Economic Strategy Analysis Report: Toyota Motors Corporation

This report provides a comprehensive economic strategy analysis of Toyota Motors Corporation, utilizing SWOT, PESTLE, and Porter's Five Forces frameworks. The SWOT analysis identifies Toyota's strengths, such as its focus on research and development, valuable brand recognition, and efficient production system, alongside weaknesses like limited presence in China and frequent vehicle recalls. Opportunities include rising fuel prices and increasing demand for automobiles, while threats encompass governmental regulations, increased competition, and natural disasters. The PESTLE analysis evaluates the political, economic, social, technological, environmental, and legal factors influencing Toyota's operations. Key political factors include government subsidies for hydrogen cars and free trade agreements. Economic factors cover the impact of currency exchange rates and competitive pressures. Social factors include brand image issues from recalls. Technological factors highlight Toyota's R&D leadership. Environmental factors emphasize the company's commitment to reducing emissions. Legal factors address product liability and related lawsuits. The report concludes with a detailed examination of the automotive industry and Toyota's strategic positioning.

Running head: ECONOMIC STRATEGY ANALYSIS
Economic Strategy Analysis
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1ECONOMIC STRATEGY ANALYSIS
Table of Contents
SWOT Analysis...............................................................................................................................2
PESTLE Analysis............................................................................................................................6
Poster’s Five Force Analysis.........................................................................................................10
References......................................................................................................................................13

2ECONOMIC STRATEGY ANALYSIS
SWOT Analysis
SWOT analysis is one of the major strategic tools that help the organizational managers
in the identification of strengths and weaknesses of the companies along with the potential
opportunities and threats (Yuan 2013). There is not any exception of this fact in case of Toyota
Motors Corporation. Toyota Motor is considered as the world’s leading sellers of hybrid electric
vehicles. It needs to be mentioned that Toyota has its presence almost all over the globe (toyota-
global.com 2017). However, the company is based on Japan. The SWOT analysis of Toyota is
shown below:
Strengths
Focus on Research and Development (R&D): Toyota is famous all over the world for their
innovative culture. It is one of the major strategies of Toyota to get the competitive edge by
introducing innovative vehicles in the market. Toyota has 17 research facilities in 8 different
countries all over the world. The three major focus area of the R&D department of Toyota are
basic research, development of technology and development of product (toyota-global.com
2017).
Most Valuable Automotive Brand: According to the records of Forbes and Interbrand, Toyota is
in the position of 6th and 5th most valuable brand all over the world worth US$42.1 billion and
US$53.6 billion in the year 2016. Both of the reports state that Toyota is the no. 1 automotive
brand all over the world based on value (forbes.com 2017).
Toyota Production System: The production system of Toyota is one of their major strengths of
the corporation. The name of the production system developed by Toyota is Total Production
System (TPS) and the main aim TPS is to increase the efficiency of production process by
eliminating wastes. It has been seen that TPS is highly successful in Toyota’s production system

3ECONOMIC STRATEGY ANALYSIS
as it helps Toyota to increase its production efficiency by reducing manufacturing time and cost.
Figure 1: Toyota Production System
(Source: lean.org 2017)
Competence in the production of Hybrid Vehicles: Heavy investment of Toyota in the sector of
hybrid vehicle is considered as one of the major strengths of the corporation. In the year 1997,
Toyota introduced their first hybrid vehicle called Toyota Prius. In the year 2016, Toyota has
been able to sell more 9 million of hybrid vehicles that is more than any other companies are. All
the hybrid vehicles of Toyota are very much fuel-efficient. This helps Toyota to gain the
competitive advantage.
Weaknesses
Lack of Competence in Automobile Vehicle: The reluctance of the management of Toyota can
be seen in the long-term investment in automotive vehicle technology. The company has
invested in the processes to reduce wastes, but Toyota has not taken any initiatives in the
introduction of fully autonomous vehicle in the future. This can be considered as the major

4ECONOMIC STRATEGY ANALYSIS
weakness of Toyota.
Large Vehicle Recalls: The recall rates of Toyota is very high and these frequent recalls have
been affecting the image of the company. In the year 2016, Toyota has recalled almost 5.8
million vehicles due to faulty airbag. For this reason, Toyota had to cost US$3.4 billion as
compensation. It is a fact that these frequent recalls negatively affect the brand image of the
company (fortune.com 2017).
Weak Presence in China: China is considered as the world’s largest automobile market all over
the world with more than 25 million sold every year. In China, Toyota has to face major
competitors from the companies like General Motors, Volkswagen and others. As a result,
Toyota has less presence in the vehicle market of China. Toyota only captured 4.5% market
share in China. This is a major weakness of Toyota.
Figure 2: Market Share of Toyota in China
(Source: businessinsider.in 2017)
Poor Brand Portfolio: There are four brands under the name of Toyota; they are Hino, Daihatsu,
Lexus and Toyota. Out of these four, only Toyota and Lexus has brand recognition all over the
world. Thus, it can be seen that the brand portfolio of Toyota is not strong as compared to the
other companies. This aspect attracts negative publicity for Toyota.

5ECONOMIC STRATEGY ANALYSIS
Opportunities
Rise in Fuel Price in Future: Fuel price has been low in the recent years and this aspect
contributes towards the demand of large vehicles like SUVs, trucks and others. However, Toyota
is specialists in the making of hybrid vehicles that will be beneficial from the high price of the
fuels. Thus, it is an opportunity for the company.
Automobile Vehicle Demand: It can be seen that many companies are working on the
automobile vehicles. Based on this, it can be said that the demand of automobile vehicles is
going to increase in the near future. For this reason, Toyota has heavily invested in their business
so that they can match the future demand.
New Model Release Timing: It is important in the automobile industry that the new modes need
to be released at the perfect time to cater to the need of the customers. Companies need to be
prepared to do this. It needs to be mentioned that Toyota is well positioned to do so.
Threats
Governmental Regulation: It needs to be mentioned that the automobile industry all over the
world is subject to various governmental regulations. In case of Toyota, the increasing
governmental regulations are the key threats for Toyota. Due to the increase in regulations,
Toyota has to incur large amount of costs. This particular process affects the business operations
of the company (toyota-global.com 2017).
Increased Competition: The world automobile market is highly competitive. However, due to
the excess production of vehicles, the competition is going to increase further. As a result of
excess production, all the automotive companies will try hard to sell those vehicles. This
particular aspect will make the automotive market more competitive (forbes.com 2017). Thus,
this is a major threat for Toyota.

6ECONOMIC STRATEGY ANALYSIS
Natural Disaster: Toyota has many production facilities in China, Japan, Thailand and
Indonesia. It can be seen that all these countries are often affected by different natural disasters
like tsunami, earthquake, floods and others. Thus, it can be observed that this is a major threat
for the business of Toyota. These are the major threats of Toyota.

7ECONOMIC STRATEGY ANALYSIS
PESTLE Analysis
PESTEL analysis is another major strategy that helps the business organizations to assess
the effects of external business environments on the companies. This is a very important process
as it helps in the development of business strategies. In PESTLE analysis, six major external
factors are Political, Economic, Social, Technological, Environmental and Legal (Yüksel 2012).
In case of Toyota, all these external factors have their negative effects on the company. The
PESTLE analysis of Toyota is shown below:
Political Factors: The political situation of Japan well suits the business operations of Toyota. It
needs to be mentioned that the government of Japan has started the scheme of subsidizing people
for the use of hydrogen cars and it has created major business opportunities for Toyota as Toyota
first introduced world’s first hydrogen car (ft.com 2017). Most of the countries in which Toyota
operates have a stable political condition and it works as major opportunities for Toyota. In
addition, the introduction of Free Trade Agreement is a major boost for the operations of Toyota
(cargroup.org 2017). It can be seen that the free trade agreement of Japan with other major
countries has created the opportunity for Toyota to improve their market penetration. In the
recent years, the governments of all over the world are promoting eco-friendly cars in order to
prevent the negative effects of pollution on the environments. This particular aspect provides
Toyota the opportunity to improve the products so that they can cater to the needs of customers
all over the world.
Economic Factors: It can be seen that Toyota has established its business with United States as
the value of dollar is stronger than yen (travelex.com 2017). For this reason, the major growth in
the world’s largest economies always provides the growth opportunities for the companies like

8ECONOMIC STRATEGY ANALYSIS
Toyota. As per the earlier discussion, it can be seen that the automotive industry of the world is
highly competitive. For this reason, companies like Toyota have to face major economic
problems like prices wars, inflation, budget regarding R&D and others. It can be observed that
Toyota takes massive advantage of the business in United States, as the value of yen is less than
the value of dollars. In addition, increased economic growth can be seen in major developing
countries and it provides economic advantage to Toyota as it has collaboration with those
developing countries. Thus, it can be observed that Toyota enjoys major economic advantages.
Social Factors: In this context, it needs to be mentioned that Toyota has a negative record of
recalling large number of vehicles in the past years (forbes.com 2017). For this reason, Toyota
has to pay massive amount of compensation to their customers as a result of these recalls. This
major social factor affects the business of Toyota. Apart from this, the culture of the states and
countries has an influence on the buying behaviour of the customers. For this reason, Toyota will
have more business opportunities in the countries or states where people are prone to the use of
hybrid cars (forbes.com 2017). At present, people all over the world are showing their interests
in hybrid cars and it provides business opportunities to Toyota. However, the widening wealth
gap is a matter of concern for Toyota as the company is focusing less on the middle class. Toyota
needs to remember the fact that middle class is the main source of revenue for Toyota
Technological Factors: According to the earlier part of the study, it can be said that Toyota is
the market leader when it comes to research and development. Keeping in view the fuel and
energy scarcity, Toyota has developed alternative fuel consumption vehicle with the use of latest
technologies. In addition, Toyota is working on the development if next generation hybrid cars
those will be more fuel efficient and cost saving (forbes.com 2017). Apart from this, with the
help of latest technological developments, Toyota has been able to develop modified engines

9ECONOMIC STRATEGY ANALYSIS
with lean burn, direct injection gasoline and CNG engines. Thus, it can be observed that the
boom of technologies have been creating major business opportunities for the automotive
companies like Toyota. In addition, the rise of e-commerce has been a major help for the
company. In this process, the aspects of cybercrimes can be considered as major treats for
Toyota.
Environmental Factors: One of the major reasons for the development of great products by
Toyota is environmental commitment of the company. Toyota has been taking major initiatives
to reduce the effects of environmental pollution. As a part of these initiatives, Toyota has
launched the challenge of zero carbon dioxide emission by the year 2050. The major objective of
this challenge is to reduce the carbon footprint by 90% (toyota-global.com 2017). Another major
objective of this strategy is to develop the kind of car engines that will provide extra mileage
with minimum emission of carbon dioxide (environmentalleader.com 2017). Thus, the aspect of
climate change provides Toyota with major opportunities as the company has the chance to
develop more environment friendly products. Moreover, it can be observed that Toyota has fare
opportunities to improve business performance with the help of process efficiency. Overall, it
can be said that Toyota is an environment-friendly company.
Legal Factors: According to the earlier part of the discussion, it can be seen that Toyota had to
recall large number of cars due to various defects. Due to these recalls, Toyota had to pay
US$1.1 billion in order to settle the lawsuits in the year 2012 (telegraph.co.uk 2017). The main
reason of those lawsuits was product liability and negligence. As there were many defects in the
cars of Toyota, many people had to die due to accidents. Apart from this, another lawsuit was
filed against Toyota due to the breach of warranty. Thus, from the above discussion, it can be
seen that Toyota had to face major legal suits. Apart from these lawsuits, it can be seen that

10ECONOMIC STRATEGY ANALYSIS
Toyota operates their business operations by complying with all the rules and regulations. In this
context, it needs to be mentioned that Toyota has to face with some major difficulties while
complying with the legal and statutory regulations.

11ECONOMIC STRATEGY ANALYSIS
Poster’s Five Force Analysis
Toyota has to face the effects of major external environmental factors. All these external
factors have major influence on the strategic development of the company. Porter’s Five Forces
model helps the business organizations in the assessment of the effects of external environments
on the business organizations. The five major elements of Porter’s Five Forces model helps in
the analysis and evaluation of the effects of different external environmental factors on the
companies (Dobbs 2014). The analysis of Porter’s Five Forces for Toyota is shown below:
Competitive Revelry: In this section, it is required to mention the fact that world automotive
industry in highly competitive due to the presence of some large corporations. All these firms in
the automotive market are highly aggressive regarding their business and marketing activities.
Apart from marketing activities, these companies compete with each other on the ground of
technological innovations, brand names and others. It can be seen that most of the companies
operate in the same market and this aspect increases the intensity of competition. Thus, it can be
observed that Toyota has to face major competitions in the automobile industry. Some of the
major competitors of Toyota are Honda, Hyundai, Volkswagen, Ford and others (forbes.com
2017). It can be seen that all these companies are growing in a fast pace. For all these reasons,
Toyota has to compete with high variety of companies that differentiate thorough efficiency,
cost, fuel efficiency, style, brand image and others. Hence, based on the above discussion, the
risk of competitive rivalry is very high, as Toyota has to compete with major competitors.
Bargaining Power of Customers: It can be seen in the automobile industry all over the world
that the bargaining strengths of the customers are very high. There are some major reasons
behind this. It can be seen that the customers of automobile industry has several option while