Introduction
Toyota’s core business is being the global manufacturer of automotive and has an extended structure including subsidiaries and plants in over 170 countries. Having an extensive global and geographical coverage puts the corporation at a risky position due to outside forces exerted by the global external environment. The external business environment is the core determiner of success and continuous progress of the business. The Japan Corporation faces imminent challenges in sustaining its operation around the globe due to economic and social-cultural factors that create commotion and inappropriate conditions for the existence of a car manufacturing industry. Considering the fact that the car industry contributes a large portion of the globe, as well as, the local economy Toyota is due to face governmental regulations. Principally, the Toyota external environment consists of social cultural aspects, economic aspects, technological influences, legal factors, competition, and other imminent factors that are not within the company. This paper intends to discuss the external factors in an international perspective that influence the operations of the Toyota Company with respect to credible models such as PESTLE model and the porters model of competitive approach. Moreover, this thesis includes a detailed analysis of the monitoring system of the external environment and recommendations that can be used to respond to the external environment.
Company Background
Toyota is a profound company established in over 170 countries around the globe. Toyota was essentially formed in 1933 as an additional branch of Toyoda Company, which had started, earlier in 1867 to manufacture more affluent automobiles. Since its formation, Toyota has been very vigorous in the automobile market to a point that it is referred to as the gold standard of the automotive industry. The company's production system in 1990’s was made on the basis of a “Just-in-Time” production. This principle led to the growth of the company rapidly around the world. However, other than manufacturing cars, Toyota has also ventured into the textile industry. Essentially, the company is managed by a board of directors consisting of twenty nine members. This management has enabled the company to survive difficult economic times especially in 2009 period where General Motors Company was facing imminent challenges Toyota gained $16.7 billion and sales growth of 6% in that year. Today, the company is the global leader in the automobile industry and receives higher profits than any other automotive company.
PESTLE Analysis
Essentially, the external environment is divided into two segments including the general and the competitive environment. The general environment consists of factors such as political influences, economic situation, social, and technological aspects. On the other hand, the competitive environment is concerned with aspects such as potential entrants, the bargaining power of suppliers or dealers, the supremacy of purchasers, and the current competitive rivalry. In this case, the general environment can be evaluated using the PESTLE analysis model.
- Toyota Global Political Environment
The political environment in the international arena is diverse and can be presented differently as per the country. However, the political structure in any country is the key to better policies and peaceful co-existence in the country. Moreover, politicians influence the level of investment in the country. Recently, Toyota Company has found imminent security threats especially in the Gulf of Eden where the frequency of ship hijacking has increased progressively. Fatefully, cars and other manufactured products produced by the Toyota Corporation are essentially bulky hence can only be transported using ships. The Gulf of Aden being one of the busiest trading routes has exposed the company to imminent threats to hijacking. Ultimately, cases involving ship hijacking eventually result to a huge amount of ransom and huge losses. This factor is in the hand of politicians since they are in charge of every regulation formed inside a country. Moreover, the government is responsible for creating a safe environment for everyone to coexist and do business. Therefore, matters such as terrorism are an imminent symbol of political failure. Toyota cannot control the entire global security in the countries it has established some of its branches and has to rely on the government for security purposes. An excellent example would be the war in Pakistan in 2003 which made Toyota divert its attention from the imminent market opportunity in the area. Moreover, Japan is a country that is also prone to natural disasters that the company might lack the ability to solve. In this case, since the company headquarters is in Toyota City, in Japan, its properties are prone to damage by earthquakes and other natural calamities. The government is also responsible for providing infrastructure that is resistant to these calamities.
However, most governments around the world are stable and willing to provide a suitable environment and policies to support international investors such as Toyota. With the recent development of globally acceptable rules and regulations, Toyota can function efficiently almost in every part of the world. However, political factors essentially increase the internal costs hence cause the company to charge increased prices on customers. Therefore, political factors though they are beyond the company control, they should be considered as an imminent threat towards internationalization and the success of the business. Nonetheless, the company should be careful to investigate the restriction set by laws, pressure groups and government agencies. For instance, the EU commission has set new rules that obligate all car manufacturers to sell cars that have reduced CO2 emission.
- Toyota Economic Environment
The economic situation in a country is also another crucial external environmental factor that a Toyota should consider deeply before entering a certain market or continue to exist in a certain market. Essentially, the economic environment is made up of the numerous aspects that affect the aptitude of customers to purchase cars and their spending patterns. Allegedly, most countries are undergoing the global recession period a situation that drastically reduced consumer purchasing power. The cost of living as increased progressively hence such items as cars are seen as luxuries and not as necessities. The increased in cost of living has contributed a great deal to price cut off so as to appeal customers at all levels. Toyota has to decrease the set prices to accommodate people from all social class hence less profit will be realized in the long run.
Also, the company should consider the potential threat of depleting critical resources such as oil reserves. The company is too much dependent on the natural resources that can be depleted and cause a slowdown in the production process. Moreover, economic factors affect the organizational behavior and performance. Economic growth, availability of credit, interest rates, and inflation rates, foreign exchange rates, and foreign trade balances are among the numerous factors that greatly influence the company operations. Also, Economic growth has a great impact on the demand of goods and services. The interest rates and exchange rates that Toyota is to pay should be evaluated while deciding to enter a certain market since they may exceed the amount of profit accrued and hence lead Toyota to Loss instead of Profitability.
- Social-Cultural Influences
Societal trends are very critical to the Toyota Company. The increased awareness of the need for education and health and fitness has consistently affected the level of Toyota product demand in the market. This is because the issue of demographic and economic circumstances is directly affiliated with one another. Therefore, the society today is well aware of the existing surroundings and the duty of the corporation in such society. Toyota has been constantly made to participate in societal activities so as to create a positive outlook and reputation of the company. However, Toyota should be concerned about the secondary cultures that have been developed due to modernization and urbanization in almost every country. Therefore, social-cultural influences have essentially changed the needs and preferences of the society due to an increased level of modernization, awareness and education. Certainly, Toyota should be concerned with the media since it acts as the watchdog for the society. Therefore, the media can destroy or build Toyota’s reputation in the society. Moreover, the society has developed individuality in their mode of living hence the automotive industry including Toyota is obliged to make more personalized cars to fit the special specification and standard of living.
- Technological factors
The increased level of technology around the globe has increased the need for Toyota to create new products and services. Moreover, the increased use of technological aspects such as the internet has changed the approach with which Toyota markets its products. Ultimately, the company out to embrace new dialogue based communication systems enabled by the internet to market its products and provide an online monetary system where customers can place orders on the items they want through the internet and pay through the same channel.
Moreover, Toyota is facing imminent challenges to create computerized cars that are specifically designed with a high technological level to cater for extra needs other than the sole purpose of travelling. Among these factors include; producing cars that are Wi-Fi enabled, hybrid cars, electric cars, and highly automatic cars. The issue of technology will always be there hence the company should be aware of the technological situation in a certain market and create strategies that will enable the company to introduce reliable products to clients. Prominently, the most recent technology referred to as the green technology aimed at creating hybrid vehicles that are electrically activated, improving the efficiency of petrol engines and cleanliness of diesel engines, and introducing a short range urban electric cars. These new technologies should be embraced so as to appeal to the conscious customers and increase automobile efficiency and adherence to client specification.
- Legal aspects
Toyota Corporation is subject to globally acceptable, as well as, local legal obligations including paperwork, taxing system and responsibility. The regulations and set standards are the main determinants of the success of an organization. Specifically, Toyota is subject to numerous obligations set by local government requiring the company to pay some tariffs and non-tariffs charges. Countries such as China imposed increased Tariff on international investor to act as barriers to entry. Also, the Chinese government ensures that the countries have reduced the number of cars so as to care for the environment. These aspects have specifically made the China market difficult to enter since Toyota has to deal with increased regulations. Moreover, most governments strive to protect domestic industries hence put up numerous rules and obligations. However, the government ensures that Toyota and other similar companies act within their boundaries with the required level of competency. The legal environment is also closely affiliated to the political environment of a commercial enterprise.
- Environmental Factors
The general transport system has been termed chief contributor to emission of carbon dioxide. This gas is toxic to the environment including forestry and other living things. Toyota needs to spearhead the operation so as to care for the environment and increase its reputation around the globe. Principally, carbon dioxide is the main gas produced by fossil fueled engines hence Toyota faces an imminent challenge to create eco-friendly products that reduce the possibility of respiratory diseases and depletion of the ozone layer. Besides, caring for the environment is one of the prominent corporate responsibilities imposed by the government. Therefore, despite the cost that the company is meant to incur, it is the duty of Toyota to create eco-friendly cars and increase awareness among clients on ways to decrease the release of toxic fumes from their cars and automobiles. Also, the challenge of the environment lies on diversifying energy sources, reducing the dependency on fuel, reducing global warming, and improving the quality of air through creating a petrol hybrid that is cleaner than the normal diesel.
Porters Five Forces Model
Relating to porters five forces model, the structure of the automobile industry affects the profit and income gained by the entire company. Also, the position of the company in relation to competitiveness enables the company to sustain its operation in the tough environment. The model is formed on the basis of competitive advantages that a company has over players in the industry. Applying the same concept to Toyota, the company faces stiff competition from different players including Honda and General Motor Companies. The first aspect of this model is the possibility or threat of new entrants. New entrants in the automobile industry will ultimately bring new capacities as they compete to gain market share. However, Toyota has an imminent advantage in that it can reach new heights of economies of scale, product differentiation, have the required capital, and has access to distribution channels. The second factor in the model is the intensity of rivalry among the prevailing firms. This factor is influenced by different aspects such as the availability of strong competitors, slow industrial growth and increased strategic barriers. Also, rivalry exists among the automobile companies since they are all trying to improve their product and services. Also, the fact that exiting the industry may lead to increased costs, companies seeking to exit the automobile industry may compete with Toyota at any cost hence introduce unhealthy competition such as increased cut off prices. However, the government is keen to control unhealthy competition through regulation and creating appropriate standards.
The fourth aspect of the model is the bargaining power of buyers. The company faces increased customer awareness in that clients want to force the price down and also they demand better quality cars and products. These aspects essentially decrease the profit level of the company.
Lastly, the bargaining power of suppliers essentially lowers Toyota potential profits since suppliers with high bargaining power decrease the quality of materials or increase the prices consistently. Moreover, few suppliers dominate the automobile industry hence they control the price and material needed. Toyota does not have the power to control strong suppliers hence the company must agree with the will of suppliers. Ultimately, the increased prices are reflected to customers’ products hence they become unduly expensive. This will ultimately reduce the profit levels in the company.
Toyota External Environmental Factors Monitoring Systems
Every company including Toyota makes mistakes, however; Toyota has a unique system that helps it to evaluate and strategize on the entire process that transforms input into finish goods and services. Essentially, the company has formed an Operation Management (OM) system that controls, directs and evaluates the company process through the guidance of a series of principles. The OM system is made of four aspects including environmental factors, inputs, customer contact, and transformation approaches. However, in this case, we are concerned about the environmental factors and customers contact. Customer contact is included in this aspect because customers form the broad aspect in the external environment. The operation management investigates these factors before joining a certain market and also ensures that it keeps track of the condition in the market with regard to these factors. Consumer contact is the main aspect that helps the company to investigate modern trends in the market and respond to these changes through the transformation process. Moreover, the company investigates suppliers through their delivery and logistic behavior as they deliver the inputs.
Recommendation
Toyota is an international company, and it is still in the process of growth. Therefore, the corporate should create a code of conduct with the following recommendations;
- Honor the philosophies and the essence of the law in every country and assume open and fair corporate undertakings as a good citizen.
- Respect the existing culture and customs of every state and contribute to critical economic and social development programs through establishing corporate activities in the community.
- Dedicate its operation to creating safe and clean automobiles to enhance the quality of life.
- Generate and advance innovative technologies and provide exceptional automobiles and amenities with intent to fulfill customer needs and preferences in a worldwide basis.
- Pursue matters that increase the level of harmony with the international community through groundbreaking management.
- Collaboratively work with profound partners in research and creation to enable harmonization of their products with the required standard and create a long term growth strategy.
Conclusion
Toyota as seen in the above discussion faces imminent challenges from the global business environment. Using the PESTLE analysis and Porters Model to investigate the external environment factors, the company faces numerous challenging in adhering to governmental regulation, political situation and cultural diversity. Moreover, the automobile industry is faced with stiff competition from remarkably strong competitors. The company, therefore; should concentrate on the internal strengths to deal with the opportunities available in the market and beat the high level of competition. Moreover, Toyota should be concerned about community harmonization since it is the most critical aspect in ensuring the business secures a positive reputation around the globe. It is the duty of the Operation management to investigate and respond appropriately to the modern trends in the external environmental factors.
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