TOYOTA’S BUSINESS STRATEGIES
TOYOTA’S
BUSINESS STRATEGIES IN MALAYSIA MARKET
1.0 INTRODUCTION
The National Automotive Policy (NAP) was introduced
in 2006 to transform the domestic automotive industry and integrate it into the
increasingly competitive regional and global industry network through six main
objectives namely, to:
a) promote
a competitive and sustainable domestic automotive industry especially the
national car manufacturers;
b) develop
Malaysia as a regional automotive hub in specific are;
c) increase
value-added activities in a sustainably while developing domestic capabilities;
d) increase
exports of vehicles and automotive components;
e) promote
Bumiputera participation in the total value chain of the domestic automotive
industry; and
f) safeguard
consumer interests by offering safer and better quality products at competitive
prices.
The NAP was reviewed in 2009 to enhance the
capability and competitiveness of the domestic automotive industry. The review
also aimed at creating a more conducive investment environment in the domestic
automotive industry.
The review of the NAP, involved extensive
consultations for more than 18 months with the industry stakeholders, industry
players, ministries and agencies. It has taken on board views and inputs from
these various stakeholders to ensure that measures outlined in the NAP 2014
would benefit the automotive industry as a whole.
Based on the feedback the NAP 2014 focuses on green
initiatives, development of technology and human capital, market expansion and
enhancement of the automotive industry ecosystem.
The objectives of the NAP 2014 are to:
a) develop
a competitive and capable domestic automotive industry;
b) develop
Malaysia as the regional automotive hub in Energy Efficient Vehicle (EEV);
c) increase
value-added activities in a sustainable way while continuously developing
domestic capabilities;
d) increase
exports of vehicles, automotive components, spare parts and related products in
the manufacturing and after market sectors;
e) increase
the participation of competitive Bumiputera companies in the domestic
automotive industry, including in the aftermarket sector;
f) enhance
the ecosystem of the manufacturing and after market sectors of the domestic
automotive industry; and
g) safeguard
consumer interests by offering safer and better quality products at competitive
price.
This task will be to analyze the impact of the NAP
2014 Toyota Malaysia and strategies that should be taken by Toyota to improve
their vehicle sales based on green technology.
This assignment will also propose few recommendations
to Toyota in designing comprehensive strategies through initiatives NAP 2014.
2.0 THE DIRECTION AND STRATEGY OF THE NAP
2014
The NAP 2014 consists of 3 main directions and
strategies. The 3 main directions are Investment, Technology and Engineering
and Market Expansion while the 3 main strategies are Human Capital Development,
Supply Chain Development and Safety, Security and Environment.
The main automotive players in Malaysia are primarily
Japanese automotive companies. These companies enhance their automotive parts
and components supply chain through their complementation strategy within
ASEAN. In Thailand and Indonesia, the Japanese related companies represent
about 77% and 81% of the supply chain, respectively.
The Government plans to grow and enhance the
competitiveness of the domestic automotive industry by resolving structural
issues such as low economies of scale, high production cost, low usage of
technology and knowledge application, non-optimized supply chain and
development of human capital that is not aligned to the industry requirement.
The Government also targets for Malaysia to become the regional hub for Energy
Efficient Vehicles (EEV) through strategic investments and adaptation of high
technology for domestic market and to penetrate regional and global markets by
2020.
Based on global practice, EEV is defined as vehicles
that meet a set of specification in terms of carbon emission level (CO2/km) and
fuel consumption (L/km). EEV includes fuel-efficient internal combustion engine
(ICE) vehicles, hybrid, electric vehicles (EV) and alternative fueled vehicles
such as Compressed Natural Gas (CNG), Liquefied Petroleum Gas (LPG), Biodiesel,
Ethanol, Hydrogen and Fuel Cell.
The EEV technical specification for fuel consumption
is determined based on international benchmarking across developed countries
(Europe, United States of America, China, Japan, South Korea, Thailand and
Taiwan) and in consultation with the domestic automotive industry. The
established EEV specifications will ensure investments into Malaysia will be
strategic in nature with high uptake of technology.
3.0 TOYOTA STRATEGIES IN INTRODUCING HYBRID
CARS
Toyota
differentiates on several levels form their competitors. First of all, Toyota has been very successful
in differentiating on the basis of superior design and quality. This has led to Toyota being able to create a
brand image that is very strong and one that brings to mind quality, long
lasting cars when a potential customer sees it.
The strength of Toyota’s brand image has been seen in recent years with
the recalls and problems Toyota faced in dealing with these recalls. Toyota was able to survive these problems
because they had such a long and proven track record of quality and
superior. Another, area that Toyota
differentiates is in technology. Toyota
was the first successful mass produce the hybrid car on the market when it
released the Prius in 2003. Being the
first to get their hybrid on the market allowed Toyota to gain a large portion
of the market share in the area of hybrid cars.
Along with
differentiation Toyota
“Toyota is (or was at the time) the low cost
producer in the industry. Toyota achieves its cost leadership strategy by
adopting lean production, careful choice and control of suppliers, efficient
distribution, and low servicing costs from a quality product.”
(Michael E.
Porter)
This quote from
Michael Porter sums up how Toyota achieves this low cost strategy. Through research, it is evident that Toyota
Toyota’s current
grand strategies are product development and offensive/strategies for industry
leaders. Product development is very
important for Toyota due to the fact that they must come out with new fresh
ideas every year in the automotive industry.
If you don’t develop a new design on your products, you will be left
behind very quickly. Also, Toyota is an
industry leader and has a lot of power because of this. Toyota stays on the offensive to keep its
market share and defends against others in the industry from taking their
market share. Toyota always stays on the
offensive looking for ways to be better than their competitors. Toyota wants to stay in front of its
competitors and take advantage of any weaknesses they may show and capitalize
on them to gain any advantage they can.
Recent events
have suggested that Toyota has focused too much on low cost, losing market
share and their market positioning of superior design and quality, which
historically they have used a differentiation strategy. For Toyota, the biggest
thing they need to do is make sure that their low cost strategy does not
compromise their superior design and quality.
When looking at
Toyota’s grand strategy, they have been successful at product development. By
2012 Toyota is planning to have more than 20 models that use batteries to
extend fuel economy just like their Prius (Krolicki, 2008). Although they have
not been as aggressive in the electric car market recently, like their
competitors, they are planning to release a rechargeable version of their Prius
by June 2012 (Krolicki, 2008). This re-chargeable version will position Toyota
to attempt to take over as a low cost leader of hybrid technologies within the
market, which supports Toyota’s overall strategy of low cost (Krolicki, 2008).
Due to the
recent safety recalls Toyota has been temporarily de-railed from their
strategy. They need to get back on track and re-focused and make sure that they
concentrate on what made them unique. In order to make this happen, managers of
Toyota are going to have to focus on company communication and bringing back
its former foundation of making quality cars that are dependable and reliable
in addition to modern. The company found its weak spot when it came to the way
the company responded to the recalls. In the beginning of the recall era,
Toyota was very slow in its response. Finally, Toyota executives made the call
to recall more than five million of its own vehicles due to numerous different
issues. At the same time, it was decided to halt all sales of Toyota vehicles
as well until the problem could be addressed. For a car company, this is a huge
deal and one that will affect the balance sheets for years to come. However,
Toyota seemed slow in finding a solution to its largest problem in company
history (and in the industry’s history). With a huge recall and halt in sales,
one would assume that management would be pushing for day and night research,
product development, and problem solving in order to get their product back on
the market. Instead, it took Toyota a little over a week (kbb.com / “Toyota
Recall and Sales Freeze”) to find a fix and even longer to get it out to
dealers and Toyota mechanics.
The Toyota product development system is known as
Lean Manufacturing. Its objective is to integrate people, process, and
technology. Toyota’s product development procedure is essentially different
from a manufacturing process. Its backbone is not visible, but knowledge and
information which are untouchable. The product development’s cycle time is much
longer than hours. It usually takes weeks or even months. The production chains
are non-linear and multi-directional. Workers are no longer manufacturing
workers but specialists with high diverse technology. This product development
strategy is viable for Toyota. This is because this strategy does help Toyota
to prolong the life cycle of current product. For instance, Toyota Camry is a
very successful current product which is prolonged its life. Camry has been
made since 1980s. Camry is set at a middle-high level of family vehicle. After
30 years’ development, Camry is still very famous all over the world. This
cannot be separated by Toyota’s successful product development strategy. One of
the key features of the Toyota product development system is functional
engineering managers. They are primarily teachers in the Toyota system, who are
the most technically competent engineers, with the highest levels of
experience. Toyota’s management group is consisting of high educated experts.
They were all engineers and their technical excellence is very famous. But
recently, Toyota’s product development system does not work very well. In
recent years, more and more recall issues happened and that hurt Toyota’s
reputation very much. Most of these recalls are related to Toyota’s technical
problem. This is really bad for Toyota. Under product development strategy,
what Toyota is supposed to do is to improve its product quality and technology.
Besides, they also need to make sure their products are safety.
4.0 TOYOTA’S
STRENGTHS AND WEAKNESSES
Toyota is a leading automobile company and is
exporting their vehicles all around the world. Toyota has generated heavy
revenues in recent years, which have helped the company gain a dominating
position in the market. The success of Toyota is evident in the last year’s top
brand rankings by Business Week, where Toyota was ranked at 7. However, Toyota
has shown a decline in the energy and marketing segments, weak performance in
Asia and poor performance of financial services. Moreover, the increase in the
cost of raw material can pose a serious threat to future profitability. The
stronger yen is another threat to Toyota’s profit margin.
4.1 Strengths
Toyota has some strengths such
as reliable and high quality image R&D, biggest spent amongst car
manufacturers, innovative & just in time production, TQM, Lexus and other
strong brands which make it a strong competitor in the market.
Toyota has huge financial
capability which known as Toyota bank (Aghazadeh, 2003). Toyota has shown
outstanding financial growth in revenue and profitability in recent years.
Toyota Motor’s revenues have increased at a CAGR (Compound Annual Growth Rate)
of 11.5 percent during 2004-2007. The company’s revenues have also outperformed
the industry average of 1.8 percent for the same period. The revenues of the
company grew at a rate of 13.8 percent (Datamonitor, 2007). The company’s
operating profit has also increased by a CAGR of 10 percent. The net profit of
the company also grew at a CAGR of 12 percent. This impressive financial
performance has put Toyota in a dominant position (Datamonitor, 2007). Toyota
Motor Corporation is showing rapid growth in the European market. The unit
sales have increased by almost 20 percent, which has increased the regional
revenue by 29.9 percent, which brought the operating regional profit to a
massive 46 percent (Datamonitor, 2007). Toyota recorded robust revenue growth
rates in North America also, which is the company’s second largest market
(Datamonitor, 2006).
4.2 Weaknesses
• Toyota
is a huge company and being huge has its own drawbacks. Car manufacturers at
present are producing a high number of cars so the company needs to make sure
that it’s their car that the consumer wants to buy. Toyota’s main markets are
the US and Japan, so the company is constantly being affected by the changing
economical and unstable political scenarios as a near example, the NAP itself.
Any major or minor change in the currency exchange rates can create a reduction
in profit margin for the company.
The company has to produce high
number of cars to maintain its strategic advantage and operational efficiency.
That requires more investment in the shape of factories, labor, raw material
and other costs. But, at the same time, the company has to be aware of the fact
that a change in market trend can lead a company to over-produce.
5.0 MARKET PENETRATION
5.1 Suitability
The market penetration strategy
is most suitable for growing and emerging markets. But in this case, the car
market is already well-established and penetration would be made much easier if
the target market is growing. Considering that Toyota is such an established
name within the automotive industry, the risk of opting to penetrate the market
is not that significant barrier.
5.2 Acceptability
Management may worry that
targeting the customers of rival car manufacturers may result in retaliation
and it is likely a retention strategy to be considered as a possible and
preferable option. Since a fair amount of costs are involved with implementing
this specific strategy, it is expected that Toyota would need to improve both
product quality and levels of service, backed by promotional spend. However, if
the risk of undertaking such a strategy does not pay off, both shareholders and
staff may be cautious. That, on the other hand, would lead to shareholders
losing value in their shares and also the employees possibly losing their jobs
as a result of the failed venture and lost revenues.
5.3 Feasibility
The fact that Toyota's range is
one of the largest in the automobile world and already exists in each segment
of the car market is determining factor for potential penetration on the
market. This suggests that Toyota is in a position to go ahead and penetrate
any of these existing markets, where the most likely target market for this
strategy would be the small car market which is predominantly aimed at young
people.
6.0 FUTURE RECOMMENDATIONS
One recommendation for Toyota is to be more ruthless
in utilization of its early leadership in the commercialization of hybrid
systems and electric-vehicle technology. Although every other giant carmaker
will launch new hybrids and purely battery-powered vehicles, or is preparing
to, Toyota is convinced that it is still ahead of the pack. Within a few years
there will be a hybrid version of every car Toyota makes and there are plans to
extend the Prius brand to cover a range of innovative low- and zero-emission
vehicles. Toyota has to stop making so many dull cars with all the appeal of
household appliances. (The Economist, Dec 10th 2009). The company has to focus
more on safety standards, in order to avoid bad publicity. Also, it can acquire
few small companies, to reinforce its market position and expand the company.
Another strategic option for Toyota is to separate its hybrid models into a
separate brand that will target customers that are more environmentally
friendly. Given that currently the world is still recovering from the financial
crisis, a new brand, offering moderately cheap, environmentally friendly and
efficient car would be perceived very well.
7.0 CONCLUSIONS
Taking advantage of the opportunities of NAP 2014,
Toyota has adopted a global strategy, but considering the characteristics of
markets in which it acted. The slogan
"think global, act local” implies the need to think market and business in
global terms, and in the same time to achieve adapting to the local consumers’
demands.
Toyota’s global strategies are considering entering
the international growing market, stable, slowly and surely (the Malaysian
market case).
Adopting a global strategy based on the product
policy, research and continuous quality improvement, technological innovation,
but also respect for consumers especially in Malaysia, they can say without any
doubt that Toyota Motors Company can conquered the hybrid segments in Malaysia.
ATTACHMENT
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