Assignment 3 External Environment Industry Analysis Report PDF

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MGT30005: Strategic Planning in Dynamic Environments external environment ...

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BUS 30009 Industry Consulting Project

Assignment 3: External Environment and Industry Analysis Report

Team Name:

Spark Consulting

Team Members & ID:

Felix Wong Vui Cheng (101209895) Celeste Lau Jee Wee (100065960) Hon Hui Yi (100076098) Michelle Chen Lee Jie (101208601) Michelle Angelica (100082587) Justeene Lau Siew Sieng (101209921)

Name of Lecturer & Tutor: Dr. Ong Liap Teck

Group:

5

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CONTENTS Introduction...............................................................................................................................iii External Environmental Analysis (PESTLE)............................................................................iv Industry Characteristics (Porter’s 5 Forces)..............................................................................ix Competitive Analysis..............................................................................................................xiv Conclusion..............................................................................................................................xvi References..............................................................................................................................xvii Appendix.................................................................................................................................xxi

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INTRODUCTION

The automotive industries grow rapidly by introducing the new technology of cars and innovating the existence of cars to be more excellent in the customers’ sight. Through the introduction of new technologies for automobiles and the existence of innovative cars, the automotive industry has developed rapidly and has become even better from the public perspective. Toyota is an automotive industry established in 1937 and it has become the top 10 leading automobile companies around the globe (Ravi, 2020). Toyota started operations through a joint venture with UMW in 1982 and today the company is known as UMW Toyota Motors and entered Kuching as a car dealer in 1992 (WOBB 2020). The purpose of doing this report is to use the PESTEL and Porter’s five forces to analyse the external environment and industry characteristics of UMW Toyota. In addition, a competitive analysis is also taken into consideration before finally reaching a conclusion.

Figure 1: UMW Malaysia Corporate Logo

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EXTERNAL ENVIRONMENTAL ANALYSIS (PESTLE)

Economic Factor Malaysia is said to have high prices on imported cars such as Toyota and this is due to the high duties and taxes that are imposed on these imported cars. These taxes are imposed in order for Malaysia to protect and develop their domestic automobile industry such as Perodua. However, it is expected that the ringgit (MYR) will continue to weaken due to the low economic growth (Best Exchange Rates 2020). Hence, this may become a threat to UMW Toyota as the prices of Toyota vehicles may be increased further. This may cause consumers to turn to other options with lower prices in order to lower their costs. Furthermore, the increase in inflation rate will cause the purchasing power of buyers to decrease as a high inflation rate can lead to negative economic consequences such as an increased cost of living as well as high interest rates (Hayes 2020). Thus, as the cost of living increases, buyers will naturally compare prices of various car brands and purchase lower priced options in order to support themselves as well as their families. If more buyers prefer to purchase other lower priced cars compared to Toyota, this may cause the Gross Domestic Product (GDP) of UMW Toyota to be affected as this may show a decrease in revenue as well as an increase in loss for UMW Toyota. Therefore, UMW Toyota can consider applying discounts for companies that purchase in bulk as a way to attract more customers which can boost up their revenue in the long run.

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Socio-cultural Factor The influence of social factors is critical to the operation of UMW Toyota. Therefore, UMW Toyota may change various management strategies to adapt to these social trends to survive in the commercial market (Ferguson 2017). UMW Toyota has the opportunity to meet customers' growing interest in hybrid and electric vehicles. UMW Toyota produces hybrid cars, but the price is slightly higher. Therefore, UMW Toyota can produce more types of hybrid vehicles so that customers can have more hybrid options to choose from and to prevent them from switching to other brands of cars. Research conducted by UMW Toyota shows that young people between the ages of 20-29 buy less Toyota cars. The reason is that Toyota cars are slightly more expensive and the design is less attractive to young people. UMW Toyota can try to produce cars at a moderate price so that young people could afford them by developing a financial loan plan for young people to buy and conduct further market research to understand what designs young people like so that they can move in this direction. However, the Bumi/Malay market is also a threat to the UMW Toyota sales market. Most of the Chinese customers purchase the Toyota car but less from the Bumi/Malay segment. Therefore, UMW Toyota tries to solve this problem so that it can increase the market share in the automotive industry.

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Technological Factor Globally, rapid technological progress has increased the importance of understanding technical factors in strategic decision-making processes. Detailed technical analysis can help UMW Toyota to have a better grasp of technology trends and thus gain more business advantages, such as increasing profits, promoting innovative processes and improving operational efficiency.

UMW Toyota has made a huge investment in technology and has always been a leader in the technical field. (UKEssays 2018) When UMW Toyota makes a large investment in the technical field, it increases the risk and uncertainty of the company. The technological environment is changing rapidly, so companies need to respond to this change to survive in the market. The automotive industry is more technology-based, so the better the brand's technology, the higher its sales in the market. Consumers also like to buy and try the first batch of technologically innovative cars. Vehicles with low fuel consumption and the best engines are considered better for consumers and more popular in the automotive market. Therefore, UMW Toyota can try to develop in this direction.

Social media marketing is the most important technical factor affecting Toyota. But the company does not receive good feedback from social media, maybe due to their lack of attractiveness in social media poster design which turns away potential consumers. Advances in information and communication technology can use innovative marketing techniques to enhance collaboration with customers. In the modern business environment, the use of social media has become widespread. UMW Toyota can use the opportunities provided by social media marketing to improve its business performance and build more online brand communities so that more consumers can learn more about the car brand. Besides, UMW Toyota should consider adopting new technologies to maintain their competitive advantage. UMW Toyota should closely monitor 5G analysis because it will bring good business results. 5G technological innovation can bring major changes to the industry and reset the rules of success for market participants. UMW Toyota can focus more on creating more creative technological innovations, thereby increasing market share and improving sales.

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Environmental Factor The environmental factors are said to be able to influence the surrounding environment (Pestle Analysis 2020). One of these factors is due to climate change which is defined as the change in pattern of the weather as well as other related changes in the land, oceans and ice sheets which have been occurring over a long period of time (Australian Academy of Science 2020). Toyota has established the Toyota Environmental Challenge 2050 globally and this challenge is aimed to help solve environmental issues such as CO2 reduction, optimisation of water usage as well as the practice of recycling (Adilla 2017).Henceforth, potential consumers may develop a positive impression on Toyota as it shows that Toyota is working to help in mitigating climate change.

Besides that, Toyota has also been manufacturing hybrid cars and has been recognised as a leader in the green car technology. Toyota is known to have pioneered the first massproduced hybrid car which was the Toyota Prius and over the years, the company has been making breakthroughs in their research of hybrid technology. A hybrid car usually has low emissions compared to petrol engines as they use less fuel, thus, causing it to be more environmentally friendly. Toyota has been committed to reducing CO2 emissions in their vehicles and it is said that there are plans to have their vehicles reduce CO2 emissions by 90% by 2050. Thus, this is an opportunity for Toyota to attract more potential consumers by being a leader in the hybrid vehicle industry as well as their plans of reducing car emissions as climate change has become a huge issue globally.

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INDUSTRY CHARACTERISTICS (PORTER’S 5 FORCES)

Threat of New Entrants New industry entrants are a significant force in the competition within the sector as they will be the potential competitors that are threatening Toyota's industry. Fortunately, Toyota became the world's largest car manufacturer and plays a major role in the automobile industry (Neely 2016). Additionally, the high costs of setting up, maintaining and expanding a new firm in the industry are significant barriers to entry. Therefore, the barriers of entry in the automobile industry are high, which means that the risk of new entrants is very low due to high capitalization and access to distribution channels (Adamkasi 2019). Toyota should focus more on innovation in order to distinguish its products from new entrants through investing on marketing to create good brand awareness that will help to retain its customers instead of losing them to new entrants (Murphy 2018).

Threat of Product Substitutes Consumers often find it convenient to change to substitute goods such as public transport, bicycles, but they do have restrictions, since these substitutes are not available in rural areas. In such case, the threat of substitute products for Toyota is low (Adamkasi 2019). There are a few substitutes for Toyota that are of high quality but the price is higher. Comparatively, firms producing in the sector in which Toyota operates are selling at a lower price than substitutes with a sufficient quality. Hence, it will be less likely for customers to switch to substitute products. UMW Toyota should focus on the differentiation of its products to ensure that customers will see their products as unique and don’t move easily to substitute products that don’t provide such unique benefits (Murphy 2018). Through product differentiation, UMW Toyota will understand better on the basic needs of the customer instead of what the customer is buying (Fernfort 2019).

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Bargaining Power of Customers Toyota is among the biggest vehicle makers in the world and the bargaining strength of the customers is very high (Pratap 2019). This is due to the high amount of knowledge that they have regarding the purchases they make and the low switching costs they experience if they switch to another automotive brand (Adamkasi 2019). However, there are several types of vehicles in the market that have moderate number of substitutes like hybrid vehicle. For example, Toyota Prius a hybrid model with a low bargaining power that customers do not have many options to switch (Fernfort 2019). Hence, the degree of customer’s bargaining power can directly affect the revenues of Toyota business operations. UMW Toyota Motor can invest more marketing effort to promote their vehicle models that have low power of substitution in the market.

Bargaining Power of Suppliers The bargaining power of suppliers in the automobile industry is negligible due to the various amounts of supplier presence of various parts and the importance of volumes for many suppliers is of utmost importance. The switching costs of suppliers depend on the different kinds of raw materials in the automobile manufacturing sector (Adamkasi 2019). However, majority of suppliers in the global automobile industry don't have forward integration or control and ownership of material distribution that reaches companies like Toyota (Ferguson 2017). Therefore, the bargaining power of suppliers of UMW Toyota are low. UMW Toyota can have multiple suppliers within its supply chain. For its different geographical locations, Toyota can have different suppliers that will help to guarantee productivity within its supply chain (Murphy 2018).

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Rivalry Among Competitors The competitive rivalry in the Malaysian auto industry can be considered as moderate mainly due to the existence of protectionist policy in the domestic market (Islam and Abdullah 2019, pp. 3). The automobiles are becoming less of a luxury and more of a commodity (Hunt 2013). According to Statista (2019), the four biggest automotive brands in Malaysia by sales volume of passenger vehicles in 2019 are in descending order: Perodua, Proton, Honda and Toyota. Proton and Perodua are classified as domestic competitors (national carmakers) while the remaining two players are foreign competitors. Previously an underdog in the auto market with age-old issues such as small market share and lack of economies of scale, the two local car makers gradually rose to prominence by moving up the value chain in the industry and able to compete globally through a strategic partnership with foreign automakers, Proton with Geely from China and Perodua with Daihatsu from Japan (TheStar 2017).

Figure 2: Market share of Malaysian automaker brands

Commanding the latest market share of 16.7%, Proton the second automotive market leader has sold more than 100,000 units of vehicles in 2019, with the X70 and Saga as two of x

its best-selling models (NST Business 2020). Proton has their distinctive advantages of offering products of latest technology sourced from Japan and value for money targeted at the upper middle-class segment (Bhasin 2019). Lastly, being the top automaker in the world, Toyota has a sizable market share in Malaysia which aims to target the consumers who live a luxurious life by offering high quality luxury cars at lower prices such as the Lexus model (UKEssays 2016). As of 2018, UMW Toyota recorded an overall sale of 66,562 units including Lexus. The company will continue to strengthen its market position with the completion of completion of a brand-new Toyota manufacturing plant in Bukit Raja, Selangor which will boost their manufacturing capacity by up to 100,000 units per annum, producing competitively priced models including energy efficient vehicles or EEV (UMW 2018).

COMPETITIVE ANALYSIS A competitive analysis is used to determine the strengths and weaknesses of UMW Toyota’s competitors and prepare the company with strategies that comes with a distinct xi

advantage (Entrepreneur 2006). Further detailed explanation can be found in the appendix section.

Marketing Communication Channels

     

After Sale Services Website’s Content   Marketing Strategy  

Threats against Toyota

  

Opportunities for   Toyota 

Domestic Competitors Proton Perodua  Facebook Facebook  Instagram Instagram  Twitter WeChat  YouTube YouTube  LinkedIn LinkedIn Intensive  Extensive

    

Foreign Competitor Honda Facebook LinkedIn Instagram YouTube Extensive

 Clear infographics Clear  Data transparency infographics  List of Industry  Captivating Awards visual content  Clear-cut trade  List of activity classification Company Milestones  Transparency of Data Moderate (Domestic & Foreign) The challenge of new market entrants (competitive vehicles) The Covid-19, global economic recession & national lockdown may reduce customers’ demand for new vehicles. Clear infographics List of Industry Awards Transparency Data Clear-cut trade activity classification



Improve their Content Marketing Strategies Diversify social media channels List down Industry Awards

The three major competitors of Toyota have an extensive social media coverage from Facebook to YouTube whereas Toyota only use Facebook, YouTube and Instagram. The trio competitors have intensive and extensive after sales services such as car inspection service that are vital to retain their loyal customers. In terms of Content Marketing xii

strategy, their company websites have clear infographics with captivating information which includes a list of industry awards. Therefore, the threats to UMW Toyota are considered moderate. New vehicles with competitive features in the future may add pressure to Toyota’s business coupled with the current global economic climate which potentially reduces the consumers’ demand for new vehicles. What Toyota can do now is to improve their Content Marketing tactics, diversify their social media channels and include their industry achievement in their website to improve the customers’ confidence and Toyota’s image credibility.

CONCLUSION

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With innovative automotive technologies, strong research and development (R&D) and a reputable brand, Toyota is poised to continue to be one of the world’s top car makers in the years to come and remain as one of the key players in the Malaysian automotive industry. However, this does not happen without intense market competitions that sometimes threaten the company’s market share. Hence, it is imperative for UMW Toyota to conduct a thorough external environment and industry analyses from time to time to stay ahead of the competition.

REFERENCES

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Abhijeet, P 2019, Toyota Porter’s Five Forces Analysis, notesmatic, viewed 19 April 2020, . Adamkasi 2019, Porter Five Forces Analysis (Porter Model) of Toyota Motors, Porter Analysis, viewed 19 April 2020, . Adilla, F 2017, This year’s Toyota Eco Youth focuses on carbon footprint reduction, New Straits Times, viewed 17 April 2020, . Ariful, I & Abdul-R, A 2019, Proton – The national automaker: A Porter’s 5 forces investigation,

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