Evaluation of Toyota
Motor Corporation
By: Tamtam Omar 229106004
And : Al khansaa tabaa 229106020
This paper will examine Toyota Motor Corporation's
external and internal environments and suggest
recommendations to sustain its competitive advantage.
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
EVALUATION OF TOYOTA MOTOR CORPORATION
TABLE OF CONTENTS
1 TOYOTA OVERVIEW
2 EXTERNAL ENVIRONMENT OF THE AUTOMOTIVE INDUSTRY
2.1 Industry Overview and Analysis
2.2 Industry Life Cycle
2.3 Industry Demand Determinants
2.4 Industry Cost Structure Benchmark
2.5 Industry Competitive Landscape
2.6 Major Competitors
2.7 Key Success Factors in Industry
3 INTERNAL ENVIRONMENT OF TOYOTA
3.1 Core Competencies
3.2 Distinct Competency
3.3 BCG Matrix: Internal Analysis of Toyota Portfolio
3.4 Toyota’s Efforts in Emerging Economies
3.5 Case Study: Toyota’s Successful Strategy in Indonesia
3.6 Analysis of Financial Performance
4 RECOMMENDATIONS
5 APPENDICES
6 REFERENCES
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
1. TOYOTA CORPORATE OVERVIEW:
Founded in 1937, Toyota Motor Corporation is a Japanese company that engages in the design, manufacture, assembly, and
sale of passenger cars, minivans, commercial vehicles, and related parts and accessories primarily in Japan, North America,
Europe, and Asia. Current brands include Toyota, Lexus, Daihatsu and Hino. Toyota Motor Corporation is the leading auto
manufacturer and the eighth largest company in the world. As of March 31, 2013, Toyota Motor Corporation’s annual
revenue was $213 billion and it employed 333,498 people.
2. EXTERNAL ENVIROMENT OF AUTOMOTIVE INDUSTRY:
2.1. Industry Overview and Analysis
Toyota Motor Corporation competes in the automotive industry. The past five years were tumultuous for automobile
manufacturers. Skyrocketing fuel prices and growing environmental concerns have shifted consumers' preferences away from
fuel-guzzling pickup trucks to smaller, more fuel-efficient cars. Some automakers embraced the change by expanding their
small-car portfolios and diversifying into the production of hybrid electric motor vehicles. Other automakers were more
reluctant to shift their focus from big to small cars, expecting the price of fuel to contract eventually, bringing consumers
back to the big-car fold. When fuel prices did fall during the second half of 2008, it was due to the US financial crisis ripping
through the global economy. This had a domino effect throughout the developed and emerging worlds, with many Western
nations following the United States into recession. Industry revenue fell about 15.4% in 2009. Pent-up demands will aid
industry revenue growth, estimated at 2.1% in 2013, thus bringing overall revenue to an estimated $2.3 trillion. Overall, the
large declines followed by recovery are expected to lend the industry average growth of 2.2% per year during the five years
to 2013. Throughout the past five years, growth in the BRIC countries supported production. Rising income in these countries
led to an increase in the demand for motor vehicles. In addition, Western automakers moved production facilities to BRIC
countries to tap into these markets and benefit from low-cost production. Over the next five years, the emerging economies
will continue their growth, and demand for motor vehicles in the Western world will recover. Industry revenue is forecast to
grow an annualized 2.5% to total an estimated $2.6 trillion over the five years to 2018.
2.2. Industry Life Cycle
This industry is in the mature stage of its life cycle.
2.3. Industry Demand Determinants
Worldwide automobile demand is tied to vehicle prices, per capita disposable income, fuel prices and product innovation. On
the supply end, vehicle prices stem from material and equipment costs, with higher steel and plastic prices raising
manufacturers' purchasing costs and, ultimately, retail prices. During the past five years, automakers have been plagued with
high steel and plastics prices, which have raised manufacturing costs and product prices. On the demand side, per capita
disposable incomes determine affordability for consumers. As incomes increase, the propensity to purchase motor vehicles
increases as they become more affordable. Incentives are used to generate sales during periods of low economic growth. Over
the past five years, there has been a significant increase in the number of automobile financing companies being established
in the BRICs. This has resulted in the number and range of automobile loans increasing, which has contributed to stronger
industry demand. In the developed world, overall improved quality among most manufacturers has caused buyers to feel freer
to use price to differentiate similar products. Consumers are increasingly better informed about a vehicle's actual cost and less
likely to accept large annual price increases. In an era of low inflation, customers familiar with dealer cost information from
consumer publications and the internet have become more astute when negotiating the purchase of a vehicle. In this way,
consumer awareness and access to information can determine demand. Movements in fuel prices also generally influence the
demand for vehicles by type. During periods of high fuel prices, more fuel-efficient vehicles are in demand. Over the past
five years, the price of fuel has been rising, which has encouraged the adoption of hybrid and other fuel-efficient models. For
example, Japanese carmakers offering more fuel-efficient vehicles took market share from manufacturers of large vehicles
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
throughout the latter half of the past decade. Last, product innovation can spur demand, especially with regard to more fuel-
efficient vehicles such as hybrids and electric models. The more fuel-efficient a model is, the more likely a consumer will be
willing to invest up front in a new car for potential savings on fuel costs down the road.
2.4. Automotive Industry Cost Structure Benchmark
Purchases (70.7%), wages (6.3%), depreciation (6.0%), rent & utilities (1.7%), other (10.4%), profit (4.9%)
2.5. Automotive Industry Competitive Landscape
Market share concentration in the industry is low. The industry is deemed to have a low level of concentration, and the largest
four automakers are estimated to account for about one-third of global revenue.
2.6. Major Companies in the Automotive Industry
Toyota (10.2%), Volkswagen (9.6%), General Motors (6.9%), Ford (5.6%), Others (67.7%)
2.7. Key Success Factors in the Automotive Industry:
• Flexibility in determining expenditure: Controlling employee-related costs, such as health and pension costs, makes
manufacturers in the developed world more competitive.
• Establishment of export markets: Development of export markets helps negate any downturns in domestic markets.
• Use of most efficient work practices: Good industrial relations through a motivated workforce assist in minimizing
industrial disputes.
• Effective cost controls: A close relationship with suppliers and good distribution channels assist controlling costs.
• Access to the latest available and most efficient technology and techniques: The industry is highly competitive, so
enterprises need a technology-enabled competitive edge.
• Optimum capacity utilization: Excessively high plant utilization is required for success in any modern automobile and
light-duty motor vehicle manufacturing plant.
3. INTERNAL ENVIROMENT OF TOYOTA:
3.1. Core Competency
The core competence of Toyota Motor Corporation is its ability to produce automobiles of great quality at best prices, thereby
providing a value for money to the customers. This core competence of quality can be attributed to its innovative production
practices. The quality aspect of Toyota’s products have revolutionized the automobiles in the past and almost all the
automobile companies had to try and better the quality of their products. It is a cornerstone of the cost leadership strategy that
the company pursues.
3.2. Distinctive Competency
Toyota’s distinctive competence is its production system known as the “Toyota Production System” or TPS. TPS is based on
the Lean Manufacturing concept. This concept also includes innovative practices like Just in Time, Kaizen, and Six Sigma
and so on. Toyota has worked tirelessly over the years to establish this distinctive competence. No other automobile
manufacturer can do it as well as Toyota does. This distinct competence has led to a competitive advantage that has given
Toyota a sustainable brand name and a market leader position.
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
3.3. BCG Matrix: Internal Analysis of Toyota Portfolio
High Relative Market Share Low Relative Market Share
High market growth STAR QUESTION
• Lexus- luxury sedans • Scion – for youth in USA
• Prius hybrid • Camry / Corolla – as hybrids
• Land Cruiser SUV • Bio –fuel, Solar –powered , hydrogen gas
• Diesel engine cars for India, Southeast Asia
• Small cars for India / China
• More SUVs and MPVs : Fortuner
Low market growth CASH COW DOG
• Camry , Corolla sedans • Celica , MR2 -for youth
• Innova , Venza –MPV • Tundra –pick-up
• Daihatsu -small cars • Crown, Cressida, Corona, Quails: Withdrawn
• Declining markets in UK, Europe
• Petrol cars to be phased –out
3.4. Toyota’s Efforts in Emerging Economies
Toyota’s emerging market sales have increased significantly in the period 2000 to 2011, from 18.6% to 45%. If this trend
continues, Toyota’s sales in emerging markets will shortly surpass its sales in developed markets. Toyota successfully
observed and responded to the needs of the rising of middle class in the emerging markets. Through localization initiatives,
Toyota designs and produces cars in these markets to meet these consumers’ unique needs.
3.5. Case Study: Toyota’s Successful Strategy in Indonesia
Toyota first began selling cars in Indonesia in 1971 and began producing them in 1977. Toyota entered the market via a joint
venture with Astra Motor. From 2008 to 2012, sales have more than doubled from 199,000 units to 409,000 units. In terms
of market share, Indonesia is Toyota is best performing market, with an estimated market share of 40%. Four of the top ten
best-selling cars in Indonesia are Toyotas, with the Toyota Avanza taking the clear lead. The success of Toyota in
Indonesia can be attributed to its “Innovative International Multi-Purpose Vehicle” strategy launched in 2003. Specifically,
Toyota designed and produced cars in Indonesia to meet the needs of the local market, with the Toyota Avanza priced at
$16,000. Toyota launched its second auto plant in Indonesia in March 2013 at an investment of $340 million, and earlier this
year, Toyota announced that it plans to invest an additional $1.3 billion over the next five years. If Toyota proceeds with this
plan, this will represent a doubling of Toyota’s FDI of the last 40 years in the country. Motives for Toyota’s FDI initiatives in
Indonesia include:
• To capture Indonesia is growing middle class; which is expected to double by 2020.
• To maintain its market dominance.
• In response to Government incentives for new car buyers, which include tax breaks as low as 0% for low cost eco-
friendly cars, while maintaining interest rates in the low single-digits.
3.6. Analysis of Financial Performance
Overall, Toyota has outperformed the industry over the past five years. Total assets increased 586.8 billion yen from the end
of the previous fiscal year to 3,243.7 billion yen due mainly to an increase in market value of investment securities.
Liabilities amounted to 1,718.8 billion yen, an increase of 259.7 billion yen from the end of the previous fiscal year due
mainly to an increase in deferred tax liabilities. Net assets amounted to 1,524.9 billion yen, an increase of 327.1 billion yen
from the end of the previous fiscal year. Cash flows from operating activities increased by 151.2 billion yen in fiscal 2013,
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
due mainly to posting income before income taxes of 80.1 billion yen. Net cash provided by operating activities increased by
49.5 billion yen compared with an increase of 101.7 billion yen in fiscal 2012. Cash flows from investing activities resulted
in a decrease in cash of 274.2 billion yen in fiscal 2013, attributable primarily to an increase in payments for purchases of
property, plant and equipment amounting to 112.4 billion yen. Net cash used in investing activities increased by 264.8 billion
yen compared with a decrease of 9.4 billion yen in fiscal 2012. Cash flows from financing activities resulted in an increase in
cash of 7.0 billion yen in fiscal 2013, due mainly to 51.7 billion yen of net increase in short-term loans payable, despite the
redemption of bonds payable of 54.1 billion yen. After adding translation adjustments and cash and cash equivalents at
beginning of period, cash and cash equivalents as of March 31, 2013 stood at 179.3 billion yen, a decrease of 117.5 billion
yen, or 40%, over fiscal 2012. Detailed Financial Ratios are shown in APPENDIX 1.
4. RECOMMENDATIONS:
1) Toyota should continue to undertake concerted efforts to strengthen its management platform and raise corporate value.
2) As immediate tasks, Toyota should promote business and cost structure reforms to realize a solid management platform
so that it can respond quickly to the changing market circumstances. Specifically, Toyota should maintain a streamlined
structure through the reduction of fixed costs and enhance its business in established markets in developed countries.
3) Toyota should accelerate its business expansion into rapidly growing emerging countries by thoroughly and meticulously
monitoring market conditions in respective regions and introducing products suited to the characteristics and needs of
each market. Toyota should also strive to establish production and supply structures to realize optimum product pricing
and delivery, and to enhance the value chain to provide a wide range of customer services in each country and region.
4) Toyota should consider making Lexus a priority in the Chinese market. This will enable it to become competitive with
other car manufacturers in the luxury segment. By increasing production facilities in Asia, this will enable Toyota to have
cheaper delivery channels and become closer to the emerging market customer. Toyota should also cut out layers of
middle management so that engineers get more authority over what specific customer needs are answered in the design
and development of a new car.
5) Toyota should pursue the development of environmentally conscious, energy-saving products while incorporating
functions and services demanded by customers (value chain) and delivering them to the global market. Acting on these
measures, Toyota should aim for growth in three business units, namely, “solutions” in the areas of materials handling
equipment, logistics and textile machinery; “key components” in the fields of car air-conditioning compressors and car
electronics; and “mobility” in the domains of vehicles and engines.
6) To support consolidated management on a global scale, Toyota should enhance the power of the workplace and diversity
in the use of human resources, and strive to nurture global human resources.
7) In addition to placing top priority on safety, Toyota should thoroughly enforce compliance, including observance of laws
and regulations, and actively participate in social contribution activities.
8) Toyota should aim to support industries and social infrastructures around the world by continuously supplying products
and services that anticipate customers’ needs in order to contribute to engendering a compassionate society.
9) Overall, Toyota has outperformed the industry over the past five years and gained market share. A shift toward smaller,
more fuel-efficient vehicles, which Toyota can manufacture at a relatively low price, will support growth in the United
States.
5. APPENDICES:
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
APPENDIX 1: Key Financial Ratios of Toyota Motor Corporation
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
Source: GlobeData
APPENDIX 2: Top Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 – 2013)
Source: MarketLine Financial Deals
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
APPENDIX 3: Breakdown of Strategic M&A, Partnerships, Joint Ventures, and Strategic Alliances (2009 – 2013)
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
Source: MarketLine Financial Deals
APPENDIX 4: Industry Overview
Industry Products and Services Segmentation:
Industry Market Segmentation:
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
Industry Business Locations:
Source: IBIS World 2013 Global Car Manufacturing Industry Report
APPENDIX 5: Industry Costs
Source: IBIS World 2013 Global Car Manufacturing Industry Report
6. REFERENCES:
I. Yahoo Finance, accessed November 9, 2013, http://finance.yahoo.com/q/pr?s=TM+Profile
II. IBIS World: Global Car & Automotive Manufacturing Report, May 2013
III. PRWeb, http://www.prweb.com/releases/2013/9/prweb11088066.htm
IV. Motor Trends, accessed November 9, 2013
V. http://www.motortrend.com/features/auto_news/1202markets_share_for_the_top_five_automakers/
VI. Toyota Motor Corporation,
http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/
VII. MarketLine: Toyota Motor Corporation Report, January 2013
VIII. Toyota Motor Corporation 2013 Annual Report
Evaluation of Toyota Motor Corporation by Omar & Al khansaa
IX. Toyota Indonesia, accessed November 9, 2013, www.toyota.co.id
X. Forbes, “Toyota Eyes Big Growth Ahead in Emerging Markets,” accessed November 9, 2013,
http://www.forbes.com/sites/greatspeculations/2013/04/04/toyota-eyes-big-growth-ahead-in-emerging-markets/
JD Power Auto Forecasting Livemint, “Toyota to Invest $337M in Indonesia Expansion,” September 21, 2011,
XI. http://www.livemint.com/Companies/vu8CW8UesUhBPHxQ99LWdL/Toyota-to-invest-337-mn-in-Indonesia-
expansion.html?facet=print
XII. Toyota Industries: Financial Summary, FY 2013
