6EC500 International Business Economics and Strategy

Student Name: JUAN MORA ROMEROStudent Number: 100306610

Table of Contents1. INTRODUCTION32. TIMELINE33. Critically evaluate how well the organisation responded to the external and internal challenges over the period concerned.11 3.1 Crisis11 3.2 Recalls12 3.3 Earthquake/Tsunami13 3.4 Surge of Yen144. Critically discuss the basis and sustainability of the competitive advantage of Toyota145. Strategic options available to your case organisation to ensure its success and sustainability into the future166. Conclusion177. References17

1. INTRODUCTION

This report will approach different aspects of the company Toyota in the period from 2009-2014 major challenges faced, passing through an analysis of its competitive advantage and ending with a some of the alternatives that the company has to focus its strategy.

The Toyota story begins in the late nineteenth century, when Sakichi Toyoda invented the first automatic loom, revolutionizing the textile industry. Driven by the success of his looms, in 1907 founded the company Toyoda Automatic Loom Works, becoming a leading manufacturer. Captivated by the nascent automotive industry in 1929 Sakichi sells the rights to his patent to the British company looms Platt Brothers, and invests those revenues in the development of the first Toyota vehicle.

In 1980, Toyota had produced over 30 million vehicles worldwide reached 100 million units in 1997. Currently, Toyota has produced over 6,423,772 million vehicles, according to its official webpage.

In the last years it has become the most successful car making company beating the powerful American companies like GM or Ford. But in the period that this report approach this superiority is challenged and the report also analyses the reaction that the Japanese company had and if it was the most accurate.2. TIMELINE

YEAR

INTERNAL/ EXTERNAL EVENTS

2009

INTERNALToyota opts for a change in leadership and appoints Akio Toyoda as President.

[January] Plans to stop production in 12 factories in Japan, also forecast a 8,5% drop in sales for the year to April 2009

[May] Plans to spend more than the original 58.6 millions $ in its green car ad battle against Honda

2009

INTERNAL[January] Hires Kitcatt Nohr for direct task, he would work on the customers acquisition and retention [November] Toyota exits Formula 1 after posting its worst financial loss ever.

[April] Brings back retired executive Yoshi Inaba to deal with the challenges associated with the global recession

2009

INTERNAL[July] Launches Brand Manifesto for its Scion Brand, targeting young urban consumers.

[October] Consolidates European advertising arrangements with the company Saatchi & Saatchi. (Mintel)

2009

EXTERNAL[August] Toyota car crashed in San Diego, USA due to a defect with the accelerator pedal. All the occupants die

[November] Reports a net profit of JPY21.8 billion in the three months to October 2009. Also forecasts a loss for the full year of JPY350 billion (2.36 billion) as a result of its performance

[November] Is overtaken by Volkswagen-Porsche as world largest car manufacturer.

2009 was a year of change for Toyota after doing its best performance in 2007-2008 the company had to face a really bad performance, the appointing of Akio Toyoda as president and the reduction in the productive activity. Another event to highlight would be the crash of the car in San Diego due to a defect with the accelerator pedal that would end up in massive recalls the following year.Some changes in its positioning can also be observed as the launching of Brand Manifesto in July

YEARINTERNAL/EXTERNAL EVENT

2010

INTERNAL

[January] Recalls 2,3 million car (Prius) and stalls sales on 8 models in US

[January] Employees Toyota's British plants are at risk of losing their job or moving to part-time after the car maker revealed it was expecting a difficult year 2010 and would not have enough work for all staff in summer.

[February] Losses brand value after recall, which could wipe up to 25% off its brand value, according to Brand Finance

2010

EXTERNAL[February] Losses brand value after recall, which could wipe up to 25% off its brand value, according to Brand Finance

[February] US Department of Transport wants to question Toyota about the safety concerns involving Toyota cars and the company's handling of those issues.

2010

EXTERNAL[February] Receives a subpoena from a U.S. federal grand jury requesting documents related to the automakers problem with the unended acceleration of its vehicles and the braking system of its Prius hybrid.

[March] Toyota faces complains over repaired vehicles after the recent recall

[April] Faces $16,4M DOT (Department of transport US) fine.

2010

INTERNAL[March] Launches a new incentive plan offering 0% financing for up to 60 months and increases consumer interest

[March] Launches reassuring ad campaign to reassure consumers about the safety its cars.

[June] Introduces five year warranties in the UK

2010

EXTERNAL[November] Toyota is back in profit. The auto giant booked a net profit of 289.16 billion yen ($3.6 billion) for April-September compared with a net loss of nearly 56 billion yen in the same period a year earlier.

[December] Recall fines are now up to $48,8M

This year was characterised by the massive recalls that the company had to do in order to prevent more incidents like the one that happened in San Diego the year before. The judicial problems that cost the company lots of money are repeated in the US and inspections to as consequence also of the incicent of San Diego. However the company manages to be back in profit after a disastrous year. At the same time the company keeps doing actions to make the customers buy given the crisis situation and add features that give added value as the introduction of five year warranties in the Uk

YEARINTERNAL/EXTERNAL EVENT

2011

EXTERNAL[January] 7 Insurance companies sue Toyota over crashes caused by sudden acceleration.

[January] Toyota was the largest automaker in 2010 despite the companys massive recall.

[February] Toyota's profits fell 39% in its third quarter, weighed down by slow sales at home and in Europe, the hangover from huge US recalls and a stronger yen.

[March] A massive earthquake and after a tsunami hits the north west coast of Japan.

2011

INTERNAL[March] Toyota expects production cutbacks in North America due to a shortage of parts stemming from the crisis in Japan.

[April] Toyota raises prices on nearly all brands due to unfavourable exchange rates, since the yen/dollar situation is poor.

[April] Announces that its global car production will not return to normal until November or December.

[April] Toyota Motor Corp. resumed car production at all of its plants in Japan for the first time since the March 11 earthquake and tsunami that rocked the country.

2011

EXTERNAL[April] Wins first sudden acceleration lawsuit

[April] A federal judge in California said that he will deny another request from Toyota Motor Corp. to dismiss lawsuits filed by car owners who say sudden-acceleration defects cause the value of their vehicles to drop.

[May] Companys profit falls 77% mainly due to production disruptions after the March 11 earthquake in Japan, as well as the strong yen and poor sales.

2011

INTERNAL[April] Microsoft and Toyota Motor Corp. announced a partnership to create an advanced digital information and communication system for the automakers cars

[May] The company will resume normal production in Europe in June. Four plants will resume normal production volumes on June 1. Due to parts delivery problems caused by the natural disasters in Japan.

[May] Toyota Motor Corporation has links with Salesforce.com to form Toyota Friend, a private social network for Toyota customers. Toyota Friend will connect customers with their cars, their dealership, and with Toyota.

2011

EXTERNAL[June] US sales drop 33% in May due to earthquake related shortages.

[July] Toyota is named the greenest company in the world

[August] Toyota Motor Corp saw its net profit fall 99% in its fiscal first quarter after the yen surged and production stalled due to the March 11 natural disasters.

2011

INTERNAL[August] The company tries to attract young customers in Europe with a 7.5m ad campaign for the latest version of its bestselling 'B' segment Yaris model.

[November] The company reconsiders Japan-based production mainly due to yen rate.

[December] BMW and Toyota joint green technology venture to develop new generation batteries for green cars

The most remarkable event of the year 2011 is obviously the natural disasters that happened in Japan, it is indeed the worst year of Toyota from the period that this report is analysing. The production is reduced due to lack in parts that are only manufactured in Japan and the sales and profits drop drastically. The yen surge was also a critical issue this year and the company is forced in April.Some remarkable positive aspects are that is named the greenest company in the world and the joint green technology venture with BMW. In the media field stills try to attract young customers with cheaper cars.

Judicial problems continue in US regarding the security of its cars.

YEAREXTERNAL/INTERNAL EVENT

2012

INTERNAL[January] Toyota raises its sales target for 2012 due mainly to a government decision to reintroduce subsidies for fuel-efficient cars.

[January] Returns to the Super Bowl ad arena focusing on reinvention

[March] Launches new warranty scheme. Customers buying a Toyota Approved Car with up to 150,000 miles will be given a minimum 12 months warranty

2012

INTERNAL[March] Launches new warranty scheme. Customers buying a Toyota Approved Car with up to 150,000 miles will be given a minimum 12 months warranty

[June] Increases cooperation projects with BMW regarding lightweight construction, fuel cells and electric drivetrains.

2012

INTERNAL[September] Debuts new tag line for advertising in US replacing its old tag line, Moving Forward, which it has used since 2004, with a new one, Lets Go Places

[October] Recalls 7.43M units worldwide for glitches with its switches. The largest auto recall since 1996.

[November] Raises its annual profit forecast as it recovers from the natural disasters in 2011.

2012EXTERNAL[December] Toyota tops automaker industry for third time in the last four years

This year after the disastrous 2011 was the resurge of the company, and finally end with Toyota recovering the title as the largest automaker in the world. It is interesting to take a look at the change of slogan in US probably in order to recover the confidence of the customers after the massive recalls, the judicial problems and the investigations. They also do an advert for the Super Bowl focusing on reinvention, that obviously follows the line of the change of slogan.Summarizing is a great year for Toyota that seems to in the right direction to maintain its global domination in the car making businee

YEAREXTERNAL/INTERNALEVE NT

2013EXTERNAL[January] Toyota reports that it has sold more than 5 million hybrids in the past 13 years.

[May] Toyota doubles its quarterly profits for this year due to cuts and better sales, on top of a weak yen.

2013INTERNAL[July] Launches experiential Lets Go Places campaign in US. The experiential tour combines music, art and food.

[July] Opens facility in Japan focused on quality control with a test course that simulates 13 driving conditions including cobblestones and bumpy roads as part of the automakers efforts to avoid a repeat of massive recalls.

[September] Announces its first fuel cell car, which will roll out in 2015.

2013INTERNAL[September] Toyota, City CarShare partner to launch a new car-sharing program called Dash that will offer transportation for employees and businesses and public transportation commuters.

[October] Launches a digital regional level campaign for the Southeast region of US.

[October] Fosters environmental awareness at black colleges, universities by leasing vehicles from the Prius family to 22 historically black colleges and universities.

2013INTERNAL[November] Launches TeenDrive365 a platform that is designed to provide an on-going dialogue between teens and their parents through engaging online tools.

[December] Plans to expand production of pickup in US.

In 2013 Toyota maintains its superiority and even increases it also is a year that launches many media campaigns in order to increase its notoriety. Not many strategic actions are taken. It is remarkable also the opening of the facility in Japan with the aim of prevent further massive recalls like the one that the company had to do in 2009 and 2010.

3. Critically evaluate how well the organisation responded to the external and internal challenges over the period concerned.

The period that this essay will approach starts in 2009, after the most successful year of Toyota (2008), the global crisis hit the carmaker strongly and force it to start a number of changes within the organisation.

The most significant change is probably the change of leadership appointing Akio Toyoda as president. Akio would have to deal with several major problems that will be discussed in this part of the essay: the global crisis and the massive recalls that started in 2009 and made a real damage in the image of the company and the earthquake and tsunami in March 2011. Also the rise of Yen in this period on a Japan based production like Toyotas.

3.1 Crisis

To analyse how Toyota faced the global crisis it is important to outline what the crisis meant for the automotive sector.

(Gachuz , 2011) "First it was the increase in fuel prices, oil prices suddenly rose to levels never seen before, one then came the financial crisis, the credit crunch began to affect first to USA and then spread throughout Europe, Asia and reached world levels". According to Gachuz (2011, p. 106) global economic recession resulted in a decline in the demand for vehicles without precedent. The automotive industry was then facing one of its worst moments in history.

Specifically for Toyota, global crisis meant that in fiscal year ended March 2008 (2009), the company announced operating losses for the first time in 70 years: $4.500 million (Mintel, 2009). The unusual strength of the yen had more expensive exports and devalued its external revenues in dollars or euros, impacting directly on the balance. Although the main cause of these losses was clearly the drop in sales of 8% (El Economista, 2009).

Regarding this crisis situation, Toyota opted for a return to their roots. This change was symbolized by the appointment as president of Akio Toyoda, grandson of the founder. At strategic level especially in the short term meant "a cut in production to seven million vehicles in 2009, 20% less than in 2007" (El Economista, 2009).

They also try to cut costs in dispensable investments like it can be seen in the timeline (e.g. Exiting Formula 1) also tried to expand their market by launching the Brand Manifesto (2009) targeting younger customers.Another measure taken by the Japanese company was not to renew temporary employees who were no longer needed due to the decrease in productive activity trying not to dismiss permanent workers although their work is not necessary. According to Cardinal (2009)"Currently, 4,500 of the 39,500 employees in production line are temporary, half of which was ten months ago. And the forecast is that the figure is reduced to less than 3.000".

In the long- term, this so-called crisis leaded the company to change in its positioning (that will be discussed further in this essay) and also realising of the consequences that a fast expansion like Toyota did is always risky.

3.2 Recalls

This is considered one of the major problems that the company had to face in the last decade, it started the 28th August 2009 when a Toyota car crashed in San Diego, USA due to a defect with the accelerator pedal. A company which one of its most important features of its positioning was based in being among the safest carmakers in the world was facing probably the biggest trust crisis in its history.

Toyota did not react properly in the first instances Toyotas belated recalls, belated communications and disclosure, and belated public apologies did far more damage to its reputation than the original tragic accident. (Dietz and Gillespie, 2012). This bad handling of the situation ended up with a damage of the companys image. According to Bunkley, N. (2011) companys quality reputation dropped from 32% to 19% of respondents to a Consumer Reports survey.

Toyotas strategy to handle the situation was based in an immediate response. Two days after the crash, Toyota issued a statement acknowledging its responsibility in the accident.

After a investigation, Toyota issued a direct customer safety warning. However, authors Dietz and Gillespie (2012) consider that they took too much time and that it was a negligence by Toyota, the authors state that the Japanese company overlooked this latter intervention, disastrously not issuing a customer warning about its all-weather floor mats until the 29th September despite these being implicated in fatal accidents two years earlier.

After Toyotas next move was recalling 3.8 million affected vehicles. This recall problem persisted in 2010 with 1.6million vehicles. And research to find out how to fix the flaws.

Apart of the recalls Dietz and Gillespie (2012) list some of the measures taken by the company, the most important would be designing a new safety system, which combines five accident-avoidance technologies, a declared reversion of the Toyota Way and a major restructuring with a reduction in Directors (27 to 11).

They also restructured the departments charged with Corporate Planning andCorporate Social Responsibility to quicken crisis responses.

Other measures taken in 2012 regarding this incident was a strong media campaign to in the US to reassure the customers that even leaded the company to change its slogan (from Moving Forward to Lets Go Places) or the ad in the Super Bowl focused on reinvention and the opening in Japan of a facility focused on quality control to avoid further incidents or recalls.

3.3 Earthquake/Tsunami

11th March 2011 was a tragic day in Japan, one of the hugest earthquakes ever registered shook the Japanese west coast followed but a massive tsunami. 15,845people lost their lives and the economic activity in Japan was reduced drastically.

Toyota is a company with its production based in Japan, so the catastrophe meant that the production needed to be reduced due to lack in some parts that the company manufacture only in Japan.

According to CNN News (2011) the production in all Toyotas manufacturing plants in Japan was reduced to 50%, and would be fully stopped between the dates of April 28 to May 9 (2011). The reduction in the productive activity in the plants in Japan meant for the company a shortage in parts that made the global production drop.

This so called reduction of production along with the surge of the yen in this period (that will be approached below) ended up in a drop in the net profit of a 99% in the first quarter of 2011 (Mintel, 2011)

Toyota anticipated in a statement that Japanese plants would reach normal operational capacity between November and December 2011, but there is no assurance that production will normalize by that time. Another problem that the Japanese company had to face was that due to the nuclear crisis in Fukushima that happened to be the main electric energy source.

This tragic incident along with the surge of Yen made the company even reconsider its Japan based production in November 2011 (Mintel, 2011)

3.4 Surge of Yen

This problem has been almost persistent during the period that this report is approaching. According to Toyota Annual Report (2011) Changes in foreign currency exchange rates may affect Toyotas pricing of products sold and materials purchased in foreign currencies.

This currency fluctuation problem was mainly about the strengthening of the Yen against the American dollar. According to Toyota Annual Report (2011) the surge of Yen along with the high prices of raw materials and strong pressure on Toyotas suppliers finally made the company raise the price of prices on nearly all brands in April 2011 (Mintel).

4. Critically discuss the basis and sustainability of the competitive advantage of Toyota

To approach the competitive advantage of Toyota seems critical to roughly explain the way Michael Porter explains the different competitive advantages.

Porter stated that there was two main positioning that can make a company be leader of its market: Overall cost leadership and differentiation. Those advantages can be market broad or focused in a concrete segment as it can be seen in the following chart:

It is difficult to define the competitive advantage of Toyota in only one of Porters generic strategies. The key in the success of Toyota according to Fane G.(2003) is based in the TPS (Toyota Production System) and the use of intellectual capital.

Fane (2003) states Toyota was one of the early adopters of new organisational structures, such as TPS and team production, with appropriate incentives for institutionalising the acquisition and deployment of intellectual capital.

The TPS goals are according to its own handbook:

Provide world-class quality and service to the customer. Develop each employees potential, based on mutual respect, trust and cooperation. Reduce cost through the elimination of waste and maximize profit Develop flexible production standards based on market demand.

TPS Basic Handbook states that there are two basic pillars in its production model.

One of those pillars is the Just in Time system (JIT) whose target is to produce and deliver the right parts, in the right amount, at the right time using the minimum necessary resources. This system reduces inventory, and if the company is able to handle it properly prevents both early and over production.

Looking at JIT system it would not be wrong to state that Toyota has an overall cost leadership competitive advantage. They are able to handle the JIT system so they reduce a massive amount of costs by producing just the necessary when it is necessary.The other pillar of TPS is called Jidoka (Build in quality) and is based in two ideas: enable a quality building process and separate men from machines.

Jidoka is based in a production system where the machines stop automatically if any trouble arises. According to TPS Basic Handbook The goal is not to run continuously but in other words to stop running automatically when trouble arises.

The other base in Jidoka is the separation of humans from machines and this idea is directly related to the use that Toyota makes of human capital. The company thinks that if machines are able to stop automatically if any problem arises, then there is not longer necessary to have people looking at the machines.

This way of production is totally in concordance with the ideals of Toyota of continuous improvement (kaizan) according to Fane G. (2003) Intellectual capital resides in the innovativeness of a firms human capital and not in the productivity of its tangible assets.

It is clear that Jidoka has more to be with a differentiation positioning than overall cost leadership. Other important facts that might suggest that Toyotas positioning has more to be with differentiation are the Kaizan mentioned above that has lead the company to develop high technological and environmental respectful products.

Toyota also makes a difference for its ideal of respect for people. The company considers that the heart of the production system are its employees, that is why, according to TPS Basic Handbook the company wants their employees to be competent and is convinced that Competence of individuals or work teams can be increased by learning,

But is not only about its employees, Toyota has prove be committed with the humanity by developing technologies that make its products environmentally friendly that leaded the company to be greenest company in 2011 (Mintel).

Summarising, Toyota is a company whose strategy would be based on differentiation but at the same time uses some of the advantages of the overall cost leadership through its efficient production system.

5. Strategic options available to your case organisation to ensure its success and sustainability into the future

After analysing Toyotas competitive advantage and the global business world juncture, it seems critical to take in consideration several factors in order to choose the best strategy for the future.

Currently it seems like a good alternative to sell cheap cars, Toyota has been doing it, through the TPS it is possible to manufacture with low cost. But there are some companies that are strongly positioned in this slice of the market.

What Toyota seems to be doing is the most advisable, looking at the timeline it is clear that they are positioning their product in efficient and environmentally friendly.

Looking at the persistent rising in the price of the oil its seems like a great alternative to keep doing efforts to develop electric and hybrid cars that are way more efficient in terms of oil consumed.

Toyota needs to adapt its product to the market and it seems to be what they are willing to do, according to its annual report (2013) The global financial crisis that began in 2008 reminded us once again that the foundation of sustainable growth is making cars that customers love.

6. Conclusion

This report has analysed in first place the major challenges that Toyota has had to face during the period approached. The way the company reacted to these different challenges could be better but even though the company has managed to be the largest automaker in most of the years that the report approaches.

However the global economic situation does not leave time for relax and Toyota will probably have to face many difficult challenges in the near future so they have to keep following their ideals of respect for people and continuous improvement if they want to keep being at the top.

At the end, facing these difficult challenges, far from weakening it, has make the company stronger and realise that a changing environment like car making world requires continuous adaptation, as the former President Katsuaki Watanabe said in 2009 Not the strong will survive but those who successfully adapt to the new scenario

7. References

Juan Pablo Cardenal. 2009. Toyota combats its worst crisis in history. Available at: http://www.eleconomista.es/empresas-finanzas/noticias/1165461/04/09/Toyota-se-ajusta-las-tuercas-para-combatir-la-peor-crisis-de-la-historia-.html#.Kku8Td8hQyBVawn. [Accessed 02 April 14]

Bunkley, N. (2011) In Detroit, Toyota vows to earn trust, New York Times, 10th January

CNN Wire Staff. (2011). Toyota making drastic production cuts after Japan quake, tsunami. Available: http://edition.cnn.com/2011/WORLD/asiapcf/04/20/japan.toyota/. [Accessed 15 April 2014.]

Toyota Motor Corp. (2012). Toyota Annual Report 2011. Available: http://www.toyota-global.com/investors/ir_library/annual/pdf/2011/. Last accessed 18 April 2014.

Toyota Motor Corp. (2014). Toyota Annual Report 2013. Available: http://www.toyota-global.com/investors/ir_library/annual/pdf/2013/#2. Last accessed 19 April 2014.

Art of Lean, Inc. (2008). Toyota Production System Basic Handbook. Available: http://www.artoflean.com/files/Basic_TPS_Handbook_v1.pdf. Last accessed 21 April 2014.

Oxygen. (). Mintel. Available: http://academic.mintel.com.ezproxy.derby.ac.uk/search/?submit_srch=1&q=toyota&country=0&time=. Last accessed 22 April 2014.

Juan Carlos Gachz. (2011). La crisis mundial en el sector automotriz, China: aliado estratgico de Mxico?. Anlisis Econmico. XXVI (63), 106-107.

Porter, M. E. (1985) Competitive Advantage: Creating and Sustaining Superior Performance. Free Press, New York, 1985.

Gary R Fane et al. (2003). Competitive Advantage The Toyota Way. Business Strategy. 14 (4), 52-55.

Unknown. (2011). A Brief Introduction to Toyota Production System. Available: http://riboparts.com/changeBlogsite.asp?changeInfo=Forum%20for%20Lean%20Production&changeClass=Lean%20Production&changeName=&id=2223. Last accessed 18 April 2014.

Analysis Tools. (2013). Porters Generic Strategies. Available: http://www.burgeen.com/main/porters-generic-strategies/. Last accessed 19 April 2014.

Toyota Motor Corp. (2013). History of Toyota. Available: http://www.toyota-global.com/company/history_of_toyota/. Last accessed 15 April 2014.

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