1.

COMPANY BACKGROUND

Company name

Toyota Jidosha KK

Type

Public (K.K.)

Industry

Automotive

Founded

August 28, 1937 (78 years ago)

Founder

Kiichiro Toyoda

Headquarters

Toyota, Aichi, Japan

Products

Automobiles, luxury vehicles, commercial vehicles, engines

Production output

Increase 9,909,440 units (Year 2012)

Toyota Motor Corporation is a Japanese automotive manufacturer headquartered in

Toyota, Aichi, Japan. In March 2014 the multinational corporation consisted of 338,875
employees worldwide and, as of November 2014, is the eleventh-largest company in the
world by revenue. Toyota was the largest automobile manufacturer in 2012 in terms of
production, ahead of the Volkswagen Group and General Motors. According to Flynn (2012),
in July of that year, the company reported the production of its 200-millionth vehicle.
Toyota is the world's first automobile manufacturer to produce more than 10 million
vehicles per year. It did so in 2012 according to OICA, and in 2013 according to company
data. As of July 2014, Toyota was the largest listed company in Japan by market
capitalization, worth more than twice as much as 2 nd ranked Softbank by revenue. Toyota
Motor Corporation produces vehicles under 5 brands, including the Toyota brand, Hino,
Lexus, Ranz, and Scion. In 2008, Toyota's sales surpassed General Motors, making Toyota
number one in the world (Strott, 2009).

1.1

History
The company was founded by Kiichiro Toyoda in 1937 as a spinoff from his father's

company Toyota Industries to create automobiles. Three years earlier, in 1934, while still a
1

department of Toyota Industries, it created its first product, the Type A engine, and, in 1936,
its first passenger car, the Toyota AA.
In 1924, Sakichi Toyoda invented the Toyoda Model G Automatic Loom. The
principle of jidoka, which means the machine stops itself when a problem occurs, became
later a part of the Toyota Production System. Looms were built on a small production line. In
1929, the patent for the automatic loom was sold to a British company, generating the starting
capital for the automobile development. Vehicles were originally sold under the name
"Toyoda" ( ), from the family name of the company's founder, Kiichiro Toyoda. In
April 1936, Toyoda's first passenger car, the Model AA, was completed. The sales price was
3,350 yen, 400 yen cheaper than Ford or GM cars.
Toyota received its first Japanese Quality Control Award at the start of the 1980s and
began participating in a wide variety of motorsports. Due to the 1973 oil crisis, consumers in
the lucrative US market began turning to small cars with better fuel economy. American car
manufacturers had considered small economy cars to be an entry-level product, and their
small vehicles employed a low level of quality to keep the price low.
In 1982, the Toyota Motor Company and Toyota Motor Sales merged into one
company, the Toyota Motor Corporation. In the 1990s, Toyota began to branch out from
producing mostly compact cars by adding many larger and more luxurious vehicles to its
lineup, including a full-sized pickup, the T100 (and later the Tundra); several lines of SUVs;
a sport version of the Camry, known as the Camry Solara; and the Scion brand, a group of
several affordable, yet sporty, automobiles targeted specifically to young adults. Toyota also
began production of the world's best-selling hybrid car, the Prius, in 1997.
However, in 2011, Toyota, along with large parts of the Japanese automotive industry,
suffered from a series of natural disasters. The 2011 Tohoku earthquake and tsunami led to a
severe disruption of the supplier base and a drop in production and exports. Severe flooding
during the 2011 monsoon season in Thailand affected Japanese automakers that had chosen
Thailand as a production base. Toyota is estimated to have lost production of 150,000 units to
the tsunami and production of 240,000 units to the floods.

Toyota was also involved with several recalls over the past few years. From
November 2009 through 2010, Toyota recalled more than 9 million cars and trucks
worldwide in several recall campaigns, and briefly halted production and sales. Toyota
initiated the recalls, the first two with the assistance of the U.S. National Highway Traffic
Safety Administration (NHTSA), after reports that several vehicles experienced unintended
acceleration.
In October 2012, Toyota announced a recall of 7.43 million vehicles worldwide to fix
malfunctioning power window switches, the largest recall since that of Ford Motor Company
in 1996. The move came after a series of recalls between 2009 and 2011 in which it pulled
back around 10 million cars amidst claims of faulty mechanics. In March 2014, Toyota
agreed to pay a fine of US$1.2 billion for concealing information and misleading the public
about the safety issues behind the recalls on Toyota and Lexus vehicles affected by
unintended acceleration.

1.2

Main Activities
Toyota has long been recognized as an industry leader in manufacturing and

production. The main business activities of Toyota were not confined only to automobile, but
a vast array of different activities and businesses.
a. Material Handling Equipment
The Materials Handling Equipment Segment develops, produces, sells and provides services
for a broad range of products, from industrial vehicles centered around a full line-up of lift
trucks (0.5- to 43-ton capacities) to materials handling systems. Lift trucks, a mainstay
product of this segment, are delivered to customers around the world under the TOYOTA,
BT, RAYMOND and CESAB brands through Toyota Material Handling Group.
b. Automobile
From vehicle assembly to parts production, the Automobile Segment engages in a wide
variety of car-related businesses. Leveraging synergies among its business divisions in
development and production, the Automobile Segment accounts for 54.3% of consolidated
net sales and represents the largest business segment of Toyota Industries. With its strengths
3

as an industry leader in quality, cost and delivery, the Vehicle Business produces compact to
midsize automobiles. This includes engines for both electric and bio-fuel.
c. Logistics
The Logistics Segment is composed of three business pillars: planning, design and operation
of distribution centers; land transportation services; and high value-added services such as
cash collection and delivery and cash proceeds management services and data storage and
management services.
d. Textile Machinery
With a history dating back to the invention of an automatic loom by Toyota Industries
founder Sakichi Toyoda, the Textile Machinery Business is a world leader in the textile
industry backed by an integrated structure that encompasses development, production, sales
and service of weaving and spinning machines.

2.0

INDUSTRY ANALYSIS

Toyota Motor Corporation is a Japanese company founded in 1937, which engages in

the design, manufacturing, 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. Toyota Motor
Corporation competes in the automotive industry as for the past five years were tumultuous
for automobile manufactures. 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 such as Toyota offering more fuel-efficient vehicles took market share from
manufacturers of large vehicles 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.

2.1

Tools Used To Describe the Industry

The practical expression of Toyota's people and customer-oriented philosophy is

known as the Toyota Production System (TPS). This is not a rigid company-imposed
procedure but a set of principles that have been proven in day-to-day practice over many
years. Many of these ideas have been adopted and imitated all over the world.
TPS has three desired outcomes:

To provide the customer with the highest quality vehicles, at lowest possible cost, in a

timely manner with the shortest possible lead times.

To provide members with work satisfaction, job security and fair treatment.
It gives the company flexibility to respond to the market, achieve profit through cost
reduction activities and long-term prosperity.
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TPS strives for the absolute elimination of waste, overburden and unevenness in all areas to
allow members to work smoothly and efficiently. The foundations of TPS are built on
standardization to ensure a safe method of operation and a consistent approach to quality.
Toyota members seek to continually improve their standard processes and procedures in order
to ensure maximum quality, improve efficiency and eliminate waste.

a. Lean Manufacturing
Lean manufacturing is a management philosophy derived mostly from the Toyota Production
System (TPS). Toyota is renowned for its focus on reduction of the original Toyota seven
wastes to improve overall customer value, but there are varying perspectives on how this is
best achieved. The steady growth of Toyota from a small company to the worlds largest
automaker has focus attention on how it has achieved this success. The second approach to
lean manufacturing, which is promoted by Toyota, called The Toyota Way, in which the focus
is upon improving the "flow" or smoothness of work, thereby steadily eliminating mura
("unevenness") through the system and not upon 'waste reduction' per se. Techniques to
improve flow include production leveling, "pull" production (by means of kanban) and the
Heijunka box. This is a fundamentally different approach from most improvement
methodologies, and requires considerably more persistence than basic application of the
tools, which may partially account for its lack of popularity.

Diagram 1: Lean Manufacturing

b. Kaizen - Continuous Improvement

Kaizen is the heart of the Toyota Production System. Like all mass-production systems, the
Toyota process requires that all tasks, both human and mechanical, be very precisely defined
and standardized to ensure maximum quality, eliminate waste and improve efficiency. Toyota
Members have a responsibility not only to follow closely these standardized work guidelines
but also to seek their continual improvement. This is simply common sense - since it is clear
that inherent inefficiencies or problems in any procedure will always be most apparent to
those closest to the process. The day-to-day improvements that Members and their team
leaders make to their working practices and equipment are known as kaizen. But the term
also has a wider meeting: it means a continual striving for improvement in every sphere of
the Company's activities - from the most basic manufacturing process to serving the customer
and the wider community beyond.
c. Just in Time
It is perhaps not widely known that the 'just in time' approach to production that has now
7

gained almost universal acceptance in world manufacturing was actually pioneered by

Toyota. In fact, a Toyota engineer coined the term itself. This, too, is a simple but inspired
application of common sense. Essentially, 'just in time' manufacturing consists of allowing
the entire production process to be regulated by the natural laws of supply and demand.
Customer demand stimulates production of a vehicle. In turn the production of the vehicle
stimulates production and delivery of the necessary parts and so on. The result is that the right
parts and materials are manufactured and provided in the exact amount needed - and when
and where they are needed. Under 'just in time' the ultimate arbiter is always the customer.
This is because activity in the system only occurs in response to customer orders. Production
is 'pulled' by the customer rather than being 'pushed' by the needs or capabilities of the
production system itself.
The linkage between customer demand and production is made by analysing take time, a
device for measuring the pace of sales in the market in relation to the capacity of a
manufacturing plant. Toyota never tries to accommodate changes in demand by making
substantial changes in individuals' workloads. Assigning more members to a line means that
each handles a narrower range of work. Assigning fewer means that each handles a broader
range.
2.2

Key Competitor

Diagram 2: Major competitors for Toyota

Ford is an American multinational company. Their head office is located in Dearborn,
Michigan. (USA). Incorporated on June 16, 1903. Their major products are Ford Fiesta, Ford
Mustang, Ford Explorer and Ford Mondeo. Volkswagen is a German Multinational Co. Their
head office located at Wolfsburg, Germany. Incorporated in year 1937. Their major products
are Passat, Jetta, and Taureg. General Motors is an American Automobile Co. Their head
office located at Detroit, Michigan (USA). Incorporated in 1908. Their popular brands are
Chevrolet and Holden. Major products that produced by them are Aveo, Optra and
Commbador.

2.3

Competitors Profile

a. Ford
Henry Ford invented Ford in year 1903. The company started making the Model-T in 1903
and it started in Dearborn, Michigan. Ford Motor Company manufactures cars as well as
tractors, trucks, and school. The companys core and affiliated automotive brands include
Aston Martin, Ford, Jaguar, Land Rover, Lincoln, Mazda, Mercury and Volvo. Their
company logo is built Ford tough and slogan Have you driven a Ford lately if not, think
9

again.
b. Volkswagen
Volkswagen was founded by Nazi Deutsche Arbeitsfront and established on 28 th May, 1937.
The company is located in Wolfsburg, Germany. Their company slogan is Das Auto which
means The car. Its production in 62 plants across 21 countries and sales in 153 countries
with the net revenue of euro 126.9 billon.
c. General Motors
General Motors is one of the worlds largest car and truck manufactures, founded in 1908 as a
Holding Company for McLaughlin and Buick Stocks and allied in 1919 in Flint, Michigan.
The GM automotive brands today are Vauxhall, Buick, Cadillac, Chevrolet, GMC, Holden,
Opel, and Wuling. Former GM automotive brands include McLaughlin, Oakland,
Oldsmobile, Pontiac, Hummer, Saab, and Saturn.

2.4

Competitors Competitive Offering

a. Ford
Ford has cost advantages and competitive advantages. Ford offer low production cost,
because they cut down of huge expenditure on raw materials with the online manufacturing
process. Ford offer different product such as production of smart cars with fuel efficiency
with centralized decision making system.
b. Volkswagen
VW has an iconic brand portfolio by giving customers ample choice. They also have selfsubstitutes because brands compete amongst themselves. VW also has technological
leadership and innovative designs and concept cars to satisfy tomorrows needs.

c. General Motors

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General Motors has a strong brand portfolio with its strong vision and strategy that allows
them to does more than just autos. General Motors also happen to be a leader in innovation as
they continuously improve their products. Other than that, General Motors also lack of capital
constraints.

2.5

Competitors Strategies

a. Ford
Ford implemented the centralized decision making system. This allowed the company to
concentrate on the available market opportunities both locally and internationally. With the
implementation of centralized decision making system, the top management becomes more
engaged in the development of products to satisfy the customer expectation in various
markets (porter, 1986). This strategy allowed the company to improve the communication
system from top to bottom.
Ford motors adopted the strategy that allowed it low production cost by cutting all the
excessive cost involved in these operations. The huge expenditure on raw materials was cut
down and the online manufacturing process was introduced that focus on the development of
cars on one process rather than having different segments of engineering and production.
These strategies was established cost advantage and give the company advantage over its
competitors in terms of lower cost (porter, 1983), in the mean while company focused on
producing smart cars that were not price sensitive and offered the functionality of traditional
ford cars.
b. Volkswagen
Volkswagen Group has an attractive product portfolio and it is made up of twelve successful
brands that excite millions of customer worldwide year in and year out. In year 2014, they
manage to reinforce the distinct and individual image of each brand and optimized their
marketing positioning. The strategy used by Volkswagen is brand diversity. This brand
profile, which creates trust in their customers, is the reason the Volkswagen brand is the first
choice for millions of customers when buying a car. Global brand management focuses on the
wishes and preferences of customers, today and in the future. They are the starting point for
developing innovations that are driven by demand, while remaining affordable. Based on this,
11

the Volkswagen brand aims to become the most innovative volume manufacturer with the
best quality in each class in the medium to long term.
c. General Motors
General Motors implemented lead in product and technology as well as delivering core
operating efficiencies. In year 2015, it was said that about 27% of GMs global sales volume
is expected to come from products new or refreshed within 18 months and that figure is
expected to rise in the near future. GM developed an innovative Mixed Material Body
Structure that uses GM-patented welding technology and a combination of steel and
aluminium stampings, castings and extrusions to deliver designs that are lightweight, use
20 percent fewer parts, have class-leading torsional stiffness and exhibit superior noise and
vibration characteristics. As for delivering core operating efficiencies, GM try to improve
their relationships with suppliers, derive more global volume from fewer vehicle architectures
and lower enterprise costs for material and logistics is expected to deliver significantly better
variable margins on upcoming high-volume product launches.

2.6

Competitors Future Strategies and Goals

a. Ford
When talks about future strategies, Ford has come out with three tools to stimulate future
thinking which are wild-card analysis, spending time thinking of global consumer trends and
scenario planning. Wild-card analysis means looking at things that have a low probability of
occurring because if they do happen, they have a high probability of changing human
conditions. Secondly, by thinking of global consumer trends, Ford will study about lens of
society, technology, economics, environment and politics. Lastly, scenario planning is where
all the trends add with some other qualities and scenario, and then Ford can produce
something better. Fords future goals are to design and manufacture vehicles with safety
excellence focused on real world safety and offer innovative safety and driver assist
technologies. Ford also wants to play a leadership role in vehicle safety and driver assist
research and innovation. Other than that, Ford also targeting to reduce waste sent to landfill
by 40 percent on a per-vehicle basis from 2011 to 2016 globally.
b. Volkswagen
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The main goal of Volkswagen is to become the economic and ecological leader of the global
automotive industry. Volkswagen wants to gain a position of the world's leading manufacturer
by using intelligent innovations and technologies to shape customers' satisfaction and quality.
As for the sales, Volkswagen expecting their sales to exceed 10 million vehicles per year; and
Volkswagen wants to rely upon development of large growth markets. Other than that, the
profitability of sales before taxation is expected to reach at least 8% thus guaranteeing
financial safety and ability of the group to function in the periods of economic downturn.
Volkswagen also wishes to be an excellent employer on all markets, among different
communities and in all regions; this is the prerequisite for creation of great teams of
employees.
Volkswagen pays particular attention to the question of the environmental protection and
profitability of its vehicle-related projects so that the right products contribute to success in
challenging market conditions. Volkswagen efforts are focused on determining new
ecological criteria in such fields as: production of vehicles, aggregates and light
constructions.
Moreover, Volkswagen seeks to broaden a group of regular customers of them by acquiring
new recipients of their services worldwide. Daily activities, aimed at improving productivity
and quality are carried out without time limit, regardless of the overall economic situation.
These strategies, together with consistent cost and investment discipline, will aid in reaching
Volkswagens long-term objectives concerning profitability and ensuring financial solvency.
c. General Motors
General Motors future goals are to increase U.S market share to 33%, improve customers
satisfaction as evidenced by points of market share, not fractions. That is the reason why GM
spending billions in advertising and incentives in the name of marketing every year.
However, there exist far less expensive and far more productive methods of acquiring and
retaining customers, and the plan calls no capital investment and it offers the opportunity for
large reductions in marketing expense. The strategies used for General Motors are to
implement both innovative and proven marketing techniques, raise market share 1 percentage
point in each of five key areas. They also plan to remake corporate image as a leader by
acting rather than re-acting. Other than that, GM also changes their focus of advertising from
distress to aspiration.

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3.0

FIRMS PRODUCTION AND OPERATIONS MANAGEMENT SITUATIONS

3.1

Internal Analysis of Firms Strength and Weakness

a. Strength
Toyotas strengths indicate that the firm is capable of keeping its position as one of the top
auto manufacturers in the world. Toyota is considered to be the worlds largest automobile
producer. Toyota has been operating 51 manufacturing companies in 26 countries including
12 in Japan. Toyota has one of the strongest brands in the global automotive industry. The
companys global supply chain is also a strength that enables resilience and market-based risk
minimization. Toyota possess a powerful market position by promoting innovative production
techniques that emphasize on eliminating wastes and overall improvement in the
manufacturing side has made Toyota, the true technological market leader. Furthermore,
Toyota has an organizational culture that facilitates rapid innovation, which is crucial for
long-term competitive advantage. Toyota has been known all over the world for its products
quality, durability and reliability. Innovation is the key success factor through massive
production in hybrid vehicles all over the world that has been increasing Toyotas sales.
Toyotas investment in R &D Department is the reason for the recent improvement in the
design and research centers in the whole world and the availability of production facilities is
high globally.
b. Weakness
Toyotas weaknesses point to possible inefficiencies in the organization. Toyotas global
hierarchical organizational structure prevents maximum flexibility of regional operations.
Also, the companys culture of secrecy is a weakness that reduces response times in
addressing emerging problems. In addition, Toyota implemented massive product recalls
starting in 2009. These recalls weaken the firm because the recall processes consume
business capacity that could be used for product distribution instead. Because of this, Toyota
is often being criticized as the foreign importer.

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3.2

The Industrys Strength and Weakness (Automobile Industry)

a. Strength
Automobiles represent freedom and economic growth. Automobiles allow people to live,
work and travel in ways that were unimaginable a century ago. Automobiles provide access
to markets, to jobs. Nearly every automobile trip ends with either an economic transaction or
some other benefit to the quality of life. Intense competition in the matured/developed
markets has forced automobile manufacturers to target developing economies. But these
developing economies have high demand for VFM products (value for money). In the
automobile industry, VFM products would be fuel efficient, high mileage vehicles because
majority of customers in these nations prefer vehicles for commuting. On the other hand,
developed nations need is of vehicles for interstate travelling and high speed vehicles suitable
for long route with high engine power.
b. Weakness
Controversies relating to recalling vehicles on account of some technical dis-functionality or
non-abidance cars are very common in the industry. Over the last 3-4 decades the automobile
market has shifted from demand to supply market. Availability of large number of variants,
Stiff competition between them, and long list of alternatives to choose from has given power
to customers to choose whatever they like.

3.3

Toyotas Strength and Weakness against the Industrys Strength and Weakness
Strength

Toyota

1. Strong brand image.

2. Global supply chain.
3. Rapid innovation capabilities.

Weakness
1. Hierarchical organizational
structure.
2. Secrecy in organizational
culture.
3. Effects of product recalls in
recent years.

1. Evolving industry.
2. Continuous product innovation
Automobile
1. Cars recalled
& technological advancement.
2. Bargaining power of consumers.
Industry
3. Increasing demand of VFM
vehicles.
Table 1: The comparison of strength and weakness the automobile industry
15

3.4

The Advantage and Disadvantage of Toyota against Automobile Industry

Toyota has a strong brand image, with this advantage, Toyota can expand their market

to countries like Brazil, India, China that is not been explored by Toyota can be a profitable
advantage for the organization to make large investments. Toyota emphasis on R&D
development, Toyota can produce more cars that are more fuel efficient and is less harmful to
the environment. The disadvantage of Toyota is as Toyota basically originates in Japan so
with a continuous appreciation of Yen can create difficulties while exporting cars in other
countries. Because of the automobile industry has a strong bargaining power of consumers,
Toyota has severe competition against rivals. Because of severe rivals in the automobile
industry, many car manufacturers who sell cars in cheaper rate has forced Toyota to put it
prices down which can be a risk to its organizations financial position. Toyota faces the
threat of competition with low-cost automobiles from Korean, Chinese and Indian
manufacturers, which have been increasing their presence in foreign markets. Toyota also
experiences the threat of rapid innovation of competitors like GM, Honda, and Ford.

3.5

Current Production, Operations and Supply Chain Problems

3.5.1

Production
The Toyota Production System (TPS) is an integrated socio-technical system,

developed by Toyota, which comprises its management philosophy and practices. The TPS
organizes manufacturing and logistics for the automobile manufacturer, including interaction
with suppliers and customers. Kaizen is the heart of the Toyota Production System. Like all
mass-production systems, the Toyota process requires that all tasks, both human and
mechanical, be very precisely defined and standardized to ensure maximum quality, eliminate
waste and improve efficiency. Toyota Members have a responsibility not only to follow
closely these standardized work guidelines but also to seek their continual improvement. This
is simply common sense - since it is clear that inherent inefficiencies or problems in any
procedure will always be most apparent to those closest to the process. The day-to-day
improvements that Members and their Team Leaders make to their working practices and
equipment are known as kaizen. But the term also has a wider meeting: it means a continual
striving for improvement in every sphere of the Company's activities - from the most basic
manufacturing process to serving the customer and the wider community beyond.
16

3.5.2

Operation
Toyota Motor Corporation has long been recognized as one of the leading companies

in the automobile manufacturing industry (Womack et al, 1990). Lynch (2009) states that
Toyota Motor Corporation's rapid rise to success can be pinned down to its operations and
marketing strategies. Its management philosophy has evolved right from the time of its origin
and has been reflected in the way in which the organization operates. Some of the key
features of the organization's operations have involved Lean Manufacturing techniques, as
well as the Just in Time supply chain management processes, which the organization was
very instrumental in developing. Toyota Motor Corporation (2010) states that Toyota's
production system is fully immersed in the philosophy of the complete elimination of all
waste in every aspect of production, in the pursuit of the most efficient methods to be used by
the organization. The company's vehicle manufacturing process, which is often referred to as
the Toyota productions system (a combination of Lean Manufacturing System and Just in
Time system), has been built over several years of continuous improvements as a way of
manufacturing and delivering the kind of cars demanded by customers in the quickest and
most efficient way. Toyota is facing major quality problems and recalls. At that time, some
critics of Toyota pointed to the Toyota Way or lean manufacturing principles as causes of the
problem. In other words, being too lean caused Toyota to somehow create a defective product
design or to miss or ignore the problem.
3.5.3

Supply Chain Management

Supply-chain management at Toyota is an element of companys operations strategy

which is thoroughly based on the Toyota Production System (TPS). It was developed in the
1940s by Shigeo Shingo and Taiichi Ohno. As Toyotas success gained world-wide coverage,
at was followed by interest by other companies in TPS, the principles of which is expressed
by the term of lean manufacturing Liker (2005, p.16) lists following components of Toyota
Supplier Partnering Hierarchy: mutual understanding and trust, interlocking structures,
control systems, compatible capabilities, information sharing, joint improvement activities,
and Kaizen and learning. The quality problems and recalls were mounting, the majority of
those problems almost certainly originated not in Toyota's own factories but in those of its
suppliers. The automotive industry operates as a complex web. The carmakers (known as
original equipment manufacturer or OEMs) sit at its center. Fanning out from these are the
17

tier-two suppliers who provide individual parts or assembled components either directly to
the OEM or to a tier-one supplier. Toyota has identified as one of the causes of unintended
acceleration in some of its vehicles, is a tier-two supplier whose automotive business
accounts for about a third of its sales. On the outer ring of the web are the tier-three suppliers
who often make just a single component for several tier-two suppliers. Although there are
thousands of tier-two and tier-three suppliers around the world, their numbers have been
culled over the past decade as the OEMs and the tier-ones have worked to consolidate their
supply chains by concentrating business with a smaller number of stronger companies.

18

4.0

STRATEGY ANALYSIS

4.1

Evaluation of Current Position and Selection of Strategic Options

The current situation has to be analysed and assessed in order to formulate a new

strategy. SWOT analysis shows Toyotas current position, as shown in Table 1.

Table 1: SWOT Analysis, Source: Pearce II et. al. (2007)

As seen from SWOT analysis, Toyota faces very serious threats from the external
environment but it has good internal strengths. By using this information to plot a Pearces
SWOT Analysis Matrix, Toyota would be in Cell 2, which it supports a diversification
strategy, as shown in Table 2.

Table 2: SWOT Analysis Matrix, Source: Pearce II et. al. (2007)

To draw more strategic options and to test the suitability of the diversification strategy
for Toyota, the Grand Strategy Matrix is used. As the market growth is slow in the
automobile industry and Toyota has a strong competitive position, therefore Toyota is placed
in Quadrant 4. As shown in Table 3, diversification or a joint venture could be a good strategy
for Toyota.
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Table 3: The Grand Strategy Matrix, Source: Glukhova (2009)

Quadrant 4 provides four options for Toyota:
1. Concentric Diversification
Toyota has already diversified its product mix, which were: SUV, MPV, minivans, sedans,
trucks and heavy machinery. Toyota has also covering other customer segment, with using
Lexus line for high income group. Toyota has taken care of the concentric diversification
strategy.
2. Conglomerate Diversification
Toyota has already diversified its business portfolio into housing, financing, communication
and other business. Toyota has also taken conglomerate diversification as an option
previously.
3. Horizontal Diversification
Horizontal diversification includes sewing machines, financial services and etc.
4. Joint Venture
The last two options offer will help to a fast increase in market share. Toyota can really
consider both options for its further growth.
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4.2

Evaluation of Strategic Options

The two suggested options which are horizontal diversification and joint venture need

to be tested on their suitability, feasibility, acceptability, consistency, business risk and

attractiveness to stakeholders. Table 4 analyses and provides conclusion that Joint Venture is
a better strategic option for Toyota.

Table 4: Evaluation of Strategic Option, Source: Glukhova (2009)

4.3

Analysis of Current Strategy and Proposed Strategy

Based on the evaluation as presented in Table 4, Joint Venture is less costly and

therefore it is a better option in current economic situation. Joint Venture is the suggested new
strategy for Toyota to ensure support from the firms stakeholders. Joint Venture can be later
21

converted into Merger or Acquisition if it is very successful. Using McKinseys 7S

framework, Table 5 highlights differences between current and new strategy and actions that
need to be taken for successful implementation.

Table 5: McKinseys 7S Framework Analysis, Source: Lynch (2006)

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5.0

RECOMMENDATION
In general perspective, in order for Toyotas to grow within this dynamic and highly

competitive company, Toyota should have instead joint venture with other Chinese
automobile manufacturers. Nowadays, the fast growing market in China is an attractive
opportunity. Toyota needs to choose an established China domestic partner to introduce its
products to the mass market. Japanese technology is more sophisticated than China and
therefore would require training and the upgrading of employees skills and knowledge as
well as introduction of technologies and training on its usage.

5.1

Flow of Implementation
Toyota should first review the firms business and corporate strategies to determine

synergy with the objectives of a joint venture. In this process, managers can apply a range of
strategy methodologies such as SWOT Porters Five Forces, stakeholder analysis, and the
value chain to assess the firms strategy and future vision. Top management may then
determine that the joint venture is not the most optimal organizational form for achieving the
firms objectives, and that another form, such as a long-term contract, may offer a better
strategic fit. One of the good examples is Chery Motors from China.
The second step involving Toyota assessing the suitability of the potential joint
venture partner for fit with the firms strategy and compatibility during the life of the joint
venture. Identifying the key problems of Chery Motor overall mission would help ease the
selection process.
If Toyota agrees with the terms of Chery Motors, the parties will set out joint venture
terms in a written agreement which addresses structure objectives, financial and other
resource contributions. Understanding these agreements help Toyota optimize their resources
as to which production would be outsourced or what new projects should be handled by
either company. Through this implementation, Toyota will be able to produce their own
goods within their own time frame, while also capable of effectively uses idled employee to
help out with the new projects.

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Through this strategy, Toyota is likely to expand their market share to a bigger scale
to the Asian market. Idled resources will be put to use effectively, while maintaining the
normal production of the automobiles. Cost of production for the new projects will also
remain minimal, as the amount of investment required is shared among companies. If the
project turns out to be not beneficial in the future, Toyota would only suffer minimal loss or
no loss in shares and brand equity.

24

REFERENCES
Flynn, M. (2012). Toyota: 77 Years, 200 Million Vehicles. Retrieved October 29, 2015, from
http://www.themotorreport.com.au/54659/toyota-77-years-200-million-vehicles.
Glukhova, O. (2009). Toyota Motor Company (Japan). University of Bradford.
Hill, T., & Westbrook, R. (1997). SWOT analysis: its time for a product recall. Long Range
Planning, 30(1), 46-52.
Liker, JK. (2005), The Toyota Way and Supply Chain Management, Presentation for OESA
Lean to Survive Program, The University of Michigan.
Lynch, R. (2006), Corporate Strategy, 4th edition, England: Prentice Hall Pearson
Education.
Magee, D. (2007), How Toyota Became #1 - Leadership Lessons from the World's Greatest
Car Company, Portfolio Hardcover, ISBN 978-1-59184-179-1.
Pearce, II J.A. & Robinson, R. B. Jr. (2007), Strategic Management
Formulation, Implementation and Control, 10th edition, New York: McGrawHill Iiwhi.
Strott, E. (2009). "Toyota Takes Sales Crown from GM". MSN Money. Retrieved October 29,
2015,

from

http://articles.moneycentral.msn.com/Investing/Dispatch/Toyota-takes-

sales-crown-from-GM.
Toyota Motor Corporation Annual Report 2015.

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APPENDIX

TABLE OF CONTENTS
1.0

COMPANY BACKGROUND........................................................................................1

1.1

History.........................................................................................................................1

1.2

Main Activities............................................................................................................3

2.0

INDUSTRY ANALYSIS.................................................................................................5

2.1

Tools Used To Describe the Industry...........................................................................5

2.2

Key Competitor...........................................................................................................8

2.3

Competitors Profile....................................................................................................8

2.4

Competitors Competitive Offering.............................................................................9

2.5

Competitors Strategies..............................................................................................10

2.6

Competitors Future Strategies and Goals.................................................................11

3.0

FIRMS PRODUCTION AND OPERATIONS MANAGEMENT SITUATIONS......13

3.1

Internal Analysis of Firms Strength and Weakness..................................................13

3.2

The Industrys Strength and Weakness (Automobile Industry).................................14

3.3

Toyotas Strength and Weakness against the Industrys Strength and Weakness......14

3.4

The Advantage and Disadvantage of Toyota against Automobile Industry..............15

3.5

Current Production, Operations and Supply Chain Problems...................................15

3.5.1

Production..........................................................................................................15

3.5.2

Operation............................................................................................................16

3.5.3

Supply Chain Management................................................................................16

4.0

STRATEGY ANALYSIS..............................................................................................18

4.1

Evaluation of Current Position and Selection of Strategic Options..........................18

4.2

Evaluation of Strategic Options.................................................................................20

4.3

Analysis of Current Strategy and Proposed Strategy................................................20

5.0
5.1

RECOMMENDATION.................................................................................................22
Flow of Implementation............................................................................................22

REFERENCES

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