Strategic Business Unit (SBU) Analysis of Toyotas Hybrid Cars using Pestle, SWOT, VRIN etc
Strategy Essay: Toyota SBU Analysis
Toyota Corporation is involved in the production and distribution of automobile products in the world with over 50 production facilities in 27 countries. Toyota Headquarters are located in Japan with regional offices in other key markets. Owing to huge market presence, Toyota has become a household name in the world of automobile. Rise to prominence has been facilitated by increased product differentiation and intensive R&D involvement. However, its R&D activities facilitated the development of the Toyota Hybrid Prius plug-in model in 2009 and slightly cushioned the company from the effects of the global economic crisis. This report seeks to conduct a thorough strategic analysis of Toyota UK and recommend strategies for increased profitability and market dominance. This report will utilise Pestle, SWOT, Resource based Analysis and Bowman’s Strategy Clock as the primary analytical models. This report will further suggest the best strategy for the company to pursue in increasing revenue and profitability.
2.0 TOYOTA PESTLE ANALYSIS
Pestle Analysis is a framework that managers of firms use to scan the external macro environment in which the business operates in order to make better strategic decisions. This is because Pestle factors play a very important role in the value creation opportunities of a firm’s strategy. But because Pestle factors are external to a company, most firms treat them as either opportunities or threats (Grant 2005). Typical factors that are considered as part of the external environment in a Pestle analysis are listed in the table below;
Table 1: PESTLE factors
However for this essay, we will be concentrating on the PESTLE Analysis framework for Toyota and how it impacts the performance of its strategic business unit in the hybrid car market.
2.1 Political factors
The UK ranks as one the most prosperous nations in the globe and has a vital role to play in global stage (Data Monitor, 2012). Under the leadership of David Cameron, the UK has taken up initiative to reduce the level of fiscal debt, cut central government contribution to local councils, contribution to commonwealth and foreign offices and spending on culture, media and sports (Data Monitor, 2012). This move is aimed at improving the macroeconomic stability of UK thus attract increased foreign direct investments. Toyota Motor Corporation is attracted to the UK market by the political stability and government focus on improving economic stability.
2.2 Economic factors
2.3 Social factors
As Table 1 showed, social factors in a Pestle analysis include changes in demographics, labour and social mobility, lifestyles or changes in fashion. Social changes have the potential to be either threats or opportunities for companies such as Toyota.Over the recent past, UK consumers have shifted preference from large engine automobile to small, compact and fuel efficient automobiles. The introduction of the Toyota Prius plug-in automobile has seen demand soar even from corporate bodies that prefer the hybrid automobile to other Toyota brands (Langrish, 2013). Furthermore, the UK consumer desires convenience in his day to day activities (Autos, 2013). The Toyota Prius Hybrid plug-in automobile enables the UK consumer the liberty to charge the car conveniently without worrying about high fuel prices. Continued government challenge on meeting the level of service quality on public services has increased the cost burden on the UK consumer (Data Monitor, 2012). This trend has contributed to the increased focus on the hybrid plug-in automobile which guarantees lesser cost in sustainability.
2.4 Technological factors
New inventions and developments as well as changes in information technology can all be considered technological factors that can fundamentally influence or impact a company’s performance. The UK ranks as one of the few countries in the globe with a highly competitive manufacturing sector. Competitiveness of the UK manufacturing sector is evidenced by its support of over 276,000 jobs (Data Monitor, 2012). Competitiveness in the manufacturing sector has pushed competition in technological growth and knowledge intensity. In accordance with the government objective of raising the level of knowledge intensity from 1.9 percent in 2004 to 2.5 percent in 2014, Toyota has positively contributed to knowledge by the introduction of the Toyota Hybrid Prius Plug-in automobile unit (Data Monitor, 2012). However, Toyota faces competition from rivals such as GM, Volvo, and VW in the contribution of knowledge intensity (Toyota Motor Corporation, 2013).
2.5 Environmental factors
In an effort to control the rapid escalation of global warming, the European Union has been instrumental in pushing for achievement of targets set by the Kyoto Protocol for reduced greenhouse gas emissions by 8 percent from 1990 to 2012 (Data Monitor, 2012). Furthermore, the UK has embarked on an ambitious initiative aimed at cutting carbon dioxide emissions by 60 percent from 1990 levels by the year 2050 (Data Monitor, 2012). According to the Walker (2012) car pollution, noise, accidents have continued to cost the UK motorist an annual amount of £600 a year. This has shifted the UK motorists’ preference towards the hybrid electric car which provides an energy efficient approach to automobile usage.
2.6 Legal factors
The Wall Street Journal’s Index of Economic Freedom ranked UK as the 16th freest economic while the World Bank ranked UK fifth in terms of Doing Business Indicators in 2010 (Data Monitor, 2012). The UK has developed a comprehensive labor law and has further compromised on several labor issues since its joining the European Union. The European Union has called for fewer legal requirements requiring business set ups in an aim of promoting foreign direct investments into the UK region (Europa, 2011). Few legal requirements have led to saturation of the UK Hybrid automobile industry by several players.
3.0 TOYOTA SWOT ANALYSIS
Toyota has an extensive production and distribution network. Through development of affiliate partnerships with over 50 manufacturing companies located in 27 countries, Toyota Motor Corporation engages in the production and distribution of automobile products to the rest of the world (Data Monitor, 2013). This has enabled Toyota Motor Corporation to reduce the time lag in vehicle production and distribution to target market. The Toyota Prius hybrid plug-in model was produced in the UK manufacturing plant and is sold in the UK market.
Furthermore, Toyota boasts of being one the leading global brands in the automobile industry. The valuing of the Toyota brand at $27941 million in 2006 ranked it above automobile competitors such as: Mercedes, BMW, Honda, Ford, Hyundai, Porsche, and Nissan (Data Monitor, 2013). This has made Toyota a household name in the UK without extensive and aggressive marketing strategies. The Toyota Prius hybrid plug-in model has achieved market success due to this strong Toyota brand perception.
Strengths in R&D have enabled Toyota Motor Corporation to expand its portfolio, improve functionality, quality, safety and environmental compatibility of its products (Data Monitor, 2013). Through its R&D initiatives, Toyota Motor Corporation has focused on development of energy efficient automobile products. The Toyota Prius Hybrid plug-in model is an example of an energy efficient automobile product developed due to focus on R&D.
Product recalls over the recent past have seriously affected the brand perception and sales turnover of Toyota Motor Corporation. For instance, in 2011, Toyota Motor Corporation recalled 111,000 models of Toyota and Lexus brands owing to damaged elements of the substrate and potential shutdown of the hybrid system (Data Monitor, 2013). An analysis of the main affected automobile products reveals that several Toyota Hybrid automobiles had been targeted by the recall.
Toyota witnessed declining sales in its key regional markets. Declining sales in US, Europe, Asia, accounted for 60.8 percent of total revenues for the company (Data Monitor, 2013). This uncharacteristic sales slump by Toyota was greatly attributable to increased competitive rivalry in the key regional markets. In the financial year of 2012, the automobile sales declined by 158,826 units in comparison to previous estimates of 2011 (Data Monitor, 2013).
A growing UK economy bears a positive economic outlook for Toyota Motor Corporation to introduce new automobile products into the market (Data Monitor, 2012). A moderate economic growth rate of 1.6 percent from the year 2010 is boosted by economic forecasts that it could rise by double digits during the period of 2012-2016 (Data Monitor, 2012). This implies an anticipated growth in UK market demand for the Toyota Prius Hybrid plug-in model.
Players such as BMW, GM, Volvo, and Nissan have been making inroads into the UK automobile market in search of market share for their environmentally conservative automobile variants (Hybrid Cars, 2013). The UK consumer has been provided with increased choice preference thus increasing risk and probability of non-Toyota product choice during purchase. Factors of analysis by the UK consumer have now comprised product quality, features, innovative features, safety, pricing, reliability fuel economy, customer service and financing terms.
Table 2: SWOT Analysis of Toyota
4.0 RESOURCE BASED ANALYSIS
4.1.1 Tangible resources
Extensive focus on R&D has been the primary source of increased market dominance for Toyota Motor Corporation in recent years (Data Monitor, 2013). Massive resources in R&D have enabled Toyota to develop the Toyota Prius Hybrid Plug-in product that enables owners to plug their vehicle and charge battery using electrical energy (Hybrid Cars, 2013). However, this new focus has not carved out a sustainable competitive advantage for Toyota due to several rivals also producing their own electrical energy charged automobile products. These include: Nissan, BMW and Volvo (Sunderland, 2013).
Furthermore, the central leadership of Toyota Motor Corporation under Akio Toyoda has enabled Toyota to align its regional market vision and global market vision of ‘Always a better way’ (Brownsell, 2012). Akio Toyoda has extensive experience in the management of Toyota having joined management in the year 2000 and taking over the helm in 2009 (Taylor, 2012). However, Toyoda’s reign in Toyota has been marred by the infamous global vehicle recall of 2010.
4.1.2 Intangible resources
Toyota has continued to enjoy strong brand recognition and perception in the UK market (Brownsell, 2012) due to unrivalled global market presence that has effectively positioned the company as a household name in the automobile industry (Langrish, 2013). However, the automobile recall of 2010 dealt Toyota a huge blow in terms of product and brand perception (Guardian, 2010). Serious safety, reliability and quality concerns were articulated in light of the hitches from the recalls. Toyota CEO Akio Toyoda had to issue an apology to customers in an effort to safeguard Toyotas hard earned brand value when summoned by the US Congress regarding the quality, safety, and reliability of some Toyota brands (Taylor, 2012).
The move by Toyota of establishing over 50 manufacturing plants in over 27 countries has improved the capacity and efficiency of Toyota in production and distribution of the automobile products (Data Monitor, 2013). The implementation of the signature Just in Time strategies has enabled Toyota UK to improve its production capacity and efficiency by focusing on waste reduction and improvement of quality (Toyota, 2012). The Just in Time strategies have enabled Toyota to gain a competitive edge in the automobile market over the years.
4.1.4 Core competencies
The core competitiveness of Toyota Motor Corporation UK can be assessed in two broad dimensions: the ability of the company to acquire resources and its ability to control the cost incurred in the production and distribution process. Toyota has massive resources entrenched in its 50 manufacturing plants located in over 27 countries in the globe (Data Monitor, 2013). Boasting of a production plant in almost every large regional market has enabled Toyota Motor Corporation to reduce the time lag between automobile unit production and time for automobile unit to reach the target market. Moreover, Toyota has been able to improve its technological processes by massive investment in R&D (Data Monitor, 2013). The result has been the production of the Toyota Prius Hybrid plug-in model.
Furthermore, the implementation of the Just in Time strategies has greatly reduced wastage in Toyota UK and enhanced focus on quality improvement (Neate & Milmo, 2012). Additionally, reduced wastage implies reduced costs in production processes due to focus on recycling of some materials in the production processes.
5.0 STRATEGIC ISSUES FACED BY TOYOTA UK
Based on the external and internal environmental analysis and SWOT analysis framework, two major challenges can be seen to affect Toyota UK. Firstly, Toyota faces brand perception challenges characterised by the three major automobile recalls over different and unrelated problems. These recalls raised huge quality, reliability and safety concerns among consumers. Safeguarding the image prior to recall had proved challenging. Secondly, the loss of sustained competitive advantage and subsequent increase in competition in the electrically charged plug-in automotive market has threatened market dominance and market share of Toyota.
6.0 STRATEGIC OPTIONS TOYOTA UK MIGHT PURSUE IN NEAR FUTURE
6.1 Bowmans Strategy Clock
Figure 1: Bowmans strategy clock
Bowman’s strategy clock was developed to be a useful tool in the study of business strategy. Bowman’s strategy clock is used to provide a suggestion of the competitive strategy that a business should adopt in a specific business environment. Through adoption of a focus on perceived quality and price relationship, various suggestions can be drawn to highlight 8 main competitive strategies. These include: low price/low value; low cost; hybrid; differentiation; focused differentiation; high price/standard product; high price/low value and low value/standard price (Bowman & Faulkner, 1996). The marketing activities and market leadership of Toyota’s Prius hybrid plug-in has been majorly based on its highly perceived value. Consumers have been assured of high quality and value for money. The Toyota Hybrid Prius Plug in automobile offers the UK automobile customer a choice to get an energy conservative and high performance automobile at a cost friendly price. The Prius brand has been introduced based on the huge market success that Toyota Automobile continue to enjoy in the UK market. Ideally, Toyota is already a household name in the UK and has been credited for introducing cost friendly and high performance automotive products to rival its consumers.
Furthermore, Toyota Automobile boasts of a strong global brand name that rivals competitors such as Volkswagen AG and General Motors. However, a high range of automobile in the saloon car category in comparison to General Motors and relatively lower cost of automobile in comparison to Volkswagen AG continues to give Toyota Automobile a competitive edge in the UK market. However, from the analysis, it is evident that Toyota UK faces two major challenges of Automobile recall and increase in competition. The challenge of automobile recalls in three consecutive times implies a weakening brand perception that inclines towards the production of quality-questionable products. Furthermore, the challenge of intensifying competition in the electrically charged UK automobile market threatens to decrease the market share of the company. Based on these aspects, Toyota Prius UK should adopt a focused differentiation strategy that creates the perception of high quality and premium pricing. Increased consistency of this focused differentiation should minimise the negative brand perception that the company is currently experiencing whilst also giving it an edge over the competition.
This report focused on conducting a critical strategic analysis on Toyota UK Prius Hybrid plug-in Strategic Business Unit. An analysis of the Pestle, SWOT, and resource based, and Bowman’ s strategy clock derives the following conclusions: From the Pestle and SWOT analysis, this report highlighted the strengths, weaknesses, opportunities and threats of Toyota UK and suggested the focus on new markets and increased product penetration of the existing products to increase market share and profitability. From the Bowman’s strategy clock, this report suggested that based on the weakening global brand perception and intensifying competition in the electrically charged automobile products, Toyota UK should pursue focused differentiation which priorities premium pricing and high quality perception of automobile products. High quality perception in the marketing of the automobile products should reduce the negative effects of poor brand perception in the wake of automobile recalls whilst premium pricing augments high quality perception needed to maintain an edge in the UK market.
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