29 Jun 2019

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’s uses both differentiation and low cost as generic strategies to try and gain a competitive advantage over their competitors in the automotive industry.  The market scope that Toyota uses is a broad one that encompasses nearly every type of customer that is in the market to purchase an automobile.  Toyota is able to target such a large market because they have something for everyone.  Toyota has four-wheel drive trucks and SUVs for the outdoor types or those who live in areas that face severe weather conditions, hybrid models like the Prius for the eco-friendly customers that are interested in saving the environment, along with the standard cars for general, everyday use.  Additionally, Toyota provides vehicles for all price ranges. From the low price Toyota Corolla line of cars to the high priced luxury line of cars and SUVs with Lexus, Toyota has something for everyone.

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 also uses low cost to try and gain a competitive advantage in the automotive industry.

“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 is still the low cost leader in the automotive industry. 

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

REFERENCES
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Armstrong, G. & Kotler, P., 2002. Marketing: an introduction. International edition ed. New Jersey: Prentice Hall.

Aghazadeh, S.M. (2003). JIT inventory and competition in the global environment: a comparative study of American and Japanese values in auto industry. Cross Cultural Management, 10, 29-42

Datamonitor (2007). Toyota Motor Corporation, Inc. - SWOT Analysis. [Online] Available: http://web.ebscohost.com (01 Nov, 2007)

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Kevin, K. (2008, January 14). ENN: Environmental News Network -- Know Your Environment. Retrieved October 27, 2015, from http://www.enn.com/sci-tech/article/29225

Kotler, P., and Armstrong, G. (2007). Principles of Marketing. 11th edition, Prentice Hall

The Economist (2009) Losing its shine. Retrieved October 27, 2015, from http://www.economist.com/node/15064411

Peter, M., 1996. What is strategy? In Harvard business review. pp.61-69.

Rodriguez, A., and Page, C. (2004). A Comparison of Toyota and Honda Hybrid Vehicle marketing Strategies. Rocky Mountain Institute.

Rosli, M., & Kari, F. (n.d.). Malaysia's National Automotive Policy and the Performance of Proton's Foreign and Local Vendors. Asia Pacific Business Review, 103-118.

Shimokawa, K. (1994). The Japanese automobile industry: A business history. The Athlone Press, London.






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