been used to evaluate entry barriers, suppliers, customers,
substitute products and industry rivalry. These five competitive forces influence
profitability and stability of a firm. The better a firm can balance them; the stronger will
be the position of a firm within an industry.
All models in Macro-environmental analysis help to identify threats and opportunities
that company is currently facing or may encounter in future. When identified, a firm
must focus on reducing the threats and exploring the opportunities.
Assessment of internal Toyota’s resources had been performed based on Barney and
Hall frameworks. All resources of a firm providing some capabilities and if these
capabilities can be better than competitors’ they may bring core competencies and
b
competitive advantage. Toyota’s resources were critically examined and the conclusion
been drawn that Toyota has strong competitive advantage in an automobile industry.
Macro and Micro environmental analysis made it possible to identify a Toyota’s
position in the market. SWOT Analysis Matrix and The Grand Strategy Matrix were
used to recommend possible future strategy for Toyota. The models provide options for
possible future strategies based environmental factors and internal firm’s strength. Both
of the matrixes provided several options; other Strategic Management tools were used
for selection of the best strategic option. Selection has been done based on feasibility,
sustainability and attractiveness of the proposed strategies.
The selected option further been analyzed using McKinsey’s 7S framework to identify
gaps and corrective actions to be taken for new strategy implementation
Lastly, for successful implementation of the proposed strategy, the Balanced Scorecard
had been used to translate the new strategy to all Toyota’s stakeholders and the detailed
plan been developed with list of activities with allocation of timeframe for each.
Strategic Management Models been used as a base for the project. This makes it
possible to understand Toyota’s present situation and propose future strategy for
growth.
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The Purpose of this Project is to analyze Toyota’s competitiveness within the
automobile industry and propose a strategy that will consolidate its position as the
market leader & ensure sustained future growth.
Findings of the project
1. The External environment in 2009, present two major Threats for Toyota. One
is the Economic crisis 2008/2009 which resulted in sales slump and
overcapacity. Another threat is the increased competition within the automobile
industry. Details can be found in chapter four.
2. Internal analysis of Toyota shows that the company has a strong competitive
position and has resources to fight the battle. Details can be found in chapter
five.
A summary of the key Findings are presented in SWOT the analysis matrix, Figure 1
and details and comments can be found in chapter six.
Figure 1: SWOT Analysis
Opportunity Threats New product development Market penetration New markets exploration
Economic cycle downturn Increased pressure from competitors
Strengths Weaknesses Market dominance Economies of scale Core strengths Management skills Innovation processes Product quality
Products not highly differentiated High fixed costs
Source: Adapted from Pearce et. al. (2007), created by Olesya Glukhova (2009)
Recommendation
Bases on the findings, this project recommends a Joint Venture with an established
Chinese auto manufacturer. This will ensure sustained future growth and an increase of
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market share. India and China are the fast growth markets with excellent potential.
Toyota already has established manufacturing chain in India and is developing it
further. China is the next market that Toyota’s rivals are targeting now. To penetrate
into China and obtain significant market share, Toyota needs to tie-up with a partner
that already has a substantial customer database and infrastructure in all the main
provinces. Detailed plans on implementing the proposed strategy are drawn in chapter
seven. The proposed total time for selection and evaluation of the strategic partner is
approximately three month. The proposed total time for implementation process,
including resource allocation, budgeting and training is six month. The proposed total
timeframe targeted for the complete process of integration is eighteen month.
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Chapter 1: Introduction
1.1 Name of the Company and Corporate Profile
Toyota Motor Corporation founded in 1937 in Japan.
Toyota operates primarily in automotive business including design, manufacturing and
retail. It has assembly plants and distributors in many foreign countries, and it owns
subsidiaries that produce cars and car parts, trucks, steel, synthetic resins, and industrial
equipment. Its group includes Toyota, Lexus, Daihatsu and Hino brands. Over the years
Toyota has expanded its business profile to other fields of business such as housing,
financing, communications, marine, biotechnology, and others. Full Toyota corporation
profile can be seen in Figure 1.1
Figure 1.1: Toyota Motor Corporation Profile
Source: From Toyota Motor Corp. website (2009)
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1.2 Nature of Industry and Products
1.2.1 Nature of Industry
Automobile industry is complex and challenging, especially today, as it faces many
issues: plunging sales, frozen credit markets, global competition, increased gasoline
price and most recent demand to move towards “green”.
Toyota is the world’s leader in an automobile industry. Almost half of its sales Toyota
gained from Asia region, Japan domestic market contribute 36.4% to total sales in fiscal
2009 year (Toyota Annual Report 2009).
For the first time in 70 years of operation, Toyota incurred losses of USD $4,500
million and negative growth of -20.4% in fiscal 2009 (Toyota Annual Report 2009).
Toyota is coping with these challenges, through innovation and adapting fast to the
changing scenario and has raised its market share in Japanese market to 50% in Oct
2009 (Business Week, 01 Nov).
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1.2.2 Products
Toyota Motor Corporation (Japan) is manufacturing sedan cars, SUV, MPV, trucks and
hybrid models. Toyota’s wide product range can be found in Figure 1.2.
Figure 1.2: Toyota Products
Allion Alphard Auris Avanza Aygo
bB Belta/Vios Caldina Camry/CamryHybrid
Century
Coaster Corolla Corolla Axio Corolla Fielder Corolla Rumion / Scion xB
Corolla Spacio Corolla Verso Crown Athlete Crown Hybrid Crown Majesta
Crown Royal Dyna Estima / Previa FJ Cruiser Harrier / Harrier Hybrid
Hiace Highlander /Highlander Hybrid
Hilux Surf / 4Runner
Ipsum Isis Source: Modified from Toyota Motor Corp website by Olesya Glukhova (2009)
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Figure 1.2: Toyota Products (continued)
ist / Scion xD Kluger / KlugerHybrid
Land Cruiser 70 Land Cruiser 200 Land Cruiser Cygnus
Land Cruiser Prado Liteace Mark X / Reiz Mark X Zio Mark II Blit
MR-S Noah Passo Premio Prius
Probox Progrès Ractis Raum RAV 4
Regius Ace Rush Scion tC Sienta Succeed
Townace Toyoace Vitz / Yaris Voxy WISH Source: Modified from Toyota Motor Corp website by Olesya Glukhova (2009)
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1.3 Processes and Technologies Involved
1.3.1 Processes
Toyota processes include: Technology development, Product design, Manufacturing,
Marketing, Distribution, and Service.
1.3.2 Technologies
Toyota is constantly developing new processes and technologies in car manufacturing
and servicing. Toyota Corporation technological set can be found in Table 1.1.
Table 1.1: Toyota’s Technological Set
Environmental Technology
focuses on development and production of eco-friendly cars such as hybrid and electric
models as well as reduction and recycles waste during manufacturing process.
Safety Technology
is one of the competitive factors and Toyota’s ambition is to develop world leading
safety technologies in automobile industry.
ITS Technology
strives to combine automobiles with social infrastructures in a ubiquitous-network
society
Personal Mobility Technology
is a development of new, future technologies, some of the products been displayed in
the exhibitions, based on the theme “The Dream, Joy and Inspiration of Mobility in the
21st Century”
Robot Technology
is highly used in automobile manufacturing.
Source: Adapted from Toyota Motor Corp. website, created by Olesya Glukhova (2009)
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1.4 Competitors, Suppliers and Customers:
1.4.1 Competitors
Toyota is a market leader. Currently Toyota has the dominating market share with 50%,
followed by Honda and Nissan. They are the Japanese Big Three Automakers. Figure
1.3 briefly describes Toyota’s competitors in the local Japanese market.
Figure 1.3: Competition Overview
Company name Key corporate factors
Honda Motor Company
Japan’s number two automaker and the world’s
biggest motorcycle producer. Large portion of
sales comes from automobiles that sold outside of
Japan. Honda has two manufacturing plants in
Japan producing SUVs, trucks, Crossovers, Vans
and energy efficient hybrids.
Nissan Motor Company
Following Toyota and Honda, Nissan is on the
third place in automobile industry in Japan.
Nissan has sixteen production plants in Japan and
manufacturing vide range of cars, trucks, SUVs,
crossovers and hybrids
Source: Adapted from Honda and Nissan corporate websites, created by Olesya
Glukhova (2009)
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1.4.2 Suppliers
Toyota has its own network of suppliers for various automobile parts. Toyota is
concentrating only on the development of the main components such as the engine and
new technologies in design and manufacturing. Some of the Toyota’s suppliers and
their general information are represented in Figure 1.4.
Figure 1.4: Suppliers Overview
Company name Parts supplied and general information
Yokohama
Tyres
One of the leading Japanese manufacturers of
tires for high performance, SUV, Light truck,
OTR and passenger cars. Operating worldwide.
Koito Manufacturing
Company
Headlamps
The Koito Group specializes in manufacturing
lighting equipment and electrical goods and has
10 production facilities in 9 countries.
Denso Corporation
Auto parts
Denso, a leading supplier of advanced automotive
technology, systems and components for all the
world's major automakers, operates in 32
countries
Aisin Seiki Company
Transmission
Aisin Group offers a wide range of products
covering almost every automobile-related field,
including drive train, body, brake & chassis,
engine and information related products
Source: Adapted from respective companies websites, created by Olesya Glukhova
(2009)
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1.4.3 Customers
Toyota’s customers are medium income group of people that values quality and
reliability. Toyota manufactures cars for family usage – MPVs, office and individual
usage – sedans and those who like off roads trips usage – SUV, 4 wheel drives.
High income group addressed by Lexus product line and is not covered in this project.
1.5 Project Objective
Project objective is to propose a strategy to sustain Toyota’s Competitive Advantages
and Market Leadership in automobile business in Japan.
1.6 Scope of the Project
This project will be covering only Toyota Motor Corporation Japan and Toyota’s
automobile brand line only.
1.7 Project Title
The project title is “Sustaining Toyota’s competitive advantages in Japan’s automobile
industry”
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Chapter 2 – Methodology
2.1 The Approach
This project follows Lynch’s (2006), the prescriptive approach in developing a business
strategy. Three phases are developed and sequentially connected. Project starts with
Strategic Analyses, which include Macro and Micro environmental analysis and
assessment of corporate vision and objectives. Next is Strategic Development, which
includes development of the strategic options, rational selection from these options and
selection of a strategy, and identification which resourced will be needed for
implementation. And the final phase is Strategy Implementation includes translation of
chosen strategy to all Toyota’s stakeholders and detailed action plan.
2.2 Data Sources
This project is based on secondary data sources. Table 2.1 summarizes the sources and
their contribution to this project.
Table 2.1: Data Sources for the Project
Data source Information obtained
a) TV news Latest updates on Toyota and the
automobile industry
b) Business magazines Articles on related topics
c) Business newspapers Articles on related topics
d) SM text books Models and theory for project bases
e) Internet – corporate websites Information from the respective company
viewpoints
f) Internet – news, financial analyses,
general information
Information from independent sources,
their analyses and comments
Source: Created by Olesya Glukhova (2009)
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Chapter 3: Literature Review
3.1 Basis for Literature Review
This project is based on secondary data sources and it is not approved by the company;
thus, primary sources are unavailable.
The project is done with the purpose of better understanding Strategic Management
concepts and to be able to apply it in a real workplace.
Various sources were reviewed for understanding Toyota Motor Co., and the
automobile industry which it is competing in. The structure for this project is based on
Strategic Management text books: Lynch (2006), Hoskisson et al., (2007), Pearce et al,
(2003 and 2007) and others.
3.2 Introduction and General Information on Automobile Industry
Internet, TV news, business magazines and newspapers were used to obtain general
information for introduction part of the project.
3.3 Macro-Environment
Based on the framework of Strategic Management, Macro environmental analyses were
performed with the help of following models:
a) PESTEL analysis framework concept shown in Table 3.1.
Table 3.1: PESTEL Analysis
Factor Could include: Political e.g. government support and involvement in businesses Economic e.g. interest rates, exchange rates, national income, inflation,
unemployment Social e.g. ageing population, attitudes to work, income distribution Technological e.g. innovation, new product development, rate of technological
obsolescence Environmental e.g. global warming, environmental issues Legal e.g. competition law, health and safety, employment law Source: Adapted from Lynch (2006)
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b) Industry life cycle concept in Figure 3.1
Figure 3.1: Industry Life Cycle
Source: Adapted from Lynch (2006)
Introduction Growth Maturity Decline
Demand high-income buyers
increasing market penetration
mass market, replacement, repeat buying
knowledgeable customers
Technology
competing technologies
standardization; rapid process innovation
well-diffused technological know-how; quest for technological improvements
Products
poor quality; wide variety; frequent design changes
design & quality improves; dominant design emerges
standardization lessens differentiation; efforts to avoid commoditization by branding
commodities the norm
Manufacturin
g & Distribution
short production runs; high-skilled labor; specialized distribution channels
capacity shortages; mass production; competition for distribution
emergence of overcapacity; deskilling of production. long production runs; distributors carry fewer lines
heavy overcapacity; re-emergence of specialty channels
Trade manufacturing shifts from advanced countries to poorer countries
Competition few companies entry, mergers & exits
shakeout; price competition
price wars; exits
Key Success Factors
product innovation; establish credible image of firm and product category
design for manufacture; access to distribution; building the brand; process innovation
cost-efficiency through capital intensity, scale efficiency, and low input costs; high quality; fast product development
reduce overheads, buyer selection; signal commitment; rationalize capacity
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c) Industry attractiveness concept in Figure 3.2
Figure 3.2: Industry Attractiveness Model
Source: Adapted from Pearce et. al. (2003)
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d) Porter’s Five Forces Model concept in Figure 3.3
Figure 3.3: Porter’s Five Forces Model
Source: Porter (1991)
Strategic management models were used to carry out Macro environmental analysis to
identify Threats and Opportunities for Toyota.
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3.4 Micro-Environment
Strategic Management concept used to analyse a firm’s resources (tangible and
intangible, please see in Table 3.1) that provide capabilities and can lead to core
competencies. VIRO framework in Table 3.2 helps to identify which core competencies
are sustainable and can lead to competitiveness.
Table 3.1: Internal Resources of a Firm
Tangible Resources: Description Financial The firms borrowing capacity
The fir’s ability to generate internal funds Organizational The firm’s formal reporting structure and its formal planning,
controlling, and coordinating systems Physical Sophistication and location of a firm’s plant and equipment
Access to raw materials Technological Stock of technology, such as patents, trademarks, copyrights,
and trade secrets Intangible Resources: Human Knowledge, trust, managerial capabilities and organizational
routines Innovation Ideas, scientific capabilities, and capacity to innovate Reputation Reputation with customers, brand name
perception of product quality, durability, and reliability reputation with suppliers
Source: Adapted from Barney (2002) and Hall (1992), created by Olesya Glukhova
(2009)
Table 3.2: VIRO Framework
Quality of the competitive advantage
Description
Valuable Resources that enable a firm to conceive or implement strategies that improve efficiency or effectiveness
Rare Resources that can not be possessed by large number of competing firms
Imperfectly imitable Resources that have a combination of three reasons: unique historical conditions, causally ambiguous, and social complex
Organisationally supported
Resources that are strategically supported by a firm and make them either rare or imitable and non-substitutable
Source: Adapted from Barney (2002)
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3.5 Strategic Evaluation and Strategy Formulation
SWOT analysis matrix (Figure 3.5) and The Grand Strategy matrix (Figure 3.6) were
used to understand Toyota’s position in automobile industry and develop strategic
options. Further, these options were subjected to selection process. Lastly McKinsey’s
7S framework, Figure 3.7, been used to identify what actions need to be taken and what
resources Toyota will be needed for implementation of recommended strategy
Figure 3.5: SWOT Analysis
Source: Pearce II et.al. (2007)
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Figure 3.6: The Grand Strategy Matrix
Rapid Market Growth Quadrant II 1) Market Development 2) Market Penetration 3) Product development 4) Horizontal Integration 5) Divesture 6) Liquidation
Quadrant I 1) Market Development 2) Market Penetration 3) Product development 4) Forward Integration 5) Backward Integration 6) Horizontal Integration 7) Concentric Diversification
Quadrant III 1) Retrenchment 2) Concentric Diversification 3) Horizontal Diversification 4) Conglomerate Diversification 5) Divesture 6) Liquidation
Quadrant IV: 1) Concentric Diversification 2) Horizontal Diversification 3) Conglomerate Diversification 4) Joint Venture W
eak
Com
petit
ive
Posi
tion
Slow Market Growth
Stro
ng C
ompe
titiv
e Po
sitio
n
Source: Christensen et al., (1984)
Figure 3.7: McKinsey’s 7S Framework
Source: Lynch (2006)
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3.6 Strategic Implementation
According to Lynch (2006), successful implementation requires identification of
general strategic objectives, formulation of specific plans, resource allocation and
budgeting and monitoring and control procedures. The Strategic Implementation
process can be found in Figure 3.8. Kaplan and Norton (1996) also suggest that strategy
should be understood by all company’s stakeholders. Balanced scorecard concept in
Figure 3.9 been used to translate recommended strategy to Toyota’s stakeholders.
Figure 3.8: The Basic Implementation Process
Source: Lynch (2006)
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Figure 3.9: Balanced Scorecard
Source: Kaplan and Norton (1996)
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Chapter 4: Macro-Environmental Analysis (Japanese Market Only)
4.1: Environmental Basics
To begin with the Macro-Environmental analysis, basic factors such as market size,
market growth and market share have to be assessed first.
a) Market size – Large. Total domestic annual sales in Japan for 2008 – USD
$96.255 mil. Toyota’s 34% market share in 2008 brought USD $32.727mil
(Toyota’s Annual Report 2009).
b) Market growth – Shrunk by 30% in 2009, Toyota production down 28%
(Bloomberg press 13 May 2009).
c) Market share – Toyota expanding its market share in Japan and by October 2009
acquired 50% of domestic market (Business Week, 01 Nov).
4.2: Dynamics of the Environment
Analysis of the degree of turbulence in the environment in 2009 is made based on
Ansoff matrix of assessing the dynamics of the environment according to Lynch (2006).
a) Changeability – Automobile industry depends on the global Economic scenario
which is highly dynamic. However, events which affect automakers are
reasonably familiar – similar cycle is repeated every few years.
b) Predictability – Rapid changes in international economy need a rapid response.
The future trend in the domestic (Japanese) market can be predicted based on
general global trends and needs of the global consumers.
Both factors - changeability and predictability of the environment in automotive
industry keep turbulence at moderate or medium level.
4.3: General Environment
The best tool to assess the general environment is a PESTEL framework. Although a
PESTEL analysis relies on historical events, it can be well used in forecasting the
future. Table 4.1 combined general environmental analysis and its implication for
Toyota and other automakers.
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Table 4.1: PESTEL Analyses (Japan) Factor Current environment Threats/Opportunities for Toyota
Eco
nom
ical
Japan’s economy heavily depends on export. Economy crisis (2008-2009) set Japan into recession. Its national debts equal to 170.4% of GPD or $ 7.47 trillion Export in 2009 decline by more than 40%, cars export to US down by 71% Japan’s GDP growth negative 7.2% Unemployment rate hit highest in past three years 5.7% in July 2009 Consumer expenditure down by 1.1% Currency fluctuation – Japanese Yen kept strong in currency exchange (Trading Economics 2009)
Main threat for automakers in 2008-2009. Due to gloomy economic outlook demand for cars reduced, causing overproduction, excess capacity and idle resources. Consumers postpone purchase of new cars and looking for cheaper options. Strong yen made Japanese cars less competitive in the global market affecting export of Toyota’s cars.
Polit
ical
Japan supported automakers with subsidies on car purchase during crisis till November 2009 Europe and America also provide help to automotive industry However, some countries took protectionism policy and increase import barriers for cars (Eg. Russia doubled import taxes)
Potential threat Political support locally helped to reduce threat of economic crisis (2008-2009) Potential threat may come from protectionism policies of Toyota’s primary export markets
Soci
o-cu
ltura
l
Changes in lifestyle made an automobile a necessity Dual income often results in additional car in the family New trends demand for eco-friendly, fuel-efficient and electric automobiles
Opportunity for automakers to develop new products and enjoy first-mover advantages and super normal profits from such products Toyota successfully introduced fuel-efficient models
Tec
hnol
ogic
al Technology development allows
innovation and improvement in car production. Automotive industry R&D focuses on fuel efficiency, combined energy sources and safety of the cars. Technology development include hybrid, CNG, LPG, and electric cars
Opportunity for automakers. New technologies help to develop more sophisticated products, increase efficiency and reduce waste in automobile production
Env
iron
men
tal
Environmental issues become popular nowadays and force automakers look for new ways in contribution to saving Gaia. Manufacturers ought to reduce waste, improve efficiency of their products, reduce energy consumption and generally become “greener”
Opportunities for automakers. Assessing environmental issues early can bring company to the superior performance and profits (Eg. Toyota Prius is the best selling and most popular hybrid car model in Japan and Europe) Toyota works on renewable energy sources, recycling waste and combined technology to produce ‘eco-friendly’ cars
Leg
al
All cars must be tested on safety aspects before they reach consumers Employment and safety law has to be taken into consideration in manufacturing process Products safety issues must be assessed by automakers
Opportunity for big established automakers Testing equipment is costly and imposes barriers for small companies that wish to enter auto-market
Source: Adapted from Lynch (2006), created by Olesya Glukhova (2009)
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4.4 Industry Life Cycle
An industry life cycle analysis helps to identify the stage of the evolution process in the
given industry. According to Porter’s framework, automotive industry can be classified
as a ‘mature industry’; details in Table 4.2.
Table 4.2: Industry Life Cycle Analysis
a) Cars are generally becoming a necessity and their appeal is to a mass market with
repetitive buying behavior.
b) Customers are knowledgeable and price sensitive and looking for better value and
switching brands.
c) Car manufacturers invest heavily in R&D to sustain competitive advantage in the
industry. Technological advances allow improvements in products and processes
involved in car manufacturing.
d) Toyota is a market leader in the automobile industry and it is working on cost
reduction to sustain its position.
e) Profits are under pressure. Comparison analysis on the global scale, shows that
managing costs in areas of purchasing of raw material, production and delivery of
finished goods is essential. Accordingly to Larry Kudlow, in 2007 GM sold 9,370,000
vehicles and incurred loss $38,730 mil while Toyota sold 9,366,418 vehicles and made
profit of $ 17,146 mil. The economic crisis 2008/2009 hit automakers badly reminding
carmakers that cost control is the major issue. 2009 second quarter Toyota incurred a
loss of $ 861 mil. while Hyundai posted profit of $ 697 mil.(Business week, 23 Oct,
2009)
f) Competitors emphasize on quality and safety of cars. There is little product
differentiation and therefore car makers attempt to innovate in such areas as safer
design, comfort, and fuel efficiency to attract customers.
g) Another aspect that valued by customers is after-sale support – servicing and spare
parts availability. In the Asian region, Toyota spare parts availability and price
affordability is still the best. This makes Toyota cars maintenance easier and cheaper.
This builds customers confidence and loyalty.
Source: Adapted from Lynch (2006), created by Olesya Glukhova (2009)
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Although the automobile industry is in maturity stage, technological change is bringing
elements of growth and is revitalizing an old industry. Companies that constantly work
on innovation ultimately influence the growth curve of the automotive industry.
4.5 Industry Attractiveness
Automobile industry is currently at the medium attractiveness based on PESTEL
analysis and Toyota, being the market leader, has high business strength, taking this
equation to plot in the Table 4.3. Toyota is been advised Invest and Growth, but also
careful watch out for its competitors.
Table 4.3: The Industry Attractiveness-Business Strength Matrix
High Invest and growth
TOYOTA Invest and growth suggests: 1) Build selectively on strengths 2) Define implications of leadership strategy 3) Avoid vulnerability – fill weaknesses
Selective investment/ monitor position
Medium Invest and growth
Selective investment/ monitor position
Harvest or Divest
Low Selective investment/ monitor position
Harvest or Divest Harvest or Divest
High Medium Low Com
pany
’s C
ompe
titiv
e Po
sitio
n
Market Attractiveness
Source: Adapted from Pearce II, et al. (2003), created by Olesya Glukhova (2009)
4.6 Key Success Factors
As the automobile industry has been identified in its maturity stage, following key
success factors should be considered in allocation of recourses by auto makers:
a) Safety of the cars
b) Reliability of cars
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c) Maintainability – spares availability and easy replacement
d) Environmentally friendly – ‘green’ move
e) Cost efficiency and high utilization of fixed assets
f) Scale of production
g) Low input cost
h) Low labor cost
Car manufacturers need to assess these essential factors to achieve success in the market
and deliver value to their customers. Key success factors require optimum allocation of
resources and innovation. Toyota is constantly working on new developments by
improving safety and technology.
4.7 Competition within Industry
Porter (1991) had identified five forces of competition within an industry. Modern
approach added one more competitive force from compliments, making it six forces of
competition. Investigation of forces and its implications are summarised in Table 4.4
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Table 4.4: Six Forces of Competition within Industry in Japan Factor Current environment Level of threat for Toyota
The
bar
gain
ing
pow
er o
f su
pplie
rs
Many suppliers Substitutes are available; firms are offering similar products at lower prices Suppliers provide only some parts, and not main components of automobiles Processes of automakers protected internally
Bargaining power of suppliers is low Being the biggest auto manufacturer in Japan, Toyota exercises its buying power over suppliers. Production of Toyota in fact affected its suppliers operations; when Toyota reduced production, its suppliers also had to reduce their output (The Japan Time, 07 Mar, 2009)
The
bar
gain
ing
pow
er o
f buy
ers Wide variety of cars with little
differentiation in products and prices Selling price is an important factor in purchase decision Switching cost for customers is low. Toyota owns the distribution network and there is no threat of backward integration.
Bargaining power of buyers is high due to similarity of the products and prices Toyota developed its own distribution network to reduce bargaining power of buyers through direct distribution and competitive pricing. Toyota reputation and quality are helping it to keep its customer loyal to its brand
The
thre
at o
f pot
entia
l ne
w e
ntra
nts
Cars production required high capital investments due to: minimum economy of scale in production, building distribution channels and infrastructure of support services, high R&D and advertising expenses Automobile industry associated with certain risk and therefore customers choosing established automakers that they trust, making it unlikely to switch to a newly established company
The threat of potential new entrants is low Auto production has high barriers of entry and exit. Set up a car production line requires a high capital investment and minimum economy of scale. Exit barriers are also high, as the car production assembly can not be easily diverted for manufacturing other products. Furthermore, new entrant will need to set-up the infrastructure of distribution and support services channels as well as prove its product reliability
The
thre
at o
f su
bstit
utes
Public transport, motor vehicles, and other mode of transport may become substitute for cars However, car obsolescence is not seen in near future
The threat of substitutes is low High fuel cost may push more people to public transport; however, it will not create a real substitute for cars. Car is a necessity that owners value for its convenience, flexibility and even status
The
ext
ent o
f co
mpe
titiv
e ri
valr
y
Many competitors, some are similar size as Toyota, fighting for bigger market share Market is saturated with slow growth Fixed costs are high Differentiation is small; competitors providing comparable value balancing cost and quality Exit from industry is very costly
Fierce competition Automakers competing on innovation and prices Require development of sustainable competitive advantage to stay in the industry
The
thre
at o
f su
pple
men
tary
pr
oduc
ts
Supplementary products are insignificant to the car manufacturing business Companies that producing GPS, DVD players, and other accessories won’t be able to start car production due to high entrance cost and expertise required in car manufacturing
Not a threat for automakers
Source: Adapted from Porter (1991), created by Olesya Glukhova (2009)
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4.8 Competition Analyses
In order to understand Toyota’s position in the automobile industry, it is necessary to
analyse major or immediate competitors and their profiles in depth. Japan’s the Big
Three Automakers include Toyota, Honda and Nissan. Tables 4.5 and 4.6 provide
details on Toyota’s two competitors.
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Table 4.5: Competitor Analysis – Honda
Merits Honda Motor Analyses
G
ener
al
info
rmat
ion
Honda has been founded in 1946, based in Tokyo, Japan. Currently it is a second largest automaker in Japan right after Toyota. Honda develops, produces, and manufactures various motor products, ranging from small general-purpose engines and scooters to specialty sports cars. The company major segments: Motorcycle, Automobile, Financial Services, and Power Product and Other.
O
bjec
tives
Honda Motor Co., Ltd. operates under the basic principles of "Respect for the Individual" and "The Three Joys" — commonly expressed as The Joy of Buying, The Joy of Selling and The Joy of Creating. "Respect for the Individual" reflects our desire to respect the unique character and ability of each individual person, trusting each other as equal partners in order to do our best in every situation. Based on this, "The Three Joys" expresses our belief and desire that each person working in, or coming into contact with our company, directly or through or products, should share a sense of joy through that experience.
R
esou
rces
Total assets: USD $124.98 billion Employs : 181,876 people worldwide Revenue in 2008: USD $133,364 million which came to Net profit of USD $6,667 million Growth YOY in 2008 was 1%
Past
rec
ord
of
perf
orm
ance
The first production automobile from Honda was the T360 mini pick-up truck Honda was the first Japanese automobile manufacturer to release a dedicated luxury brand, Acura in 1986 During economic crisis increased sales by 1% while Toyota insured losses
Prod
ucts
and
serv
ices
Products: motorcycles, automobiles, power products The Automobile segment include passenger cars, minivans, multi-wagons, sport utility and mini cars. Honda has won many awards for initial quality and customer satisfaction. Honda automobiles are reliable and generally fuel efficient Products quality is good, though perceived to be lower than Toyota According to Honda’s CEO, hybrid model Insight is disappointing for Honda. This is directly opposite to Toyota Prius hybrid. Although Prius is more expansive than Insight sales of Toyota are much higher.
Lin
ks w
ith
othe
r or
gani
zatio
ns Not linked to other automobile companies
Pres
ent
stra
tegi
es
Honda pursuing market development trough cost leadership strategy. Honda plans to reduce cost and move flexibly around by shifting operations to the countries of demand: moving production to China as a cheaper alternative while using only 70% of capacity in Japan and reducing the number of car models sold only in Japan Honda also target to increase market production and market share in China by 100 car dealership a year; this year already increased by 16%.
Source: Adapted from Lynch (2006), created by Olesya Glukhova (2009)
27
Table 4.5: Competitor Analysis – Nissan
Merits Nissan Motor Analyses
G
ener
al
info
rmat
ion
Nissan has been found in 1931 under the name of Datsun. The Nissan name was first used in 1930 and Nissan Motor as a company emerged in 1934. Nissan is the third largest automaker in Japan, right after Toyota and Honda. Nissan models include sedans, pickups, sports cars, and SUVs. Almost 45% of its stakes owned by Renault
O
bjec
tives
Nissan vision:” Enriching people’s life" The mission is to enrich people's lives, building trust with our employees, customers, dealers, partners, shareholders and the world at large. Restructuring the company to reduce cost. Going towards ‘green’ by putting electric car development at the high priority
R
esou
rces
Total assets: USD $124.98 billion Employs : 186,336 people worldwide Revenue in 2008: USD $93,070 million which came to Net profit of USD $2,580 million Growth YOY in 2008 was (4.7%)
Past
rec
ord
of
perf
orm
ance
From 1993-2002 Nissan partnered with Ford to market a consumer-friendly minivan: The Mercury Villager and the Nissan Quest. In 1966, Nissan merged with the Prince Motor Company, bringing into its range more upmarket cars, including the Skyline and Gloria From 1950’s Nissan expanded into worldwide markets. In 1999, Nissan was facing severe financial difficulties, and entered in an alliance with Renault S.A. of France. Now Renault controls more than 45% of Nissan.
Prod
ucts
an
d se
rvic
es Products: Automobiles, engines, electronics, communications, etc.
Nissan, with its GT-R model, has won one of Japan’s most coveted award - Most Advanced Technology Award at the Car of the Year Japan Awards 2008 - 2009.
Lin
ks w
ith
othe
r or
gani
zatio
ns Alliance with Renault since 1999
Car production in China in cooperation with Gongfeng Motor Croup Co
Pres
ent
stra
tegi
es Nissan pursues market development and penetration through its environmentally
friendly cars. Nissan going aggressively towards electric cars and plans to setup an electric-car manufacturing plant in Guangzhou, China Nissan targets 20% growth in China in 2010.
Source: Adapted from Lynch (2006), created by Olesya Glukhova (2009)
28
4.9 Customer Analyses
Toyota customers are all those who people who travel by car. However, potential
customers also include people who travel by public transport, taxis and motor vehicle.
Toyota Motor Company covers different market segments. High income people are
targeted by Lexus brand, industrial segment that require heavy machinery and
commercial vehicle by Hino brand, cheap mini vans by Daihatsu. The widest group of
middle income people is targeted by Toyota brand. Toyota brand covers large market
segments and therefore it has the most product variety in its portfolio to appeal to a
variety of consumers.
29
4.10 Summary of Opportunity and Threats from Macro-Environment
Summary on the Macro-environment is presented in Table 4.7 with comment on
whether it presents opportunity or threat for Toyota.
Table 4.7: Summary of Findings from Macro Environmental Analyses
Factor Opportunity or Threat for Toyota
Env
iron
men
tal
basi
cs
Opportunity
Potential large market size and hence a strategic opportunity. Slow but stable growth
in the resent years, except for the last year’s economic crisis, keeps the automobile
industry relatively attractive. Toyota is dominating Japanese automotive market with
50% market share and working towards increasing it.
Env
iron
men
tal
Dyn
amic
s
Opportunity
The automobile industry is relatively stable and predictable. Reliable future forecasts
can be made and a strategy can be developed with a small degree of flexibility.
PEST
EL
Ana
lysi
s
Threats and some Opportunities
Significant threats are coming from current economic downturn and its
consequences.
Opportunities may come from new technological advances which can improve
automobile products and manufacturing processes.
Indu
stry
Life
Cyc
le Opportunity, if not taken may become threat if competitors will utilize it first
The automobile industry is in a ‘mature stage’ but still requires ongoing investment
to keep restoring growth. Opportunities are:
- process innovation
- product refinement and
- service enhancement
Indu
stry
Att
ract
iven
ess
Opportunity
According to Industry Attractiveness matrix, investment and growth is advised
through: building selectively on strengths, define implications of leadership
strategy, avoid vulnerability – fill weaknesses.
Source: Created by Olesya Glukhova (2009)
30
Table 4.7: Summary of Findings from Macro-Environmental Analyses (continued)
Factor Opportunity or Threat for Toyota? K
ey S
ucce
ss
Fact
ors
Opportunity, that can become threats if not addressed
Toyota needs to upgrade its key success factors regularly to sustain its
competitiveness.
Port
er’s
Fiv
e
Forc
es
Threat
Competition within automobile industry is very intense and thus requires sustainable
competitive advantage
Other threats from competitive forces Toyota manages to balance well
Com
petit
ors
Ana
lysi
s
Threat
Toyota’s major competitors are very close behind and trying to overtake each other.
Toyota needs to closely monitor its competitors and continuously make new
developments to sustain competitiveness.
Source: Created by Olesya Glukhova (2009)
31
4.11 Key Macro-Environmental Findings that have Impact on Project Objectives
External Environmental analyses uncover two major threats that Toyota must address.
Summary of key findings and its implications are in Table 4.8.
Table 4.8: Key Findings that have implications on this project
Source Key Findings Implications for Toyota
Table
4.7
Economic crisis reduce disposable
income
Affordability of Toyota cars affected,
customers looking for cheaper
alternatives
Table
4.7
Competition is very strong Toyota needs to continue investment in
product innovation and service
upgrading to sustain its
competitiveness
Source: Created by Olesya Glukhova (2009)
32
Chapter 5: Internal Analysis
5.1 Internal Resources and Capabilities
5.1.1 Vision, Mission and Guiding Principles
Vision, Mission and Guiding Principles shows what Toyota is trying to achieve and
what its employees believe in. Table 5.1 provides this information.
Table 5.1: Toyota’s Vision & Mission and Guiding Principles
Vision and Mission
Vision: The Right Way Forward
Mission: Make better cars and contribute to the society
• Strong commitment to put customer first, practicing genchi genbutsu, and providing
high-quality vehicles at an affordable price.
• Toyota’s goal shared by each and every Toyota employee who works, humbly and
seriously, believing in brighter automotive future.
• Valuing the satisfaction and happiness of each and every stakeholder.
Guiding Principles
1) Honor the language and spirit of the law of every nation and undertake open and fair
corporate activities to be a good corporate citizen of the world.
2) Respect the culture and customs of every nation and contribute to economic and
social development through corporate activities.
3) Dedicate ourselves to providing clean and safe products and to enhancing the
quality of life everywhere through all our activities.
4) Create and develop advanced technologies and provide outstanding products and
services that fulfill the needs of customers worldwide.
5) Foster corporate culture that enhances individual creativity and teamwork value,
while honoring mutual trust and respect between labor and management.
6) Pursue growth in harmony with the global community through innovative
management.
7) Work with business partners in research and creation to achieve stable, long-term
growth and mutual benefits, while keeping ourselves open to new partnerships.
Source: Adapted from Toyota Annual Report 2009, created by Olesya Glukhova (2009)
33
5.1.2 Financial Performance
Based on financial analysis and stock ratings, Toyota’s financial performance is strong.
Close cost monitoring bring Toyota to the top in the automobile industry. During the
economic crisis Toyota the first big carmakers announced profits and recovery in
November 2009.
5.1.3 Organizational Analysis
Toyota developed a system that nurtures employees and provides clear directions.
Employee support and a desire to constantly improve, create a strong culture which
brings competitive advantage in human resource and organizational strength.
Toyota Production System or as many call it now ‘Thinking People System’ can be
found in Figure 5.1. TPS has become a model that many organizations are adopting.
34
Figure 5.1: Toyota Production System The TPS House was developed by Taiichi Ohno and Eiji Toyoda to make it possible to
explain Toyota's evolving system to employees and suppliers. The aim of TPS is to eliminate
all muri, mura, muda (overburden, unevenness, waste) from the operations. It is a system that
uses the PDCA approach to involve everyone in solving problems and improving quality, cost,
delivery, safety, and morale.
TPS is the Operational Blueprint for a Lean Enterprise The organizations that have implemented Lean most successfully have adopted TPS as their
operational blueprint. They have studied and understood the system, renamed it to take
ownership of it as their own system, and adopted as pure a form of TPS as possible
• Make what the customer needs, when it is needed, and in the right amount
• Minimize inventories
• Separate machine work from human work and fully utilize both
• Build quality into the process and prevent errors from happening
Source: Adapted from Toyota Motor Corp by Olesya Glukhova (2009)
35
Figure 5.1: Toyota Production System (Continue)
The Toyota Production System
Long a symbol of Japan's leadership in logistics and supply chain best practices, the Toyota
Production System (TPS) stresses the importance of continuous improvement (kaizen); and of
matching supply to demand to reduce inventory, eliminate waste, and ultimately lean the supply
chain from supplier to consumer.
As Japan embarks on a new age of global trade, aspects of TPS inevitably surface in the growth
of this industry, given increasing importance to lean supply chain management and demand-
driven logistics.
An overview of the core tenets of Toyota's lean philosophy:
The Foundation
Heijunka: An approach to level production throughout the supply chain to match the planned
rate of end-product sales.
Kaizen: A Japanese term for continuing improvement involving both managers and workers. In
manufacturing, kaizen relates to finding and eliminating waste in machinery, labor, or
production methods.
The Left Pillar
Just In Time (JIT): An inventory system that controls material flow into assembly and
manufacturing plants by coordinating demand and supply to the point where desired materials
arrive just in time for use. JIT is also an inventory reduction strategy that feeds production lines
with products delivered just in time. Developed by the auto industry, it refers to shipping goods
in smaller, more frequent lots.
The Right Pillar
Jidoka: The concept of adding an element of human judgment to an automated equipment. In
doing this, the process becomes capable of discriminating against unacceptable quality, and the
automated process becomes more reliable.
Source: Adapted from Toyota Motor Corp by Olesya Glukhova (2009)
36
5.2 Summary of Strength and Weaknesses from Micro-Environmental Analyses
Summary on Toyota’s Internal Analysis shown in Table 5.2.
Findings from these analyses show Toyota’s strong position in automotive industry. Its
internal resources drive company to the competitive advantage within the industry.
Table 5.2: Internal analyses Competitive Advantage
Good distribution Products that are of good value for money
Human capital advantage
Products that are of good value for money
Strong Branding
Cope competencies
Superior efficiency Superior technology and quality
Employee loyalty Superior innovation
Customer loyalty
Pass VRIO YES YES YES YES YES YES
Valuable, Rare, Inimitable, Organizationally supported Capabilities Strong
financial support
Effective organizational structure Strong organizational culture Sophisticated distribution networks
Sophisticated equipment and technologies
Product and design quality and reliability Robotic technologies
Motivating, involving employees in organizational growth and improvement, employee retaining even during crisis
Innovative technologies Development of sophisticated equipment and products ITS
Reputation of reliable brand Perception of high quality products and value for money
Analyses Total Shares Outstanding – 1.6 bil Earnings/Share – (6.12) Volatility (beta) – 0.72 Debt/Equity Ratio – 1.26 Resilience and capacity for investment
Management: Toyota Production System in Figure 5.1 is explaining in details Toyota’s managements style Customer service: Toyota provides customer service support true trained staff which is available 24 hours Demand driven logistics Lean supply chain
Toyota has manufacturing plants in many countries all around the globe and equipped with new technologies Its total Fifed Assets Y 10,435,805 mil Unfortunately for Toyota, its fixed assets are not flexible and can’t be switched to other usage then car production
In 2009 Q2, Toyota Motor corp. registered 227 new patents and ranked 1st in on the worldwide scale by Dr. Jonathan Butler in his Portable Fuel Cell Survey 2009) (http://www.fuelcelltoday.com/media/pdf/surveys/2009-portable-free.pdf)
Toyota practicing employee empowerment to nurture creativity, continuous improvement, and innovation. On average one employee contributes 10 suggestions per year and 99% of these are implemented.
Toyota group companies in Japan supported by Toyota Central Research & Development Laboratories, Inc., with its expenditure of Y 904.0 bil in 2009 is a leading R&D in Japan
The highest Reputation Ranking by Reputation Institute’s annual Global Pulse 2008 Study Third in Automobile and Parts Sector Ethical Ranking (30.09.2009) by Covalence Toyota Brand Value 32,070mil by Swivel
Resources Financial Organizational Physical Technological Human Innovation Reputation Source: Created by Olesya Glukhova (2009) from various sources
38
5.3 Key Micro-Environmental Findings that have an Impact on the Project
Objectives
Internal analysis shows that Toyota is in a strong competitive position. Summary of key
findings and its implications are in Table 5.3.
Table 5.3 Key Findings from Macro-Environmental Analysis
Source Key Findings Toyota’s strengths/weakness
Table
5.2
Internal Strengths in :
Branding and customer loyalty
Product quality and innovation
Human capital
Sophisticated distribution and
servicing
Strength
Competitive advantage in key areas
keeps Toyota a world leader in
automobile industry
Table
5.2
Products not perceived to be highly
differentiated
Weakness
Require constant innovation to
differentiate its products
Source: Created by Olesya Glukhova (2009)
39
Chapter 6: Strategic Evaluation and Implications on Strategy Formulation and
Development
6.1: Evaluation of Current Position and Selection of Strategic Options
In order to formulate a new strategy, the current situation has to be assessed and
analysed. This part of the project summarises major findings from Macro and Micro
environmental analyses (Table 4.8 and Table 5.3) and with the help of strategic
management applications, draws possible options to sustain Toyota’s competitiveness.
SWOT analysis shows Toyota’s current position; presented in Table 6.1.
Table 6.1: SWOT Analysis
Opportunity Threats
New product development
Market penetration
New markets exploration
Economic cycle downturn
Increased pressure from competitors
Strengths Weaknesses
Market dominance
Economies of scale
Core strengths
Management skills
Innovation processes
Product quality
Products not highly differentiated
High fixed costs
Source: Adapted from Pearce et. al. (2007), created by Olesya Glukhova (2009)
As can be seen from SWOT analyses Toyota faces serious threats from the external
environment but has good internal strengths. Using this information to plot into
Pearce’s SWOT Analysis Matrix, Toyota would be in the Cell 2, which supports a
diversification strategy. Please see Table 6.2.
40
Table 6.2: SWOT Analysis Matrix
Numerous environmental opportunities
Cell3:
Supports a turnaround-oriented strategy
Cell 1:
Supports an aggressive strategy
Cell 4:
Supports a defensive strategy Cell 2: TOYOTA
Supports a diversification
strategy
Cri
tical
inte
rnal
wea
knes
ses
Major environmental threats
Subs
tant
ial i
nter
nal
stre
ngth
s
Source: Adapted from Pearce II et al., 2007 by Olesya Glukhova (2009)
To test the appropriateness of the diversification strategy and to draw more strategic
options for Toyota the Grand Strategy Matrix (by Christensen, et al., 1984) is used. As
Toyota has a strong competitive position and the market growth is slow in the
automobile industry, Toyota is placed in Quadrant IV. Table 6.3 confirming that
diversification or a joint venture can be a good strategy for Toyota.
Table 6.3: The Grand Strategy Matrix
Rapid Market Growth Quadrant II 1) Market Development 2) Market Penetration 3) Product development 4) Horizontal Integration 5) Divesture 6) Liquidation
Quadrant I 1) Market Development 2) Market Penetration 3) Product development 4) Forward Integration 5) Backward Integration 6) Horizontal Integration 7) Concentric Diversification
Quadrant III 1) Retrenchment 2) Concentric Diversification 3) Horizontal Diversification 4) Conglomerate Diversification 5) Divesture 6) Liquidation
Quadrant IV: TOYOTA 1) Concentric Diversification 2) Horizontal Diversification 3) Conglomerate Diversification 4) Joint Venture
Wea
k C
ompe
titiv
e Po
sitio
n
Slow Market Growth
Stro
ng C
ompe
titiv
e Po
sitio
n
Source: Adapted from Christensen et. al. (1984) by Olesya Glukhova (2009)
41
Quadrant IV provides four options for Toyota:
1) Concentric Diversification – Toyota has already diversified its product mix and
includes: sedans, SUV, MPV, minivans, trucks and heavy machinery. Toyota
also covering other customer segment, using Lexus line for high income group.
Concentric diversification has been taken care of by Toyota.
2) Conglomerate Diversification - Toyota has diversified its business portfolio
into financing, housing, communication and other business (full diagram
presented in chapter 1) Conglomerate diversification also has been taken as an
option by Toyota previously.
3) Horizontal Diversification
4) Joint Venture
Last two options offer fast increase in market share. Toyota can consider both options
for its further growth.
6.2 Evaluation of Strategic Options
The next step in strategy development is evaluation of strategic options. The two
suggested option – horizontal diversification and a joint venture need to be tested on
their suitability, feasibility, acceptability, consistency, business risk and attractiveness
to stakeholders. Table 6.4 analyses and provides conclusion that Joint Venture is a
better strategic option for Toyota.
Table 6.4 Evaluation of strategic options
Criteria for evaluation Strategic
option Suitability Feasibility Acceptability Consistency Business Risk Attractiveness to
Stakeholders
Diversification No Require allocation of
resources to the new
business which is risky
in current economic
situation.
Yes Toyota has resources
and innovative
technology to pursue
a new business.
No Diversification may
cause Toyota lose its
competitiveness in its
core automobile
business due to a lack
of focus.
No To sustain
competitiveness,
Toyota needs to
compete on its core
business rather than
try a new business.
No High risk, new
diversification
strategy may not
work and allocated
resources will be
wasted.
No A new direction of
business requires
capital and then takes
time to gain profits.
Joint Venture Yes Faster penetration into
new markets
Increase in resources
and power through
collaboration without
capital investment,
providing flexibility.
Yes As a market leader
Toyota is an
attractive partner for
a joint venture.
Yes Opportunity with
small amount of risk.
Yes Surrounding
circumstances are
favorable for moving
into new growing
markets. Toyota can
raise market share a
joint venture with an
established firm.
Yes Low risk, joint
venture is a
revocable alliance
and therefore
imposes low
business risk. If not
successful can be
separated back
without losses.
Yes Joint venture is a way
of expanding
business opportunity
and increase business
volume and profits.
Source: Created by Olesya Glukhova (2009)
43
6.3 Analysis of Current Strategy and Proposed Strategy
Based on the evaluation presented in Table 6.4, a Joint Venture is less costly and is
better option in current economic situation. To ensure support from the firm’s
stakeholders, a Joint Venture is the suggested new strategy for Toyota. Joint Venture
can be later converted into Merger or Acquisition if it is very successful. Using
McKinsey’s 7S framework, Table 6.5 highlights differences between current and new
strategy and actions that need to be taken for successful implementation.
Table 6.5: McKinsey’s 7S Framework Analysis
McKinsey’s 7S
Present Strategy
Proposed strategy
Fit/Misfit Actions to be taken
Resources needed
Strategy Cost leadership through Wholly owned business
Cost leadership through Joint Venture overseas
Misfit Require selection, evaluation and choice of strategic partner, follow by integration of two firms
Financial, People
System TPS Adopted TPS
Misfit Required technology installation and staff training
Financial, People, Technology
Structure Lean organization
Lean organization
Fit None None
Staff Highly skilled and knowledgeable
Skills and knowledge is lower
Misfit Required training
Financial, People
Style Teamwork Teamwork Fit None None Shared Values
Task Culture
Task Culture
Fit None None
Skills High and technology advanced
Not hi-tech Misfit Required training
Financial, People
Source: Adapted from Lynch (2006), created by Olesya Glukhova (2009)
44
6.4 Recommendation for Strategy
Findings in this report are suggesting a Joint Venture strategy for Toyota’s growth.
China’s fast growing market is an attractive opportunity. Toyota needs to choose an
established Chinese domestic partner to introduce Toyota’s products to the mass
market.
Japanese technology is more sophisticated than Chinese and therefore would require
training and upgrading employees’ skills and knowledge as well as introduction of
technologies and training on its usage. Chapter 7 provides detailed plan for
implementation of a Joint Venture.
45
Chapter 7: Strategic Implementation
7.1 Strategic Implementation
Situation analysis have been described in chapter four and five, and a summary of the
major findings can be found in chapter six, SWOT matrix.
The Mission of Toyota has been introduced in chapter five, including its guiding
principles.
Toyota is a public listed company and any strategic decision must be understood by its
shareholders and other stakeholders in order to secure their support
A concept developed by Kaplan and Norton (1996), ‘The Balanced Scorecard’ helps to
translate the strategic decision to all stakeholders of a firm. Please see Figure 7.1.
The main objective for each of the four group:
1. Financial perspective – to increase sales by 10% per year
2. Customers’ perspective – reliable and affordable cars
3. Internal business process perspective – enhance productivity by improving
processes in car manufacturing
4. Learning and growth perspective – provide training and career growth
opportunities to its employees.
In order to successfully implement the chosen strategy, ‘Joint Venture with Chinese
carmaker’, Toyota needs to develop a detailed plan which includes resource allocation
and budgeting. Timetable can be found in Table 7.1.
46
Table 7.1 Balanced Scorecard for Toyota’s Joint Venture
Source: Adapted from Kaplan and Norton (1996), created by Olesya Glukhova(2009)
KPI Measures and Targets
Volume growth
Sales up 10% in per year
Leadership in automobile sector (China)
Market share increase to 30%
Profitability ROI up 5% in two years
Value of business
Share price up by 3%
FINANCIAL
STRATEGIC DIRECTION Join Venture Overseas - Best carmaker - Best value provider
KPI Measures and Targets
Favorite carmaker
Keep 1st place in rating
Best cars Repeated purchases
Best Value Most competitive in equation price and benefits
Best Service “0” complains
CUSTOMER
KPI Measures and Targets
Supply chain efficiency
Cost cut by 5%
Sales and Marketing effectiveness
Return on advertisement 95%
Showrooms location
In major provinces
After service support
Remote assistance 24/7
INTERNAL BUSINESS PROCESS
KPI Measures and Targets
Staff commitment
2% turnover rate
Adaptability Multi-skilled
Creativity and design
Staff suggestion encouragement
Cross-cultural understanding
Respect for others values and believes
LEARNING AND GROWTH
47
The Conclusion
This project has analyzed Toyota’s competitiveness in the automobile industry. The
firm’s strong position provides an opportunity for growth.
Macro environmental analysis for the automobile industry presents major threats such
as economic downturn and increasing competition. These threats can be overcome by
continuous product improvement.
Micro environmental analysis of Toyota confirmed the firm’s substantial strength.
Toyota is a world leading carmaker with a strong reputation for quality and reliability of
its cars.
Based on the Strategic Management Models the project suggests deploy Toyota’s
resources towards fast growing market of China. To minimize risks it is advised to seek
a Joint Venture with an established Chinese carmaker in order to instantly obtain access
to the market and increase its market share.
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