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Opening thought
No other man-made device since the shields and lances of the ancient knights fulfils a mans ego like an automobile
Sir William
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Introduction Thinking strategically Strategic analysis of Toyotas business Strategic options for Toyota
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Introduction
This presentation reviews the market for car manufacturing and takes you through the key corporate strategy issues facing Toyota Motor Corporation, a public limited company listed on the Tokyo, New York and London Stock Exchanges with its headquarters in Toyota City, Aichi, Japan It is important to remember that, in corporate strategy analysis, there are no right or wrong answers just problems that need addressing and choices that have to be made The views and opinions expressed in this document are just our opinion. Hopefully you will find them helpful. However, dont forget that you need to form your own views and be ready to explain and justify them in your Unit 4a examination paper Print this presentation out and add your own notes to it as you work through the case study or download it onto your laptop and annotate it There are some suggested web links in the presentation for you to follow up as part of your detailed research programme Above all remember that Unit 4a is about:
Thinking strategically Thinking big picture Thinking synoptically i.e. recognising that strategy issues are not just about marketing or finance or production but about inter-related issues
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Step 1
Step 2
Step 3
Step 4
Step 5
Thinking Strategically
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Thinking strategically means imagining YOU are sitting at the Toyota boardroom table in Aichi, Japan, with Akio Toyoda, the Chief Executive (since June 2009)
As you sit in the driver s seat looking out through the windscreen across Toyota City, your role now is to navigate your way through the complex and intensely competitive world of global car manufacturing and sales. Fasten your seat belt
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Directors do not concern themselves with day-today operational details neither should you
Akio Toyoda is concerned with questions like
What is our business mission? What are our goals and objectives? How are we doing? Can we survive with our current strategy? What strengths and weaknesses do we have?
What resources do we need? How should we finance them? Are the same actions in the best interests of all the stakeholders?
Think about these questions as you work through the case study
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Decisions involve risk but a business can never move forward unless it takes risks
Information is never perfect, complete or always up-to-date The Unit 4a evidence needs to be considered in detail and data must be interpreted with a critical eye Think about the decisions that Akio Toyoda needs to take. What information does he need?
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Weaknesses
in reality, these are the things that really stop a business from succeeding. Most businesses have some fundamental weaknesses but management often ignore them (and rarely admit them). Your job is to tell it as you see it.
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All businesses have problems but they are rarely as bad as they look
Not every problem or issue described in the Toyota case study is really important. Dont get too bogged down by what look like numerous issues. Good management is about sorting things out Try to identify the really important issues, problems or challenges facing Toyota. These are the strategic challenges that the company must address
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Emerging markets of Latin America, Central and Eastern Europe, Africa and the fast-growing AsiaPacific/Middle Eastern region have the greatest future growth potential
The Boston Consulting Group predicts that, by 2014, one-third of world demand will be in the four BRIC markets (Brazil, Russia, India and China). Other potentially powerful automotive markets are Iran and Indonesia Asian automakers are gaining market share in the USA
Customers There are considerable differences in the primary customer buying needs for cars based on income levels, age, family, male/female, lifestyle etc
Therefore there is a very wide range of products on the market from small, low priced, economy cars through to high priced, gas guzzling sports cars, from minivans to SUVs to smart cars and hybrid models
Some commentators believe that by 2015 more more light vehicles will be sold in the aggregated emerging markets than in the combined "saturated" markets of the United States, Canada, Western Europe and Japan
China and India are key drivers of growth in this sector, as low price, light vehicles (such as Tata Motors Nano) become attainable for an increasing percentage of these countries' huge consumer populations tutor2u
Emerging China, India, Iran and Thailand have experienced phenomenal growth in car production during the last decade
Saturated By contrast, car production in the USA, Canada, France, Spain, Italy and the UK has declined in absolute terms over the same period
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Other significant players in the market include: FIAT (Italy) Daimler (Germany) Chana Automobile Company (China) BMW (Germany) Mazda (Japan) Chrysler (USA) Mitsubishi (Japan) Beijing Automotive (China) Taha Motors (India) Dongfeng Motor Corporation (China)
Top 10 Players
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This case study is about a leading global brand in a huge global industry
Ranking of worlds top 100 brands (source: Interbrand 2010)
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 12. 13. 14. 15. 16. 17. 18. 19. 20. Coca Cola IBM Microsoft Google General Electric McDonalds Intel Nokia Disney Hewlett Packard Mercedes Benz Gillette Cisco BMW Louis Vuitton Apple Marlboro Samsung Honda Other auto brands in the world top 100 50. Ford 53. VW 63. Audi 65. Hyundai 72. Porsche 91. Ferrari
11. TOYOTA
Toyota is ranked as the 11th most valuable brand in the world alongside some household names Ten of the most valuable brands in the world are in the automotive sector
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High Volume
Low Volume
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2.
Big volume global brands with > 3.5 million vehicle sales pa (Toyota, VW, Hyundai/Kia, Ford and Honda)
These mass market brands are not as tightly defined. They market an exhaustive range of vehicles in multiple categories to virtually every customer segment imaginable. These brands have a broad appeal through a broad range of vehicles and customers. What these brands lack in definition they make up for with volume.
Both approaches can result in strong, valuable brands, but the vehicle manufacturing industry is continuously under pressure to increase volume, which sometimes (as in the case of Toyota) results in decisions that undermine the credibility of the brand. The desire to increase volume tests the brands elasticity.
For example, Volkswagen, having purchased Porsche, wants to increase Porsche sales considerably by expanding the product line to include smaller crossovers and more affordable sports cars. Is there a point at which Porsche is no longer Porsche? The high volume brands have a different set of issues. Constant promotional incentives designed to drive up volume have taught consumers to look for a deal in effect to treat the purchase as a price elastic, commodity type deal. A lack of brand differentiation and increasing recognition that todays vehicles are usually high in quality will inevitably lead to lower margins and lower profits as every volume manufacturer competes on price.
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1937 company was founded by Kiichiro Toyoda 1957 entered USA market with the Crown 1989 launched luxury brand Lexus 1997 set up in Europe and launched worlds best selling hybrid car Prius 1999 set up in UK 2002 enters Formula 1 2005 comes 8th in Forbes 2000 list of the worlds leading companies (55th in 2011) 2007-9 severely affected by the worldwide financial crises with a loss of US$4.4 billion. 2009 declared its first financial loss since 1950 and had to ask for an emergency loan of US$ 3 billion from Japan Bank, a state-backed lender. This is the first time the state-backed bank has been asked to lend to a Japanese car manufacturer 2009 (to present) Akio Toyoda, grandson of the founder, is Chief Executive 2009-10 took over from General Motors as the worlds largest car manufacturer by sales and production
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Toyota Today
Toyota is the worlds largest vehicle manufacturer by volume, aiming to produce over 8 million vehicles in 2011 It is one of the worlds leading and most valuable brands Its main brands are Toyota, Lexus, Daihatsu and Hino (all Japanese) and Scion (USA) Toyota has grown by acquisition with majority shareholding stakes in Daihatsu (51%) and Hino Motors, and minority shareholdings of 16.7% in Fuji Heavy Industries (Subaru) , 5.9% in Isuzu Motors as well as Yamaha Motors and Mitsubishi Aircraft Corporation Toyota also runs a Financial Services business Besides Japan, Toyota has factories and assembling plants in 26 other countries:
North America - United States, Canada South America - Mexico, Brazil, Venezuela, Colombia, Argentina Europe - Poland, Czech Republic, France, Turkey, United Kingdom, Portugal, Russia Asia - China, India, Sri Lanka, Pakistan, Indonesia, Malaysia, Thailand, Vietnam, Philippines Africa - South Africa, Egypt Australasia Australia
In total, Toyota has 540 consolidated subsidiaries and 226 affiliates and should be considered as a giant Multinational company (MNC)
www.toyota-global.com
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Toyota views its global regions as the driving force for its management and for the delivery of the Toyota Global Vision, working through locally based operations to provide distinctive products and services tailored to needs and wants in each community and nation One of the challenges now and for the future is to manage the issues surrounding global production in respect of quality assurance. No matter where Toyota vehicles are made, they must have the same high level of quality. Toyota doesn't put a label on vehicles which says "Made in The USA" or "Made in Japan", but instead opts for one label for all: "Made by TOYOTA." This means that there is a need to spread Toyota's manufacturing philosophy the "Toyota Way" to all of their overseas bases.
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The Problem: Accelerators and Vehicle Recalls. What went wrong at Toyota?
Evidence A gives a brief summary of the problems that Toyota faced In January 2010 a series of problems emerged in the U.S.A. with sticky accelerator pedals which meant that some Toyota cars experienced sudden and uncontrollable acceleration problems A series of accidents, including the fatality of a San Diego policeman, were linked to the Toyota accelerator problem As a result, Toyota halted sales and production of eight of its top-selling cars in the U.S.A. and recalled more than 12 million cars worldwide over an 18 month period to June 2011 in two separate recalls due to safety concerns Toyota faces the prospect of billions of dollars in charges, compensation and operating losses The Toyota brand, once synonymous with top quality and reliability has taken a heavy hit, especially in the U.S.A., where its market share dropped dramatically at the start of 2010 (see Evidence F) Trust in the brand and the reputation of the company has been undermined in the eyes of Toyotas loyal customer base Toyota has also been accused of mismanaging the communications and PR activities associated with the safety recalls, thereby exacerbating the concerns of shareholders and customers and breaching their trust
The biggest series of product recalls in history, allegations of unintended acceleration, thousands of lawsuits, and a decline in the reputation of its brand that could take years to recover.
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In June 2011 Toyota recalled more than 110,000 hybrid vehicles over concerns about a problem with the power supply circuit affecting the Highlander hybrid and Lexus RX400h models globally
The vehicles could stop suddenly because of an electrical problem leading to a blown fuse
Some analysts think that Toyota is now in danger of losing its position as the world's biggest carmaker to GM who are currently improving their position in the U.S.A., doing very well in China and re-vamping their line-up in other key markets like India
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The Cause: From Quality to Quantity Why did it go wrong for Toyota?
Toyota's brand value reflects a long-standing corporate commitment to a simple and powerful business model built first on product quality and safety, and second on volume growth and sales quantities The quest for rapid expansion of sales volume led to cracks appearing in Toyotas quality control systems As Toyota grew from a Japanese brand to the biggest carmaker in the world, it needed to boost its production in order to meet the increased demand for its cars That resulted in the company setting up factories in various parts of the world to ramp up production. Some of these factories may not have been able to maintain Toyota's very high Japanese standards The Toyota Way
Toyota's commitment therefore shifted from product quality and safety to business growth and sales
Toyota President Akio Toyoda has publicly acknowledged this focus shift from quality to quantity and apologised for the company's misguided strategic focus
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Toyota will lead the way to the future of mobility, enriching lives around the world with the safest and most responsible ways of moving people. Through our commitment to quality, constant innovation and respect for the planet, we aim to exceed expectations and be rewarded with a smile. We will meet challenging goals by engaging the talent and passion of people, who believe there is always a better way.
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Global Vision: Where will Toyota focus its effort? Mobility, Enriching Lives, Safety, Quality, Constant Innovation...(1)
Lead the way to the future of mobility" Toyota will lead the industry in tackling technological advances that will spawn next-generation mobility. It will explore possibilities in personal mobility, for example, and in the convergence of information technology for automobiles and "smart grids" for optimizing energy generation and consumption. Toyota will undertake such leading-edge R&D with an eye to adapting products and services to the needs and circumstances in each market Toyota will develop low-carbon technologies and technologies for maximizing safety through interaction with the transport infrastructure to lay a foundation for sustainable and amenable future mobility. The company will work in this and other ways to support new kinds of lifestyles, while propagating technologies for preserving environmental quality.
"Enriching lives around the world" Toyota has been consistently true to its founding spirit of serving society through conscientious manufacturing, and it will continue working in that spirit to enhance the quality of life wherever it has operations Toyota will continue contributing to economic vitality wherever it has operations by generating stable employment and by participating in mutually beneficial business relationships with dealers and suppliers. It will also continue to engage actively in initiatives for nurturing human resources and for enhancing the cultural life of its host communities
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Global Vision: Where will Toyota focus its effort? Mobility, Enriching Lives, Safety, Quality, Constant Innovation...(2)
"The safest and most responsible ways of moving people Safety is Toyota's highest priority and Toyota will continue to furnish world-class safety Toyota will also continue to contribute to environmental quality and to human happiness by leading advances in technologies for minimizing environmental impact and by deploying those technologies in a growing line of vehicle models. The company will work through its products, sales and services to ensure a rewarding experience for customers
"Our commitment to quality, constant innovation" Toyota is committed to providing highly reliable quality that will enable people to feel good about driving and riding in its vehicles Toyota will continue to reinvent itself and to develop technologies to address the needs of today and of tomorrow. That includes working to provide vehicles that meet people's needs and that are affordable everywhere
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... Global Vision: Where will Toyota focus its effort? Planet, Exceed Expectations, Better Way, People
"Respect for the planet" Toyota will continue working to minimize environmental impact in its manufacturing and other operations, as well as in its products Toyota's activities will include conserving energy and reducing output of carbon dioxide, as well as conserving material resources through recycling;. It will also include establishing mindsets and production methods appropriate for coexistence with nature
"Exceed expectations and be rewarded with a smile Everyone at Toyota will continuously maintain a sense of gratitude to customers and will strive to earn smiles with products and services that are stimulating and even inspiring
"There is always a better way All Toyota employees will share the recognition that there is always a better way and share a commitment to continuous improvement, which are fundamental to The Toyota Way "Meet challenging goals by engaging the talent and passion of people Toyota will nurture a corporate culture where teamwork and individual creativity thrive and where people will approach their work with pride and with passion The company will honour the spirit of diversity in recruiting, training and promoting capable individuals around the world. Human resources development at Toyota will continue to promote the transmission of the company's monozukuri spirit of conscientious manufacturing and related skills and know-how from one generation to the next
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Toyota expresses the Global Vision using a Tree Metaphor, focusing on roots, trunk and fruit
Fruit = Making great cars and contributing to host communities: The fruit yielded by the tree symbolises Toyota's progress in creating ever-better vehicles and contributing to economic and social vitality in Toyota's host communities. That progress will earn a welcome place for Toyota in communities around the world Trunk = Solid business: Business vitality is the trunk that supports Toyota's activities toward creating products that will win customer smiles. Through the trunk flows the nutrition for supple limbs, branches and leaves and for bounteous fruit. Roots = Shared values: These are the values that people at Toyota have expressed over the years as the Toyoda Precepts, as the Toyota Guiding Principles (see Evidence C), and as The Toyota Way. They are the spirit of conscientious manufacturing
Toyota's vision evokes a virtuous circle. The company will contribute to its host communities by making excellent automobiles. Earning a welcome place for Toyota in its host communities will support sound returns. Toyota will reinvest those returns in creating ever-better vehicles for customers and will achieve sustainable growth.
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Lexus Strategy
Position Lexus as a truly global premium brand Assert characteristic Lexus strengths in product quality and in adding value, and in conscientious service to evoke the Lexus appeal, emphasizing emotive ride, original design and advanced technology Offer Lexus models in a growing range of emerging markets, and expand the Lexus sales networks in markets where the brand is already a presence.
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Toyotas ability to compete successfully with other car manufacturers and to deliver its vision and objectives will be affected by the companys strengths and weaknesses
Marketing
Key Strategy Question:
Operations
What are Toyotas Strengths, Weaknesses and Issues in its four main business activities? Human Resources Finance
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MARKETING: Branding Years of careful brand development have been jeopardised by recent events
The brand name was born in 1936 when it was changed from the family name Toyoda meaning fertile rice paddies to Toyota because:
the new name sounded better and its eight-stroke count in the Japanese language was associated with wealth and good fortune
The corporate logo, launched in 1989, is based on three ovals that combine to form the letter T (for Toyota).
The two inner, interlocking ovals represent the beneficial relationship and trust between the company and its customers The bigger outer oval represents Toyotas global presence all around the world
The brand name has become synonymous with Japanese build quality and product reliability which is trusted by Toyotas loyal global customer base BUT Trust in the brand has been undermined by recent events with the recall programme
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MARKETING: Product Toyota is a mass market producer whose products cater for all segments of the market
Toyotas product range includes cars, coupes, vans, trucks, hybrids, & crossovers/SUVs. Passenger cars range from the subcompact Toyota Yaris, to the compact Corolla, to the mid-size Camry and the full-size Avalon. Coupes include the MR2
Several small cars, such as the xB and the tC are sold under the Scion brand in the U.S.A.
Vans include the Previa, Estima and Sienna Crossovers range from the compact Matrix and RAV4, to the mid-size Venza and Highlander. SUVs range from the mid-size 4Runner to the full-size Land Cruiser Pick up trucks include the Tundra and Hilux brands Luxury-type vehicles Models sold under the Lexus division range from the LS to the RX crossover to the LX SUV and include various Crown models Motorsport - Toyota has been involved in many global motorsports series including the World Rally Championship and Le Mans 24 hour race. In 2002 Toyota entered Formula One as a constructor and engine supplier, withdrawing in 2009 due to the depressed global economic situation Toyota products are sold under about 70 different brands
Leading brands include Toyota, Lexus, Hino, Daihatsu and Scion Toyotas leading global make of car is the Corolla Lexus often tops the global dealer charts for quality of Sales and Service
BUT Toyotas product range has been criticised for being rather staid and boring compared with some of it nearest competitors, especially VW
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MARKETING: Price and Promotion Toyota has clear price points and is restoring confidence in its brand image through promotion
Toyota vehicles are typically mid-priced cars which have become increasingly subject to promotional discounting as the manufacturer has sought to sell more cars For a number of years Toyota was famed for its advertising slogan:
The car in front is a Toyota, the promotional message being about technical prowess and progress
BUT Discounting policies can undermine the value of brand building Some internet bloggers have, rather cruelly, attacked the Toyota brand in the wake of its troubles with counter slogans such as:
Toyota Moving Forward uncontrollably! Today Toyota, Tomorrow Taxi!
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MARKETING: Place Updated data from 2011 for Evidence B shows a remarkable shift in regional sales activity
Toyota Sales Data (units by destination) 2009 Japan N America 2010 2011 Two year growth -1.6% -8.2% 1,944,823 2,162,418 1,913,117 2,212,254 2,097,374 2,031,249
Europe
Asia Other
1,061,954
904,892
858,390
795,534
-25.1%
38.7% -9.0% -3.4%
979,651 1,255,016
The Toyota product philosophy allows for regional demand differences to be met by locally oriented products (eg pick-ups in North America, Auris in Europe) Over the last two years, sales to Asian markets have grown by 39%, bucking the overall declining trend in all other regions.
Daihatsu gives Toyota a growing share in fast growing SE Asian countries
Europe has experienced a particularly steep decline, although it is Toyotas smallest region Toyota has a large share of the US market where it is second behind GM Toyota is the market leader in Australia
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MARKETING: Toyota also has a range of other non-automotive products and activities
Aerospace Toyota is a minority shareholder in Mitsubishi Aircraft Corporation, a new venture which will produce the Mitsubishi Regional Jet, scheduled for 2013 Philanthropy Toyota sponsors the Toyota Municipal Museum of Art in its home city of Aichi and is a supporter of the Toyota Family Literacy Program helping low-income community members in education Higher education In 1981 Toyota established the Toyota Technological Institute and a second institute was established in Chicago in 2003 Robotics In 2004 Toyota showcased its trumpet-playing robot Toyota has been developing multitask robots for the elderly care market its brain machine interface is designed for use with wheelchairs, allowing a person to control an electric wheelchair accurately, almost in real-time, with his mind. Robots are being developed for manufacturing and entertainment applications Finance Toyota Financial Services Corporation provides financing to Toyota customers Agricultural biotechnology Toyota invests in several start-up businesses and partnerships in the biotechnology sector including :
P.T. Toyota Bio Indonesia Australian Afforestation Pty. Ltd. Sichuan Toyota Nitan Development in China tutor2u
OPERATIONS and PRODUCTION: Toyotas management philosophy has emerged from Lean Manufacturing and Just in Time production
Toyotas managerial approach and business methods are known as The Toyota Way which has four components:
Strategy = long-term thinking as a basis for management decisions Process = a process for problem-solving Respect for People = adding value to the organization by developing its people Kaizen = recognizing that continuously solving root problems drives organizational learning Kaizen (continuous improvement) Genchi Genbutsu (going to the source to make correct decisions) Respect Teamwork Challenge
The term lean production originated in the 1980s to describe the synchronised manufacturing process at Toyota. Lean, sometimes called the Toyota Production System, or Just-in-Time production, is a philosophy focused on eliminating waste to create a just-in-time, synchronised workflow which increases productivity and improves value for customers. Lean operations aim to be flexible, with little inventory and flat management structures. Lean production has subsequently become a global management philosophy adopted by manufacturing companies and adapted to apply to service companies as well
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Achievement of significant production economies of scale by virtue of being the largest producer of vehicles in the world Rated for production quality and reliability, especially with the Lexus and Scion brands The worldwide leader in and pioneer of Lean and J-i-T production and the reference model for the deployment of quality
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OPERATIONS and PRODUCTION: ... But it has recently had setbacks and made mistakes (1)
In January 2009 all of Toyotas Japanese production plants closed for 11 days to reduce output and stocks of unsold vehicles driven by the impact of the global recession The J-i-T practices were vulnerable to the recent earthquake and tsunami because Toyotas supply chain broke down and it had insufficient stock holding of car parts to fulfil its orders Consequently it is re-thinking its supply chain strategy and the use of alternative suppliers which might give it more agility to respond to disruption Production in Japan is down by 63% in 2011 (vs 2010) because of the effects of the tsunami its lowest domestic production since 1976!
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OPERATIONS and PRODUCTION: ... But it has recently had setbacks and made mistakes (2)
Some factories outside Japan have not met the requirements for quality as set out in the Toyota Way hence the problems with accelerators, brakes and hybrid power supply circuits. This is a failure of Genchi Genbutsu, a core value of Toyota Supply chains are only as strong as the weakest link. Auto companies make hardly any of their parts. They assemble cars from parts made by others. The offending accelerator pedal assembly was made for Toyota by a company called CTS of Elkhardt, Indiana, U.S.A. Supply chain monitoring is a critical factor for manufacturers that rely on third-party suppliers (as it is for a broad variety of global industries, not just automobiles). Smart companies should know their suppliers and their respective strengths and weaknesses
Toyotas brand architecture, with its almost exclusive focus on a single corporate brand, which was previously one of its greatest advantages, has since become its biggest strategic problem. By using shared parts and technologies across multiple models, a technical hitch with one car also means problems with others
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OPERATIONS and PRODUCTION: Toyota Vehicle Production by Region (Year to March 2011)
Toyota Production by Operating Region (Vehicles, Share)
Asia 372,788 5%
Other
1,340,603 19%
3,720,711 52%
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HUMAN RESOURCES: Toyota is a large global employer with respect for its teams, but economic realities have led to job and pay cuts
Toyota has 318,000 employees worldwide Its core values, encapsulated in The Toyota Way state the importance of
Respect for people Teamwork
From a CSR perspective Toyota is concerned with the socio-economic aspects of its operations, such as the health and safety of employees, as well as that of the communities in which the company operates BUT The last three years have been a tough time for employees in the car industry
For example, since 2007, 250,000 jobs have been cut in the U.S.A. by GM, Ford and Chrysler combined
Toyota has laid off many of its temporary staff and other staff have been asked to take pay cuts which has a negative impact on morale and motivation, for example:
750 job cuts in UK in 2010 240 job cuts in Australia 2011 with an additional 3,300 staff on reduced wages as the Melbourne factory ran on reduced capacity utilisation All production was suspended in N America for 5 days in 2011
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The book value of the Fixed and Current Assets on the balance sheet is 377 billion US$ (based on July 2011 exchange rates) Profits in 2009 were impacted by the economic downturn, the year in which it incurred its first financial loss since 1950
Toyota's financial unit had to ask for an emergency loan from a statebacked lender (Japan Bank) on March 16, 2009, with reports putting the figure at more than US$3 billion. It is the first time the state-backed bank has been asked to lend to a Japanese car manufacturer
Profits in 2010 and 2011 were impacted by the tsunami and earthquake in Japan as well as by the safety recall programme
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FINANCE: An analysis of the Balance Sheet from Evidence D (with updated figures for 2011) shows a healthy financial position
BALANCE SHEET (Yen M) Mar-09 Current Assets Mar-10 Mar-11 11,298,929 13,073,604 11,829,755
Current Ratio is a little low, but has remained steady for three years
Quick Ratio is healthy and has improved slightly since 2009 Gearing Ratio is unchanged since 2009. Toyota has the option to:
increase its gearing a little if it wanted to borrow in order to expand further or it could use some of its profits to pay down some of its long term borrowings
Capital Employed
Current Ratio Quick Ratio (Acid Test) Gearing Ratio
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FINANCE: An analysis of the Income Statement shows that Toyota is improving, but not achieving its objective for NPM, and it has a poor ROCE
INCOME STATEMENT (Yen M) Mar-09 Sales Revenue Cost of Goods Sold Gross Profit 20,529,570 18,455,800 2,073,770 Mar-10 18,950,973 16,683,797 2,267,176 Mar-11 18,993,688 16,615,326 2,378,362 Two year change -7.5% -10.0%
Overheads/Expenses
Operating Profit/Loss (Net Profit) Gross Profit Margin Net Profit Margin Return on Capital Employed (ROCE)
2,534,781
(461,011) 10.1% -2.2% -2.5%
2,119,660
147,516 12.0% 0.8% 0.8%
1,910,083
468,279 12.5% 2.5% 2.5%
-24.6%
Sales revenues are down by 7.5% over two years because of price competition and discounting Gross Profit Margin has increased, indicating improvements in managing down the Cost of Goods Sold Net Profit Margin has risen to 2.5%, but is still only half of the target set by Toyota in its corporate objectives, although profitability has been restored Return on Capital Employed is increasing, but for the last three years it has yielded less than Toyota could have earned if they had employed their capital (relatively risk free) earning interest in a bank or bond account tutor2u
Operations
Lean Production and J-i-T management techniques The Toyota Way Production economies of scale Reputation built over several years for product quality and reliability
Respect for staff and teamwork both at the heart of Toyotas philosophy Management of Overheads and Cost of Sales Rising profit margins
J-i-T vulnerability to external shocks Variable quality of production in factories outside Japan
Many job losses and pay cuts in the last three years NPM well below target Low ROCE
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There are several external influences outside Toyotas control which create opportunities and threats (PEST)
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Opportunities Development of low, or no, emission vehicles (hybrids, eco-friendly) Ability to sell more easily to global markets with fewer constraints Threats Requirement to invest in state of the art, clean, pollution free manufacturing facilities Increasingly litigious society will pursue safety claims ferociously
Toyotas Vision for Society in 2020-2030: Towards a Mature Society Nationalism will steadily decline and respect for all peoples will expand throughout the world People of a variety of nationalities and ethnicities will be able to engage in lively tutor2u exchanges of ideas in global companies
Economic
Prices of oil, petrol and diesel will continue to rise on the global markets because of the dwindling supply of these commodities as the century progresses Emerging markets will grow significantly faster than mature Western markets (China, India, Brazil, Russia especially) Exchange rates will affect global demand and global costs (strong Yen hindering Japanese exports)
Opportunities Developing new ways of powering vehicles growing demand for hybrid , electric vehicles Locating production facilities in parts of the world closest to growing demand with the lowest costs Threats Squeeze on disposable incomes, especially in USA and Europe will affect demand New car retail sector is prone to fluctuations in the economy because a new car is not a necessity
During recession people keep their cars longer (delaying the purchase of a new car) Discounting by big three vehicle manufacturers Survival? Expansion programmes?
During recession, customers tend to switch to Value brands rather than Premium brands
Reluctance of banks to lend in the current economic climate making it hard to raise money for:
Toyotas Vision for Society in 2020-2030: Towards a Recycle-oriented society Transition from the era of large-scale production and large volume consumption toward a recycle-oriented society on a global scale that promotes Reduce (conservation of resources), Recycle and Reuse
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Threats Some countries will move much more slowly than others in terms of uptake of environmentally friendly vehicles
Toyotas Vision for Society in 2020-2030: Towards the Development of Motorisation on a Global Scale People all around the world will be able to enjoy the high degree of mobility afforded by automobiles
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Technological
Developments in technology are already moving fast and are set to speed up
Opportunities ITS (Intelligent Transport Systems): advanced transport systems that are constructed to integrate people, vehicles and the traffic environment, using state-of-the-art information and communication technologies to build a safe, comfortable and smooth transport infrastructure Plug-in hybrids using lithium-ion batteries with home re-charging Fuel Cell vehicles using hydrogen for energy? All electric vehicles? Eight speed automatic engine transmission Integrated Safety Management Concepts
Automatic parking Active Safety technology to avoid dangerous situations and prevent accidents Pre-crash Safety Prediction technology to predict a frontal collision before it happens and help reduce damage Passive Safety technology to decrease the damage from collisions Rescue Emergency dispatch service to notify of traffic accidents/emergencies automatically
Threats Competitors developing and patenting better or more marketable technology solutions
Toyotas Vision for Society in 2020-2030: Towards the age of Information and Telecommunications Systems and Ubiquitous Networks Information and telecommunications technologies are advancing and the use of IT in automobiles is increasing Mobile information services are improving rapidly Infrastructure-respondent preventive safety technology is developing
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Weaknesses
Loss of trust in brand Low ROCE and Net Profit Margin
Opportunities
Hybrid, eco-friendly vehicles Technologies to make driving safer and fun Emerging markets
Threats
Difficult to access credit Gloomy economic outlook
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Supplier Power (Low/Medium) Numerous, diluted suppliers But quite hard for Manufacturers to switch suppliers Suppliers survive only if the manufacturer survives, so they have to work together
Rivalry of Industry Competitors (High) Some product and branding differences, but many products are similar Slow industry growth so it is all about gaining market share A race for Developing hybrid and eco friendly models and other new technologies Intense price competition and discounting Medium/High exit barriers
Customer Power (Medium/ High) Easy to switch brands Several cars offered in each category Customers expect to negotiate on price with the car dealer
Threat of New Entrants (Medium/Low) Due to high up front investment costs and the presence of several strong brands, it is hard to enter this industry However, some recent new entrants have entered the market in Emerging countries (e.g. Tata Motors) tutor2u
Is Toyotas bigger problem the way they managed the PR and communications with stakeholders rather than the product safety issue itself?
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Toyota did not manage the Public Relations exercise very well...
In a crisis, the way the brand reacts is important The company was caught flat-footed by the public relations disaster of its own making As its global recall crisis worsened, CEO, Akio Toyoda, delayed and waited weeks before giving his first full press conference Uncertainty is not an asset, especially when lives could be at stake through the sale of a dangerous or unsafe product As a result, stakeholders such as customers and investors were left feeling unloved and angry There was a loss of trust between the brand and its stakeholders and Toyotas Vision Statements were made to look hypocritical, especially in America
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Is Toyotas culture too insular and parochial for the modern, global market-place? (Evidence C)
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The Japanese approach is very different from many more Westernised businesses
The traditional Japanese management style, practiced by Toyota and most Japanese companies, focuses on team spirit and management by consensus much more than a boss who leads from the front, inspires with a big vision and who bangs heads together Business culture in Japan is highly deferential. Top managers often rise through the ranks while avoiding making waves through radical reforms or open disagreements with colleagues, and take the top job once they have proven themselves as a safe pair of hands
Akio Toyoda was groomed to take the job his father and grandfather once held, having spent his apprentice years in several company divisions and various overseas postings
The culture tends to be rather insular, inward-looking and production oriented rather than customer focused and stakeholder focused
Toyotas all-Japanese executive board is headquartered not in Tokyo, but the relative seclusion of Aichi, a small town near Nagoya The first foreigner accepted onto Toyota's board of directors, in 2007, was American Jim Press, who had spent 37 years with the company. He resigned from the post after just five months and went to rival carmaker Chrysler Although he earned an MBA from Babson College in Massachusetts, Akio Toyodas spoken English is limited
In terms of Charles Handys work on culture, Toyota most closely resembles a Role Culture
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There is an argument to suggest that Toyotas culture needs to become more global, but they have made some progress
During the recall crisis, Toyota acted slowly and did not sense immediately what was going on in foreign markets
Toyota vice presidents advised Akio Toyoda to stay away from the U.S. Lawmakers, despite the fact that he wanted to appear (an example of insular, production oriented advice)
BUT Toyodas dignified and humiliating public apology, in which he committed himself and his company to promoting safety, has been seen as a step in the right direction towards a more open and customer oriented culture, especially given that it was delivered in the full glare of the media As Toyota globalises its business (e.g. Operations in 28 countries), its executives and workforce become more used to working in other cultures
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The safety issue was a clear breach of CSR, and cars use fossil fuels which degrade the environment, but Toyota also does do much good work in this area
Care for the Environment As the worlds largest car manufacturer, Toyota is committed to tackling environmental and social issues. The companys approach is both long-term and holistic. The total life cycle of the product, from design and use of materials to end-of-life recycling is important to them. The Toyota Earth Charter Another significant step in Toyotas commitment to sustainable development is the Toyota Earth Charter for implementing consolidated environmental management. The Charter, adopted in 1992 and subsequently revised in 2000, embodies a comprehensive approach to global environmental issues, outlining Toyotas basic policy and action guidelines towards effective environmental management and improvements. The Toyota Earth Charter underlines a commitment to environmental excellence, not only through broad principles, but also in concrete examples of what can be done through action guidelines in terms of harmony between humans and the earth Zeronize and Maximize Toyotas vision for sustainable development that promotes a truly sustainable mobility solution can be summed up by Zeronize and Maximize:
Zeronize refers to Toyotas aim of reducing the harmful effects of automobiles on people and the environment to zero:
Zero emissions Zero accidents/serious injuries Zero congestion
Maximize represents Toyotas goals of providing ever greater comfort, fun and excitement in its vehicles tutor2u
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Toyota has a reputation for producing reliable cars for the mass market, but thats not the whole story...
Some critics have said that Toyotas are boring
It produces dull motor cars such as the Corolla which is a leading mass market brand, but similar to many mid-range competitors such as Honda, Nissan and Mazda Reliability and build quality are the main selling points Prius is uninspiring
Even Akio Toyoda has said that his cars need to be more exciting and he has heaped praise on a competitor, the VW Scirocco However, others argue that the brand is a lot more interesting than this
Hybrid models, such as the Prius, are innovative and ground breaking with highly commendable worldwide sales and a unique contribution to improving the environment Lexus is an upmarket, leading brand which wins awards for sales and service Toyota has been involved in Formula 1
Toyotas corporate objectives and brand values allude to the need for cars to be fun
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Can Toyota survive the effect of falling market share in the U.S.A.? (Evidence F)
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The problems affecting GM, Ford and Chrylsler in the U.S.A. (and Saab in Sweden) show that car manufacturing is going through tough times
Toyotas desire to supplant General Motors as the worlds number-one car-maker pushed it to the outer limits of quality control which compromised safety in several US manufactured Toyota cars Maybe gaining market share wasnt worth the trade-off Toyota has accepted responsibility for its errors and, although sales are down in the U.S.A., it is still trading as number two behind GM in GMs home market By taking a long term view and re-investing in its brand, Toyota is rebuilding its reputation Toyota is positioned for recovery about as well as it could be, owing in large measure to the reputation for quality products and corporate responsibility it has developed over the last two decades Time will tell whether it succeeds...
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Evidence G shows that Toyota made slow progress in the UK last year
New Car Registrations May 2010 in the UK No in '000s Share Yr v Yr % change Hyundai 34.611 3.8% 138% Kia 30.095 3.3% 113% Renault 43.883 4.8% 108% Land Rover 18.958 2.1% 68% Skoda 18.469 2.0% 61% Nissan 35.147 3.8% 46% Fiat 24.546 2.7% 43% SEAT 14.992 1.6% 36% Mini 17.341 1.9% 36% Peugeot 49.629 5.4% 27% Volkswagen 79.649 8.7% 27% Audi 47.559 5.2% 21% Citroen 31.048 3.4% 20% BMW 40.626 4.4% 19% Mazda 20.842 2.3% 18% Mercedes Benz 30.591 3.3% 13% Other 55.33 6.1% 11% Ford 134.634 14.7% 4% Vauxhall 103.261 11.3% 2% Toyota 40.795 4.5% 1% Suzuki 9.82 1.1% -2% Lexus 2.98 0.3% -4% Honda 28.629 3.1% -9% TOTAL 913.435 100.0% 22%
Despite average sales growth of 22% across the market, Toyota grew by only 1% and its Lexus brand declined by 4% Hyundai-Kia Group, which has climbed the world rankings rapidly, led the way, possibly because of its relatively low priced vehicles Although Toyota will not be pleased with these figures, the Group is a relatively small player in the UK with only 4.8% market share (against its average worldwide share of nearly 11%) The UK represents only 1-2% of the global market for new cars Toyota might be best to focus its efforts in growing markets in Asia
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There is a limited amount of evidence in the case study so it is difficult to develop a water-tight corporate strategy. But is it possible to evaluate some of the options
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The work of Michael Porter: Toyotas strategy needs to reflect its competitive advantage
Resource advantage firm specific assets that the competition cannot easily acquire such as patents, trade marks, proprietary knowledge, installed customer base, reputation, brand identity
Capability advantage skills and competencies, innovation, creativity and quality of processes
Toyota has no unique advantage in this area Toyota has a competitive advantage from The Toyota Way, and through its innovation in hybrids and new technologies Toyota has some advantage because it is the largest player in the market by production volume Toyota has no discernible advantage in this area
Cost advantage productivity of labour/assets and buying power for raw materials
Differentiation advantage ability to add value by offering (unique) product benefits
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Porter identified three generic strategies against which Toyota can be evaluated
What does it mean? Unit costs are lower than competitors because of economies of scale, good production processes and efficient resource allocation Winning profitable segments of the market. Unit costs may be higher, market share is less important, but customers are prepared to pay a premium for quality and individualised products Avoidance of confrontation with competitors (cost leaders and differentiators) by developing niche positions with products for otherwise unsatisfied customers
What is required? Up front investment in gaining market share followed by running a very tight ship Finding perceived product characteristics and uniqueness that add value
Yes
Differentiation
Maybe
Focus
Finding markets that large companies cannot easily replicate (e.g. super fast delivery, personal service, hard-to-imitate products)
No
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Applying Porters Strategy Matrix to Toyota indicates that a Cost Leadership strategy is appropriate
Broad (market-wide)
Differentiation strategy
Competitive Scope
Toyota Lexus
Competitive Advantage
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The Ansoff Matrix can be used to help make decisions about products and markets
Decisions about what products to sell, and in which markets, provide an important guide to the direction of growth
Ansoff drew up a growth vector matrix that described how a combination of business activities in existing and new markets, together with existing and new products, can lead to growth The four strategies arising from the matrix are:
Market penetration increasing market share Market development where a business seeks new markets (either new geographies or new customer segments) for its products and abilities Product development the launch of new products to existing markets Diversification when a business decides to offer new products in new markets
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Market Penetration
Product Development
New Markets
Market Development
Diversification
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There are two choices to be made about how a business should invest in a growth strategy
Organic Growth
Growth by using the existing, internal resources of the business
Acquisitions
Growth by buying other businesses or assets
Advantages
Can overcome barriers to entry Helps spread the risk (not all eggs in the same basket) Provides quick access to key business resources (e.g. brands) Easier to control = less risk
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Ansoffs Matrix can be applied to Toyota, giving the business a number of different strategic options
Existing Products Existing Markets
Market Penetration
Expand organically and make cars more fun Expand by acquisition of a competitor
New Products
Product Development
New Markets
Market Development
Diversification
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Which ever option is selected, decisions need to be taken about whether or not the growth markets are related
Option
Horizontal Integration (Related Markets) Vertical Integration (Related Markets) Business becomes its own supplier (backward integration) or distributor (forward integration) Advantages: Secure supply; take more profit from the value chain; create barriers to entry Disadvantages: More exposed to the same market; does not necessarily offer economies of scale Spread risk by operating in markets that are not directly competitive or complimentary Advantages: May obtain synergies (e.g. using same distribution channel) Disadvantages: Limited experience in separate markets increases risk of things going wrong; cultural differences
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Description
Grow activities that are competitive with and complementary to existing activities
Strategic Option:
Toyota could expand organically by building more factories and updating their cars
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Investing in brand development rather than throwing more money at discounts and incentives because a stronger brand identity increases leverage, margins, and ultimately sales.
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Strategic Option:
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This option is about generating immediate and significant growth in market share by acquiring an existing vehicle manufacturer (e.g. Proton in Malaysia) Toyota would need to Conduct appropriate market research to identify a suitable target company and market Raise the necessary funding in conjunction with shareholders and/or the banks Prepare a plan for corporate integration and the generation of synergies
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Strategic Option:
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This option is about developing upon the current range of products that have been developed in response to environmental concerns about motoring. Toyota would need to Build upon the success on Prius and RAVEV technology, including electric and lithium battery models Research the global markets that are most receptive to adopt these fuel efficient, smaller vehicles Continue to train the distribution network in selling and marketing and servicing hybrid and electric vehicles and staff to deliver food and groceries to homes Continue to adapt their marketing campaign
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Strategic Option:
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Strategic Option:
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Toyota would need to Develop smart houses which include photovoltaic panels and fuel cells as energy sources, rechargeable batteries for energy storage, Ecocute heat-pump-based water heaters and energyefficient LED lighting. Link these together with a Home Energy Management System (HEMS) that enables the homeowner to monitor and regulate his energy consumption not just when he is at home but even when he is away, using his mobile phone. Individual HEMS will be internet connected to other HEMS and to the common facilities like schools, convenience stores, etc., so that in the event of high energy usage by any one user, others can lower their demand by turning off appliances and earning eco-points. Create a transportation system in the smart community using electric vehicles or plug-in hybrid electric vehicles. These will be supplemented by community-shared transportation, also electric. The HEMS will also permit energy demand and supply forecasting. For example, if the weather forecast predicts reduced sunshine, the HEMS will check the storage level of the battery in the EV or plug-in hybrid vehicle and either defer charging or even draw on the stored energy to manage the total demand. The battery of the EV will be the stand-by power source in the event of a total blackout.
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Investment appraisal
How to address the problem of risk All strategies involve uncertainty Return on investment: several methods Need to include sensitivity analysis (e.g. what are the potential effects if things go badly wrong?)
It is important to remember that Toyota has a strong track record. The brand has survived recent traumas under intense media and government scrutiny, and, as its success with the Prius attests, when Toyota is focused on something, it has a history of making it work.
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Acceptability:
Depends on the views of the key stakeholders What level of risk does the business want to take?
Feasibility:
What resources are available to support the strategy? (e.g. finance, experience; management resources)
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Acceptability
Enables Toyota to protect and develop its USP
Low risk because this is core business more of the same Could be considered as a rather conservative, but necessary strategy
Feasibility
Probably the simplest of the five options Due to average gearing ratio, financial capital is available for investment in expansion through borrowing
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Acceptability
Shareholders might be unsupportive given the current low levels of profitability Medium to high risk because acquisitions and the anticipated synergies are hard to deliver
Feasibility
Would require an integration strategy Would require significant capital to purchase the competitor Could work in South East Asia
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Builds upon Toyotas current strengths in the hybrid and electric market-place
Would need to be certain that competitors did not have something better. A new wave of hybrids, diesels, and electric vehicles are currently rolling out including Nissan, GM, Ford, BMW and VW from cars to vans to electric bikes
Acceptability
Medium risk because they have experience of this approach, but have a track record of Prius recalls in the recent past
Feasibility
Toyota has experience of the design and technology requirements
Some more work required to set up the distribution and delivery networks and to integrate it within their core global business
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Acceptability
Toyota is very experienced at going into new markets
Low/Medium risk with the prospect of good returns for early success
Feasibility
Financial investment is probably available for a phased expansion into new territories
Requires significant up front work building joint ventures and local partnerships abroad
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Acceptability
Could be acceptable for directors, but might mean taking their eye off the ball in the core motor market Medium/high risk, unknown returns this is a 10-20 year play, but Japanese companies are famed for taking a long term view
Feasibility
Pilot project is already up and running Need for staff training and customer enlightenment
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Here are some things that you could do before the examinations in January and June 2012
Primary Research If your school is within travelling distance of a Toyota dealership, go and visit and have a look at their cars, their showroom, their point of sale material and their branding If possible, talk to one or two of the Toyota staff and ask them what it is like to work for Toyota. Try to gather some good points and some less good points and understand their views about the future of motoring and Toyotas place within the industry If you know anyone who has bought a Toyota, interview them about the Toyota customer experience
Why they bought Toyota rather than another brand? Sales and service experience? Are they a loyal customer?
Secondary Research Keep up to date with market developments on a weekly basis by using your search engine to trawl the web for
information and announcements about Toyota (the case study is written a long time in advance of your examination, so you can expect updated accounts, sales figures and developments at Toyota between now and June 2012) articles and views about developments in vehicle manufacturing across the world Web 2.0 information (blogs, twitter, internet discussion forums, customer feedback sites etc.) Rises and falls in the Toyota share price on the London, New York and Tokyo Stock Exchanges
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Concluding thought
The best car safety device is a rear view mirror with a cop in it Dudley Moore
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