Toyota External Analysis: Opportunities & Threats

Toyota Motor Corporation opportunities and threats, external factors, automobile and automotive industry environment, Lexus luxury car
The RX 450h from Lexus, the luxury car division of Toyota. An external analysis of Toyota Motor Corporation identifies opportunities and threats that executives must address to ensure continuous business growth in the global automotive industry and automobile market. (Photo: Public Domain)

Toyota Motor Corporation (TMC) is an automotive manufacturer based in Japan. Founded in 1937, the company focuses on automobile design and production. As part of the Toyota Group conglomerate, TMC operates mainly in the automotive industry. The firm has limited diversification because most of its products are vehicles, engines and automotive parts. With global operations, Toyota Motor Corporation is now one of the biggest players in the automobile industry, directly competing with other companies like Honda Motor Company, General Motors Company, Tesla Inc., Ford Motor Company, Volkswagen, Nissan Motor Company, and Bavarian Motor Works (BMW). Toyota continues to globally expand through investments and joint ventures. As of March 31, 2018, the company has more than 360,000 employees worldwide. While the industry fluctuates based on changing market conditions and the transportation sector’s situation, the company’s organizational size is bound to increase as the business continues to grow.

Toyota’s success rests on the company’s ability to exploit opportunities and respond to threats in the automobile industry environment. In this global environment, it is of interest to determine if company executives and independent analysts agree on ways to address such opportunities and threats. The focus is on business opportunities and threats, which are external factors that influence profitability and industry health. The fulfillment of Toyota’s corporate mission and vision statements partially depends on how these external factors are strategically managed.

Toyota’s Current Opportunities

Toyota and its competitors have similar opportunities. The automotive industry situation is a race among firms to exploit opportunities as soon as possible. For example, automotive firms compete in terms of technological advancement to make their products more attractive and profitable. Delays or lags in taking advantage of these opportunities could reduce Toyota’s performance compared to firms like General Motors, Volkswagen and Tesla. These companies are competitive and have the resources to continue growing and enhancing their products and business performance. As a major player in the global industry, Toyota has the potential to utilize external factors that present opportunities for the multinational business.

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

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

Current Threats Facing Toyota Motor Corporation

The current threats in the automotive industry have the potential to weaken Toyota’s position as one of the industry’s leading firms. The company’s executives recognize the threat of strong competition due to market trends (see Porter’s Five Forces Analysis of Toyota Motor Corporation). For example, 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 linked to the economy. However, there are threats related to the organizational activities of competitors. The following are currently the most relevant threats facing Toyota:

  1. Aggressive competition. Companies in the automotive industry directly compete against Toyota through innovation and marketing. For example, competitors use aggressive strategies, such as aggressive marketing to increase their market shares. Rapid technological innovation among these competitors also increases their competitive advantages.
  2. Rising fuel prices. The price of oil generally continues to increase over time, despite some periods of decline. Customers look for more economical options from the automotive industry. Toyota must continue to develop cars that are hybrid, electric or with better fuel economy. Else, the company could lag behind competitors that satisfy customers’ preferences with regard to fuel economy and environmental impact.
  3. New entrants. The threat of new entrants is low because of high capital requirements in the automobile industry. However, the company faces significant threat from large firms like those from China, for example. Chinese firms have the potential to enter and sell their products in the markets where Toyota currently operates. These Chinese companies can compete on price and value.

Toyota’s Actions to Address Opportunities and Threats

Toyota’s executives take steps to address these external 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 implements product-oriented management to satisfy the needs of different areas of operations. This step entails customization of operations and services to address variations in customers’ demands and preferences. By customizing operations and services, Toyota expects an increase in its ability to satisfy customers. Higher customer satisfaction leads to stronger competitiveness. For example, customer satisfaction in engine fuel economy can increase the company’s market share. Thus, this action addresses the threat of aggressive competition and the threat of new entrants in the automobile market.
  2. Technology and skills enhancement. Toyota pushes for improvements in technologies and skills in its organization. This strategic action entails product design improvement for better efficiency. For example, the company’s design improvement efforts ensure automobile products that have competitive fuel economy. This strategic action also involves better technologies that employees use for higher job performance at Toyota. Such changes increase the firm’s competitiveness through higher efficiency and higher customer satisfaction. In this way, the company 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. This external analysis shows that the company must effectively address threats and opportunities to maintain its market position. 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, such actions for opportunities can boost the company’s business performance in the long term.