Effect of Political and Economic Environment in the UK on Toyota

After the oil shock in 1979 the European Automobile had to restructure as a result if car sales drop.  This fall in car sales continued until late 1980’s.  At the moment the demand for cars is precariously balanced.  The Market is now facing challenges concerning quality and technological changes with Japanese and USA producers having transplants in the UK. Europe is the largest producer of automobiles in the world.  Production is declining.  “According to record, 13.7 million units were being produced in 1989 compared with 7.

8 million for North America and 9 million for Japan”.  (Global competition and the European Automobile Industry. Pg 3).

The UK automobile was expected to rise by the year 2000 by then the market would be owned by the Japanese, UK and European producers.  The first company to set automobile in UK form outside was the US Ford and later others like General Motors, BMW, Honda, later Nissan and Toyota joined.  The UK has a global quality improvement initiative controlled by society of motor Manufacturers and traders industry forum.

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  Currently UK has over 1000 automotive suppliers with manufacturing firm based in the UK.

How Economic and Political Environment are Affecting Toyota

            Generally, UK based vehicle manufactures are recording losses.  This included companies with high productivity records.  The economic conditions tend not to favor the vehicle market.  This is due to production of cars at cheaper prices in other sectors of the globe. Toyota is not an exception.

            The political environment of UK does not favor manufacturing plants much.  This is evident through the ease at which employment law makes it easier to close manufacturing firms.

  In cases where any manufacturing plant fails to adhere to the government regulations and the UK British act, it can easily be terminated by law.

Majority of UK suppliers are lacking some of the short principles of management like good customer focus, and shortage of skills.  Considering that UK has had a good history of quality cars.  The market is almost exploited; customers have seen almost variety of unique cars in the Market.

The economy of UK is stable relative to other economies.  Hence, company’s wishing to invest in UK find it expensive to hire labor in UK.  As a result, their profits are limited due to high expenses on payment of labor.

The increased cost of energy in the UK’s economy to be specific is another economic factor, though this change is being felt all over the globe.  This is affecting Toyota as a company negatively since most of its production requires energy.

Swot Analyzes

Strengths

Burnaston has made Toyota UK evaluate its first strength through Toyota’s corporate finance strategy.  (Kerretsu).  This is a major strength for Toyota considering that burnaston fits into Toyota’s long term global strategy.

Toyota also enjoys government support through seminars and automotive academy like the one launched in 2004 to enhance skill training for the industry.  This is helping Toyota to market itself and gain more knowledge on automotive industry.

Toyota UK, also has a diversified capital base considering that the company is international and its sales are doing well in other countries. incase of a fall in the market price and demand for cars in Toyota UK, the company cannot collapse because of liquidity problems as it can be funded by its branches in other parts of the world.

Weakness

            Toyota UK is positioned in country with high quality products and variety.  This reduces the sales level relative to other countries where the company enjoys monopoly or less competition.

Heavy taxes are also affecting the company.  The fact that Toyota is foreign company in UK; makes it more tax worth than UK based Companies.

Toyota UK management feels that the UK that used to once be an attractive place to invest has been changed by the on going economic and legislative climate.

The strength of starling pound is also affecting Toyota’s investment in the UK in relation to the weakness of Euro.  Toyota is currently seeking an exchange rate solution in order to trade in UK and survive the market with minimal profits.

With the introduction of work place parking levies, Toyota doubts whether the charges will impact the behavior of car users something that would affect the company’s sales.

A shortage of trained engineers in the UK is another constraint facing Toyota UK.  Toyota is reported to have experienced critical shortages in training new personnel in the information systems department. (Memorandum submitted by Toyota motor Europe, July 2000)

Opportunities

            Toyota UK has the chance of acquiring labor from Japan at a better cost in case the UK economy and labor market is exploited.  This gives the opportunity to maximize its sales too.

            Expansion is still available for the company.  Despite the fact that the country has many manufacturing companies that have specialized in automotives, it’s also possible for the company to expand in UK since the company has its own unique brands.  In addition, the company can list in the (UK) foreign stock exchange hence engaging in offshore.

            The fact that UK is historically known for its high level of production o of vehicles, as far as quality is concerned is in advantage.  This is because Toyota UK can learn more techniques or production and improve on the quality of products that it had been producing.

Toyota can also produce in bulk.  This is because the UK is a bigger Market and much as competition is there, one cannot rule out the population factor.  The UK population is big and the ratio of people to companies selling vehicles is still low enabling Toyota to Operate.

Threats

            Competition is the major threat facing Toyota UK.   With the large number of companies in UK and all producing quality cars, the company can easily be thrown out of market or forced to sell at low prices in order to fit the market.

            Economic dynamics are also major threats in the production process of Toyota UK because the poor performance of the economy dictates that the cost of production might be high and selling price might be low.

            The U.K’s current fuel crisis is also a possible threat to Toyota UK. If the market price for fuel goes very high, then the demand for vehicles also go down because people will not be willing to buy vehicles if fueling is very expensive. (Marketing Teacher 2000).

PEST ANALYSIS

            The UK political set up has history of non-violence and generally friendly to foreigners.  The government policies that regulate taxation and monitoring businesses in UK are however, strict.  This does not restrict companies willing to do business though, because the rates are fixed. The government’s policy on the economy in relation to automobile is rather positive since the government offers support to encourage innovation.  On basis of religion and culture the UK people are a collection of different denominations that rarely affect investment policy.  The governments involvement in trading agreements is however an added advantage for Toyota UK, because they are assured of validity of their license.

Economic Factors

The UK raised his interest rates to 5.75% this year.  With a rise in interest rates, Toyota UK is affected negatively as it can not be banking its money in Japan.  As long as the interest rates are high, this means that the bank charges will be high, reducing the profits that a company can make.  UK’s monetary policy committee (MPC) warned inflation is still on aid and remains a danger to the entire economy.  (BBC News. 24) Some analysts have gone further to determine that this rate of inflation might rise further.  This is bad news for Toyota as the sales of the company will have a less value than approximated.

            As a result, expansion is limited as the purchasing power is reduced. The good news about the economy of UK is the fact that the country’s GDP is relatively high and per capita income is high enough these two combinations encourage liquidity among the citizens which realizes sales for Toyota.

            Socio-cultural factors.

UK’s reception of foreign products is positive. People do not discriminate instead they observe quality.  Majority of dwellers of the land are English speaking hence communication between Toyotas’ salesmen and the citizens is easy. The ability to socialize by the inhabitants and minimal discrimination facilitates marketing. The older generation of UK has accumulated wealth thus Toyota has a wide client base.

Technological factors.

            It would be a lie to argue that technology allows for products to be made more cheaply in the UK than Japan. However technology allows for production of quality automobiles in UK. This helps Toyota to produce quality and leave room for innovation. For instance Ford Company and BMW have products that are better than Toyotas, depending on class of the customers who is buying. Integration of sale of automobiles and insurance company is another technological advantage. This allows company’s selling automobiles to be able to connect their clients with insurance companies. (Alan Capman1995-2005)

PORTER’S FIVE FORCES

Threat of substitute products

            Toyotas products have a couple of other products similar to them. This makes the company’s products to have high elasticity of demand. Buyers have high propensity to substitute. This puts Toyota at the bargaining edge through pushing the company to keep modifying its products in order to be competitive. Toyota has to keep revising its prices too. Again this is a disadvantage because probably the cost of production was higher than the prevailing market price. Despite of the high elasticity of demand the switching costs of products is still high, making consumers to stick by one product, this adds to Toyotas advantage. The level of product differentiation is another major threat of substitute products. Toyota has an added advantage over this issue since it has different products and can offer customized products too.

            Threat of the entry of new competitors. Unless the entry of new firms is blocked, Toyota is exposed to the perfect competition. However Toyota has taken care of this risk through economies of product differentiation and brand equity. The absolute cost advantages are among other ways that Toyota has established its market.

The intensity of competitive rivalry.

This is the major or determinant of industry competitiveness. Toyota is facing both marketing and innovation competition. The number of competitors is increasing following the governments opening of investors willing to invest. Not forgetting companies like Ford Operations. Toyota has high levels of advertising expertise internationally.

            Bargaining power of customers. This is the customers’ ability to pressure the firm to reduce its prices. The number of buyers’ volume. In UK though buyers are many, options regarding which company to buy from are also many making buyers to have a bigger influence on bargain than Toyota. Not forgetting the availability of information which has been made possible by internet and the UK media.

            Bargaining power of suppliers. Toyota UK requires labor, components and other factors. Suppliers can influence the market by raising the cost of raw materials to enjoy the industries’ profit too. However, Toyota UK has suppliers who are competing against themselves too hence making supply price low due to availability of commodities at ease. For example, the tire industry. (Morison .J 2006)

Conclusion

            Toyota Company UK has established itself despite the competitive environment due to diversified portfolio where the company sells other products like, used trunks, car bodies, primary NAICS and insurance linking’s.

            Recently Toyota was confirmed as be best performing automobile company in the UK. Media tenor UK’s leading media on opinion reported during the 7.5 international Auto salons in Genf. Media tenor, realized a pessimistic trend for the future of the car industry in UK.

            Toyota has been rated the best performer, as other companies report losses and closing down some of their joints. Overall, Toyota has been able to extend its products to cooperate. Among BMW, DC, Volkswagen, Toyota and Ford in UK, Toyota has the best performance so far.

Reference

Marketing Teacher. (2000). Swot analysis  lesson- www.marketingteacher.com

Media tenor International Newsletters (2005-03-08). -Toyota outshines competitors again in UK.  www.mediatenor.com

Alan Capman (1995-2005) Pest Market analysis tool www.businesshalls.com

Morison .J (2006) International business environment global and local market place in a changing world. Palgrase Macmillan.