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 PDF

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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 Assessment of the Strategic Management Models Strateg...

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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

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

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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 Economic cycle downturn Market penetration Increased pressure from competitors New markets exploration Strengths Weaknesses Market dominance Products not highly differentiated Economies of scale High fixed costs Core strengths Management skills Innovation processes Product quality 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 i

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/Camry Hybrid

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 / 4 Runner

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 / Kluger Hybrid

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

Townace

Toyoace

Scion tC Sienta

Vitz / Yaris

Succeed

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

Headlamps

Company

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,

Information from independent sources,

general information

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 Political Economic

Could include: e.g. government support and involvement in businesses 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 Growth

Introduction Demand

Technology

Products

Manufacturin g& Distribution

Trade Competition

Key Success Factors

high-income buyers

increasing market penetration

few companies

entry, mergers & exits design for manufacture; access to distribution; building the brand; process innovation

Maturity

Decline

mass market, knowledgeable replacement, customers repeat buying competing standardization; well-diffused technological knowtechnologies rapid process how; innovation quest for technological improvements commodities the standardization design & quality poor quality; norm lessens improves; wide variety; differentiation; frequent design dominant design efforts to avoid emerges changes commoditization by branding capacity heavy emergence of short shortages; overcapacity; production overcapacity; re-emergence of mass production; deskilling of runs; specialty competition for high-skilled production. channels labor; distribution long production specialized runs; distribution distributors carry channels fewer lines manufacturing shifts from advanced countries to poorer countries

product innovation; establish credible image of firm and product category

shakeout; price competition cost-efficiency through capital intensity, scale efficiency, and low input costs; high quality; fast product development

price wars; exits reduce overheads, buyer selection; signal commitment; rationalize capacity

Source: Adapted from Lynch (2006)

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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 w...