MANAGING THE EXTERNAL ENVIRONMENT

WAMBAB 4102 COURSEWORK ASSESSMENT ON TOYOTA MOTOR CORPORATION BY IBEACHU HELEN OBIANUJU STUDENT NUMBER : 90431 MODULE LEADER: MR DELE AMUSAN

INTRODUCTION The popular saying that goes, 'no man is an island', does not only apply to humans but can also be attributed to the business world. In order to remain active and competitive, an organisation needs to take into account, not only internal processes but also look into consideration its external environment. Factors such as competitors, new rules and regulations, changing marketplace, changing workforce and other related factors that have direct impact on the existence of the business must be seen as a crucial factor to the organisation. A business environment encompasses those factors outside the normal business activities of an organisation but directly affects its decisions and is uncontrollable by the organisation. A change in consumers taste will likely result in a shift in demand of a product such as fashion. IMPORTANCE OF BUSINESS ENVIRONMENT The importance of analysing an organisation's business environment cannot be more emphasized. Most businesses operate in an environment and whatever occurs in that environment also affect the business. The major importance can be seen in the following: 1. Detection of opportunities and threats: A business that is able to identify potential opportunities will normally have the upper hand as being the first mover and early detection of threats will act as a warning signal of dangers ahead. 2. Coping with changes: With huge changes occurring in the society, there is need for business managers to be aware of these changes and develop the best strategies with which to handle the changes. 3. Performance Efficiency: Businesses that monitor their immediate environment closely and adapt fast to its changes will likely record successes than those who do not. TYPES OF BUSINESS ENVIRONMENT Every business operates in a micro environment and a macro environment. A micro environment of a business makes up the factors that affect the performance and decision-making process of the business internally. Some of these micro-environments are the suppliers, the customers, shareholders, employees. CUSTOMERS: Most businesses exist to meet the needs of their customers and it is these customers that determine whether the business succeeds or fails. It is therefore, crucial that the business takes them in account when making decisions.

SUPPLIERS: Businesses make extra effort to maintain close relationship with their suppliers as they also have impact on the business operations. EMPLOYEES: It is the responsibility of any organisation to recruit the right staff and train them. This is because well-motivated employee would perform effectively and invariably lead to the overall success of the business. SHAREHOLDERS: As owners of the business, shareholders play a major role in the decision-making made by the management of the organisation. One of the objectives of any business is to maximise shareholder's wealth and the organisation makes most of its decisions based on this. A macro-environment of a business are those uncontrollable external factors that directly has a bearing on the business. The primary influences on a business are seen on political, economical, sociocultural, technological, legal and environmental factors. POLITICAL FACTORS: Every political decision made by any country has either a negative or positive effect on any business within its jurisdiction. For instance, most businesses located in the Middle East would not operate freely because of the political conflicts in that region of the world. This would affect their overall performance at the end of the year as losses from in-operations will reduce profits. ECONOMICAL FACTORS: The economic factors that affect a business determine how well the business performs at the end of the year. During the global recession, consumers spent less on items they can do without such as luxury cars and invariably, most companies in the auto mobile suffered losses as a result of this. On the other hand, in the state of boom, consumers disposable income is higher and they would likely spend more, not just on necessities, but on larger items as well. SOCIO-CULTURAL FACTORS: the socio-cultural factors tend to be more focused on cultural influences of the time in most time. A good example is seen in areas where women are encouraged to be conservative in their dress styles, businesses offering more provocative clothes would probably not succeed in such environment. TECHNOLOGICAL FACTORS: With the fast pace of technological innovations, businesses are forced to keep up or lose out. Businesses risk increase in production, higher prices and lower market share. ENVIRONMENTAL FACTORS: The environment in which a business operates goes a long way in determining its outcome. With the rising awareness in climatic changes, people are becoming more environment-conscious and any business that goes contrary to this is frowned at. LEGAL FACTORS: Any business that intends to survive in any environment must act as a law-abiding citizen. It is important for the business to know the

regulations and rules required to do business in such an environment so as not to fall out with the law of the land.

AUTOMOBILE INDUSTRY ANALYSIS The global automobile industry is dynamic and vast in nature. It comprises mainly of automobile manufacturers and suppliers. Some of the leading automobile companies in the world are discussed below: GENERAL MOTORS General Motors transitioned from an American car manufacturing company, founded in 1903, to the multinational automobile conglomerate it is today. GM, as it is popularly known, has placed itself as a global brand with its design model cars such as the Buick, Cadillac, Chevrolet, GM Daewoo, Hummer, Opel, and Pontiac amongst others. It is currently ranked number two after Toyota in the auto industry with a market share of about 13.4%. FORD MOTORS: Founded in 1908 by the great automobile industrialist, Mr Henry Ford, the Ford car company is a global automobile company which deals in two core business: automobile and financial services. Its financial services include leasing, insurance, car rentals and warranties while its automobile unit focuses more on handling design, development, manufacture, sale and service of cars, truck and service parts. The company experienced some major challenges in 2002 as some of their vehicles were recalled due to faulty tyres, their poor performance in 2008 also was evident in their huge financial losses and loss of high credit ratings by Moody and Standards and Poor. This put the company as a risk as their share price was at fairly high risk. The company resort to restructuring in order to reposition itself as a domestic automobile leader in the United States of America. Presently, it is ranked number three in the auto industry with a market share of about 11%. HONDA: Formerly known for their design in motorcycles, Honda has evolved into a world leader in automobile. The company has a reputation of high quality auto-mobile vehicles and motorcycles. This is attributed to the reliability and efficiency of their auto products. The auto company currently ranks fifth position in the auto industry with sales volume of 12,084,033 units.

TOYOTA MOTOR CORPORATION BRIEF HISTORY: The Japanese auto-mobile giant, Toyota Motors Corporation, best known as Toyota, started as the baby project of the founding automobile company, Toyoda Automatic Loom Works, in the year 1937, under Kilchiro Toyoda. Since then, the company has positioned itself as a brand in the global automobile industry. Based in Japan, it has its Headquarters in Toyota City, Tokyo and Aichi. As a prominent market leader, it has recorded and enjoyed stupendous sales revenue over time. Among its brand are Lexus and Scion. It also has stakes in its acquired subsidiaries: Daihatsu and Hiro Motors, Fuji Heavy Industries, Isuzu Motors, Yamaha Motors and Mitsubishi Aircraft Corporation. In 1957, Toyota opened its first plant outside Japan in Brazil before moving to North America and Europe. The automobile giant entered the American automobile industry in 1967 as a niche player. Amidst all challenges and constraints the company encountered, it has emerged today, as one of the world's largest manufacturer of automobile in both sales and in net sales. In the United states, Toyota has roughly doubled the sales of Honda and is aggressively competing with General Motors and Ford for the number one spot as a market leader. The company manufactures about 5.5million cars a year, equivalent to one car every six seconds. It currently controls over sixteen percent of the auto market with global sales volume of 7,237,000 units. The brand is linked to pursuit of new global image for the company with four key components: kind to the earth, comfort of life, excitement for the world and respect for all people. PORTER'S FIVE FORCES ANALYSIS ON TOYOTA Michael Porter, a Harvard professor, in his classic industry competition model, identified five forces that most likely will influence the activities in an industry. These forces are: Degree of rivalry Threats of substitutes Barriers to entry Buyer's bargaining power Seller's bargaining power Using the above analysis, we can determine the forces that influence the decisions made by Toyota Motors. DEGREE OF RIVALRY ON TOYOTA: In his analysis, Porter suggests that a segment is unattractive if it contains numerous, strong or aggressive competitors and if these competitors have high stakes of staying in the segment.

With a number of players over 50, the degree of rivalry in the automobile industry is relatively high. This can be seen with some of the top automobile companies competing intensely with Toyota, all vying for the number one position. Toyota presently hold over 16% of the market share and followed closely by General Motors at 13.4%. This further driven by the high technical capabilities, diverse cultures and associated philosophies of the players involved. THREATS OF SUBSTITUTES TO TOYOTA CARS: Under this force, Porter implies that a segment is unattractive where they are potential substitutes to the product. These substitutes place a limit on the price of the product as well as how much profits the company is making. Toyota has some form of substitute inherent in the public transportation sector. Although this may not be seen as much of a threat because of the inconvenience of using a public transportation, there is still a threat of some section of the Toyota market share defecting to the use of public transport in a bid to minimize cost in the economic crisis. In the auto industry, Hyundai Sonata and Ford C-Max hybrid cars are good substitutes to the Toyota Prius hybrid car and any increase in their market share would automatically result to a steep decline in the sale of Toyota brand. BARRIERS TO ENTRY: Porter explains here, that the most attractive segment is one which entry barriers are high and exit barriers are low. In the automobile industry, the high entry barrier and low exit barrier portrays the industry as a very attractive one. The high economies of scale that faces new entrants is a barrier and such new entrants have to establish high production levels enjoyed by existing players in other to compete favourably. The management of Toyota does not need to anticipate possible new entrant threats as the absolute cost advantage enjoyed by the company because of its high production experience, high capital requirements and product differentiation are entry barriers. SUPPLIER'S BARGAINING POWER: Porter suggests that a segment is unattractive if the company's suppliers are able to raise prices or reduce quantity supplied. In the automobile industry, most buyers manufacture their parts themselves and do not outsource their parts to suppliers. Toyota, which is one of the key auto parts manufacturers, is not dependent on the suppliers to increase or reduces prices or quantity of materials. However, the management of Toyota should have a back-up supplier at hand to avoid any unforeseen delay in production of automobiles as seen during the Japan earthquake.

BUYERS'S BARGAINING POWER: In his analysis, Porter explains that an industry is unattractive if buyers have strong or growing bargaining power. The power of buyers to influence the increment or reduction of automobile prices is high as they have choices and decide on which car model suits their needs and the auto makers have to meet this need. Toyota should see the buyers as key factors in deciding their brand model and this would automatically increase their revenue and profits. PESTLE ANALYSIS OF TOYOTA MOTORS Any organisation makes decisions based on its external environment. For a global brand as Toyota, this is no different. Some of these external factors are analysed below: POLITICAL FACTORS: Toyota's presence in Japan and North America implies that the rules and regulations of these regions apply to it. These political issues can pose as a threat to the company or create opportunities for growth. In the first quarter of 2010, Toyota spent over $1.4 million lobbying the Congress and the Federal Government of America over issues related to distracted driving, according to a petition filed against them. Among the issues Toyota lobbied on were pedestrian safety, a bill to curb texting while driving, a bill enacting new consumer protection and legislation to support the development of new vehicle technologies like electric power. Although the amount spent on the lobbying was more than Toyota allotted, it was compelled to engage in this expenditure in order to influence the political decisions in its favour as the bill could impact on its operations in the country. ECONOMICAL FACTORS : in the major objective of any company is to increase shareholders wealth. For Toyota, this and the aim of retain their position as a market leader was the key goal. With the intensity of global auto competition and the losses Toyota suffered in the auto crisis, Toyota decided to increase its revenue by engaging in rapid expansion and increase production worldwide . In the bid to increase market share, the company overlooked some quality control procedures. This invariably led to the defects in most of their brands and the cost to Toyota ran into millions of dollars, causing a great loss to the company. SOCIOCULTURAL FACTORS: Being a Japanese company, Toyota portrays all the attributes of a global brand. This can be attributed to the company's ability to understand its consumers taste and manufacture cars that meet their needs. The Toyota Prius hybrid family car was designed to meet the needs of a large family size and its fuel-efficiency feature made it the number one selling

brand for Toyota. TECHNOLOGICAL FACTORS: Technological changes have effects on the demise or survival of any organisation. Competing technological factors, coupled with government standards have become major issues to organisations. In Toyota, there is constant need to the company to be in tune with the technological changes in order to remain the number one position in the industry. This would yield long-term benefits for the company. These technological factors could also pose a threat to the company, if measures are not put in place to curb them. For Toyota, this cost them losses as a huge number of their cars developed technical problems and gads to be recalled. ENVIRONMENTAL FACTORS: The environment in which a business operates does more to influence its performance. Manufacturers would not be able to perform as expected if the vital relevant raw materials are unavailable. The March 2011 9.0 magnitude earthquake and ensuing tsunami in Japan, destroyed auto parts factories belonging to Toyota. This caused severe shortages for Toyota and other auto makers. It has been analysed by professionals that if the shortages continue, this could mean huge losses for the Japanese auto maker. LEGAL FACTORS: As an artificial entity, a company can sue and can be sued according to the law of the land in which it transacts its business. This means that legal actions can be taken against a company, irrespective of its position or its owners. These legal actions could affect the operations and decisionmaking processes of the organisation. Toyota fell under the arm of the law in 2010 when over 150 lawsuits were filed against the company as a result of its recall of some of its brands due to defects. Most of the claims were on economic damages and related injuries, blaming a variety of vehicle components, from floor mats to electric throttle controls. This spells huge bails or compensations paid out by the company and would invariably affect its overall performance at the end of the year. SWOT ANALYSIS OF TOYOTA MOTORS It is important for every potential business in order to monitor the key macroenvironment forces and significant micro-environment factors that affects it ability to profit. STRENGTHS: Toyota Motor Corporation is currently ranked number one in the automobile industry, with total sales of over 8.4million cars in 2010 and a market share of over 16% of the automobile industry.

 Toyota adoption of a new global image with the vision that strives to meet mobility in a way that respects the environment and people would portrait the company as a socially responsible company and would mean good public relations for the company. The company proved to have a strong production system in place as it manufactures the world's best hybrid car, the Toyota Prius. The hybrid brand generated a record sales of over one million in the United States by early 2011. high demand for Toyota Camry Sedan and Corolla increased the percentage sale of Toyota cars by 9.2% in the United States. Toyota adopted the strategy to start the 'Innovation International Multipurpose vehicle' plan which seeks to optimise global manufacturing and supply system of automobiles. With its entry in the Asian automobile industry, Toyota quickly acquired a large share of the market in that region and created an image for itself by its outstanding performance. WEAKNESS: Toyota was affected by the global recession that hit the world as sales during the 2007 to 2008 declined. The company recorded its first annual loss figure in its 70 years history. The company recalled more than eight million trucks and cars globally as a result of a defect in the production systems and its United States production was also temporarily closed down. This resulted in a slight loss of its market share by 1.8%. Most of the Toyota brands are offered to the Japanese and American Markets while other competitors in the industry enjoy global efficiency. OPPORTUNITIES: The shift in demand for less energy consumption and fuel-efficient cars by the users created an opportunity for Toyota to sell their brand of hybrid cars in the American market. Toyota established a joint venture with French automobile brands, Citroen and Peugeot, enabling it to enter the European market. Toyota produced cost-efficient and high quality cars to meet the needs of a niche market of users that could not afford the luxury of more expensive cars. The reduction of tax rate in China and auto-loans in India due declining sales of auto-mobiles enable Toyota to reach a previously unreachable market segment. There is also an opportunity for the company to divert into other nonauto-mobile sectors such as finance, robotics or aerospace. THREATS: The financial economic downturn resulted in a credit liquidity in the United States which invariably had its hold on the level of consumer wealth. This also affects the sales of Toyota cars as consumer could no longer afford to buy their cars due to low disposable income. High degree of competition in the automobile industry would likely put

pressure on the management of Toyota to make decisions that will enable it remain number one. The tightening environmental regulations on car emission standards would affect the decision if Toyota company to manufacture low emission cars. Rising prices in the cost of petrol due to the Middle East crisis would affect consumers decision to purchase more cars and this may affect the sale of cars for Toyota as consumers will be unwilling to incur more expenses from petrol usage in their cars. CONCLUSION As a whole, the analysis of Toyota Motor Corporation leads to series of conclusions about the company. Some of these conclusions are: 1. Attributes of a strong brand and company: Toyota is a brand, not only known for its high quality but also its ability to integrate its goals effectively by using its system effectively. This portrays it as a strong global brand and one that will stand the test of time. 2. Toyota Motor is a preferred brand and consumers are loyal to it. The recall of their vehicles due to the defects found, may have put a dent on the company's reputation and image. The company should strive to retain its customers' loyalty by providing the high quality vehicles they are known for. 3. The Japanese earthquake had a impact on the revenue of Toyota as they lost production and process. It is predicted that they may fall behind their long-holding status as the number one auto company. The Directors of Toyota should ensure that the process they have work on is maintained and they should device strategies to check their production methods to maintain their status in the automobile industry.

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