As the whole world relies heavily on information systems, it has become one of the most efficient ways for all business corporations to gain business opportunities and wealth. All the companies are facing the impact of the information revolution not only on the product properties, processes, company nature, and industries, but also on competition itself. Companies will able to collect a vast amount of information to store on a computerized database. That information will support companies extrapolate information about their buying trends and behaviors and their preferences.
It also will help companies with making their business strategies, improving their processing, and gaining more market shares from their competitors. Strategy Significant IT effects the whole operation by which companies create their products such as their package of physical goods, services, and delivery. IT also changes the enterprise’s performance through the value chain system which is a combination of many technologic and economical activities which are interdependent.
The higher the value, the higher opportunity a buyer is willing to purchase that product or service. As a successful business requires that the value it creates exceeds the cost of performing the value activities. (Porter, M. E. , & Millar, V. E. 2001) The new information also will help corporations be aware of the market trends, customer expectations, and competitors from the industries. Meanwhile it supports enterprises to supply in a larger geographic scope than before as well as a broader scope of industries.
As the importance and the great impact from IT, it is necessary for CEOs and managers to take advantage from how IT impacts the value chain, so that it will help companies improve in the original industries; also it will bring new opportunities from the new field. Changing the Nature of Competition IT is rapidly changing the nature of competition among businesses. There are three effects which are critical for understanding the impact of IT on different industries, such as changing industry structure, creating competitive advantage, and spawning new business.
First of all, IT impacts industry structure through changing the five forces which includes buyer power, supplier power, and substitution. Secondly, companies can create competitive advantage by using information. Finally, companies create new products and improve old products to keep business through using new information. Competing in the Age of Information IT provides benefits to companies, and there are five steps show companies how to take advantage of opportunities from the information revolution.
Assessing information intensity, determining the role of IT in industry structure, and identify and rank will be the three important steps for corporations competing in the age of information. Investigating in new business and creating a new plan are the final two steps. (Porter, M. E. , & Millar, V. E. 2001) Porter’s Five Forces Model Analysis Bargaining Power of Buyers In the U. S. market, the bargaining power of buyers is moderately high in Toyota for several reasons.
First, unlike the past, today’s consumers have lots of channels to acquire information, such as the internet, telephone counseling, direct mail, and so on, where information availability is high. The development of information technology increases information transparency; it is easy for consumers to compare the prices, performance, and service among different automobile manufacturers. High information availability drives automakers to meet the demands of consumers by providing truthful car data, promotions, and creditable after sale service.
Second, although Toyota dominates the hybrid vehicle market, buyers also have some other choices. Other automakers, such as Honda and General Motors, also entered the hybrid market by developing similar technologies, which narrows product differentiation and neutralizes the advantage of Toyota. Consumers have more choices to buy similar performance cars. Third, consumers who buy a Toyota are very different from those who buy a BMW. Toyota is positioned as the mainstream market. In this market, consumers have a certain price sensitivity.
It means that the price is an important consideration when buying a car. Especially with the recession and the increasing price of oil, consumers have a growing demand for energy-saving and cost-effective vehicles that can save them money. On the other hand, the used car market is very popular and mature in America. When consumers do not have enough money to buy new cars, they will buy used cars instead that are much cheaper than new cars. As a result, consumers have many choices that lead to making purchases based on price, not only brands.
Consumers who buy Toyota can easily switch to another the automakers with low switching costs. Different from the high-end niche market, most consumers in America view cars as necessities of life instead of luxury products, so consumers consider a lot of factors like price, fuel expenses, interest rate, etc. while buying cars. In the current market, there are plenty of alternative brands. For example, native brands like GM and Ford, and foreign brands like Honda, Hyundai and Nissan all have a reputation as good as Toyota.
Furthermore, the used car market is also mature in America. As a result, consumers do not have to buy Toyota and they will lose little by switching to another brand. In another words, Toyota can reduce buyer power if it can manipulate switching costs. It not only includes financial value but also intangible values. Toyota needs to improve product differentiation, provide high quality cars with a good price, and build up a good public relationship. Another way to reduce buyer power is loyalty programs, which provide rewards based on their purchasing.
Toyota has different kinds of loyalty programs. For example, consumers can “get 0. 0% APR for 60 months plus $1,000 finance cash on a new 2012 Prius Plug-In” (Toyota official website). This kind of promotion can make consumers to be loyal to Toyota. Bargaining Power of Suppliers Supplier power is also important one of porter’s five forces model, and it is defined as “the suppliers’ ability to influence the prices they charge for supplies such as materials, labor, and services” (Baltzan, 2012).
Generally, a strong supplier can pressure buyers by raising prices, lowering product quality, or decreasing availability of their products that restricts buyers’ ability to achieve profitability from final consumers. There is a very weak supplier power for Toyota’s suppliers. There are many raw materials used to manufacture automobiles including steels, fiberglass, and plastics, and so on. These raw materials are easily available for Toyota Motor Corporation because there are many suppliers in automobile supply market who can provide them to Toyota.
There is a vehement competition environment in suppliers of Toyota, so prices of supplies are difficult to be raised. If suppliers raise prices of supplies, Toyota will switch to other suppliers without hesitation. On the contrary, Toyota has ability to bargain with their suppliers by threatening to reduce orders or change suppliers. In addition, automobile parts are required to produce automobiles. Toyota established a supplier association in Japan, USA, UK and shared knowledge and technology with their suppliers in order to insure supplies’ quality and specification (Hines & Rich, 1998).
By developing their component suppliers, Toyota successfully lowers supplier power. Meanwhile, Toyota keeps a large ratio of small business suppliers for their operations in North America. Purchasing inputs from small business suppliers can gain a competitive advantage because they generally give a relatively low price. Toyota adopts diverse suppliers seen from above-mentioned facts, which lowers supplier power and achieves competitive advantage in automobile market. Threat of Substitute Products There is a relative high threat of substitute products in automobile industry.
Toyota automobiles have many substitutes in the auto industry such as Honda, Ford, General Motors, and Hyundai automobiles. The fact that so many substitutes exist in the auto industry is unchangeable, but Toyota can reduce the threat of substitutes by offering additional value and wider product distribution. People can choose to purchase automobiles of other brands because of many substitutes in the auto industry if Toyota is not able to provide a competitive price, advanced technology, or good service. First, Toyota is aware of that environmental protection is a trend of global development.
As early as 2000, Toyota launched the Prius hybrid car in US market and achieved increasing recognition in North America. By technology innovation in recent decade, the official data shows that the newest Toyota Prius Plug-in Hybrid in 2012 can drive 140 miles per gallon. This is a greater attraction than other brand cars for car consumers (Wikipedia, 2012) Most people tends to purchase economy cars that helps them saving money in fuel costs. In addition, US government encourages energy saving and environmental protection.
If people buy economy cars like hybrid cars, government will give a set of preferential policies. The policies of U. S. government also help reducing threat of substitute products of Toyota. Second, Toyota Motor Corporation is the one of the largest automobile manufacturers in the world. Toyota invests 1500 dealer stores in USA by 2012 which increase the availability of Toyota automobiles relative to other brand automobiles. This is a good way to reduce threat of substitutes from other brands’ cars. Threat of New Entrants.
In the auto manufacturing industry, this is generally a very low threat. It is very hard to enter the car industry as a new car maker. The set up cost will be a big challenge for the new entries. Also the industry is very mature, and it has successfully reached economies of scale. A manufacture must be able to gain economies of scale in order to compete with others in this industry. It takes an extreme amount of capital not only to be able to manufacture the products but also to keep up with the research and development that is necessary for the innovation requirements.
As another high barrier to entry, a company has to set up their own dealership or find a dealership to sell their automobiles. Space in the dealerships lots is very limited making it difficult to have a wider variety of inventory. Rivalry among Existing Competitors The automobile industry is more intensive than other industries. There are a lot of famous auto companies all over the world; Toyota is one of the largest automobile companies from Japan. Their production holds high volume in domestic markets; also, Toyota has a better percentage in the U.
S. market over the American cars. Even through Toyota is a one of most successful auto companies, it faced some strong competitors; Honda is one of its important competitors. Both of them are Japanese vehicle companies; there is a fierce competition between them. Honda has almost the same types of cars as Toyota’s, such as Accord versus Camry. No matter engine or transmission, all of the parts are nearly the same, just the suppliers or materials have a little difference, but the asking price for the Accord is generally lower than Toyota’s Camry.
In addition, Honda provides excellent customer service and better financial service. Toyota has invested their capital in China as a joint-venture; Honda also inflows their money to China and builds their factories there. Therefore, where there is a Toyota, there is a Honda. What is more, both of them focus on differentiation to reduce rivalry. Toyota pushed out their first hybrid electric vehicle in 1997, which was the Toyota Prius. Honda launched their first hybrid electric vehicle in 1999 (Wikipedia, 2012). After a few years, it is true that the Prius has a larger market share than the others.
Currently, Toyota still pays more attention to creating more efficient electric vehicles and invests more money on new technology development. On the contrary, Honda focuses on engine development which could provide more power but little fuel used, because Honda’s engine has a larger market share during some periods. In addition, Honda also drives their qualified motorcycle production as a leader worldwide. Moreover, Toyota takes their steps into the financial field; they sell their stocks and provide their financial services for car loans or other financial problems.
But Honda participates in sports activities, such as F1 games and motorcycle races. Finally, Toyota’s competition not only comes from Honda, other Japanese vehicles companies or Asian enterprises also compete with Toyota in the same platform. Such as Nissan, Mitsubishi, Mazda, or Hyundai which comes from Korea. They have variable information sources system and unique sales system. The Three Generic Strategies Porter’s three generic strategies provide options on how to enter a market. For Toyota, it uses a broad cost leadership strategy, which concentrates on the lowest cost through economics of scale.
The cost is driven down through all the elements of the value chain. Seen in Exhibit I, different from Audi, KIA and Ferrari, Toyota provides high quality automobiles at a low price, which appeal to a large number of consumers. The firm tries to earn higher unit profits by lowering costs. Exhibit I The Value Chain Analysis After Toyota identifies the generic strategy, it has to choose the business processes to realize the company’s goals. The value chain of Michael Porter provides a systematic approach to identify these competitive advantages.
As seen in Exhibit II, the value chain includes primary value activities and support value activities. For primary value activities, Toyota has a good relationship with large suppliers all over the world, and it also uses Just in Time (JIT) approach to handle raw materials in order to maximize the effectiveness and efficiency of raw materials. Automated assembly lines guarantee efficient operations. Different forms of distributions make Toyota cars available to consumers. Toyota uses communication, promotions, and advertising to help expand the market and sales volume.
The last but not least, high quality service also provides value to their customers. For support value activities, Toyota implements Management Information System (MIS) to coordinate and control in different departments. Employees are a very important resource for Toyota, so Toyota pays high attention to recruitment, provides training for employees, and rewards for good performance employees. The automobile industry needs technology to support its sustainable development, Toyota has its own research and development center to develop new cars and uses information technology to reinforce the management.
Toyota is looking for the lowest price with the highest quality for procurement, such as outsourcing and e-Purchasing, which decrease costs. Exhibit II.
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