Toyota Motors SWOT Analysis
SWOT ANALYSIS OF TOYOTA MOTORS 2018
Toyota is a global brand of cars headquartered in Japan. The brand excels in technology as well as supply chain management and manufacturing. Its production management strategy has been hailed as among the best in the entire industry. Toyota has several strengths apart from its technological capabilities and a global manufacturing and sales network. The company has also managed its human capital very well. Its continued focus in all these areas has resulted in financially consistent performance over the past several years. The automotive industry has grown highly competitive. Investing in research and development has become more than essential to retain a leadership position. Toyota has partnered with several prominent institutions to further research in areas like AI, Robotics and autonomous driving. Demand in the automotive industry is expected to rise further in the coming years. However, the number of challenges obstructing growth is also large. In such an environment apart from managing efficient manufacturing, the brand would also need to remain ready for competition and other challenges. This is a SWOT analysis that highlights the strengths, weaknesses, opportunities and threats before Toyota.
Brand equity :-
Brand equity is a critical strength for any large and global brand. Over time Toyota has been able to build strong brand equity. As a vehicle brand Toyota's focus has always remained on winning consumers' trust. It is very important in the automotive industry to build trust and retain a good brand image. Toyota is among one of the most trusted brands in the advanced economies of the world including US. In the growing economies and other corners of the world, it is a trusted brand and hailed as innovative. The reason is Toyota has always focused on product quality, driver safety and customer service. High brand equity is also a sign of higher customer loyalty and better reputation. These things also translate into strong financial performance for a vehicle brand.
Technological capabilities :-
In terms of technology, Toyota is one of the leading performers in the automotive market. It has 69 manufacturing facilities, of which 16 are there in Japan and total 40 in Asia. It has 16 R&D sites running all around the world. Toyota has managed an efficient production system which is hailed around the world as one of the best. The production system of Toyota called TPS is also known as JIT or lean production system. Through generations, Toyota has continued to refine this production system to achieve the highest efficiency in terms of production.
Focus on research and innovation:
Research and innovation have always remained the central focus for Toyota. It is also a source of competitive advantage for the brand. The brand is focusing on bringing ever better and better vehicles. Now, Toyota has turned its focus towards electrification and autonomous driving. The brand is investing heavily in growing its range of electrified vehicles. It is also investing in the development of human centric and safe automated driving technology. In its 2017 Annual Report Toyota Notes, "Toyota has established Toyota Research Institute, Inc., with Dr. Gill Pratt, one of the world’s foremost AI researchers, as its CEO, and set up a related venture capital fund. Through these efforts, we are accelerating initiatives in such areas as automated driving, AI, and robotics" (Toyota Annual Report, 2017). Toyota has extended its partnership to MIT, University of Michigan and Stanford University for carrying out further research on automated driving and robotics. Toyota has taken some smart steps in this area that may prove highly beneficial for its future. Every year the company makes a large financial investment in the area of research and development. In 2017, Toyota invested 1037.5 Billion Yen in R&D.
Supply chain & Distribution Network :-
Toyota has managed a large and efficient supply chain and distribution network. Each of the vehicles it makes is made from thousands of parts sourced from suppliers located around the globe. Toyota works in close collaboration with its suppliers and has formed strong and long term relationships with these suppliers to control the costs of production. It has 167 main overseas distributors for the distribution of its products around the globe. In 2017, Toyota achieved a total sales of 8.9 Million vehicles globally. Managing a large and global distribution chain requires to collaborate closely with dealers and distributors. Toyota has managed this very well with the help of its global manufacturing and distribution network. Its distribution network is divided into eight key regions including North America, Latin America, Asia, Europe, Africa, China, Middle East and Oceania. This network also acts as the main sales channel for the brand.
Large product portfolio :-
Toyota is a leading producer of vehicles with a very large range of vehicles in its portfolio. Its product portfolio is large and diverse. Toyota makes sedans, SUVs, sports vehicles, hatchbacks, minivans, station wagon, trucks and buses. Its marine business segment has brought excellent boats and sports cruisers as well as other marine vehicles and parts. Toyota also owns Lexus which is a brand of premium vehicles. Lexus has brought a large range of popular premium cars. Apart from these, Toyota has brought a nice range of hybrid cars.
Toyota is a truly Global brand. Its products sell across more than 170 countries. Global presence is a major strength of Toyota that has led to higher sales and revenue. To maintain its global business, Toyota has its manufacturing facilities in several countries around the globe. It also has several R&D sites running around the world.
Product recalls :-
In the recent years, Toyota had to make several product recalls. while on the one hand it is a sign of Toyota's concern for quality and driver safety, on the other it can have a negative effect on the brand's image. In 2017, Toyota was forced to recall around 2.9 Million vehicles due to faulty airbags. In past, it has made several more recalls.
Weak position in Asian markets :-
In the Asian markets, Toyota's position compared to its competitors is weaker. The Asian markets are the hottest markets for automotive brands. Toyota must focus on making its position stronger in India and China.
Falling RoE and RoA:
Toyota's RoE and Roa fell in 2017 compared to 2016. After 2012 and 2013, its RoE and RoA had grown consistently. However, in 2017, Toyota's RoE and RoA fell again. This shows somewhat poor allocation of resources. In 2012 and 2013, the brand's RoE and RoA had been considerably lower. Compared to that its current RoE and RoA still look better.
AI & digital technology : -
AI and Digital technology have brought several new opportunities for the vehicle brands in terms of marketing and supply chain management. Toyota can use them for engaging its suppliers and customers. It can use AI and digital technology for creating superior customer experiences. Apart from that Toyota can use these technologies for customer engagement and to drive retention rates higher. AI and digital technology have major applications in HR management too.
Autonomous vehicle technology : -
Autonomous vehicle technology is a hot area for vehicle brands. Around the world brands are in an aggressive race to be the first to bring autonomous vehicles on the roads. Investing in this area can bring great results for Toyota. It is why Toyota has made it a priority. However, several of its competitors are also aggressively chasing this dream.
Asian markets :-
Asian markets are currently the hottest markets for vehicle brands. While China has grown to become the leading vehicle market of the world, India is also growing fast and offers excellent opportunities of growth. Toyota must try to make its position stronger in both these markets. Both are highly attractive markets and currently ruled by Toyota's competitors. Investing in marketing and customer engagement in these markets will bring superior results.
Toyota is a brand of motorcycles and marine products. Apart from having excellent technologies, the brand is also in a financially strong position. It can invest in new areas and build a more diversified portfolio of products and services. Diversification can open new channels of sales and revenue for the brand. It can help it acquire a larger customer base and expand faster.
Regulatory threats :-
Law and regulation have brought major challenges to the automotive industry. The pressure from law and regulatory agencies has grown. Law and government authorities have grown quite aggressive in terms of oversight and control of large businesses. Rising regulatory pressure has led to higher compliance and operational costs. Recently, VW had to pay Billions for trying to escape emission standards in the American markets. Legal pressures can makes things highly difficult for businesses. On the one hand, brands have to be extra cautious with regard to compliance and on the other law can be too restrictive in terms of allowing expansion and growth. Even in the US market, businesses have started complaining of an outdated regulatory model that hinders growth and profitability.
Competitive pressure :-
Competition in the automotive industry has grown quite intense. There are several brands in the market and all of them are aggressive about product innovation, market share and growth. This has led to an intense battle. Competitive pressures lead to higher operational costs as well as higher expenditure on marketing and human resource management.
Growing costs of raw materials and labor :-
The costs of labor and raw material have kept growing. This has led to high operational costs in the vehicle industry. It also affects the profitability of the automotive brands.
Toyota has managed some excellent strengths which include a large manufacturing and distribution network. Apart from that it has also managed its supply chain with efficiency. It is seeking faster growth for which the brand must focus on the Asian markets. Research and innovation have become critical to the growth of vehicle brands in the 21st century. Toyota is investing heavily in this area. It has one of the most efficient production processes in the entire industry.
Toyota Production System is known for its waste reduction. With its eyes set on the future of mobility, Toyota seems more than ready for the transition that the automotive industry is undergoing. However, the road ahead is full of challenges and apart from using digital technology and AI for customer and supplier engagement the brand must also keep an eye on the Asian markets which are leading the growth of the automobile industry. Competition and rising prices of raw material and labor can make the task all the more challenging but Toyota has managed excellent brand equity which can make things easier for it. It should also focus on careful resource allocation to grow shareholder returns.
Toyota Annual Report 2017