Toyota External and Internal Environments

Introduction

In this research paper, I have chosen Toyota as the organization I will focus on in my case study. Toyota is an organization from Japan that focuses on vehicle production. It is one of the most significant automobile manufacturers globally that produces more than 10 million cars yearly. I will be looking at the internal and external factors in the organization. Since it is a multinational company, I believe that the environment is key to its operations.

The general environment is one of the parts of the external environment that can be studied in any organization. The general organization may involve political, demographic, economic, global, sociocultural and sustainable physical environment segments. Each segment affects the organization differently (Michael, 2020). Some general environment segments have a higher influence on the organization’s choices than others. In this case, I will be looking at only two segments that influence the decisions made by Toyota. In my opinion, the economic environment is the most influential segment of the external environment that influences Toyota’s decision-making process. Economics mainly deals with allocating the little resources available that the society has to alternate its use and the cost of every choice made. Currently the world economies are recuperating post-covid-19 (Itsuki, 2021). The fuel prices are increasing due to the huge demand and the prevailing Russia- Ukraine war is making the situation even worse. The demand for cars is likely to go down; as an industry, car makers must find avenues to counter or even change this trend. Toyota is being affected by the global economic status on how its products are being bought in the market. During the 2008 recession, the global economy was down, and as a result, Toyota revenues decreased significantly since there was a drop in the global car demand. The economic environment will either increase or reduce the demand for a product. The demand can increase or reduce as a result of the prevailing economy.

The political influence can also influence the choice an organization like Toyota makes. As a multinational organization, Toyota has to comply with legal regulations developed across the world. Different countries have different regulations regarding various aspects of life. Toyota has to adjust or change its policies depending on which country it is operating in and the regulations in place (Itsuki, 2021). A country may encourage energy-efficient cars, i.e. hybrids, by lowering its taxation. This regulation is meant to influence consumer demand as many may opt for the hybrid since the cost might be lower. Such regulation may influence an organization like Toyota to focus on selling hybrid cars in that country. The government will always benefit and have its way in the political segments. I feel and think that both political and economic segments of the external environment affect the decisions made by Toyota.

There are five forces of the competition model that can affect an organization. Competition may arise from competitors (Michael, 2020). These organizations are dealing with the same product that Toyota is dealing with, i.e. Ford, BMW, etc. New entrants may offer competition to the already existing vendors.; Tesla is roughly a new entrant that is getting more market share by the day (Grădinaru et al., 2020). The bargaining power of the suppliers. When there is a shortage of a specific component required in the manufacturing process, the supplier may sell it at a high cost, like the low production of semiconductors in the market. Bargaining power of the buyer. The buyer or dealer may demand a higher commission or interest to buy any organization’s products. Competition may also arise from substitute products that would lower the demand for cars. Car sales are expected to significantly reduce if major centres and economic hubs are connected via railway. Railways transport is cheap and has no traffic like what is witnessed in major cities.

For Toyota, the main forces of competition affecting the organization arise from competitive rivalry and the bargaining power of the buyers. Competition in the automotive industry is intense. In the last five years, Toyota might be the best seller, but I highly doubt it will be the best seller in the next five years. Among other players, Volkswagen, BMW, and Ford possess a competitive advantage over Toyota, mainly in technological areas (Grădinaru et al., 2020). Other producers are coming up with products of higher technological advancement compared to those produced by Toyota. Companies like Honda and Mahindra concentrate on the Asia market, which Toyota primarily controls. Shortly if everything remains constant, the sales of Toyota as a brand are expected to reduce significantly. Bargaining power from the buyer or customer is another force of competition affecting Toyota. The market demands products with higher technological advancement because they want to pay for less (Belgrade & Puspita, 2021). The choice of which car to buy is predominant since the supply is not limited. The other manufacturers are offering good commissions and discounts to attract more customers. Toyota is experiencing a situation where the dealers demand a higher commission to push the product in the market.

Several external threats affect Toyota, and I will also identify various opportunities that Toyota should look at for advancement shortly. In my opinion, Toyota, as a multinational car maker, is experiencing severe threats that will hinder its growth. There is a growing market presence of low-cost competitors. There are competitors in the market that have reduced the cost of production. As a result, their products are cheap and have the same quality as those produced by Toyota. Another threat is the main competitors have heavily invested in technology and innovation. Some cars manufacturers have even developed applications to cater to customers’ needs. If Toyota does not invest in innovation, many of its customers will shift their allegiance. I have also identified great opportunities that Toyota can capitalize on to ensure its growth. There is a growing demand for cars in the developing world; areas like Africa have been buying cars at a higher rate in the recent past. Toyota should focus on such areas to develop customer loyalty. The weak Japanese Yen compared to the U. S also assist Toyota since the exchange rates will always be higher; as a result, it cost of production in Japan will be low than in the U.S (Bahmani-Oskooee, & Karamelikli, 2018). In my opinion, the greatest strength in the Toyota organization lies in its brand and global supply chain. Toyota is a major brand that cannot be doubted for quality. It also has a global supply chain, and raw materials can reach the factories on time. The secrecy in the Toyota organization culture and the recall of products in the recent past are some of Toyota’s weaknesses. Toyota as an organization has a lot of resources since it has stayed as a market leader in the automotive industry in the recent past. Its JIT methodology can offer good products and improve its technological status. I do believe that Toyota is competent in what it is doing and the products it is producing. I believe that in the next 20 years, it will remain at the helm of the automotive industry.

Sources

1. Michael A. Hitt. 2020. Strategic Management: Concepts and Cases: Competitiveness and Globalization 13th ed. Cengage Learning.
2. Itsuki, H. 2021. Evaluation on Changes of Strategy and Strategic Direction in Toyota Motor Company, Japan. Journal of Strategic Management, 5(1), 20-29.
3. Grădinaru, C., Toma, S. G., & Zainea, L. 2020. Japanese versus German Supremacy in the Global Automotive Sector. “. Ovidius” University Annals, Economic Sciences Series, 20(1), 78-83.
4. Belgrade, I. R., & Puspita, V. 2021, Marketing Communications Strategy and Brand Sustainability of Toyota Astra Motor Indonesia. In 2nd Southeast Asian Academic Forum on Sustainable Development (SEA-AFSID 2018) (pp. 196-199). Atlantis Press.
5. Bahmani-Oskooee, M., & Karamelikli, H. 2018. Japan-US trade balance at commodity level and asymmetric effects of Yen-Dollar rate. Japan and the World Economy, 48, 1-10.