CEO Project for Toyota
1. Introduction and Background
Toyota is a leading automotive giant which has climbed to the second largest car producer position in 2010, leaving behind Ford and posing a direct threat to General Motors, which is currently the world’s largest car producer. The international automotive industry is a highly mature market comprised of key players that have dominated it since the first batch of motor vehicles was produced. The key thing to note about Toyota and Honda alike is that they deliver innovative and quality car brands to customers at reasonable prices, without suffering from cost burdens. Toyota has involved innovation in transforming production processes and products according to the changing times and has met with success in return (Toyota, 2001).
2. Strategic Audit
Free trade agreements in the US, Europe and the ASEAN allowed removing trade barriers and make competition more intense. In 2000, China entered the market with cheaper car parts, cheaper labor and cheaper cars.
US and European car producers are facing hurdles due to the economic slump which took quite a long time to recover from. They are alo facing consistently falling profits due to rising costs of car parts. General Motors, Ford, and Mercedes, for instance, have been able to maintain their leadership positions due to strong presence in the home and foreign markets. However, their nationalistic and conservative approach towards using car parts from cheaper suppliers from foreign markets is quickly diminishing their returns during the economic turmoil. By using cheaper supplies and exporting cars to the US market at comparatively less prices, Japanese and Korean car producers were able to attract a lot of customers. Due to the economic recession, car sales have dropped for all companies but Toyota and Honda have sustained their profitability, having minimum costs to bear,. The main complexities have emerged for their US competitors, such as General Motors and Ford.
People are looking for fuel efficiency, speed, and design, and are, therefore, willing to pay more for quality and cost efficiency. However, because of the falling disposable incomes sales have also declined. Companies like BMW and General Motors have had to make several thousand employees redundant, which has caused serious social accusations and protests.
Since 2000, various new forms of cars and vehicles have been introduced to make use of alternative forms of energy, such as electric and hydrogen.
The EU has laid down strict laws against carbon emissions, and companies are charged for the amount that each car emits.
Concerns for environmental protection have been raised, which has forced car producers to re-design and re-shape cars to reduce carbon emissions.
The strength of this strategy lied in the fact that it allowed Toyota to take a more holistic managerial and strategic approach towards global market leadership. Toyota has expanded its brand portfolio by launching specific cars in targeted regions for which they are especially designed, e.g. Toyota Yaris for European customers only. This is an example of fine positioning being used by the company.
Toyota has not yet become a leader in the true sense of the word. Instead of becoming a leader, it has assumed a follower role. This can be one reason why it has not achieved the number one position in the global automotive industry. Toyota would have attained faster growth if it had taken acquisitions and mergers as an expansion strategy.
Introducing electric and hydrogen cars is an opportunity now open for Toyota.
Economic recession has forced sales to go down and increased competition.
3. Strategy and Evaluation
Having realized numerous opportunities present in the world automotive industry, Toyota developed a global vision strategy which focused on the Ansoff strategies of market development and product development, as well as Porter’s generic strategy of differentiation and cost leadership (Lynch, 2008). Part of this strategy is to segment the market based on geographic, psychographic and demographic factors, as well as invest more in research and development to create cars suited to each segment and target world leadership in the automotive industry by the year 2010 (Toyota, 2001).
Toyota has overcome the hurdles facing it in 2000 due to cost leadership, as well as quality and innovation. It also continues to take over the world automotive market, which shows the feasibility of the new global strategy. Toyota is in the process of continuous strategic development, but it stands alone with regard to establishing strong footholds in the markets it enters, as opposed to General Motor’s strategy to build strategic alliances (Toyota, 2010). This allows an effective value chain to be developed, but Toyota relies on its own value delivery network to satisfy car buyers, as well as sustain and grow its market share. Toyota’s leading car brands that have the highest contribution towards its profitability include Lexus, Daihatsu and Camry, Camry being hugely successful with the US customers (Dess, 2009).
The below indicators relate with the company’s performance as a result of its global expansion strategy. Since 2000, the company’s position has radically changed, especially its interest coverage and return on assets, which show a decline.