Applying Porter's Diamond Model to Understand Toyota's Global Success

This report applies Porter's Diamond Model to analyze Toyota's competitive advantage in the global automotive industry. It examines the four key determinants of the model: factor conditions (including infrastructure, education, and labor laws), demand conditions (domestic market demand and consumer behavior), related and supporting industries (suppliers and clusters), and firm strategy, structure, and rivalry (competition and government policies). The analysis highlights how Toyota's operations in Japan benefit from factors such as a skilled workforce, a demanding consumer base, and strong supporting industries, contributing to its global success. The report also discusses the impact of government policies, technological advancements, and industry clusters. The conclusion emphasizes the importance of adapting to changing economic, social, and technological factors to maintain a competitive edge.

Porter’s Diamond Model in
Toyota

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
DIAMOND ANALYSIS.................................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Diamond model was developed by Michael Porter. This is an economic model that is
established especially for small sized businesses and it can also be used by other big
organisations. This model assists the business entity in developing understanding about their
competitive position in international market. It is also referred as Porter’s Diamond Theory of
National Advantage. Various organisation within clusters impact each other in order to enhance
productivity, facilitating as well as fostering innovation and ensuring the desired results. The
enterprise working under this cluster has an opportunity to expand their business in global
market, mark their presence and to gain competitive advantage. The study focuses on applying
Porter’s cluster theory in order to explain the origin of Toyota’s competitive advantage.
MAIN BODY
Toyota Motor Corporation is a Japanese company dealing in automotive manufacturing
industry. It consists of approx. 263,444 employees worldwide. Toyota enterprise is considered as
the fifth largest organisation in terms of revenue. It is also the largest automotive manufacturer.
Toyota firm is known as First company that has manufactured more than 10 million vehicles per
year. It is also considered as the market leader that has sold hybrid electric vehicles and Toyota is
the only organisation that has motivated the mass market acceptance of Hybrid vehicles in
international as well as domestic market (Wonglimpiyarat, 2017)
Porter’s diamond model is named as diamond because it consists of all constituents that
are significant in international business competition are assembled in form of diamond. Model
has adopted the concept of clusters of products group that has same features. Porter’s cluster
diamond theory has analysed the major four determinants that may assist cited firm in attaining a
national advantage. Theory states that the combination of four determinants has a great influence
on the competitive strength of Organisation. Porter believes that various competitive industries
can develop specialised cluster of domestically based organisation. These clusters are correlated
with each other by vertical relations like supplier integrating with buyer or vice versa. Through
horizontal relation by customer, distribution channel, technology, skills etc. Specific or
specialised cluster allow country to develop business system that may result into economic
success and gaining competitive advantage.
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Toyota is dealing in automotive industry that is linked with Porter’s diamond model in
order to create innovative business system that will assist organisation in gaining competitive
advantage over other enterprises.
Country’s analysis- it included country background in which organisation is operating,
identifying economic status, Macroeconomic completive strength, social, political infrastructure,
etc. The Toyota is a Japanese company. The country does not have many resources and only
have sea resources that has allowed japan to become the largest sea bone traders. After Second
World War, big ports were developed that are now combined with big factories that are operating
on a large scale. This has provided Toyota and other manufacturing companies an opportunity to
increase the production capacity and enhanced productivity (Imai,2017)
Second World War had great effects on the economic growth of Japan. There was
increase in demand from reconstruction After the year 1955, there was a period of high economic
growth. During this particular year, the export of automotive products increased faster than GDP.
As Toyota is a Japanese company, it has advantage in human resource development,
political institution and legal benefits. Toyota has to face major threats or risk that may arise due
to changes in social, economic and political factors. Country has high education level that allows
the firm to appoint highly talented and skilled workforce. Social factors such as ever ageing
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Illustration 1: GDP, Inflation and unemployment
(Source: Micro economic competitiveness, 2016)

population in Japan has a great impact on the productivity and creativity of firm. These variables
also have a great influence on various marketing as well as other strategies and decisions.
Japan has a peaceful political environment that provides business entity an opportunity to
gain economic benefits and supports enterprise in expanding their core business activities.
Changes in political factors have a great effect on the organisation’s growth and success.
Overall, Toyota motors that is operating in Japan has an advantage to gain
microeconomic competitiveness. There are various driving forces such as improved demand of
automotive products, factors conditions, competition, capital, strategies and market infrastructure
allowed enterprise to foster its growth, increase profitability and gain competitive advantage in
global environment (Pascoal, Delamaro, Ibusuki, Tsukada & Rocha, 2017)
DIAMOND ANALYSIS
Factor input conditions- The two major forces such as well-developed infrastructure as
well as public services have provided firm an opportunity to develop a strong foundation that can
be used in the development of business. High quality of training and education level has enabled
business entity to hire high quality, skilled as well as talented labour. Laws related to wage have
allowed business unit to enhance its productivity and increase the production capacity.
In context of organisation Strategy and competitors. Toyota has to face fierce
competition. This has been possible due to strong market control, high consumer orientation and
effective anti-monopoly policies formed by the government in order to ensure fair competition in
market. Favourable policies framed by legal authority to promote foreign direct investment has
allowed enterprise to measure the intensity of local competition (Simatupang, Piboonrungroj &
Williams,2017)
Supporting and related industries provides organisation a strong base for local suppliers.
Government provides small land area to various firms to form cluster. These clusters can be
highly developed with the support of various beneficial policies.
Highly demanding consumers have encouraged Toyota companies to improve the quality
of products and adopt innovation strategy. It also provided business entity a base that can be used
to determine the future needs of customers. Advanced technology purchased by legal authority
has motivated enterprise to facilitate innovation and improve the working efficiency. Stringent
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environment policies related to environment has forced Toyota to adopt advanced technology,
conduct recycling process and develop highly valuable goods.
The other factors condition include scarcity of natural resources has created various
barriers in growth of organisation. But Japan has treated this disadvantage as a pressure to
promote productivity, growth and innovation. Japan has made a huge investment in providing
training and high quality education to employees and unemployed people. It has also built
efficient infrastructure and provided various services in order to support the firm in increasing
their competitiveness and developing uniqueness. But still many organisations operating in Japan
have faced major issues related to human resources. Rise in the rate of ageing population and
decline in number of working population has created major threat for companies as shortage of
workforce has a great impact on organisation’s performance (Mohapatra, Choudhury &
Ganesh,2017)
As japan has the most demanding population that has encouraged Toyota to improve its
productivity and facilitate innovation that has assisted business entity in fulfilling the needs of
their clients. Domestic demand for automotive products has provided firm a path to make
improvement in its globalisation strategy.
Government policies has allowed organisation an opportunity to develop best value chain
and improve production procedure that can help business entity in systematic as well as
comprehensive development.
Increase in Japanese automotive cluster has been possible only through the support of
favourable macro as well as micro environmental forces. These variables have allowed Japan to
become the largest automotive producer. After the Second World War, favourable business
environment has assisted Toyota to foster growth. The anti-monopoly policies of government has
provided Toyota an opportunity to restructure itself, increase its competitive strengths and
competencies. It has enabled the business entity to achieve success. In 1970, at time of oil crisis
has enabled Toyota companies to take a break in global market (Yin, Stecke & Li,2017)There
was decline in engineering issues it has provided business entity a chance to improve their past
mistakes. Toyota in contrary to western cars had focus on developing powerful engines, large
bodies and heavy material in cars, has realised that it should use lighter material, smaller bodies
and less powerful engines. Toyota has adopted unique marketing strategy in order to emphasize
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on communicating objectives of reliability, value and increasing fuel efficiency to the largest
auto market in world.
This cluster consist of all firm that manufactures passenger as well as commercial vehicles in
Japan. The main element of Auto mobile cluster is OEM that are being supplied by those
industries who produces auto parts. The strength of the cluster is that it has strong support of
specialised or expert domestic suppliers. Through this support the firm is able to obtain heravy as
well as highly developed and quality of steels or other raw material that are required to develop
cars. It allowed business entity to provide good quality product at reasonable price to its
customer. Cluster allows various firms to increase the ease of cooperation. Reduce costs, it also
enables enterprise to foster development process and develop effective as well as suitable
marketing strategy in order to promote their goods. The strength of Automotive industry is very
critical as these firm are more dependent on diverse inputs that are required to match with thr
quality and safety standards. Industrialisation and advancement in technology has provided
Toyota a chance to obtain suitable raw material to manufacture cars. Formation of clusters has
supported government in consolidating various automotive company and imposing restriction on
importation of cars. Many IFC standards are being establish by legal authority that has forced
Toyota and other such companies to improve the quality of their products and adopt advance
technology. It has also encouraged the formation of various groups such as Auto mobile
importers' association as well as japan Auto mobile dealers. They have got an opportunity to deal
with various issues such as prices, legal regulation, and tax. Cluster has provided Toyota an
opportunity to expand their business outside national boundaries (Parniangtong,2017)
Flat organisational structure and slow growth in market is are the main reason due to
which has not allowed business entity to gain popularity in other global market except South
Asia. The other major issue is protectionist policies that are directly related to auto mobile
industry has limited the success and growth of Toyota organisation. The enterprise have focus on
increasing reliability, but they do not emphasize on maintaining or improving their performance
and nor on gaining experience of short term wining. Hybrid electrical vehicles has able to
achieve significant importance and has allowed business entity to increase the level of
competition.
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The cluster of Auto mobile firms are positively influenced by business environment and
it has supported the growth of various companies in cluster. According to the factor condition,
high quality of communication and logistical structure, strong credit availability, Experts , strong
in product configuration has allowed Toyota to expand its core business activities. In context of
firm, Higher level of productivity, intensity of competition, fragmented domestic market has
provided enterprise an opportunity to increase its profitability and encouraged firm to develop
new product. Related and supporting industries has enabled firm to develop effective relationship
with supplier, structure has supported business unit to increase its efficiency and allow enterprise
to ensure elimination of unfair practices. Economic condition of Japan has provided enterprise to
generate demand for their products (Oleksiuk, 2017)
CONCLUSION
It has been concluded from the report that cluster has supported various firm to foster
growth and achieve success. It has been concluded from the study that Toyota company as
operating in Japan has able to gain various economic benefits. The major challenges that
company has to face are related to changes in social, economic and technological factors. Many
of these variables has forced business entity to make improvement in their products and adopt
advance technology (Wang & Zhao,2017)
Favourable Business environment has allowed enterprise to foster growth and generate
demand for their products. It has also provided company a chance to restructure itself and
increase its competitive strength.
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REFERENCES
Books and Journal:
Pascoal, E.T., Delamaro, M.C., Ibusuki, U., Tsukada, O. & Rocha, H.M., (2017). The new
Brazilian automotive policy and its impact on the competitiveness of multinational
automobile and auto parts manufacturers. International Journal of Automotive
Technology and Management, 17(3), pp.225-247.
Wonglimpiyarat, J. The pursuit of original equipment manufacturer strategy: insights from an
Asian country. R&D Management.
IKEGAMI, J., Applying Blue Ocean Strategy to the “Volume Zone” of Emerging Markets.
Imai, N. (2017). Toyota Production System for Business Process Management. Holistic Business
Process Management: Theory and Practice, 14, 57.
Simatupang, T. M., Piboonrungroj, P., & Williams, S. J. (2017). The emergence of value chain
thinking. International Journal of Value Chain Management, 8(1), 40-57.
Mohapatra, S., Choudhury, A., & Ganesh, K. (2017). Framework for supporting'business process
reengineering'-based business models. International Journal of Business Innovation and
Research, 13(4), 451-474.
Yin, Y., Stecke, K. E., & Li, D. (2017). The evolution of production systems from Industry 2.0
through Industry 4.0. International Journal of Production Research, 1-14.
Parniangtong, S. (2017). Competitive Advantage of Customer Centricity.
Oleksiuk, A. CLUSTER POLICY AND DEVELOPMENT OF THE POLISH SPECIAL
ECONOMIC ZONES.
Wang, S. Z. Z. L. Y., & Zhao, F. (2017, January). Evaluating core technology capacity based on
an improved catastrophe progression method: the case of automotive industry. In Proc. of
SPIE Vol (Vol. 10322, pp. 1032236-1).
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