Toyota Motor Corporation faces the significant effects of the external factors in its industry environment, as shown in this Five Forces analysis based on Porter’s model. These external factors exert forces on the automotive business and influence its strategic direction. Even with the issues and challenges identified in this Five Forces analysis, Toyota remains one of the top players in the global automotive industry. Such success represents the company’s ability to withstand the negative forces in its external environment. However, as indicated in this Five Forces analysis, Toyota must continue innovating for competitive advantage against other firms.
This Five Forces analysis of Toyota Motor Corporation identifies the intensities or strengths of the external factors in the automotive industry environment. This environment involves aggressive competition among automakers. Toyota’s corporate mission statement and corporate vision statement require high-quality cars that ensure business competitiveness.
Summary: Five Forces Analysis of Toyota
This Five Forces analysis of Toyota shows that the most significant concerns are competition and the bargaining power of customers, which are the strongest external factors in the industry environment. The following are the five forces and their intensities in impacting Toyota:
- Competition or competitive rivalry: Strong force
- Bargaining power of buyers or customers: Strong force
- Bargaining power of suppliers: Weak force
- Threat of substitutes or substitution: Moderate force
- Threat of new entrants or new entry: Weak force
This Five Forces analysis shows that Toyota must focus on ensuring competitive advantage to withstand the strong force of competition. In addition, the company needs to maximize its ability to satisfy the preferences and expectations of customers, who also exert a strong force on the business and the automotive industry.
Competitive Rivalry or Competition with Toyota (Strong Force)
Toyota must deal with the strong force of competition. This component of the Five Forces analysis determines how firms affect each other. In Toyota’s case, the following external factors are the main contributors to the strong force of competitive rivalry in the industry environment:
- High aggressiveness of automakers (strong force)
- High variety and differentiation of firms (strong force)
- Low number of large firms (moderate force)
Automotive firms are aggressive against each other, in terms of innovation and marketing. Also, Toyota competes with a high variety of firms, which differentiate through cost, electronics, fuel efficiency, style, brand image, and other variables. However, even though there are many competitors, the company competes with only a small number of large multinational firms, such as General Motors, Ford, Tesla, and Nissan. Still, this part of the Five Forces analysis shows that Toyota must have comprehensive strategies to address the strong force of competitive rivalry. The company and competing automakers are abreast of each other’s strategies. The SWOT analysis of Toyota identifies competitive advantages and core competencies that can help limit the effects of competitive rivalry on the firm.
Bargaining Power of Toyota’s Customers/Buyers (Strong Force)
Toyota’s customers affect the business through revenues. This component of the Five Forces analysis shows the influence of car buyers on automotive firms. In Toyota’s case, the following external factors are the main contributors to the strong force or bargaining power of buyers in the automotive industry environment:
- Low buyer switching costs (strong force)
- High quality of information (strong force)
- Moderate substitute availability (moderate force)
The low switching costs mean that customers can easily change from Toyota to competing firms when buying their next car. In addition, the company’s target customers can easily choose their best option because they have access to accurate information, such as product information from automobile manufacturers’ websites. Substitutes are available, but buyers are attracted to the practicality and convenience of cars, in relation to Toyota’s generic strategy for competitive advantage and intensive strategies for growth. In this part of the Five Forces analysis of Toyota, the combined effect of the external factors is the strong force or bargaining power of customers. The company needs to ensure that its automotive products match the preferences and expectations of its target customers.
Bargaining Power of Toyota’s Suppliers (Weak Force)
Toyota’s suppliers aim to influence the firm to improve their own businesses. This component of the Five Forces analysis reflects the interactions between firms and their suppliers. In Toyota’s case, the following external factors in the automobile market contribute to the weak force or bargaining power of suppliers:
- Moderate population of suppliers (moderate force)
- High overall supply (weak force)
- Low forward integration of suppliers (weak force)
The limited population of suppliers around the world creates a moderate force that influences Toyota. Theoretically, this bargaining power is higher when the suppliers are fewer. However, the high availability of the supply of some components used for manufacturing vehicles weakens suppliers’ power. In addition, many suppliers in the global automotive industry do not have forward integration or ownership and control of the distribution of materials that reach firms, like Toyota. Thus, this part of the Five Forces analysis highlights the company’s relative ease in addressing the weak force or bargaining power of suppliers. Also, Toyota’s operations management is designed to maintain supply chain management measures for better relations with suppliers to address their bargaining power.
Threat of Substitutes or Substitution (Moderate Force)
Substitutes affect Toyota’s business by competing with the company’s products. This component of the Five Forces analysis determines the impact of substitute products. In Toyota’s case, the following external factors in the automotive industry environment are the main contributors to the moderate force or threat of substitution:
- Low buyer switching costs (strong force)
- Moderate availability of substitutes (moderate force)
- Low convenience in using substitutes (weak force)
In most cases, it is relatively easy for customers to shift from Toyota to substitutes. These substitutes include public transportation, bicycles, and motorcycles, including those from Harley-Davidson. However, many of these substitutes have limited availability. For example, some areas do not have public transportation. In addition, many of these substitutes are less convenient than cars. In this part of the Five Forces analysis of Toyota, the combination of such external factors in the transportation market creates the moderate threat of substitution that the company must address by making its products more accessible, affordable, and convenient. The strategies and tactics in Toyota’s marketing mix (4Ps) can optimize the company’s market reach and strengthen its brand to address the threat noted in this part of the Five Forces analysis.
Threat of New Entrants or New Entry (Weak Force)
New entrants are new competitors that threaten Toyota’s business. This component of the Five Forces analysis shows the impact of new automotive firms. In Toyota’s case, the following external factors in the automotive industry environment contribute to the weak force or threat of new entrants:
- High capital costs (weak force)
- High cost of brand development (weak force)
- High supply chain costs (weak force)
Toyota faces the weak threat of new entry. The high costs of establishing, maintaining, and growing a new firm in the industry are significant entry barriers. These barriers weaken the effects of new entrants on existing automakers in the market. This force is less significant than competition and the bargaining power of customers on the automotive company. Thus, this part of the Five Forces analysis shows that the threat of new entrants is among the least of Toyota’s concerns in growing its business and maintaining its position as one of the top automobile manufacturers in the world. Nonetheless, strategies for addressing this threat can benefit from information regarding economic and sociocultural opportunities, such as the ones shown in the PESTEL/PESTLE analysis of Toyota.
- Fedotov, P. (2022). Critical analysis of the electric vehicle industry: Five forces and strategic action fields. Exchanges: The Interdisciplinary Research Journal, 10(1), 43-56.
- Sforcina, K. (2023). Digitalizing Sustainability: The Five Forces of Digital Transformation. Taylor & Francis.
- Toyota Motor Corporation – Brand.
- Toyota Motor Corporation – Form 20-F.
- U.S. Department of Commerce – International Trade Administration – Automotive Industry.