Toyota External Analysis: Opportunities & Threats

Lexus from Toyota, Toyota current opportunities and threats, executive action for environmental contingencies in automobile industry
The RX 450h from Lexus, the luxury car division of Toyota. Given the current opportunities and threats facing Toyota in the context of the automobile industry, company executives have taken actions to respond to these environmental contingencies. (Photo: Public Domain)

Toyota Motor Corporation is an automobile manufacturer based in Japan. Founded in 1937, the company focuses on automobile design and production. Thus, it operates mainly in the automotive or automobile industry. The firm has minimal diversification because most of its products are automobiles, although it also manufactures engines. With global operations, Toyota is now one of the biggest players in the automobile industry, competing directly with other giants like Honda, General Motors and Volkswagen. The company continues to globally expand through investments and joint ventures. As of 2015, Toyota has more than 330,000 employees worldwide.

Toyota’s continued success rests on its ability to exploit current opportunities and respond to current threats in the automobile industry. In the global automotive environment, it is of interest to determine if the executives at Toyota and independent analysts agree on ways to address such opportunities and threats.

Toyota’s Current Opportunities

Toyota and its competitors have similar opportunities. The industry situation is a race among firms to exploit opportunities as soon as possible. Delays or lags to take advantage of these opportunities could reduce Toyota’s performance compared to firms like General Motors, Volkswagen and Tesla Motors.

Opportunities in the automobile industry typically involve technological innovation, diversification, growth, and expansion. Thus, Toyota’s main opportunities relevant to its current business condition are as follows:

  1. Technological innovation. The company can further increase its investments in research and development. Toyota’s products are currently among the most innovative. The Prius is an example of this innovation. However, increasing R&D investment can boost the firm’s competitive advantage. This is especially important in today’s automobile industry environment, where Toyota’s competitors are always on the lookout for new ways to innovate.
  2. Sustainability. Sustainability concerns affect all industries today. In the automobile industry, sustainability focuses on fuel economy and the environmental impact of business processes. Toyota can develop new engines and designs to improve the fuel economy of its products, especially its trucks. The company can also address environmental concerns through more efficient business processes. Exploiting these opportunities can help Toyota improve brand image, customer perception and customer loyalty.
  3. Diversification. Toyota currently has a low level of diversification. The vast majority of its business is in the automobile industry. A significant drop in the automobile market’s performance readily leads to a significant reduction in Toyota’s business. The company can diversify its business as a way of reducing such risk. For example, Toyota can invest more in developing heavy machinery and robotics to distribute its business to these different industries.

Current Threats Facing Toyota

The current threats in the automotive industry can potentially weaken Toyota’s position as one of the industry’s leading firms. Toyota executives recognize the threat of stronger competition. Globalization creates easier channels for other auto manufacturers to compete in the biggest markets, such as the United States and China.

The threats in the automobile industry are usually linked to the economy. However, there are also threats related to organizational activities of competitors. The following are currently the most relevant threats facing Toyota:

  1. Aggressive competition. Companies in the automobile industry directly compete against Toyota through innovation and marketing. The competitors can use aggressive strategies, such as aggressive marketing to increase their market shares compared to that of Toyota. Rapid technological innovation among these competitors can also increase their competitive advantage compared to Toyota.
  2. Rise of fuel prices. The price of oil generally continues to increase over time, despite some periods of decline. Customers are continually looking for more economical options from the automotive industry. Toyota must continue to develop automobiles that are hybrid, electric or with better fuel economy.
  3. New entrants. The threat of new entrants is low because of high capital requirements in the automobile industry. However, Toyota faces significant threat from large firms like those from China, for example. Chinese firms can potentially enter and sell their products in the markets where Toyota operates, competing on price and value.

Toyota Executives’ Actions to Address Opportunities and Threats

Toyota executives have taken steps to address these environmental contingencies in the automotive industry. The aim is to prevent competitors from taking the company’s market share. While the firm has taken many steps to improve and strengthen its position, the following are the most notable.

  1. Product-oriented management. Toyota has implemented product-oriented management to satisfy the needs of different areas of operations. This step entails customization of operations and services to address differing demands of customers. By customizing operations and services, Toyota expects an increase in its ability to satisfy customers. Higher customer satisfaction leads to stronger competitiveness of Toyota. Thus, this action addresses the threat of aggressive competition and the threat of new entrants in the automobile industry.
  2. Technology and skills enhancement. Toyota executives have also implemented improvements in technologies and skills in the organization. This action entails product design improvement for better efficiency. More importantly, this action also involves better technologies that employees use for their jobs at Toyota. Such changes increase the firm’s competitiveness through higher efficiency and higher customer satisfaction. Thus, this action addresses the threat of aggressive competition and the threat of rising fuel prices facing the automotive industry.

Toyota is among the leading firms in the automobile industry. The company must effectively address threats and opportunities. Some of the firm’s actions directly respond to the identified current threats. However, more action is needed to exploit current opportunities. Combined with the actions addressing threats, these actions for opportunities can boost Toyota’s business in the long term.