TOYOTA PESTEL ANALYSIS
PESTEL ANALYSIS OF TOYOTA MOTORS
The automotive brands globally deal with several challenges while trying to operate profitably. While the end of economic recession has led to rising sales and profits, there are other factors too affecting the automobile industry.
Self-driving technology is already creating lots of excitement and Toyota, like Ford and others is investing heavily in this area to lay its hands first on the prize. Global economy, politics and several other factors affect the business of Toyota.
The Japan based company was overtaken by Volkswagen as the biggest car maker in the world a few years ago but again gained the top spot in 2020. Apart from these things, competition is also a significant factor and the increased interest of customers in EVs is also affecting demand and sales of automobiles in the world.
However, this will be an area of opportunities for Toyota. Here is a PESTEL analysis that evaluates the effect of various forces on the business and profits of Toyota.
Political factors have kept growing in importance with globalization. Whether the environment of a country is good for business or not depends a lot on the level of political stability there. It depends upon the government and its policies that how well the international brands will be able to do business in a country.
Political stability means a calm environment suitable for business. Countries that are in a state of political turmoil are not as suitable. Political havoc can result in business disruption and disruption of the supply chain and distribution network. Government policies and red tape too have an influence on a business' profits.
Business friendly environment requires friendly policy environment. The political turmoil in Europe during the recent years has affected the business environment there.
In Asia, the environment has remained relatively stable and that has had a positive effect on the businesses’ revenues and profits.
The relationship between economic factors and market conditions is well known. The better the economic conditions globally, the better the situation of the world market.
The world economy had been growing at an impressive rate earlier the pandemic. However, the pandemic has hurt supply chains, vehicle demand and the global economy overall.
Car sales fell as the pandemic induced a temporary recession like situation. During the pandemic, the level of unemployment rose in many countries including the United States.
Economic situations affect the condition of employment in any country. Better economic situation means higher level of employment which in turn means higher purchasing power of the customers.
Higher the purchasing power of the people, the better will be sales and profits of the global brands like Toyota. Better economic activity also means higher dispensable income for people, which means people will feel more inclined to make big ticket purchases.
The level of economic activity has an important effect on business in any given market. However, to withstand the effect of economic forces, brands like Toyota and Ford have focused on building small cars that come for lower prices. Apart from it, they have also expanded their portfolio of EVs and SUVs.
Social and cultural forces and trends have a major impact on the sales of international brands. The global market is made of smaller markets where social and cultural factors can become barriers.
It is why brands focus on localization to connect with local customers in regional markets.
Social trends like changing preferences etc. also have a direct impact on the business of the brands. Now-a-days, environment friendly and electrical vehicles are getting more and more popular.
Their sales have increased fast over the past few years. It is heard that Toyota is planning to jump into mass production of electric vehicles by 2020.
It has already produced a hybrid vehicle Prius.
“Toyota hybrid vehicles’ cumulative global sales have reached 8.90 million units as of March 31, 2016 since the sales launch of the Prius—the world’s first mass-produced hybrid passenger vehicle— in December 1997” Toyota Global Sustainability Report, 2016).
Technology has kept growing important in every area of business in the 21st century. Businesses are using IT everywhere to grow their business and to manage it better. The automobile industry is completely based on technology.
The better a brand’s technology, the higher are its sales. From passengers’ safety to the rider’s convenience, everywhere technology plays a very important role and affects a brand’s popularity.
Brands like Toyota cannot do without investing heavily in technology. Consumers too like to buy from technologically innovative brands. Cars that are low on fuel consumption and environmental impact are considered better and have grown in popularity.
Technology has grown important in marketing too where social media is being used to connect with the customers and to engage them.
Environmental concerns are now all the more important for brands and customers alike. Customers are looking for brands that are more environment friendly.
Such brands enjoy higher popularity and a better social image. Governments are also supporting such brands and encouraging those which have managed their environmental impact better than others. Sustainability has become a part of business strategy. All the big brands including Toyota are investing in sustainability.
Toyota has achieved several important milestones in environmental area. From winning a reward for its fuel cell vehicle Mirai to emission reduction, Toyota has excelled in several areas and continues to make efforts to raise its contribution in environmental protection. It is also cooperating with environmental agencies for protection of threatened species.
“While the world is trying to move toward “below 2°C” scenario, Toyota has, under the “New Vehicle Zero CO₂ Challenge,” decided to challenge itself to reduce vehicle CO₂ emissions by 90 percent in comparison with 2010 levels, by 2050.
To realize this, in addition to mileage improvement of engine-driven vehicles, Toyota will promote the development of next-generation vehicles with low or zero CO₂ emissions—hybrid vehicles (HVs), plug-in hybrid vehicles (PHVs), electric vehicles (EVs), and fuel cell vehicles (FCVs)— and further accelerate the spread of these vehicles.
These eco-friendly vehicles can start making a contribution to society only when they come into widespread use” (Toyota Global Sustainability Report, 2016).
Legal compliance ensures that brands continue to do business successfully and without any worry. From labor laws to quality related laws and other laws that may vary from nation to nation and market to market, there are several areas where legal issues can result in losses for companies.
Passenger safety and environmental impact are important areas where legal tension can be problematic. Toyota is focusing on passenger safety and still recalls because of problematic passenger safety air bags had troubled it in 2016. It has implemented internal controls to ensure compliance throughout the organization.
From education and training programs to corruption prevention measures, it has taken care to ensure legal compliance all over the company at all levels. “The Guiding Principles at Toyota states that Toyota will “honor the language and spirit of the law of every nation and undertake open and fair corporate activities to be a good citizen of the world.”
It is through this process that Toyota seeks to fulfill the responsibilities expected of it, which leads to compliance”.