Overview:

A Japanese company, Toyota founded in 1937, which was engaged in designing, manufacturing,
assembling and sale of minivans, passenger cars, commercial vehicles, spare parts and accessories
in Japan, Europe, North America and Asia. Currently brands of Toyota include Lexus, Hino and
Daihatsu. Toyota is one of the automobile leading manufacturer and eighth largest manufacturer
in the world. In 2013 its annual revenue was $213 billion and had 333,498 employees.

Industry

Industry is one that manufactures goods and services within specific category. For economic
production, industry is a broader term; it is an economic activity of converting raw material into
final goods and services. Industry is comprised of systematic activities that are carried out by
mutual cooperation between employee and employers, suppliers, distributors and customers.

Why to conduct industry analysis

To get information about competition in industry, industry trend, future patterns that impact your
business is known as industry analysis. The purpose of industry analysis is compare your firm
with competitor firs, to compare your and competitors strengths, capabilities, weaknesses etc. its
other purpose is to analyze internal and external environment of market and industry.

Importance

1. It allows owners if the business to know and estimating accurate generation of profit from
their business operations.

2. It also aid business owners to estimate accurate number of competitors who are offering
same products and services.

Major components of industry analysis

There are three major components of industry analysis

1. Forces at work

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 2. Attractiveness of industry

3. Factors that determine success of company

Automobile Industry

The industry that offers automobiles such as cars, buses, motorcycles and trucks etc.

Pakistani automobile industry

Pakistan first vehicle was produced in 1953 by Karachi National Motors plant. The plant opened
with combination of General Motors which helped in producing Bedford trucks and Vauxhall
cars. Buses cars and small trucks are also produced in the same plant. In 1953 Ali automobiles
made partnership with Ford truck and offered Ford Anglia, Ford Kombi and Ford pickups.

Contribution of automobile industry in economy of Pakistan

Automobile industry of Pakistan is one of the rapid growing industries in the country. It accounts
for four percent of GDP of Pakistan. There are 1,800,000 people are employed in this industry. In
the running time there are thirty-two hundred plants are operating that produce automobiles, with
investment of ninety-two billion in Pakistani rupee and eight hundred eighty million in US dollar.
There plants produced 1.8 million motorcycles and 200,000 vehicles. To national exchequer, it
contributed about Rs 50 billion. Overall the sector provides employment to about 3.5 million
people and contributing its key service in flourishing merchant industry. Automobile market of
Pakistan is considered as small market in South Asia but it is rapidly growing. In 2014-2015 there
were more than 180,000 cars sold in market, which increased to 206,777 units in 2015-2016.
Currently the automobile market of Pakistan is more dominated by Toyota, Honda and Suzuki.
However “Auto Policy 2016-21” was passed on 19 March 2016 that imposes tax incentives to
new entrants for establishing a new manufacturing plant in the country.

Key sectors of economy

 In 2010-2011 the production of motorcycle strike the record level of country that is about
over 1.5 million units.

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  In 2006- 2007 there was boom period of industry and sales hit the record of 180,834 at
peak.

Structure of market

The market structure of automobile industry is oligopoly, structure with few numbers of sellers
and buyers. Currently there are 15 companies that are in production, out of which five are
automobile producer while ten are producer of commercial vehicle.

Major assemblers in Pakistan

1. Indus Motors (Toyota)

2. Honda Altas

3. Suzuki

4. Diwan Farooq

Industry Analysis

Industry analysis is an instrument that aids companies to analyze its position as compared to
competitor companies that are offering same products and services as of your company. The
important element of effective strategic planning is to understand all forces present a work.

Forces of Industry

The first step of industry analysis is to estimate the impact of Porter’s five forces. The combine
potency of these forces finds out the crucial profit strength in the industry, the profit strength is
calculated in long term payback on capital investment.

Analysis

Toyota motor company is operated and competing in automobile industry. Last five years for
automobile industry were turbulent. Rapidly increasing prices of fuel and growing concern for
eco environment, consumer preferences shifted the demand of heavy pickup trucks to fuel
efficient smaller cars. Some manufactures fulfill the demand through expansion of their product
portfolio and introducing hybrid electronic cars. Some manufactures are not comfortable in

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changing their portfolio because they expect that prices of fuel may decrease and once again
consumer can change their preference from small cars to big vehicles. When there were financial
crises of US in mid of 2008 and rippled the global economy, the prices of fuel decrease. This
effect many economies of the world and also affects the revenue of automobile industry. Almost
fifteen percent of revenue fell in 2009. But with the change in demand, the revenue of the
industry again increase by two percent in 2013 and the total revenue will be two trillion US
dollar. During last five years, flourishing of BRIC countries assisted production and increase in
their income level produced more demand for automobiles. Western companies that are
producers of automobiles moved their production operations to BRIC countries to hold the
market and to get advantage from low cost production. In the coming years, the automobile
industry further will expand and forecasted the growth by 2.5% and will increase its revenue to
$2.6 trillion in 2018.

Life cycle of industry

The industry is at mature stage of life cycle

Determinants of Demand

In the whole world the demand of automobiles is determined by consumer factors including
prices of vehicles, per capita disposable income of consumers, prices of fuel and innovation in
product. From supplier side, the factors are; prices of vehicles, cost of equipments and material,
prices of steel and plastic, purchasing cost of manufacturers and retailing price. Over the last five
years, the high prices of plastic and steel overwhelmed the manufactures through increasing the
manufacturing cost and prices of products. Income of consumers also determined the demand of
vehicle, if income id high consumers are more urge to buy vehicles. To increase the sales of
product during recession period, wide incentives are used. Several financing companies are
established who give loan to automobile manufacturers which help them to fulfill the demand of
automobile consumers through investing the loan in new products designs developments. Other
factor from consumer side is the information about the product also determined the demand of
vehicles. On the basis of information present to customers, they negotiate with manufactures and
deal with them.

Porter’s five forces

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Threat of new entry

 Huge investment is required for new entrants

 High revenge from existing companies if new company come with innovative ideas

 Legal barriers for protection of existing firms

 Established reputation and brand image

 Required differentiated engineering quality and design

 Easy access to suppliers and distributors

 Difficult to attain economies of scale

Supplier power

 Huge number of suppliers in market

 Size of some suppliers is large and some is small

 Companies use both metal and plastic for production

 Material is accessible widely

 There is no threat of forward integration

Buyer power

 Large number of buyers

 Buyers include individuals who buy one car, corporate and governments who buy large
number and bargain at lower prices

 Switching cost is low

 Easy for buyers to choose alternative cars brands

 Decision of buyers are based on prices because they are more price sensitive

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  There is no threat of backward integration

Threat of Substitutes

 Substitutes for automobile or consumer vehicles are bicycles, trains, planes or buses

 Substitutes are at same convenience

 Substitutes are less costly and are environment friendly

Competitive Rivalry

 Number of competitive firms is moderate

 Huge losses will incur if company decide to leave industry

 May be leaving industry leads to bankruptcy

 Size of industry is large and it is matured

 Varied sizes of firms but compete for different segments of customers

 Customers loyalty toward brands

 Acquisition threat is moderated

Standards of cost structure

Wages = 6.3%

Purchases = 70.7%

Depreciation = 6.0%

Profit = 4.9%

Other = 10.4%

Rent and utilities = 1.7%

Competitive setting

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Concentration of market share in the industry is low. Market concentration and global revenue of
largest four firms is estimated about only one-third part.

Major Companies and their world-wide market share

 Toyota (market share = 10.2%)

 Volkswagen (market share = 9.6%)

 General Motors (market share = 6.9%)

 Ford (market share = 5%)

 Others (market share = 67.7%)

PEST Analysis

PEST stands for “Political, Economic, Social and Technological Factors”. It is analyzing the
external macro-environment; these factors are not in control of business.

 Political

1. Limitation by government on imported parts

2. Compliance of international standards

3. Regulations for foreign ownership

4. Cooperation on technology with government

5. Insurance policies

 Legal

1. Society Legislation
2. Business law
3. Consumers protection laws
4. Fixed imports taxes
5. Port taxes (5%)

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 6. Social responsibility tax (1.5%)
7. Nation Building tax (3%)
8. Road and Infrastructure development tax (2.5%)
9. Customs Import Duty
10. Value Added tax (20%)
11. Excise Duty

 Economic

1. Inflation and increase in prices

2. Exchange rates

3. Oil and gas prices

4. Interest rates

5. Income level

6. Imports

 Social

1. Culture of car

2. Taste

3. Fashions

4. Customized cars

5. Attitude of customers

 Technological

1. Gas-electric Hybrid

2. Automatically Controlled

3. Hydrogen Powered Fuel

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 4. New and advance technologies

5. User satisfaction

Key Success Factors in the Automotive Industry

Essential success factors

The key success elements of an industry are main instruments that help in measuring business
achievements and helps in determining progress toward objectives and goals.

The key success factors for automobile industry of Pakistan are as follow;

 Low cost
 Cash flow
 Positive image
 Distribution channel
 Compliance
 Export market
 Efficient work activities
 Cost controls
 Efficient techniques and technologies