Strategic Management: External Analysis Essay
Strategic Management: External Analysis
Presently, the automobile industry as a whole is awash with both opportunities and threats. Toyota seems to be at the extreme end of the spectrum in both categories. While Toyota shares the same threats as most other manufacturers, recent problems with recalls and pending litigation have seriously damaged the company’s brand image and, particularly in North America, Japan, and Europe, consumer confidence in Toyota has taken a dangerous downturn. For Toyota, the constant threat of increased competition is greatly accentuated by these recent problems. However, on the other side of the equation, the company is best positioned to take advantage of the opportunities that exist for automakers: development and sales of hybrid and other “alternative fuel” vehicles, and expansion into developing markets such as Asia, Africa, and Central and South America.
With most of America, and to only a slightly lesser extent, the rest of the world talking about Toyota lately, most of the news is not good. Talk centers on what is undoubtedly the greatest threat to the company; significant loss of its brand image and customer loyalty, brought about by unintended vehicle accelerations, recalls and impending litigation. Toyota itself is rather quiet in this area in the body of its 2009 Annual Report. The company prefers to blame its problems on a “prolonged slump” in North America, a “sharp downturn” in Asia, a “rapid contraction” in Europe, “consolidated sales” in Japan, and “stagnant sales” in Central and South America, all brought about by the “economic deceleration” of 2008. The President’s message obliquely mentions the company’s woes when he speaks of “implementing a stronger product-oriented management model focused on making better cars, and redoubling our commitment to the customer first” (Toyota, 2009 Annual Report). The only direct reference to the aforementioned problems is located in the Risk Factors section of the 2009 Annual Report under the heading “Toyota may become subject to various legal proceedings”.
Here, the company admits that it “may become subject to legal proceedings…including product liability…”, and that “…a negative outcome…could adversely affect Toyota’s future financial condition…” (Toyota, 2009 Annual Report). In this area, analysts have quite a bit more to say. In his article, Toyota’s Best Days Are Over, Timothy Lutts summed up America’s changing attitude toward Toyota: “The fact is, in millions of households all over America, people are angry at Toyota for failing them. People who once automatically bought Toyota’s cars because they trusted the company will now look elsewhere. Toyota has failed them, and like any lover who’s been disappointed, they will hold a grudge” (Lutts, 2010). With a recall of 8.5 million vehicles worldwide, a suspension of sales of 57% of its new cars, assembly lines shut down for eight models and no fix for the “unintended acceleration” issue, the threat posed by the damage to Toyota’s brand image is fierce (LeBeau, 2010).
These problems, coupled with Toyota management’s blunders in handling the issues have opened the door to another constant and significant threat, competition from other manufacturers. Durbin writes: “27 percent of new car shoppers who were considering a Toyota before the recall are no longer contemplating the brand” (Durbin, 2010). She sites that polling has determined that Ford, Chevrolet, Hyundai and Honda are all going to benefit greatly from Toyota’s sullied reputation. 17% of those polled said they were moving from Toyota to Ford, and Toyota’s Lexus brand has experienced a 25% drop in interested buyers in February 2010. (Durbin, 2010). In Porter’s 5 Forces Analysis, one may glean that Toyota is in trouble from three of the five forces: Power of buyers, availability of substitutes and competitive rivalry (n.a., The Industry Handbook: Automobiles, 2010).
In their 2009 Annual Report, Toyota prefers to address its opportunities. References to two opportunities I particular abound in the report: taking a leadership role in the development and sale of hybrid and other “alternative fuel” technologies, and expansion into developing markets such as China, Asia, Africa and Central and South America (Toyota, 2009 Annual Report). Independent analysts seem to all agree. An Internet SWOT analysis cites Toyota’s targeting of the “urban youth” market with its “Aygo” model as a strong opportunity as well (Anonymous, SWOT Analysis). China is a particularly hot market for all of the automakers, and Toyota is poised to expand there with plans to open a factory in Changchun in 2012 (Hitokoto, 2010).
In the Financial Strategy section of Toyota’s 2009 Annual Report, the company identifies the key components of its strategy as growth, efficiency and stability; specifically targeting a shift towards fuel-efficient vehicles such as hybrids and compacts sold in resource-rich and emerging countries. This is a wise plan, as their financial data indicates that while sales dropped hugely in Japan, North America and Europe, Toyota saw gains in emerging markets elsewhere (Toyota, 2009 Annual Report). In The Right Way Forward section of their 2009 Annual Report, Toyota places heavy emphasis on aggressively marketing hybrid and compact cars to emerging markets, citing China as “potentially as large as the US market” (Toyota, 2009 Annual Report).
Recent problems with their products including large recalls and impending litigation have greatly damaged Toyota’s reputation and brand image, most especially in North America, Japan and Europe. This, coupled with the constant threat of competition from other manufacturers poses significant threats to the company. How Toyota manages to deal with the damage to its brand image and move forward will largely determine the extent of the threat of competition from these other manufacturers. Conversely, the Toyota Company faces considerable opportunities to continue its leadership in the development and sales of hybrid and other “alternative fuel” vehicles.
The company sites this repeatedly as one of its major aspirations. Toyota is well positioned to expand its operations in developing markets, particularly in China, Africa, Asia, and Central and South America. Toyota may well overcome the threats that face it and take advantage of the significant opportunities available by adhering strictly the first of its Guiding Principles: “Honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good corporate citizen of the world” (Toyota, 2009 Annual Report).
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