6EC500 International Business

Economics and Strategy

Student Name: JUAN MORA ROMERO
Student Number: 100306610

Table of Contents
1

1. INTRODUCTION...............................................................3
2. TIMELINE........................................................................3
3. CRITICALLY EVALUATE HOW WELL THE ORGANISATION
RESPONDED TO THE EXTERNAL AND INTERNAL CHALLENGES
OVER THE PERIOD CONCERNED...........................................11
3.1 CRISIS...............................................................11
3.2 RECALLS............................................................12
3.3 EARTHQUAKE/TSUNAMI......................................13
3.4 SURGE OF YEN...................................................14
4. CRITICALLY DISCUSS THE BASIS AND SUSTAINABILITY OF
THE COMPETITIVE ADVANTAGE OF TOYOTA..........................14
5. STRATEGIC OPTIONS AVAILABLE TO YOUR CASE
ORGANISATION TO ENSURE ITS SUCCESS AND SUSTAINABILITY
INTO THE FUTURE..............................................................16
6. CONCLUSION.................................................................17
7. REFERENCES..................................................................17

1. INTRODUCTION

This report will approach different aspects of the company Toyota in

the period from 2009-2014 major challenges faced, passing through
an analysis of its competitive advantage and ending with a some of
the alternatives that the company has to focus its strategy.
The Toyota story begins in the late nineteenth century, when Sakichi
Toyoda invented the first automatic loom, revolutionizing the textile
industry. Driven by the success of his looms, in 1907 founded the
company Toyoda Automatic Loom Works, becoming a leading
manufacturer. Captivated by the nascent automotive industry in 1929
Sakichi sells the rights to his patent to the British company looms
Platt Brothers, and invests those revenues in the development of the
first Toyota vehicle.
In 1980, Toyota had produced over 30 million vehicles worldwide
reached 100 million units in 1997. Currently, Toyota has produced
over 6,423,772 million vehicles, according to its official webpage.
In the last years it has become the most successful car making
company beating the powerful American companies like GM or Ford.
But in the period that this report approach this superiority is
challenged and the report also analyses the reaction that the
Japanese company had and if it was the most accurate.

2. TIMELINE

EVENTS
YEAR

2009

INTERNAL/
EXTERNAL
Toyota opts for a change in
leadership and appoints Akio Toyoda
INTERNAL as President.
[January] Plans to stop production
in 12 factories in Japan, also forecast
a 8,5% drop in sales for the year to
April 2009
[May] Plans to spend more than the
original 58.6 millions $ in its green
car ad battle against Honda

2009

INTERNAL

[January] Hires Kitcatt Nohr for

direct task, he would work on the
customers acquisition and retention
[November] Toyota exits Formula 1
after posting its worst financial loss
ever.
[April] Brings back retired executive
Yoshi Inaba to deal with the
challenges associated with the
global recession

2009

2009

INTERNAL

[July] Launches Brand Manifesto

for its Scion Brand, targeting young
urban consumers.

EXTERNAL

[October] Consolidates European

advertising arrangements with the
company Saatchi & Saatchi. (Mintel)
[August] Toyota car crashed in San
Diego, USA due to a defect with the
accelerator pedal. All the occupants
die
[November] Reports a net profit of
JPY21.8 billion in the three months to
October 2009. Also forecasts a loss
for the full year of JPY350 billion
(2.36 billion) as a result of its
performance

[November] Is overtaken by
Volkswagen-Porsche as world largest
car manufacturer.

2009
was a
year
of

change for Toyota after doing its best performance in 2007-2008 the
company had to face a really bad performance, the appointing of Akio
Toyoda as president and the reduction in the productive activity.
Another event to highlight would be the crash of the car in San Diego
due to a defect with the accelerator pedal that would end up in
massive recalls the following year.
Some changes in its positioning can also be observed as the
launching of Brand Manifesto in July

YEAR

INTERNAL/
EXTERNAL

EVENT
[January] Recalls 2,3 million car
(Prius) and stalls sales on 8 models in
US

2010

INTERNAL
[January] Employees Toyota's British
plants are at risk of losing their job or
moving to part-time after the car
maker revealed it was expecting a
difficult year 2010 and would not
have enough work for all staff in
summer.
[February] Losses brand value after
recall, which could wipe up to 25% off
its brand value, according to Brand
Finance

2010

2010

EXTERNAL

EXTERNAL

[February] Losses brand value after

recall, which could wipe up to 25% off
its brand value, according to Brand
Finance
[February] US Department of
Transport wants to question Toyota
about the safety concerns involving
Toyota cars and the company's
handling of those issues.
[February] Receives a subpoena
from a U.S. federal grand jury
requesting documents related to the
automakers problem with the
unended acceleration of its vehicles
and the braking system of its Prius
hybrid.

[March] Toyota faces complains over

repaired vehicles after the recent
recall
[April] Faces $16,4M DOT
(Department of transport US) fine.

2010

INTERNAL

[March] Launches a new incentive

plan offering 0% financing for up to
60 months and increases consumer
interest
[March] Launches reassuring ad
campaign to reassure consumers
about the safety its cars.
[June] Introduces five year
warranties in the UK

2010

EXTERNAL

[November] Toyota is back in profit.

The auto giant booked a net profit of
289.16 billion yen ($3.6 billion) for
April-September compared with a net
loss of nearly 56 billion yen in the
same period a year earlier.
[December] Recall fines are now up
to $48,8M

This year was characterised by the massive recalls that the company
had to do in order to prevent more incidents like the one that
happened in San Diego the year before. The judicial problems that
cost the company lots of money are repeated in the US and
inspections to as consequence also of the incicent of San Diego.
However the company manages to be back in profit after a disastrous
year. At the same time the company keeps doing actions to make the
customers buy given the crisis situation and add features that give
added value as the introduction of five year warranties in the Uk

YEAR

2011

INTERNAL/
EXTERNAL

EXTERNAL

EVENT
[January] 7 Insurance companies sue
Toyota over crashes caused by sudden
acceleration.
[January] Toyota was the largest
automaker in 2010 despite the companys
massive recall.
[February] Toyota's profits fell 39% in its
third quarter, weighed down by slow sales
at home and in Europe, the hangover from
huge US recalls and a stronger yen.

2011

INTERNAL

[March] A massive earthquake and after a

tsunami hits the north west coast of Japan.
[March] Toyota expects production
cutbacks in North America due to a
shortage of parts stemming from the crisis
in Japan.
[April] Toyota raises prices on nearly all
brands due to unfavourable exchange
rates, since the yen/dollar situation is poor.
[April] Announces that its global car
production will not return to normal until
November or December.
[April] Toyota Motor Corp. resumed car
production at all of its plants in Japan for
the first time since the March 11
earthquake and tsunami that rocked the
country.
[April] Wins first sudden acceleration
lawsuit

2011

EXTERNAL
[April] A federal judge in California said
that he will deny another request from
Toyota Motor Corp. to dismiss lawsuits filed
by car owners who say sudden-acceleration

defects cause the value of their vehicles to

drop.
[May] Companys profit falls 77% mainly
due to production disruptions after the
March 11 earthquake in Japan, as well as
the strong yen and poor sales.

2011

INTERNAL

[April] Microsoft and Toyota Motor Corp.

announced a partnership to create an
advanced digital information and
communication system for the automakers
cars
[May] The company will resume normal
production in Europe in June. Four plants
will resume normal production volumes on
June 1. Due to parts delivery problems
caused by the natural disasters in Japan.
[May] Toyota Motor Corporation has links
with Salesforce.com to form Toyota Friend,
a private social network for Toyota
customers. Toyota Friend will connect
customers with their cars, their dealership,
and with Toyota.
[June] US sales drop 33% in May due to
earthquake related shortages.

2011

EXTERNAL
[July] Toyota is named the greenest
company in the world
[August] Toyota Motor Corp saw its net
profit fall 99% in its fiscal first quarter after
the yen surged and production stalled due
to the March 11 natural disasters.

2011

INTERNAL

[August] The company tries to attract

young customers in Europe with a 7.5m
ad campaign for the latest version of its
bestselling 'B' segment Yaris model.
[November] The company reconsiders
Japan-based production mainly due to yen
rate.
[December] BMW and Toyota joint green
technology venture to develop new

generation batteries for green cars

The most remarkable event of the year 2011 is obviously the natural
disasters that happened in Japan, it is indeed the worst year of Toyota
from the period that this report is analysing. The production is
reduced due to lack in parts that are only manufactured in Japan and
the sales and profits drop drastically. The yen surge was also a critical
issue this year and the company is forced in April.
Some remarkable positive aspects are that is named the greenest
company in the world and the joint green technology venture with
BMW. In the media field stills try to attract young customers with
cheaper cars.
Judicial problems continue in US regarding the security of its cars.

YEAR
2012

EXTERNAL/
INTERNAL
INTERNAL

EVENT
[January] Toyota raises its sales target for
2012 due mainly to a government decision
to reintroduce subsidies for fuel-efficient
cars.
[January] Returns to the Super Bowl ad
arena focusing on reinvention

2012

INTERNAL

[March] Launches new warranty scheme.

Customers buying a Toyota Approved Car
with up to 150,000 miles will be given a
minimum 12 months warranty
[March] Launches new warranty scheme.
Customers buying a Toyota Approved Car
with up to 150,000 miles will be given a
minimum 12 months warranty
[June] Increases cooperation projects with
BMW regarding lightweight construction,

fuel cells and electric drivetrains.

2012

INTERNAL

[September] Debuts new tag line for

advertising in US replacing its old tag line,
Moving Forward, which it has used since
2004, with a new one, Lets Go Places
[October] Recalls 7.43M units worldwide
for glitches with its switches. The largest
auto recall since 1996.
[November] Raises its annual profit
forecast as it recovers from the natural
disasters in 2011.

2012

EXTERNAL

[December] Toyota tops automaker

industry for third time in the last four years

This year after the disastrous 2011 was the resurge of the company,
and finally end with Toyota recovering the title as the largest
automaker in the world. It is interesting to take a look at the change
of slogan in US probably in order to recover the confidence of the
customers after the massive recalls, the judicial problems and the
investigations. They also do an advert for the Super Bowl focusing on
reinvention, that obviously follows the line of the change of slogan.
Summarizing is a great year for Toyota that seems to in the right
direction to maintain its global domination in the car making businee

YEAR
2013

EXTERNAL/
INTERNAL
EVE NT
[January] Toyota reports that it has sold
EXTERNAL more than 5 million hybrids in the past 13
years.
[May] Toyota doubles its quarterly profits
for this year due to cuts and better sales,
on top of a weak yen.

2013

10

INTERNAL

[July] Launches experiential Lets Go

Places campaign in US. The experiential
tour combines music, art and food.

[July] Opens facility in Japan focused on

quality control with a test course that
simulates 13 driving conditions including
cobblestones and bumpy roads as part of
the automakers efforts to avoid a repeat of
massive recalls.
[September] Announces its first fuel cell
car, which will roll out in 2015.
2013

INTERNAL

[September] Toyota, City CarShare

partner to launch a new car-sharing
program called Dash that will offer
transportation for employees and
businesses and public transportation
commuters.
[October] Launches a digital regional level
campaign for the Southeast region of US.
[October] Fosters environmental
awareness at black colleges, universities by
leasing vehicles from the Prius family to 22
historically black colleges and universities.

2013

INTERNAL

[November] Launches TeenDrive365 a

platform that is designed to provide an ongoing dialogue between teens and their
parents through engaging online tools.
[December] Plans to expand production of
pickup in US.

In 2013 Toyota maintains its superiority and even increases it also is a

year that launches many media campaigns in order to increase its
notoriety. Not many strategic actions are taken. It is remarkable also
the opening of the facility in Japan with the aim of prevent further
massive recalls like the one that the company had to do in 2009 and
2010.

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3. Critically evaluate how well the organisation

responded to the external and internal challenges
over the period concerned.
The period that this essay will approach starts in 2009, after the most
successful year of Toyota (2008), the global crisis hit the carmaker
strongly and force it to start a number of changes within the
organisation.
The most significant change is probably the change of leadership
appointing Akio Toyoda as president. Akio would have to deal with
several major problems that will be discussed in this part of the essay:
the global crisis and the massive recalls that started in 2009 and
made a real damage in the image of the company and the earthquake
and tsunami in March 2011. Also the rise of Yen in this period on a
Japan based production like Toyotas.

3.1 Crisis
To analyse how Toyota faced the global crisis it is important to outline
what the crisis meant for the automotive sector.
(Gachuz , 2011) "First it was the increase in fuel prices, oil prices
suddenly rose to levels never seen before, one then came the
financial crisis, the credit crunch began to affect first to USA and then
spread throughout Europe, Asia and reached world levels". According
to Gachuz (2011, p. 106) global economic recession resulted in a
decline in the demand for vehicles without precedent. The automotive
industry was then facing one of its worst moments in history.
Specifically for Toyota, global crisis meant that in fiscal year ended
March 2008 (2009), the company announced operating losses for the
first time in 70 years: $4.500 million (Mintel, 2009). The unusual
strength of the yen had more expensive exports and devalued its
external revenues in dollars or euros, impacting directly on the
balance. Although the main cause of these losses was clearly the drop
in sales of 8% (El Economista, 2009).
Regarding this crisis situation, Toyota opted for a return to their roots.
This change was symbolized by the appointment as president of Akio
Toyoda, grandson of the founder. At strategic level especially in the
short term meant "a cut in production to seven million vehicles in
2009, 20% less than in 2007" (El Economista, 2009).
They also try to cut costs in dispensable investments like it can be
seen in the timeline (e.g. Exiting Formula 1) also tried to expand their

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market by launching the Brand Manifesto (2009) targeting younger

customers.
Another measure taken by the Japanese company was not to renew
temporary employees who were no longer needed due to the
decrease in productive activity trying not to dismiss permanent
workers although their work is not necessary. According to Cardinal
(2009)"Currently, 4,500 of the 39,500 employees in production line
are temporary, half of which was ten months ago. And the forecast is
that the figure is reduced to less than 3.000".
In the long- term, this so-called crisis leaded the company to change
in its positioning (that will be discussed further in this essay) and also
realising of the consequences that a fast expansion like Toyota did is
always risky.

3.2 Recalls
This is considered one of the major problems that the company had to
face in the last decade, it started the 28th August 2009 when a Toyota
car crashed in San Diego, USA due to a defect with the accelerator
pedal. A company which one of its most important features of its
positioning was based in being among the safest carmakers in the
world was facing probably the biggest trust crisis in its history.
Toyota did not react properly in the first instances Toyotas belated
recalls, belated communications and disclosure, and belated public
apologies did far more damage to its reputation than the original
tragic accident. (Dietz and Gillespie, 2012). This bad handling of the
situation ended up with a damage of the companys image. According
to Bunkley, N. (2011) companys quality reputation dropped from 32%
to 19% of respondents to a Consumer Reports survey.
Toyotas strategy to handle the situation was based in an immediate
response. Two days after the crash, Toyota issued a statement
acknowledging its responsibility in the accident.
After a investigation, Toyota issued a direct customer safety warning.
However, authors Dietz and Gillespie (2012) consider that they took
too much time and that it was a negligence by Toyota, the authors
state that the Japanese company overlooked this latter intervention,
disastrously not issuing a customer warning about its all-weather
floor mats until the 29th September despite these being implicated in
fatal accidents two years earlier.

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After Toyotas next move was recalling 3.8 million affected vehicles.
This recall problem persisted in 2010 with 1.6million vehicles. And
research to find out how to fix the flaws.
Apart of the recalls Dietz and Gillespie (2012) list some of the
measures taken by the company, the most important would be
designing a new safety system, which combines five accidentavoidance technologies, a declared reversion of the Toyota Way and a
major restructuring with a reduction in Directors (27 to 11).
They also restructured the departments charged with Corporate
Planning and
Corporate Social Responsibility to quicken crisis responses.
Other measures taken in 2012 regarding this incident was a strong
media campaign to in the US to reassure the customers that even
leaded the company to change its slogan (from Moving Forward to
Lets Go Places) or the ad in the Super Bowl focused on
reinvention and the opening in Japan of a facility focused on quality
control to avoid further incidents or recalls.

3.3 Earthquake/Tsunami
11th March 2011 was a tragic day in Japan, one of the hugest
earthquakes ever registered shook the Japanese west coast followed
but a massive tsunami. 15,845
people lost their lives and the economic activity in Japan was reduced
drastically.
Toyota is a company with its production based in Japan, so the
catastrophe meant that the production needed to be reduced due to
lack in some parts that the company manufacture only in Japan.
According to CNN News (2011) the production in all Toyotas
manufacturing plants in Japan was reduced to 50%, and would be
fully stopped between the dates of April 28 to May 9 (2011). The
reduction in the productive activity in the plants in Japan meant for
the company a shortage in parts that made the global production
drop.
This so called reduction of production along with the surge of the yen
in this period (that will be approached below) ended up in a drop in
the net profit of a 99% in the first quarter of 2011 (Mintel, 2011)
Toyota anticipated in a statement that Japanese plants would reach
normal operational capacity between November and December 2011,
but there is no assurance that production will normalize by that time.

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Another problem that the Japanese company had to face was that due
to the nuclear crisis in Fukushima that happened to be the main
electric energy source.
This tragic incident along with the surge of Yen made the company
even reconsider its Japan based production in November 2011 (Mintel,
2011)

3.4 Surge of Yen

This problem has been almost persistent during the period that this
report is approaching. According to Toyota Annual Report (2011)
Changes in foreign currency exchange rates may affect Toyotas
pricing of products sold and materials purchased in foreign
currencies.
This currency fluctuation problem was mainly about the strengthening
of the Yen against the American dollar. According to Toyota Annual
Report (2011) the surge of Yen along with the high prices of raw
materials and strong pressure on Toyotas suppliers finally made the
company raise the price of prices on nearly all brands in April 2011
(Mintel).

4. Critically discuss the basis and sustainability of

the competitive advantage of Toyota
To approach the competitive advantage of Toyota seems critical to
roughly explain the way Michael Porter explains the different
competitive advantages.
Porter stated that there was two main positioning that can make a
company be leader of its market: Overall cost leadership and
differentiation. Those advantages can be market broad or focused in a
concrete segment as it can be seen in the following chart:

15

It is difficult to define the competitive advantage of Toyota in only one

of Porters generic strategies. The key in the success of Toyota
according to Fane G.(2003) is based in the TPS (Toyota Production
System) and the use of intellectual capital.
Fane (2003) states Toyota was one of the early adopters of new
organisational structures, such as TPS and team production, with
appropriate incentives for institutionalising the acquisition and
deployment of intellectual capital.
The TPS goals are according to its own handbook:

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Provide world-class quality and service to the customer.

Develop each employees potential, based on mutual respect,
trust and cooperation.
Reduce cost through the elimination of waste and maximize
profit
Develop flexible production standards based on market
demand.

TPS Basic Handbook states that there are two basic pillars in its
production model.
One of those pillars is the Just in Time system (JIT) whose target is to
produce and deliver the right parts, in the right amount, at the right
time using the minimum necessary resources. This system reduces
inventory, and if the company is able to handle it properly prevents
both early and over production.
Looking at JIT system it would not be wrong to state that Toyota has
an overall cost leadership competitive advantage. They are able to
handle the JIT system so they reduce a massive amount of costs by
producing just the necessary when it is necessary.
The other pillar of TPS is called Jidoka (Build in quality) and is based in
two ideas: enable a quality building process and separate men from
machines.
Jidoka is based in a production system where the machines stop
automatically if any trouble arises. According to TPS Basic Handbook
The goal is not to run continuously but in other words to stop running
automatically when trouble arises.
The other base in Jidoka is the separation of humans from machines
and this idea is directly related to the use that Toyota makes of
human capital. The company thinks that if machines are able to stop

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automatically if any problem arises, then there is not longer

necessary to have people looking at the machines.
This way of production is totally in concordance with the ideals of
Toyota of continuous improvement (kaizan) according to Fane G.
(2003) Intellectual capital resides in the innovativeness of a firms
human capital and not in the productivity of its tangible assets.
It is clear that Jidoka has more to be with a differentiation positioning
than overall cost leadership. Other important facts that might suggest
that Toyotas positioning has more to be with differentiation are the
Kaizan mentioned above that has lead the company to develop high
technological and environmental respectful products.
Toyota also makes a difference for its ideal of respect for people. The
company considers that the heart of the production system are its
employees, that is why, according to TPS Basic Handbook the
company wants their employees to be competent and is convinced
that Competence of individuals or work teams can be increased by
learning,
But is not only about its employees, Toyota has prove be committed
with the humanity by developing technologies that make its products
environmentally friendly that leaded the company to be greenest
company in 2011 (Mintel).
Summarising, Toyota is a company whose strategy would be based on
differentiation but at the same time uses some of the advantages of
the overall cost leadership through its efficient production system.

5. Strategic options available to your case

organisation to ensure its success and sustainability
into the future
After analysing Toyotas competitive advantage and the global
business world juncture, it seems critical to take in consideration
several factors in order to choose the best strategy for the future.
Currently it seems like a good alternative to sell cheap cars, Toyota
has been doing it, through the TPS it is possible to manufacture with
low cost. But there are some companies that are strongly positioned
in this slice of the market.
What Toyota seems to be doing is the most advisable, looking at the
timeline it is clear that they are positioning their product in efficient
and environmentally friendly.

18

Looking at the persistent rising in the price of the oil its seems like a
great alternative to keep doing efforts to develop electric and hybrid
cars that are way more efficient in terms of oil consumed.
Toyota needs to adapt its product to the market and it seems to be
what they are willing to do, according to its annual report (2013) The
global financial crisis that began in 2008 reminded us once again that
the foundation of sustainable growth is making cars that customers
love.

6. Conclusion
This report has analysed in first place the major challenges that
Toyota has had to face during the period approached. The way the
company reacted to these different challenges could be better but
even though the company has managed to be the largest automaker
in most of the years that the report approaches.
However the global economic situation does not leave time for relax
and Toyota will probably have to face many difficult challenges in the
near future so they have to keep following their ideals of respect for
people and continuous improvement if they want to keep being at the
top.
At the end, facing these difficult challenges, far from weakening it,
has make the company stronger and realise that a changing
environment like car making world requires continuous adaptation, as
the former President Katsuaki Watanabe said in 2009 Not the strong
will survive but those who successfully adapt to the new scenario

7. References
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Available at: http://www.eleconomista.es/empresasfinanzas/noticias/1165461/04/09/Toyota-se-ajusta-las-tuercas-paracombatir-la-peor-crisis-de-la-historia-.html#.Kku8Td8hQyBVawn.
[Accessed 02 April 14]
Bunkley, N. (2011) In Detroit, Toyota vows to earn trust, New York
Times, 10th January

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CNN Wire Staff. (2011). Toyota making drastic production cuts after
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[Accessed 15 April 2014.]
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Last accessed 21 April 2014.
Oxygen. (). Mintel. Available:
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2014.
Juan Carlos Gachz. (2011). La crisis mundial en el sector automotriz,
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106-107.
Porter, M. E. (1985) Competitive Advantage: Creating and Sustaining
Superior Performance. Free Press, New York, 1985.
Gary R Fane et al. (2003). Competitive Advantage The Toyota Way.
Business Strategy. 14 (4), 52-55.
Unknown. (2011). A Brief Introduction to Toyota Production System.
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%20Production&changeClass=Lean
%20Production&changeName=&id=2223. Last accessed 18 April
2014.
Analysis Tools. (2013). Porters Generic Strategies. Available:
http://www.burgeen.com/main/porters-generic-strategies/. Last
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