Case Study Analysis-Toyota

Executive Summary

Automobile industry is faster growing industry nowadays than other industry. Industry analysis by Porter's five forces can be said that threat of new entrants is low due to huge capital and cutting-edge technology. Suppliers are weak because they are spread all over the world and cannot easily forward integrate. Buyers are weak due to low demand for non-consumer goods (automobile) and high switching costs; moreover, buyers are not able to backward integrate. Substitutes are moderately strong due to different and less-expensive transportation facilities. On the other hand, intensity of rivalry is strong because of major players are dominant in the market by nearly same technology and manufacturing processes, suppliers relationship and distribution systems.

In addition, PEST analysis gives more ideas for industry to focus more on selecting the appropriate market and segments. Through analyzing political factors, company can get idea about the political stability and government regulations about taxes and tariffs. However, to get long-term profit company has to make good relationship with governments. Economical factors are more related with automobile industry because of consumers' purchasing power and per capital income in particular country related with demand and supply. Moreover, the social factors influence consumers buying behavior and lifestyle. Technological factors are the major factors for this industry as it is highly depending on innovative technology and knowledge-based. Technological changes have contributed much more on industry's growth.

Toyota's strengths are its global brand name, economies of scale, and highly skilled engineers. On the other hand, depending on USA market for total sales and less market shares on other market create weaknesses for Toyota. Moreover, currency fluctuations can be a great threat to earnings and revenues for Toyota. Other competitors are also trying to keep pace with changing technology to innovate unique products for the customers that will be threat for Toyota. Russian and Asian markets are great opportunity for Toyota.

Through primary activities, Toyota maintains its products that is fully-controlled its suppliers and distributors and outsources most of parts. Supporting activities such as R&D, HRM, and Technology help Toyota to remain cost-leader in global market.

Overall, Toyota's financial performance based on ROA, ROE, Net Profit Margin, Gearing, and Current Ratios is better compared to its rivals especially in 2003-2004.

Technological innovation and lean manufacturing system is Toyota's core competencies compare to other competitors.

Toyota depends highly on technology and technological innovations. Toyota is one of the world's largest cost leader automobile-manufacturer by its lean production system and unique manufacturing techniques. Technological changes play vital roles for Toyota to improve its products to grow high sales and capture more market share. In future, to sustain in competition, Toyota needs to adapt more technology and innovate products according consumers' needs and demands.

Toyota will be market leader by enhancing its core competencies such as HRM, R&D and low cost manufacturing processes to face intensifying pressure from competitors. Moreover, it has to focus on distribution channels and retailers. In addition, company has to make long-term relationship with reputable suppliers.

Automobile Industry Overview

* Toyota was in 4th position of automobile industry with more than two millions cars sold in 2004.

* Toyota was in the forth position in the automobile industry market after DaimlerChrysler with 12.2% in 2004.

AUTOMOBILE INDUSTRY ANALYSIS

PORTER'S FIVE FORCES OF COMPETITIONS

Threat of new entrants  WEAK

* Massive amount capital requirements e.g. machineries, assembling, etc

* Difficult to enter into market because lack of experiences for new entrants

* Face strong competitions with existing companies such as BMW, Honda, Toyota, etc

* Government's policy, environment and safety regulations are strict in most countries

* High switching costs

* Difficult to enter into distribution channel for getting retailers

* Facing losses for starting periods

* High expenses with low profit

* Barrier to entry: latest technology

* Existing competitors are struggling to earn good profit

* Difficult to achieve economies of scale and experience

* The existing firms would make it difficult and would retaliate.

Suppliers bargaining power  WEAK

* Automobile manufacturers' supplier would usually have one major contract  the automobile manufacturer would be able to dominate negotiations.

* Suppliers in this market are often small-medium companies and there are quite a lot of them  Easy for Auto manufacturer to switch

* Switching costs are low because of the size of supplier.

* Most automobile manufacturers able to integrate backward. For example Hyundai has no suppliers of components as it used backward integration and this transition was successful.

Buyers bargaining power  WEAK

* Concentration of buyers is widely dispersed.

* Shear volume of customers means that one individual customer has absolutely no power.

* Forward integration from buyers are low due to heavy capital, resources and skilled labour.

* Buyers demand is growing slowly as car is expensive and it is not consumers goods

Threat