Toyota Motors Corporation is the Japan based multinational automotive manufactures. Its headquartered is in Tokyo, Japan. Toyota is ranked as the second biggest automotive manufacturer across the globe, and the first one to manufacture more than 10 million vehicles annually. It is the market leader across the globe in selling the hybrid electric vehicles, as it encourages the mass-market adoption for such vehicles. It is involved in continuous innovation and use advance technologies to provide the consumer best experience. It works hard to compete in the industry where big giants like Honda, BMW, Audi, etc. are present. It believes in continuous improvement which helps it in retaining the customers and attracting new consumers (Toyota, 2019). Toyota Motors faces the major effects of external forces of the industry, as determined in the Porter’s five forces model. These five external factors help Toyota in analyzing the strategic directions for the company. Various challenges and issues are identified, yet Toyota is able to remain at the top position in the industry of global automation. This success clearly shows the ability of the company to withstand among the negative forces (Ferguson, 2017). Here is the detailed five forces analysis of Toyota;
Bargaining Power of Buyers:
The customers of Toyota are directly affecting the business operation through revenues. Consumers have low switching costs, as if they find any product expensive, they can easily switch to the competitor’s products. Customers have high bargaining power in case of Toyota, because of the high amount of knowledge they have regarding the purchases they make. However, there are certain vehicles which have moderate amount of substitutes available in the market like hybrid vehicles, for such products, bargaining power of consumers are low as they do not have many options to switch (Fernfort, 2019).
Bargaining Power of Suppliers:
The bargaining power of the suppliers is insignificant in the automotive industry because of the numerous amounts of suppliers’ presence of different parts, and the significance of volumes for many suppliers are paramount. The switching cost of the suppliers varies as depending on different types of raw materials in the auto manufacturing industry. For Toyota, because of its reliance on the just-in-time, and lean manufacturing supply chain, suppliers are mostly located close to the manufacturing units usually have high bargaining power (Dudovskiy, 2016).
Threats of New Entrants:
Barriers to entry in the automotive industry are high, which means threats of new entrants are very low, because of high capitalization and the access to the distribution channels. Substantial barrier is created because of the extensive use of economies of scale by the existing brands in the industry. Particularly for Toyota, because of the its market size and operating in international market, it can greatly achieve economies of scale and passed the benefits to consumers in terms of reducing the vehicles’ prices and compete in the industry. Furthermore, its products are differentiated, and has the strong band name. Government rules and regulations are also one of the factors which restricts the new entrants in the industry (Ferguson, 2017).
Threats from the Substitute Products:
In many cases, consumers find easy to switch to substitute products like public transportations, bicycles, etc. but they also have limitations, as such substitutes are not present in suburban areas. In such cases, Toyota is facing low threats from the substitute products. However, in areas where different auto manufacturers are operating, the risks of substitution increase because customers might shift to other brands as per their convenience. Thus, automobile industry brings moderate threats for the brands in the substitution of the products, and to compete in such case, Toyota needs to make its vehicles affordable, convenient, and accessible (Ferguson, 2017).
Rivalry of Existing Players
Competition from the existing firms in the automotive industry is aggressive, as in global marketplace, there are many competitors like General Motors, Daimler, Volkswagen, BMW Group, Ford Motors, Honda Motor, Hyundai Motor, Nissan, SAIC Motor, Audi, and many others are present to compete against Toyota. Although the Toyota Motors is maintaining the leadership position globally in sales, but still GE has highest market share in United States because of the US government policies (Dudovskiy, 2016). Toyota has the advantage of differentiated products, and new product designs in the industry, which is not easy to beat (Fernfort university, 2019).
References
Dudovskiy, J. 2016. Toyota Porter’s Five Forces Analysis. [Online], Available at: https://research-methodology.net/toyota-porters-five-forces-analysis/, [Accessed on: 11th April, 2019].
Ferguson, E. 2017. Toyota’s Five Forces Analysis (Porter’s Model). [Online], Available at: http://panmore.com/toyota-five-forces-analysis-porters-model, [Accessed on: 11th April, 2019].
Fernfort university, 2019. Toyota Motor Corporation Porter Five Forces Analysis. [Online], Available at: http://fernfortuniversity.com/term-papers/porter5/analysis/855-toyota-motor-corporation.php, [Accessed on: 11th April, 2019].
Toyota, 2019. About the Company. [Online], Available at: https://global.toyota/en/company/profile/, [Accessed on: 11th April, 2019].