Since its starts Toyota has always pursued an aggressive cost leadership strategy, which has allowed a small company to sustain competitive advantage against large competitors. Toast’s seed of success can be traced back to the second post world-war when the company started to experiment new ways to improve production, reduce costs and increase quality. Clearly the automotive Industry Is an Industry where economies of scale and scope are fundamental therefore volumes of sales are important to reduce unit costs. The problem with Toyota was that it was a small company competing with large monitors.
Is in this situation that Toyota started to build and create basis for competition. Toyota found new flexible production methods to achieve mass production efficiencies with small production volumes. The Toyota Production System which is a pillar of the “Toyota War has enabled Toyota to become the largest car manufacturer In 2007 (Reed, 2008). The company’s meticulous attention to details and to eliminate inconsistencies and waste at each stage of production was an important step in cost reduction. Toyota is in fact able to reduce lead time cost while improving quality.
Particularly relevant to their cost leadership strategy SIT Inventory and the pull system allowed the company to improve returns on investments by reducing inventories and producing only the required amount, avoiding overproduction. Thanks to Its unique resources and core competences of the highly skilled team of engineers and the strong vision of Its founder Toyota was able to exploit Its leadership in low-cost, taking also advantage of the favorable micromanagement (oil shock) and successfully penetrate the US and the European markets, following what Bowman what describe as a low-price route.
The improved quality and reliability of Toast’s cars allowed the company to further advance Its position In the late sass’s to when perception of their cars changed to that as being even more reliable and of better quality of their European and American counterpart available though at lower price tan competitors’ offerings. sass’s Toyota entrance in the luxury market segment In sass’s Toyota shifted their attention to luxury automobiles which competed directly against established American and German luxury cars.
Toyota started to project the car in early ass’s, conducting market research on both consumer and lealer side in 1985 which resulted in the first Lexus appearance in 1989. (Toyota history: corporate and automotive) Toyota ‘s Lexus model, which stands alone from the rest of the Toyota range was in fact competing against manufacturers such as Jaguar and Mercedes. Toast’s move to penetrate the new up-scale market segment was suitable as it addressed the lagging luxury sales in that period.
Both Lincoln and Cadillac had both fallen; Lincoln was relegated to the limousine and car service trade, and Cadillac had destroyed its reputation with the 4-6-8 engine. (Toyota history: corporate and automotive). On the other hand Mercedes’ quality was fairly low and Audio was suffering from the “unintended acceleration[l]” fiasco (Audio History). It was time for Toyota to create both a luxury car and a luxury brand.
From a marketing standpoint it was also suitable as Steve Strum, group vice president of Toyota North America, noted ; Toyota was introduced in ass’s and ass’s in the US were Baby-boomers  fuelled the growth of the small fuel efficient cars. In the sass’s as these consumers grew older and their incomes increased, they moved on to luxury brands such as BMW and Mercedes. Strum added: “… Y the early sass, the Boomers were entering their peak earning period.
If we didn’t get into the high- end market, we were going to lose a lot of them” (Yale school of Management, 2008) The choice to move into a new market segment had some risks attached, considering that Toyota had no experience in this sector and Lexus didn’t have the pedigree of its European competitors. But returns on investments were likely to be high as luxury markets are usually where profit margins are substantial; making this strategy acceptable.
The company marketing competences and its consumer friendly market river approach to product development and distribution increased the feasibility of this strategy also diminishing potential risks. Toast’s core competences in engineering and design were also key determinant in the feasibility of this strategy. In fact Lexus debuted with two models in late 1989 and within two years, it had become the top selling import luxury brand in the U. S.
Citing the words of Strum, group vice president of Toyota North America “We taught the Germans how to make an American luxury car,” Strum said: “They Just sent cars over from Germany. They didn’t realize Americans have a different idea of luxury until we showed them. ” (Yale school of Management, 2008). Loyalty sets goal AT making more cars aurora: Investing naively In localize production In sass’s Toyota chased growth outside Japan by building three more plants in US and two in Europe together with a number of local engineering and design studios.
Analyzing these strategic options through the success criteria of feasibility, suitability and acceptability it appears that: Toast’s choice to heavily invest overseas in the sass’s was a rapid and smart move to grasp opportunities while also exploiting Toyota strategic capabilities. In sass’s when the economic bubble burst in Japan, resulting in prolonged economic slump at home and a stronger yen to the dollar (Pollack A. , 1995. ), making it more expensive to export, a way to improve competitiveness, further to cost-cutting, was to make more cars outside Japan .
The choice of building three more plants in the US was also acceptable from a financial standpoint. The Yen had risen 50 % against the dollar (Levin, 1990) making US based production a cheaper alternative to exporting, particularly considering that American producers would have had an advantage of 2500$ to 3000$ a car (Perez, 1993).
The choice of making cars abroad to be sold both locally and back home was also a way to politically please Washington as Toyota was also trying to create a global manufacturing, tuned with economic conditions in different markets, allowing companies to manage their auto production levels between US and Japan; correcting the trade surplus of Japan over the US. (Perez, 1993) Investments in the Europe were also logic considering that in sass’s Toyota had a marginal presence in some large markets like Italy and France (Diem, 1998) ,where local industry was in fact protected by governments.
Investments in England were an opportunity to prepare for the freer European market in 1992. The choice to locate the plant in Britain was also logic considering its strong tradition in car manufacturing, solid infrastructure, industrial transport link and also 230 supplier partners (Toyota-website). There was also a supportive positive attitude to inward investment from the British Government. Their choice to build in France in 1997 was a logic move as France was the second largest European market with 2. 1 million cars registered in 1996 after Germany (Guileful, 1998).
Although Toyota was no. Globally in terms of volumes, in 1997 it only had 3 % of the French market share (Diem, 1998). Valentines was also a strategic place geographically as it could have been used as a basis for export towards South, Central and Eastern Europe. Further expansion abroad was a suitable strategy for the above reasons. But it was also acceptable as the risks involved were medium-low. The company was investing large amount of money in these new plants but with potential return on investments conspicuous. Toyota in fact estimated the production of 100,000 units of a new small car: the Yards starting from 2001, in France (Diem, 1998).
The investment margin potentials were also Nell In Elgin AT ten alignments AT European quotas on Japan. Toyota would have in fact been ready with new models and new expanded factories. The above strategy was also feasible as Toyota could have easily met the financial target set while also reaching the required market share thanks to the their strong capability in marketing and most of all the highly skilled equips of design and engineering talents within the Toyota Motor Europe group who were constantly working on tailoring Toast’s product development to local tastes.
Late sass’s -sass’s : The development of Hybrid cars Since the development of the Hybrid Toyota had always been a fast follower with very minimal risk-taking in its strategic development. By being the first car manufacturer to develop a more CEO-friendly vehicle Toyota changed the rules of the game. The development of the hybrid car was a strong initiative in product development that allowed Toyota to achieve competitive advantage by clearly differentiating its car from competitors. Monsoons, Schools, & Whetting, 2008) The car that then became the Pries began life in 1993 with manufacturing starting in 997.
Toyota development of the Hybrid was suitable as clearly was a perfect answer to the future trends and changes in the environment. Increasing concerns about the environment and the higher price of oil in sass’s often raised the issue in the industry to focus on new designs attempting to achieve better fuel economy out of internal combustion. No one in the industry had taken this issue seriously and Toyota was able to capitalize on its first mover advantage, Ford and GM have now unveiled plans to develop hybrid models but they’ll need to come up with something pretty special to haft the Pries from pole position.
Emerald, 2007) The development of the hybrid car also presented numerous risks. One of them was the possibility that the sole differential element of a better fuel economy would have not compensated for the premium price needed to enhance margins and support product positioning. Another risk attached was the difficulty in building consumer and dealer technology awareness. Toast’s brilliant production engineering and obsession devotion to customer satisfaction together with their relentless pursuit of excellence reduced the potential sis increasing the feasibility of this strategy.
Toyota ‘s contingency plan to offer discount leases, free maintenance and breakdown cover as an incentive in case of low sales and their strong marketing intuition contributed in making this strategy Teasel. (layer, Z Loyalty marketing teams’ move to pre-sell ten cars on ten Internet also enabled Toyota to identify high demand areas and the company was able to ensure there was sufficient availability where it was most needed, without unnecessary production. Scion: New Sub-brand to appeal a new market-segment
By the end of sass’s Toyota launched a new sub-brand called Scion in order to appeal to a younger segment of buyers who were turned off by Toyota main stream cars. Scion represented an innovation in product development while reaching to new users, new segment. The suitability of this strategic option is clearly demonstrated by the researches conducted by the organization in sass which resulted in younger buyers turning to brands perceived as more cool, such as Wad (Emerald, 2007). By the late ‘ass, Toyota saw that while Lexus had become a roaring success, the company was losing the youth market.
In 1999, the company created “Genesis,” a project aimed at marketing current Toyota products to younger buyers (Yale school of Management, 2008). This strategy was also a good move to build loyalty as potential satisfied young buyer would have eventually turned to Lexus at a later stage of their life-cycle. The strategy presented some risks as the profit margins per vehicle were lower than other Toast’s products and Scion brand was characterized by very short life cycle and quick transitions from one product to another disrupting the standard model changeover pace. (Manson & Bennett, 2007).
On the other hand the choice of creating a new brand decreased risks as it allowed the company to easily discontinue the series of production in case of a flop, without damaging the Toyota brand. Toyota had appropriate resources and competences to effectively deliver this strategy. Emblematic to this is their astute use of Guerrilla marketing to advertise and develop the brand. The first Scion vehicles went on sale at Toyota dealers in 2003, promoting a slogan “united by individuality’. Scion switched buyers’ average age to 39 with next youngest brand Mazda 41 years and with 46, commented Tommy Lobby cited (Manson ; Bennett, 2007).
Mid- sass’s Toyota ‘ Joint Venture Since its original Joint venture with GM in California in 1984 in order to benefit from GM experience on how to run manufacturing activities on US soil, Toyota has made astute use of Joint-ventures. In 2001 Toyota entered a new Joint venture with AS Peugeot Citroen to start by 2005 producing small cars for the European market. (Burt, 2001) As well in China Toyota formed a 50-50 Joint venture with Gunman automobile group to produce Campy sedan, ten Test selling Imported model In ten country an mint venture with FAA, the third largest car manufacturer in China, in 2002. Brasher, 2002).
Further expansion abroad through strategic alliances was a very effective move to respond to the trends of globalization and rapid growth of both car consumption in places like China, while also improving ways to control overseas operations. The Joint ventures in China were addressing the trends of the time and were presenting Toyota with an opportunity to capitalize on cheaper labor costs and use of assets while also tapping the potentials of a growing country. China was in fact Joining the
WTFO and preparing to host the Olympic Games, providing good potentials of growth in the Chinese market. Risks associated with the first Chinese Joint venture were low as Toyota was not taking any equity stake under the agreement (Attestable, 2003). After having spent sass’s gaining 11 % of market share in the US (Business-week, 2004), Toyota was seeking further growth in Europe where continuous product development, designed and engineered specifically for Europe, to meet local demand was allowing the company to sustain competitive advantage, differentiating its offerings from local competitors.
Attestable, 2003). The Joint Venture with AS Peugeot Citroen was suitable as Toyota was determined to get 8% of market share in Europe by 2010 and Toyota estimation was that the Joint venture would have increased the production of 60% compared to 2004. The Joint venture was mainly formed to develop and build a small low price fuel efficient and environmentally friendly vehicle for Europeans. The Joint venture was a good match to the meet the challenge of a global market and customer change in demand, particularly resulted as consequence of the newly expanded Europe.
Although some risks were identifiable considering that Toyota was growing and expanding too much and two quickly, potentially neglecting quality, the strategy represented a good way to bypass Rupee’s 10 % duty on cars imports from Japan in early sass’s. (Attestable, 2003) The ventures in China and Europe were feasible methods to deliver further growth strategies as Toyota had the resources and competences to pursue them. Late sass’s Toyota diversification in robotics assistance and gadgets By mid- 2000 Toyota was exploring ways to diversify activities in unrelated fields to its core business.
In 2004 the company introduced a prototype of autonomous machine to serve as a personal assistant or as an aid to elderly. To further support its researches in the robotic field Toyota also acquired some Sony technology and patents for some of their robotics-related expertise in 2007. Under ten new partners, seven Sony researchers nave started to work temporarily In Toast’s robot research unit, helping Toyota make sense of the technology.
Toyota has also come up with a vertical, mechanized scooter or personal transporter intended to help people move in public areas, which will be tested in 2009 (Sauna, 004). The strategy to pursue diversification in robotics and other electronic gadgets is a suitable strategy which allows Toyota to prepare and meet the demand of an increasingly older society, where baby-boomers are reaching retirement age, with more disposable income, more IT expertise and most of all will to be independent.
Toyota could pioneer this field and enjoy the fruits of an early entrance. Risks are medium-low, high capital are required, particularly in R & D, but considering the type of product and the target market which is likely to be made up essentially by early adopters and innovators, not price sensitive, good margins are to be made. Toyota has the necessary resources to embark this project; their strong engineering orientated culture and long-termite together with their vast financial resources built on past record profits and growing global sales.
In conclusion since its starts Toyota has been a very successful company that has exploited at its best its core competences in engineering, product development as well marketing and PR to find continuously new methods and direction of development in an increasingly competitive environment. The company has mainly rowan organically and through Joint ventures aimed at increasing market share in foreign markets.
Despite some minor takeover in stakes of some companies to improve efficiencies, Toyota has always been reluctant to acquire as it is against its company culture, particularly due to integration issues and the organization’s need for cape, to invest in R. 2)Len the light of recent economic downturn and the problems in the automotive industry recommend a set of objectives and a strategic development plan for Toyota from 2008-2013,Justifying the recommendations made.
Having analyses the macro environmental situation (PESTLE analysis/Appendix) in which Toyota is operating together with an audit of the company internal resources and core competences (refer to Tab. L [appendix) is it is opportune to carry out a strategic formulation for the company using a TOWS matrix. The starting point of strategic planning is the setting of measurable objectives for the company in order to better underline the direction of the business.
Toyota is facing an extremely difficult period with consolidate operational losses predicted by the business year finishing at the end of March. A a Witt ten world-wee economy slump, Loyalty Is Tact to review Its production Ana its overseas operations. Toyota needs in fact new objectives that will change its existing course finding ways to still secure appropriate profits. Just like president Waterman said the downturn could offer an opportunity for Toyota to revamp its operation and make the company more efficient.
Toast’s objectives for (2008-2013) Consolidate and increase market share and repeated sales per customer in existing markets; Europe ( 10% share by 2010) maintain its 18 % share in US Reduce reliance on North American sales Continue to grow into the development of Hybrid-technology Cut domestic production while also reducing amount of sales outlet I Strengths I Weaknesses II. Strong global brand (Toyota is one of the leading automotive brands in the II. Low profitability in 2009 (Toast’s first operating loss in 70 years) I I world. Toyota brand was valued at 27,941 millions in 2006) (Denominator, 2008) 12.
Increase in Stock( Due to a sudden decrease in sales, Toyota has high 1 12. Persistence and obsession in eliminating waste and improve quality to end I inventory) I lasers 13. Production capacity: Toyota produces most of its cars in US, Japan and 1 13. Healthy finances, company has good liquidity (12 trillion yen internal I Europe whereas competitors may be more strategically located worldwide to take I I resources) (Denominator, 2008) I advantage of global efficiency gains advantage in hybrid technology I lopsidedness 10 -W (Strategic Options) 1 14.
First mover IS -O (Strategic Options) | 1 . Develop new small and fuel efficient cars; applying their know-how on | 1 . More balance strategy for overseas operations, by further penetrating the I II. Opportunity to use cost-efficiency competences to produce I creating more space in smaller cars, capitalizing on competitors’ lack of funds I Indian and Chinese market tit more subcompact, lower cost cars to compete With I innovative small and fuel efficient cars. 12.
Consolidate operations in China and India, producing, selling and marketing Indian and Chinese fast growing small car market, reducing reliance on sales nil 12. Growing opportunities in emerging automotive markets Small cars that are likely to meet local tastes. Although market conditions are I North America. India. I I particularly in south-east Asia and I tough everywhere, demand for small cars is expected to be driven by China and 12. Toyota Motor should to capitalize on the growing demand Tort notary electric I
Growing mean Tort notary electric ventricles presents a gold I India (Denominator, 2008). Vehicles and offer packages to both private and business to lease models at I liposuction for Toyota as it has 75 percent of the hybrid market 13. Continue efforts to develop environmentally-friendly technology, I good rates to attract extra income too bust margins retention while improving I Right now. I particularly taking advantage of financial aids from various governments. Sales. I I Threats IT -W (Strategic Options) IS -T (Strategic Options) II.
Global economic slowdown it slashing sales in auto-industry II. Use their ability to cost-cutting while also adding quality to products and II . Review of domestic production, halving output from 12 domestic plants and I I(Tight credit, falling consumer confidence and a weakening I innovate in existing markets to spur consumer confidence. I reduce the number of sales outlets it has nationwide, given the low sales I I economy) 12. Toyota strong brand name and healthy finances should be used to strongly I (below . 5 millions) and and the population shrinking.
12. Increasingly elderly population I market cars to baby-boomers generation with effective positioning and Suspend production in US and move production of subcompacts and procurement I 13. High Yen compared to dollar and Euro negatively impact I appropriate financial incentives in order to bring inventory unsold in line lord raw materials to emerging markets I with demand. Strategic development plan option. L: [(S-O, I)-TOWS] I Japanese exports Toyota should continue investing in the design and production of fuel-efficient subcompact cars.
Given the economic downturn and the continuous ups and downs of gas prices and the growing demand for subcompact cars world-wide (Denominator, 008) it is a good way for Toyota to apply its engineering competences and ability to reduce costs while adding quality to end users. The pursuit of this strategy is suitable as it clearly addresses the need for a small-but fuel-efficient car. Risks are medium-low as sales are likely to warrant good margin of profit despite the economic downturn, making this strategy acceptable.