This analysis of the five forces exerting externally on the company gives insight into the strategic policies and their implications for the business.
This analysis reveals that the company is facing significant external factors in the industrial environment. These factors create many opportunities as well as threats to the working environment of the company. Although the company faces many trials and threats, it is still playing its role as the topmost global leader in the automotive industry. This Porter model has revealed the company’s capability to stand by adverse circumstances arising from external factors. As revealed by this analysis, the company must devise policies to compete against its rival in the intense working environment.
The under-discussion analysis brings forth the external factors which are relevant to the working of the company and are continually affecting the business effectiveness and operations of Toyota Corporation.
Overview: Analysis of Toyota by Porter’s Model
The Analysis by Five Forces has revealed that the utmost imperative factors that exert threats on the company are the aggressively competitive environment and the strong bargaining power of the customers. These forces are the strongest in the external environment of the automobile industry.
- Intensifying competition or rivalry (strong force)
- Customer’s Power to bargain (strong force)
- Suppliers’ power to bargain (weak force)
- Substitutional or substitutions’ Threat (moderate force)
- The threat of novel entrants (weak force)
The analysis has revealed that the company must take steps to ensure its competitiveness as the intense rivalry is exerting a strong influence on the company. Moreover, the company must prioritize the customers’ satiation as the customers’ buying power is another force affecting the company’s working environment, mainly in the automotive industry.
Intensifying competition or rivalry (strong force)
The company is facing a strong force rivalry in the automotive industry. This section of the analysis reveals the effects of the companies on each other. The subsequently discussed external factors have exerted force on the company by intensifying the competition and rivalry:
- Aggressiveness of the companies (strong force)
- Diversified range of organizations (strong force)
- Few numbers of large Industries (moderate force)
The industry is facing intense competitive rivalry by pursuing aggressive marketing campaigns and advancements in technology. Even more, the other industries hold a diversified composition in terms of their product costs, designs, brand recognition, efficiency in fuel consumption, and updating of electronics in their products. Although the industry is witnessing the involution of many new firms, Toyota struggles against a few large-scale industries. Thereby, this segment of the analysis states that the corporate must ensure strategic policies to ensure the elements of competitive competition in the automobile industry.
Customer’s Power to bargain (strong force)
The customers have the potential to affect the financial growth of the company. This segment of the analysis reveals the influence of customers on business. The company is facing a strong force of customers’ power to bargain due to the next discussed factors. This external factor exerts a strong force on the business environment of the company:
- Cheap cost of switching (strong force)
- Informational quality and accuracy (strong force)
- Moderate availability of substitutes (moderate force)
The small costs of switching the products exert that the customer can switch from the Toyota cars to the other brands in the same economic range. Therefore, the customers have other opportunities to switch brands. Moreover, the quality and accurate information available to the customers enable them to choose the best product. Furthermore, other substitutes are also available, but they are not leveled up to Toyota’s products in terms of quality and reliability. Therefore, this section of the analysis has revealed that the collective force of customers’ bargain has a strong impact on the business environment of Toyota Corporation. Toyota must prioritize customer satisfaction and quality assurance above all for the retention and expansion of its customer base.
Suppliers’ power to bargain (weak force)
The company is facing a weak force of influence when analyzed through this section of Porter’s Model. Toyota’s suppliers want to exert influence over the company to enhance their own business. The next given factors are responsible for shaping the business environment of the industry by the suppliers’ bargaining force. These external factors contribute to the overall weak exertion of the suppliers’ bargain force.
- Suppliers’ moderation in numbers (moderate force)
- Abundance of availability of Supply (weak force)
- Suppliers’ weak Forward integration (weak force)
Toyota Corporation faces a weak force of suppliers bargaining power. The external factors contributing to this weak force are numerous. The smaller number of suppliers in the automotive business exerts a moderate force of influence as the company is not left with many options. On the other hand, the abundance of supplies availability minimizes that influence. Furthermore, the enfeebled forward integration or the limited ownership of suppliers of the distribution channels make them exert a weak force on the company. Thus, the company has to face a weak force of bargaining force of suppliers examined in this section of the Five Forces Analysis.
Substitutional or substitutions’ Threat (moderate force)
This threat highlights the significant force of substitutes that can be used as alternatives to the company’s products. This section determines the influence of these substitutes on the company. Toyota Corporation is facing the following forces in the external environment of the automotive industry and contributes to the overall moderate force of substitutional threat.
- Cheap cost of switching (strong force)
- Availability of substitutes in moderation (moderate force)
- Substitutes are less convenient in comparison to Toyota (weak force)
Customers find it easy to shift from one Toyota product to other substitutes. These may include the use of bicycles, public transportation, or any other substitution. This availability exerts a strong force on the company. Whereas these substitutes are not readily or easily available. Even in some remote areas, substitutes are completely inconvenient or unreliable, thereby exerting a relatively moderate force on the company. Even more, these substitutes are completely absent in many areas like suburban, making Toyota more reliable and convenient to use. Therefore, this section has exposed a moderate force of substitutional threat on the working of the company. Toyota must minimize this moderate threat by making the company’s products more affordable, accessible, and convenient.
Threat of novel entrants (weak force)
This is the force of threat exerted by the novel entrants into the automotive business. This section of Porter’s Model has revealed the threat of these new entrants in the market as a weak force. The company is facing a weak threat from these forces based on ensuing external factors:
- Heavier capital requirement (weak force)
- Elevated brand development cost (weak force)
- Burdened cost of the supply chain (weak force)
The company is facing a weak threat of force from the novel entrants. The high capital requirement to create, maintain, and grow a new company from the beginning is not an easy task. It requires a lot of capital investment to retain long-term development. In the same way, the development of a brand to capture the customer base is an uphill task to take. Similarly, creating and managing an effective supply chain requires a lot of capital to sustain. Thereby, this threat is exerting a weak force of threat on the company. The other threats like the threat of competition and the customers’ bargain’ power are relatively more significant. Porter’s Five Forces Analysis revealed that this threat is exerting a weak force on Toyota Corporation.
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