Introduction to Management for Toyota: PESTEL Analysis and Porter's Five Forces

This report discusses the management aspects of Toyota, including a PESTEL analysis and Porter's Five Forces analysis. It also provides recommendations for the company to regain customer trust. No course code or college/university mentioned.

Running head: INTRODUCTION TO MANAGEMENT
Introduction to Management
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Executive Summary:
The report is a discussion on the management aspects of Toyota that is a multinational
automobile manufacturer of Japan. The report commences with a PESTEL analysis of Toyota
by stressing on the political, economical, social, technological, environment aspects that are
influencing the company. The report also put across Porter’s Five Forces that helps in
understanding the competitive position of the company. There are also recommendations put
across for the company that helps the company in regaining trust.

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Table of Contents
Introduction:...............................................................................................................................3
PESTEL Analysis of Toyota......................................................................................................3
Porter’s Five Forces...................................................................................................................6
Recommendations....................................................................................................................10
Conclusion:..............................................................................................................................11

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Introduction:
The aim of the report is to provide an overview on the introduction to management for
Toyota. The company is a multinational manufacturer of automobiles with its headquarters in
Japan (toyota.com.sg, 2018). Found in the year 1937, the company is fifth largest in the world
in terms of the revenue and has corporate structure with close to 364, 445 across the world.
Toyota is also the first manufacturer of automobile across the world producing over ten
million vehicles every year. Toyota leads the market in terms of the sale of the hybrid electric
vehicles and encourages mass adoption of the hybrid vehicles worldwide. Toyota also is the
largest seller of the vehicles run by Hydrogen fuel cell whose global sales reached a
milestone of 10 million in the year 2017. The report will put forward a PESTEL analysis to
analyze the macro environment of the industry in which Toyota operates. There is also the
mention of the Porter’s five forces for determining the competitive environment of Toyota.
The report also puts forward necessary recommendations that would bring back customer’s
reliance on the company.
PESTEL Analysis of Toyota
Political Factors
Toyota is subjected to the influence of the political conditions. Therefore, the major
political factor that influences the macro environment of the company includes (Dunning,
2014):
 The free trade agreements
 Persistence of the political stability in the major markets
 3 Support of the government for the eco friendly products

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The existence of the political stability in major markets acts as opportunity for the
company for growing with minimum political tension. The free trade agreement between
Japan and the other countries acts as opportunities for better penetration into the market.
Further, the governmental support for eco friendly products also acts as opportunities for
Toyota in improving the products for exceeding or satisfying the environmental expectations
(Knoke, 2018). Thus, the political factors act as opportunities for business.
Economic Factors
The economic trends help in influencing the organizational development of the company.
The major external economic factor that influences the macro environment of Toyota
includes (Schaltegge & Wagner, 2017):
 Weaker currency, Yen was weaker than the US Dollar
 The growth of the economy of the United States
 The faster growth taking place in the developing countries
The company can improve the exports from the Japan based on the weakness of the
Japanese currency Yen. Toyota can expand its business due to the growth of the economy of
US that represent the second biggest market of the firm after Japan (Shenkar, Luo & Chi,
2014). There is lies an opportunity for Toyota for improving its revenues due to the rapid
growth in the developing economies. The primary economic factors thus help in creation of
the opportunities for the business growth.
Social Factors:
The primary social factors that influence the macro environment of Toyota include
(Fujiwara & Nagasawa, 2015):

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 Enhanced interest in the hybrid cars
 Enhanced interest in the electric cars
 Widening gap of the wealth
Toyota experiences an opportunity in providing increased number of products that
helps in satisfying the enhanced customers’ interest for the electric and hybrid vehicles
(Cherubini, Iasevoli & Michelini, 2015). the company must however, take into account the
broadening wealth gap that acts as threat as it corresponded to the diminishing middle class
that acted as the primary source of revenue for the company. Hence, the increasing wealth
gap serves as a key concern for the company.
Technological Factors
The notable external technological factors influencing the macro environment of the
company’s business include (Sierzchula, 2014):
 The increasing use of the e-commerce
 The increasing trend of mobile technology
 The presence of the cybercrime (threat)
Toyota can exploit the opportunity of improving the e-commerce capabilities or take
advantage of e-commerce service contributor belonging to the third party for the enhancing
the sales of its spare parts (Wang, Wang & Hao, 2013). The company also have opportunity
of enhancing the mobile apps for increasing the customer loyalty and engagement however; it
should consider the cyber crime threat including corporate cyber espionage. Thus, the
technological dimension offers various opportunities to the firm but Toyota must resort to
high-end security measures for addressing the threats related to the cybercrime.

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Environmental Factors
The primary external environmental factor that influences the macro environment of the
company includes (Lasserre, 2017):
 Change in the Climate
 Reduction in the reserves of the global oil
 Increased emphasis on maintenance of sustainability of the business sustainability
Toyota brings in opportunities for providing increased number of products that are
environmentally friendly that includes the electric cars with higher efficiency of fuel
(Vasconcellos, 2014). The company also possess the opportunity in increasing the
sustainability performance by improving the efficiency in the business process. The key
environmental factors acts as opportunities for the company thereby enhancing its further
growth.
Legal Factors
The most important external legal factors that influence the macro-environment of
Toyota’s business include (Law, 2017):
 Presence of improved intellectual property law
 Presence of the environmental laws which are complex
 Presence of complicated consumer laws
Toyota experiences the opportunity in growing with reduced concerns regarding the
infringement of the rights of intellectual property since the government works towards
improvement in the protection of the intellectual property (Hoskisson et al., 2013). The
company also experiences an opportunity in providing higher product quality for exceeding

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or satisfying requirements depending on the environmental law. Further, the company can
also exploit the opportunity of providing greater satisfactory products for fulfilling or
exceeding the customer laws. Thus, the external legal factors offer opportunities for the
company.
Porter’s Five Forces
Bargaining Power of the Suppliers
The suppliers of Toyota aim at influencing the firm in improving the business (Porter &
Heppelmann, 2014). The external factors that contribute to bargaining power of the suppliers
in the automobile industry are as follows:
 Population of the suppliers at the moderate level which acts as moderate force
 Overall higher supply that acts as weaker force
 Forward Integration of the Suppliers at a lower level that acts as weaker force
The limitation in the population of the suppliers across the world leads to the creation
of moderate force that helps in influencing Toyota (Ruigrok & Van, 2013). Ideally, with
fewer suppliers the bargaining power is always higher. Nevertheless, the higher supply
availability required for the manufacture of the products of Toyota weakens the power of
the suppliers. Further most of the suppliers belonging to the automotive industry on a
global scale do possess integration, control or the ownership of the distributed materials
that reaches the Toyota firms
Bargaining Power of the Buyers

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The customers of Toyota directly affect business through the revenues. The external
factors that act as the contributors towards determining stronger force in Toyota include
(Caniels, Gehrsitz & Semeijn, 2013):
 Lower switching costs that acts as stronger force
 Higher quality of the information which acts as strong force
 Moderate availability of the substitutes which acts as moderate force
The lower cost of switching costs implies that the customers can move easily and ensure a
change from the Toyota towards the competing firms without any additional cost (Gereffi &
Lee, 2016). This change is visible when the customers are buying a newer car. The customers
of Toyota can also opt for the best option due to the access of the accurate information about
the product through the websites. However, in spite of the availability of the substitutes, the
cars made by Toyota are class apart in terms of the convenience. Nevertheless, Toyota should
ensure that the products offered must match the expectations and preferences of the targeted
customers.
Threat of Substitutes
The external factors that act as the primary contributor towards the creation of a
moderate force for the automobile industry include (Tilton, 2015):
 Lower cost of switching which acts as stronger force
 Availability of substitutes at the moderate level that acts as moderate force
 Lower convenience in the usage of the substitutes that acts as weaker force
The customers can easily make a shift from the Toyota towards its substitutes. The
substitutes of Toyota include bicycles, public transportation, and other transportation modes.

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Such substitutes however remain available on a moderate scale (Nag, Han & Yao, 2014). In
certain suburban areas, public transportation does not remain readily available there implying
the absence of substitutes for Toyota. In most of the cases the substitute remain lesser
convenient in comparison to the Toyota products. Thus, Toyota experiences moderate threat
from it substitute that the company must address by making the product affordable, accessible
and convenient.
Threat of new Entrants
The external factor that contributes to the weaker force in the automobile industry
includes:
 Higher cost of the capital that acts as a weaker force
 Higher cost of development of the brand which acts as a weaker force
 Higher cost of the supply chain that acts as a weaker force
The company faces weaker threats from the newer entrants. The higher costs
involving the establishment, maintenance and growth of a new firm in the industry acts as
key barriers to entry (Christensen, Raynor & McDonald, 2015). Such barriers enables in
weakening the impacts of the new entrants for Toyota. Thus, threat of the new entrants is
least for the company and hence it can grow its business and ensure maintenance of its
positions as the top automotive manufacturers across the world.
Competitive Rivalry

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Toyota faces a stronger force of the competition. The external factors that act as key
contributors in creation of a stronger force towards a competitive rivalry in the industry
include:
 Higher aggressiveness of the firm that acts as strong force
 Higher differentiation and variety of the firm acting as a strong force
 Presence of a lower number of the larger firms that acts as moderate force
The automotive firms act in an aggressive manner against one another in relation to the
factors of marketing and innovation (Hashmi & Biesebroec, 2016). Toyota faces competition
from huge firms that remain differentiated via the fuel efficiency, electronics, cost, brand
image, variety and style. Therefore, the company must adopt comprehensive strategies for
addressing the stronger force of the competitive rivalry.
Recommendations
The biggest problem faced by Toyota in recent times is the damage of its reputation
caused due to the abrupt acceleration recalls, massive settlement and lawsuit and the millions
of money paid in the government fines. In addition to this, the company for a long time had a
long list of boring cars (Dunning, 2014). This was making the people lose confidence in
buying Toyota cars.
Three recommended strategies would help the company in regaining its position.
These included portrayal of a public apology, put forward a prepaid maintenance plan and
execution of emergency protocol (Lasserre, 2017).
Toyota represents a picture of reliability and represented the only automobile
company that maintained its position for a substantial time. However, the recent issues that

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had led to the loss of the public confidence is regained with the help of the first
recommendation that implied on running an apology commercial on different stations during
the prime time (Hashmi & Biesebroeck, 2016). The commercials would continue for a month
and should air once on a day-to-day basis. The company could also undertake a video
streaming on its website that would contain a ten-second apology from the company
president stating the measures that the company is adopting in regaining trust.
The second recommendation for the company included the offering of a prepaid
maintenance plan for the vehicles that ran over certain time (Knoke, 2018). This particular
servicing plan would enable the makers of Toyota to take their cars to any existing auto shop
and get it repaired. This would keep the inconvenience of car owners at bay.
The final recommendation related to the implementation of an emergency protocol.
This would allow the company in bringing the car and investing its problem (Law, 2017). On
identification of an issue, the company should either send a notification to the customers via
phone call or letter which will also in updating them.
Conclusion:
The report concludes by throwing a light on the management aspects of Toyota. The
report put forward a PESTEL analysis of the company. It is seen that the identified external
factors put forward opportunities for Toyota. For example, the opportunities enable the firm
in focusing on the product development through exploitation of the market opportunities. The
report discusses about the Porters five forces that help in determining the position of the
company. There are recommendations portraying how the company can regain its trust
amongst the consumers.
References:

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