- October 8, 2012
- Posted by: essay
- Category: Term paper writing
GM and Toyota are world’s leaders in the car manufacturing industry. Historically, GM was the largest car manufacturer in the world. However, in recent years, the company has started to lose its leading positions worldwide and, in 2008, Toyota became the largest car manufacturer replacing GM at the top list of the largest car manufacturers of the world. At first glance, such a dynamic development indicates to a consistent progress and successful marketing performance of the company, but, in actuality, both Toyota and GM suffer from a profound crisis which has struck the entire world and decreased substantially sale rates of both companies. On the other hand, it is worth mentioning the fact that GM proved to be less prepared to the crisis than Toyota, which has managed to gain the leading position in the world market in spite of the crisis.
In this respect, it is obvious that the strategic development of Toyota and GM proved to be crucial in their resistibility to the crisis. In spite of the focus of both companies on the international market expansion, GM attempted to maintain its traditional brand image and produced large cars, which were not fuel-efficient and, what is more, to maintain its financial position stable the company had to increase prices of its cars. As for Toyota, the company was traditionally focused on innovations and one of the mainstream trends in the production line of Toyota is the production of hybrid vehicles which are not only fuel-efficient, but also environmentally friendly. In such a way, Toyota has gained a strategic advantage compared to GM, being technologically more advanced than its American competitor.
Speaking about the current position of Toyota, it is necessary to briefly dwell upon its background since the current achievements of the company are apparently determined by the process of its historical development. It should be said that Toyota is one of the first Japanese auto manufacturers for the company was founded in 1937. Nowadays, Toyota is one of the largest multinational corporations that is specialized on the manufacturing of cars. It is necessary to underline that in recent years it has overtaken other producers of cars, including the world leader, GM. In fact, Toyota has managed to gain the leading position in the world market due to the successful strategy of the market expansion and the implementation of the effective management style. However, the current situation in the company proves the necessity of changes since Toyota cannot consistently rely on the approaches it used in the past, instead, it is necessary to modify the current policy and management of the company in accordance with the demand of the present epoch which is characterized by the process of globalization which overwhelms practically all countries of the world and companies operating in the international market.
In fact, the success of Toyota was to a significant extent determined by the effective management on all levels which made the company highly productive and which created ample opportunities to promote its products worldwide. What is more important, Toyota production was and still remains highly competitive but, if in the past the company basically borrowed the achievements and technological experience of leading western companies than nowadays the company is one of the major innovators in the automobile industry. In this respect, it should be said that Toyota’s first cars resembled successful American and European cars, such as Dodge, for instance, while nowadays, Toyota creates its own unique prototypes on the basis of new technologies. At any rate, one of the strategic directions of the functioning of the company is the development and implementation of innovation in its production.
Obviously, the recent trends in Toyota are basically determined by the influence of globalization on the policy and strategic development of the country. As a result, the management of the production as well as human resource management are consistently affected by this process, which defines the current situation and further development of the company. It is worthy of mention that Toyota traditionally paid a lot of attention to the main trends in the global market since it was practically always oriented on the international markets since the local, Japanese market could not physically consume such amount of products supplied by Toyota and it could not provide the company with the leading position in global terms.
Also, it should be said that the company was traditionally characterized by the high quality of its products. In fact, its cars are traditionally perceived as very reliable vehicles at moderate price, though in the course of its development Toyota has entered the premium segment of the auto market developing Lexus as the premium model. This trend grows stronger in recent years because of the growing competition and segmentation of the market characterized by the creation of new segments such as SUV or crossover vehicles. In this respect, it should be said that with its premium brand the company attempts to compete with the traditional players in this market such as Dymler or BMW.
Toyota is a well-known car manufacturer and, naturally, the company attempts to spread its products worldwide. This is why Toyota sales its cars in many countries of the world and it is a well-known brand, while its cars are popular in different parts of the world.
Today, Toyota has its plants manufacturing and assembling cars not only in countries, which are traditional target markets for its products, such as the US, Australia, South-Eastern Asia, the EU, but it also actively enters markets of other countries of the world, including China, Argentina, Mexico, and others (Volti, 2005). This means that Toyota attempts to develop its production chain worldwide or, to put it more precisely, the company has already realized that the ignorance of the potential of new markets can lead to the negative consequences to the market position of Toyota in the world market. What is meant here is the fact that the company heavily relies on its strategy of international markets expansion. As a result, it needs to localize the production in order to enter new markets and make its products cheaper and more accessible to local customers while importing products from other countries may be quite expensive or, at any rate, importing Toyota’s products from countries where the company traditionally had its plants, to new markets will make their price considerably higher compared to the price of products of the major competitors of the company.
It is worthy of mention that countries where Toyota plants are the manufacturing and assembling cars may be divided into two distinct groups: developed and developing countries. In this respect, it is necessary to underline that Japan and other developed countries where Toyota has its plants are the major suppliers of high technologies and innovations. The most sophisticated devices and products that are used in the process of manufacturing and assembling of cars are produced in these countries, namely in Japan, the US, the UK, and other developed countries, where the educational and professional level of employees is higher. As for developing countries, such as Thailand, Vietnam, Pakistan, and others, Toyota plants here are basically assembling cars and the interference of employees in the production chain is minimal because of their lower qualification compared to employees in developed countries where Toyota was traditionally presented and where experience and qualification of employees is higher. In such a way, it should be said that Toyota plants in developed countries are the major producers of the most complicated parts of cars and local personnel generate new ideas that are initially implemented in plants situated in developed countries, while plants based in developing countries are mainly used for assembling cars on the equipment installed by Japanese, American, or other specialists from developed countries working for Toyota, while the local personnel basically fulfills purely mechanical job. In such a way, Toyota plants situated in developed countries play extremely important role since it is these plants the main car manufacturers while plants in developing countries basically use technologies and equipment produced in developed countries to assemble Toyota cars for the local market.
Traditionally, Toyota widely implemented new technologies in the process of the production. It is worthy of mention that nowadays this is an ethical issue in a way because the major efforts of the company target the development of environmentally friendly technologies. To put it more precisely, one of the main priorities of Toyota is the development of hybrid cars, which could use alternative sources of energy, others than traditional fuel made on the basis of oil or gas (Sanna, 2005). In this respect, it should be said that Toyota was one of the first to mass commercially produce hybrid vehicles and among its best products may be named Toyota Prius, which may be viewed as a flagman of hybrid vehicles production of Toyota. In fact, such vehicles are very perspective and meet the modern demands to the environmental safety of cars since the emission of dangerous gases of such cars is minimal. This is why this direction is quite perspective since it can be commercially successful and, what is more, it creates a positive image of the company among its customers worldwide.
To a significant extent, the international market expansion of Toyota was possible due to the process of globalization. This process implies the economic integration of countries, elimination of financial barriers between countries and the promotion of free trade. The process of globalization involves practically all countries and affects all largest companies. In fact, directly or indirectly globalization affects all countries, companies and even all individuals. In this respect, Toyota is not an exception. In such a situation, the global expansion of Toyota became a reality because the company has managed to develop an effective production chain in which the cooperation between its plants situated in developed and developing countries is highly productive. No wonder that nowadays the production chain of Toyota is spread worldwide and it is possible to estimate that Toyota is really a global company which has its plants in many countries of the world, while there are even more countries where its production is sold by official dealers.
It is possible to single out traditional markets where Toyota was widely represented and had its own plants. Among these countries it is possible to name Japan, where the company originates from, neighboring countries in Asian-Pacific region, including Australia, Indonesia, Turkey, European countries, such as the UK, France, Poland, and America, including one of the major markets Toyota targets at, the market of the US, and very perspective Brazilian market. However, in recent years, Toyota has enlarged its presence in the world expanding its presence in many countries many of which belong to the so-called third world, including Venezuela, Philippines, Pakistan, India, Malaysia, Thailand, China, Vietnam,Â Czech Republic, Argentina, and Mexico (Volti, 2005).
In such a way, Toyota tends to the localization of the production using plants situated in different countries as the suppliers of the company’s production to the local market. It is worthy of mention that the company tends to increase its presence worldwide in order to maintain its leading position in global terms in the automobile market.
The process of globalization substantially facilitates Toyota entering new markets, especially those of developing countries. In fact, in the past, there existed numerous financial barriers which prevented Toyota from effective and successful entering markets of other countries, which had its own car manufacturing industry or where competitors had already had a well-developed network of production (Peters, 2002). In such a situation, the company was forced to localize the production in the markets Toyota wanted to enter. In such a way the company could overcome existing financial barriers.
Nowadays, in the epoch of free trade that is actually the “engine” of the process of globalization, financial barriers have vanished or, at least, their impact on the economic relations between countries has been minimized. As a result, currently, Toyota can easily enter new markets and, in such a situation, the company needs a well-developed production chain simply to be represented in a possibly larger number of countries since, because of the geographical distance, it is not always possible to sell its products at adequate price compared to that of competitors (Gitlow, 1997). At the same time, globalization and the elimination of financial barriers resulted in the larger opportunities to develop closer cooperation between different units of Toyota worldwide. Practically, this means that a company can choose relatively freely where and what it can manufacture since, being not bound to the demands of the local fiscal legislation as much as it used to be in the past, Toyota can unite the efforts of its plants situated in different countries to manufacture its cars. As a result, the company can adapt plants to the demands of the local market. For instance, Toyota successfully developed the production of such cars as Toyota Corolla and Toyota Yaris in Europe, while in the US it successfully focused on the production of SUV and 4×4 which were traditionally popular their.
Moreover, nowadays, the company can provide the supply of its products from different countries more effective due to the lack of financial barriers and make the manufacturing or assembling of cars in a particular country or region less expansive and more profitable. In this respect, it should be said that globalization contributed to the growing effectiveness and integration of production units of Toyota worldwide. The company can localize highly technological production in developed countries which construct the most sophisticated parts of vehicles, especially electronic devices, and send them to developing countries where vehicles are assembled and distributed in the local market or even exported in developed countries at lower price than if these cars were assembled in developed countries due to the lower cost of labor force in developing countries where Toyota assembles its cars.
In such a way,Â on the basis of the information given above and taking consideration the current situation within the company and in the market it is possible to conduct SWOT analysis which will help better understand basic advantages and drawbacks of the company, its perspectives and external threats.
First of all, it should be said that the company has a long history and traditions which contribute to the formation of effective organizational culture which stimulate more productive and effective work of all units of the company. To put it more precisely, the company, even though it was often criticized for the rigidness of its management style and production, has traditions which are observed in all countries where Toyota has its plants or official dealers. This means that the work of the company is unified and all people working within the company obey to the same principles and norms which exist in all units of Toyota. In such a way, it is possible to speak about the existence of the system of standards which regulate the work of all employees and production process. Naturally, this is very helpful, especially when representatives of the company have to move to another country, with a different cultural background for the development of a new Toyota plant, for instance. In such a situation, its employees feel quite comfortable in any country because of the unified system of standards.
At the same time, the company and its personnel has a great experience in car development and manufacturing that gives it a lot of opportunities to progress rapidly because the company possesses the most advanced technologies and highly qualified personnel which is able to fulfill the most complicated tasks and cope with the most serious challenges that the modern epoch imposes. For instance, the development of hybrid cars, may be viewed as the result of such an advantage of the company.
Furthermore, the management style of the company based on teams work has proved to be quite effective, though nowadays specialists argue that this style should be changed and modified in order to adapt the functioning of the company to the current demands.
In this respect, it should be said that it is true that the traditional management style which bears elements of paternalism and rigid hierarchy may be viewed as a weakness, though it was quite effective in the past when the company grew and such a style was suitable for employees and managers with Asian mentality. Nowadays, this approach may be advantageous only partially and basically in Asian countries, while in Europe more liberal and democratic approaches are needed.
Another serious problem or weakness of the company is the necessity to develop a more effective production chain. What is meant here is the fact that, at the present moment, the company operates worldwide. As a result, the car manufacturing involves the cooperation between different units situated in different parts of the world. For instance, it has been already mentioned that the highly technological production of Toyota is concentrated in well developed countries such as Japan, the US, or countries of the EU. On the other, hand the plants of the company situated in developing countries are basically focused on the car assembling with the minimal interference of local employees in the production process limiting it by pure mechanical activities.
At the same time, it should be said that external threats are even more serious than the internal weaknesses of Toyota. In this respect, it should be said that the current situation in the world automobile market is characterized by the high level of competition. Even though the competitive position of Toyota seems to be relatively good at the moment, but in the future it may be a significant obstacle on the way of the company to the progress in the future and entering new markets or expanding its share in the existing markets.
Another potential threat the company may face is the saturation of the market, which is quite significant even now. This is actually why the company, as well as its major competitors, attempt to develop new models and enter new segments introducing new cars, different from the major competitors. In this respect, it is possible to remind about the growing presence of Toyota in the premium segment of the automobile market.
Also, it should be said that the preferences of customers change considerably because of the growing prices of fuel and the perspective of the disappearance of fossil fuels in the future. In practice, this means that the production of cars using conventional fuel may gradually become less and less profitable since the demand on such cars will decrease. In such a situation, the level of fuel consumption by company’s cars and the development of hybrid cars are of a paramount importance and are essential for the improvement of the company production and maintaining its current position in the market. In other words, the company needs to continue the development of hybrid cars in order to minimize the threat of substantial losses in the result of the decreasing popularity of cars using conventional fuel.
In such a way, it is obvious that in spite of significant threats to the company’s position in the world market, it is possible to estimate that Toyota has large opportunities to maintain its leading position in the world market. In this respect, it is possible to mention the fact that the current position of Toyota in the world market provides the company with ample opportunities to continue its expansion in international markets. Firstly, it should be said that the company’s brand is considered to be quite popular and, in the current situation, it constitutes a considerable part of the market value of the company. The popularity of Toyota brand contributes to the positive image of the company among customers and, therefore, high demand on Toyota products. Also, the popularity of brands contribute to the formation of positive customer experience since due to the high quality of products and services supplied to customers the level of customer satisfaction is high.
Furthermore, Toyota due to the wide use of new technologies and innovations is in an advantageous position compared to its major competitors. In this respect, it should be said that the implementation of new technologies and creation of hybrid cars using alternative sources of power meet the growing demand of customers, while the major competitors are not so advanced in this field. As a result, Toyota may be viewed as one of the leading companies implementing new, environmentally friendly technologies in its cars.
On analyzing the current situation in the automotive industry, it is necessary to point out the consistent deterioration compared to the period prior to the start of the economic recession in the US. In fact, the position of American car manufacturers was far from perfect even before the crisis but the problems in the housing market, which were followed by the economic recession, had uncovered major problems of the modern automotive industry in the US and the weakness of the position of American car manufacturers compared to their foreign competitors as well as the strength of the competition between major car manufacturers within the US.
To put it more precisely, today, one of the largest car manufacturers of the world, GM tends to give in its leading position to Toyota, a Japan car manufacturer, which steadily increases its presence on the world market. In this respect, it is worth mentioning the fact that American car manufacturing companies, such as Ford and GM face aÂ strong competition from the part of Japan companies and since the 1980s, they have lost a considerable part of the American market which has been taken by Japan car manufacturers.
In addition, the galloping oil prices put American companies into a disadvantageous position compared to Japan and European car manufacturers. In fact, the low competitiveness of American companies, such as Ford and GM, is determined by their traditional orientation on the production of cars consuming a large amount of gasoline. Moreover, trucks and pick-ups produced by Ford or GM have become national symbols and constitute a considerable part of the general amount of cars produced by both manufacturers. In fact, the orientation of American companies on the production of cars consuming a large amount of gasoline became one of the major strategic flaws of both Ford and GM in face of its overseas competitors. To put it more precisely, the exorbitant oil price discourage American consumers to buy cars which need a larger amount of fuel. Consequently, American consumers become more concerned on the amount of fuel consumed by cars than on other technical characteristics of cars or brands. Hence, American companies are gradually weakening their position, while foreign companies, especially Japanese ones, grow stronger. In this respect, it is worth mentioning the fact that GM, one of leading producers of vehicles in the US, has started to lose its leading position (Bunkley and Vlasic, 2008). This is a very disturbing sign which uncovers the depth of the crisis of the American automotive industry because the loss of the leadership by GM indicates to the fact that the American company loses its position even in those niches of the market where it used to be undisputable leader. The company faces serious problems in the competitive struggle and, what is more the company attempts to change its production line.
At this point, it is possible to observe certain similarities in strategies used by American car manufacturer, GM, to overcome the current crisis. In fact, the company attempts to re-orient its production from large cars, which are not fuel-efficient, to smaller cars, which naturally need less fuel and, therefore, which can be more competitive on the national and international market. However, such a transition and transformation of the production is quite difficult not only from technical but mainly from financial point of view. Obviously, the change of the production line of GM will need considerable investments. First of all, the development of smaller cars and their production will naturally need investments into the development of new projects and promotion of new cars. In addition, GM will compete with foreign companies, especially Japanese ones such as Toyota, whose position are traditionally strong in this niche of the market.
In such a context, the inelasticity of prices may be one of the major challenges and problems which GM may face. In this respect, it is important to underline the fact that car prices are inelastic and they cannot be changed consistently. Moreover, the costs of the production of cars and materials used in the process of the production are constantly growing and this poses new problems for GM. As a result, the company is just forced to increase the price of its cars, even though it does not really strengthen its competitive position on the market. On the contrary, the growth of car prices discourages customers to buy new cars. In this regard, it is worth mentioning the fact that GM plans to raise prices on 2009 models by an average of 3.5 % (Bunkley and Vlasic, 2008).
Along with the lack of the price elasticity and the crisis, it is necessary to take consideration the effect of the crisis, namely a considerable decrease in sales volume. Obviously, this is a natural effect of the decrease of the buying power of American customers and their unwillingness to buy cars which are more expensive while being in use because of the higher fuel consumption. Moreover, the amount of competitive cars, i.e. smaller cars which need lower amount of fuel, is insufficient to replace the revenues GM used to get from sales of trucks and pickups. Naturally, in such a situation, GM needs a transitional period to benefit or compensate possible losses from the re-orientation on the production of small cars and decrease of the production of pickups and trucks. In such a context, the increase of prices is just one of possible tools to improve the financial position of GM.
Another possible way of the improvement of the financial situation for GM is the reduction of costs. In this respect, the company attempts to use all possible means to reduce costs, including the decrease of wages and job cuts. In fact, the decrease of wages in GM does not occur through the wage cuts, but, instead, companies do not increase wages, though car prices are steadily growing. Moreover, the company tends to use such a radical tool of the reduction of costs as job cuts, which also lead to the general decrease of expenses of the company on wages to its employees. As a result, employees are affected consistently by the current crisis in the automotive industry. On the other hand, the reduction of costs is a natural step from the part of the company in the situation when the actual supply exceeds the demand on the market that decreases sales rates and revenues of GM. Hence, companies tend to decrease the production. For instance, GM said it expected to produce 950,000 vehicles from January through March, down 11 % from the same period in 2007 (Bunkley, 2007).
At the same time, the company can benefit from the popularity of their brands which are renowned in the US and are very popular. However, in the context of the economic recession the popularity of brands often becomes secondary compared to the oil prices and the amount of fuels consumed by cars. In such a situation, the role of the government and Fed can hardly be underestimated because the fiscal policy can be an effective tool with the help of which American car manufacturers, such as GM, can improve their financial position, invest into the production of new cars and change their production line to improve their competitive position on both national and international markets. In this respect, the state attempts to facilitate the current position of American car manufacturers and it offers tax breaks as an effective tool which help consistently car manufacturers to improve their position and increase their competiveness. At this point, it is important to underline that tax breaks implies the decrease of the fiscal pressure on American car manufacturers that will naturally stimulate American companies, including GM, to develop their production, increase investments into new products and slow down the increase of prices.
In fact, the company is extremely concerned about the deterioration of its market position and the crisis leading to the deterioration of its performance is so significant that some specialists (Dessler, 2004) even admit the possibility of the merger of GM with one of the larger American car manufacturers, such as Ford, to improve its financial position and increase its competitive position on both national and international markets.
Finally, the company faces another serious challenge ”“ the relative backwardness of its technologies. The technological gap between GM and Toyota is particularly obvious in the field of the development of hybrid cars. If Toyota is one of the world’s leaders in the production of hybrid vehicles, while its Toyota Prius was one of the first hybrid cars manufactured en mass. In stark contrast, GM has just started to develop environmentally friendly and fuel-efficient cars which meet environmental expectations and economic needs of customers.
However, the technological gap between GM and Toyota has already become too significant for GM to catch up Toyota, especially in the context of the ongoing crisis. No wonder, GM has lost its position number 1 among car manufacturers, giving in its leading position to Toyota, which, though also vulnerable to negative effects of economic recession.
Thus, taking into account all above mentioned, it is possible to conclude that GM and Toyota remain the largest car manufacturers in the world. Both companies suffer from economic recession and a considerable drop in their sales rates. Nevertheless, Toyota turns out to be in an advantageous position due to the implementation of new technologies which make their cars more efficient, cheaper and environmentally friendly. As a result, GM suffer from certain technological backwardness and need to invest into new technological developments, but new investments become an unbearable burden for the company in the time of economic recession. In such a situation, Toyota naturally takes the lead in the competitive struggle worldwide.